Morgan Stanley & Co. v. Core Fund

• Decision Date: 11 July 2012
• Docket Number: Case No. 8:11–cv–2469–T–23TBM.
• Citation: 884 F.Supp.2d 1229
• Parties: MORGAN STANLEY & CO., LLC, Plaintiff, v. THE CORE FUND, Defendant.
• Court: U.S. District Court — Middle District of Florida

884 F.Supp.2d 1229

MORGAN STANLEY & CO., LLC, Plaintiff,

v.THE CORE FUND, Defendant.

Case No. 8:11–cv–2469–T–23TBM.

United States District Court,

M.D. Florida,

Tampa Division.

July 11, 2012.

Bradford D. Kaufman, Joseph C. Coates, III, Greenberg Traurig, LLP, West Palm Beach, FL, for Plaintiff.

Burton Webb Wiand, Gianluca Morello, Jared J. Perez, Wiand Guerra King, PL, Tampa, FL, for Defendant.

ORDER

STEVEN D. MERRYDAY, District Judge.

The Core Fund (the Fund) and Morgan Stanley mutually submitted their securities dispute to arbitration. Appended to, and incorporated into, the parties' “Submission Agreement” is the initial arbitration pleading of each party. The “standard form” FINRA submission agreement stipulates that the parties submit to the jurisdiction of the arbitration panel the issues that appear in the claimant's statement of claim and in the respondent's answer and defenses. The Fund's statement of claim includes an express demand for an award of attorneys' fees from the arbitration panel. Acting in accord with the Fund, Morgan Stanley's answer and defenses includes an express demand for an award of attorneys' fees from the arbitration panel. In sum, the parties mutually submitted attorneys' fees to the jurisdiction of the arbitration panel.

After an extensive evidentiary hearing, the arbitration panel resolved the arbitration claim in favor of Morgan Stanley and against the Fund but denied Morgan Stanley's claim for attorneys' fees. For the first time in this confirmation action in the district court under the Federal Arbitration Act and although seeking confirmation of the award otherwise, Morgan Stanley denies the parties' mutual submission to arbitration of the issue of attorneys' fees, denies the arbitration panel's jurisdiction to adjudicate the issue of attorneys' fees, and demands that the district court both vacate the panel's denial of attorneys' fees and award the respondent attorneys' fees. But, because the parties' expressly committed the issue of attorneys' fees to the jurisdiction of the arbitration panel, because the arbitration panel resolved the attorneys' fees issue after concluding reasonably (and correctly) that the parties submitted to the panel the issue of attorneys' fees, and because the parties never mutually withdrew (or even sought to withdraw) the issue of attorneys' fees from the arbitration panel (either with or without the panel's consent), Morgan Stanley's request is DENIED and the arbitration award is CONFIRMED.

DISCUSSION

In 2007, Morgan Stanley advised the Fund to purchase student-loan auction-rate securities.¹ In 2008, the auction-rate-securities market “froze” and the Fund, in turn, lost at least $10,000,000. In 2011, the Fund alleged securities law violations, including a violation of Chapter 517, Florida Statutes, by Morgan Stanley, and the parties began an arbitration before the Financial Industry Regulatory Authority (“FINRA”).²

On September 29, 2011, after an arbitration hearing—memorably described by Morgan Stanley as “a full evidentiary hearing that spanned four days (and eight hearing sessions), which included testimony from numerous percipient witnesses and The Core Fund's expert”—a FINRA arbitration panel (1) ruled in favor of Morgan Stanley on the Fund's claims that Morgan Stanley violated the securities laws, (2) dismissed the Fund's action with prejudice, and (3) denied Morgan Stanley's request for attorneys' fees.

Arguing now that the arbitration panel lacked authority to rule on attorneys' fees, Morgan Stanley (1) moves (Doc. 1) under 9 U.S.C. § 10(a)(4) to vacate the part of the arbitration order that denies the attorneys' fees, (2) moves for the district court to award attorneys' fees, and (3) moves to otherwise confirm the arbitration award. Although accepting Morgan Stanley's success on the merits of the Fund's securities claim, the Fund opposes (Docs. 10, 18) Morgan Stanley's motion to vacate the arbitrators' denial of attorneys' fees, and the Fund opposes Morgan Stanley's motion for the district court to award attorneys' fees.³

Sections 10 and 11 of the Federal Arbitration Act (the “FAA”), 9 U.S.C. §§ 10 and 11, provide “the exclusive means by which a federal court may upset an arbitration panel's award.” White Springs Agricultural Chems., Inc. v. Glawson Inv. Corp., 660 F.3d 1277, 1280 (11th Cir.2011). Section 10(a)(4) empowers a court to vacate an arbitration award if the arbitrators “exceeded their powers,” but the provision applies narrowly and only if the arbitrators decide an issue not submitted by the parties or grant relief not authorized in the arbitration agreement. Blue Tee Corp. v. Koehring Co., 999 F.2d 633, 636 (2d Cir.1993) (quoting Andros Compania Maritima, S.A. v. Marc Rich & Co., A.G., 579 F.2d 691, 703 (2d Cir.1978)); 2 Domke on Commercial Arbitration § 39:6 (2012). “ ‘[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.’ ” Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985) (quoting Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)); White Springs, 660 F.3d at 1281. A party cannot “overcome the ‘high hurdle’ necessary for vacating an arbitration award when there is a plain basis for the panel's award in the parties' agreement.” White Springs, 660 F.3d at 1281 (citing Stolt–Nielsen, S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 130 S.Ct. 1758, 1767, 176 L.Ed.2d 605 (2010)).

The governing arbitration agreement, FINRA's standard “Submission Agreement,” incorporates by reference into the submission agreement each party's arbitration pleadings, that is, the Fund's “Statement of Claim” (an arbitration document similar in purpose and content to a complaint) and Morgan Stanley's “Answer and Defenses.” The parties expressly agree in the submission agreement to “submit the present matter in controversy, as set forth in the attached statement of claim [and the] answer ... to arbitration in accordance with FINRA By–Laws, Rules, and Code of Arbitration procedure.” (Doc. 10–3 at 2) In other words, within the established and familiar arbitration procedures of FINRA, a “joint submission” occurs through the mechanism of the submission agreement. Marshall & Co. v. Duke, 941 F.Supp. 1207, 1213–15 (N.D.Ga.1995) (confirming a NASD attorneys' fees award and stating, “The parties mutual agreement to have any and all fee issues decided by the panel is evidenced by their joint submission of the issues to the panel.”), aff'd,114 F.3d 188 (11th Cir.1997), cert. denied,522 U.S. 1112, 118 S.Ct. 1043, 140 L.Ed.2d 108 (1998); First Interregional Equity Corp. v. Haughton, 842 F.Supp. 105, 112–13 (S.D.N.Y.1994) (finding a joint submission of attorneys' fees when a party's NASD statement of claim seeks “costs and attorneys' fees incurred in connection with this proceeding”); see also Cassedy v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 751 So.2d 143, 149 (Fla. 1st DCA 2000) (finding a joint submission of attorneys' fees to NASD arbitrators when “both parties agreed to submit to arbitration all the claims raised in the statement of claim, which included the claim for attorney's fees”).

The Fund's statement of claim requests in the prayer for relief “[a]n award of reasonable attorneys' fees.” (Doc. 1–3, at 10) Therefore, perforce the submission agreement, the Fund in the statement of claim “submit [ted] the present matter [‘of reasonable attorneys' fees'], as set forth in the attached [s]tatement of [c]laim ... to arbitration....” Similarly, Morgan Stanley's arbitration answer requests the arbitrators to “award Morgan Stanley its costs for defending this claim, including attorney's fees.” (Doc. 1–4, at 19) Therefore, perforce the submission agreement, Morgan Stanley also “submit [ted] the present matter [‘including attorney's fees'], as set forth in the attached ... answer ... to arbitration....” Acting through their respective demands for attorneys' fees in the statement of claim and the answer and defenses, the parties' mutual “submission” to arbitration of the attorneys' fees issue is plain and unmistakable.⁴

With the parties' mutual submission established, the only remaining issue, such as it is, is whether the parties can and did mutually withdraw the attorneys' fees issue from arbitration. A withdrawal must be unequivocal, explicit, and mutual. Failing to meet those conditions but, nonetheless, attempting to color the claim of withdrawal, Morgan Stanley invokes some scattered language, introduced into the record by one party at one moment and by the other party at another moment (but never introduced by the parties in concert).

For example, in the “pre-hearing brief” the Fund states, “The [ ] Fund is also entitled to an award of attorney's fees, but the Florida statute provides that this award can only be awarded by a court of competent jurisdiction. Thus, after an award is made, the [ ] Fund will seek an award of attorneys' fees from a court pursuant to the statute.” (Doc. 14–3, at 14) What is the reader to make of the dizzying concept of “after an award ... the Fund will seek an award”? The most sensible interpretation of this odd language is that—for a moment, at least—the Fund believed that Florida's statute authorized the arbitrators to determine (“award”) only a party's entitlement to a fee but that the statute authorized only a court to determine the amount of the fee. ⁵ But, however construed, whether sense or nonsense, whether right or wrong under Florida law, the Fund's statement, never mentioning Morgan Stanley's entitlement to fees, is certainly not an unequivocal, mutual withdrawal from arbitration of the issue of attorneys' fees (either Morgan Stanley's or the Fund's attorneys' fees) or even a joint motion to the arbitration panel for leave to withdraw the issue of attorneys' fees. And, of course, the Fund's statement is not a finding by the...