Moseley, Hallgarten, Estabrook & Weeden, Inc. v. Ellis

• Decision Date: 13 June 1988
• Docket Number: No. 87-1066,87-1066
• Citation: 849 F.2d 264
• Parties: MOSELEY, HALLGARTEN, ESTABROOK & WEEDEN, INC., Plaintiff-Appellee, v. Bernard ELLIS, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 264

849 F.2d 264

MOSELEY, HALLGARTEN, ESTABROOK & WEEDEN, INC., Plaintiff-Appellee, v. Bernard ELLIS, Defendant-Appellant.

No. 87-1066.

United States Court of Appeals, Seventh Circuit.

Argued June 5, 1987.

Decided May 25, 1988.

As Amended June 13, 1988.

Bernard Ellis, Chicago, Ill., for defendant-appellant.

Mark R. Misiorowski, Goggin, Cutler & Hull, Chicago, Ill., for plaintiff-appellee.

Before COFFEY and FLAUM, Circuit Judges, and ESCHBACH, Senior Circuit Judge.

COFFEY, Circuit Judge.

In this diversity action, ¹ defendant-appellant, Attorney Bernard Ellis, appeals from the order of the district court denying his motion to vacate or modify the unanimous award of a New York Stock Exchange arbitration panel, and confirming the arbitration award in favor of the plaintiff-appellee, Moseley, Hallgarten, Estabrook & Weeden, Inc. (Moseley). We affirm.

I.

Moseley is a Delaware corporation having its principal place of business in New York and is involved in the retail brokerage business, buying and selling securities for customers on account. Bernard Ellis and Albert Rossini, citizens of Illinois, formed a partnership and engaged Moseley to buy and sell securities on their behalf through an account under the name Ergo Asset Management, Inc. (Ergo Asset Management, Inc. was never incorporated under the laws of Illinois.) From December 1983 until February 1984, Ellis and Rossini purchased and sold securities through their account with Moseley. Ellis and Rossini paid for their acquired securities with checks drawn upon Bank Leumi, Chicago, Illinois, under the name Ergo Partners. In January 1984, Ellis issued a check to Moseley in the amount of $101,675.00 as payment for the purchase of certain securities. The check was returned marked "NOT SUFFICIENT FUNDS." Following the regulations of the Securities and Exchange Commission, Moseley sold the securities on the open market, but the sale resulted in a deficit account balance of $41,550.75. Moseley subsequently demanded payment from the partnership, to no avail.

On March 5, 1984, Moseley filed a complaint against Ellis and Rossini to recover money damages for the open account debt. On March 6, 1984, Rossini signed, in both an individual and partner capacity, a promissory note for the full debt. On April 11, 1984, Ellis filed an answer denying: (1) the existence of the partnership; (2) that he was a partner; and (3) any partnership or individual liability. Further, Ellis asserted as an affirmative defense that the dispute was subject to arbitration under the Rules of the Department of Arbitration, New York Stock Exchange, Inc. ² On June 12, 1984, the district court entered a default judgment against Rossini for $38,420.02, the remaining amount of the partnership obligation (since Rossini previously tendered some $3,000).

On July 9, 1985, Ellis and Moseley executed a Uniform Submission Agreement assenting to submit their dispute to the Board of Arbitration, New York Stock Exchange, Inc. (Board). The Submission Agreement provided, inter alia:

"1. The undersigned parties hereby submit the present matter in controversy, as set forth in the attached statement of claim, answers and all related counterclaims and/or third-party claims which may be asserted, to arbitration in accordance with the Constitution, Bylaws, Rules, Regulations and/or Code of Arbitration Procedure of the sponsoring organization."

On the same date, Ellis sent the submission agreement, along with his claim letter, to the Board. The claim letter set forth a "request for arbitration of the claim that there existed a partnership." On August 22, 1985, Moseley submitted its reply and counterclaim to the Board. Moseley asserted that Ellis, as a general partner of Ergo Partners (or Ergo Asset Management, Inc.), was liable for the account deficit of $38,420.02. On September 26, 1985, the district court granted Ellis's motion to stay the proceedings, staying all matters relating to Ellis pending the arbitration.

On June 10, 1986, Ellis and Moseley presented their respective claims to a three- member panel of arbitrators for the New York Stock Exchange. The arbitrators bifurcated the proceedings, initially limiting the presentation of evidence to the issue of the existence of the partnership and subsequently received evidence regarding the amount of Ellis's and the partnership's liability. The arbitration panel unanimously found that:

"the claim of the Claimant [Ellis] be and is hereby in all respects dismissed, and have further determined that a partnership existed and claimant Bernard M. Ellis was a general partner in a partnership named Ergo Partners;

And with regard to the counterclaim, have decided and determined that Claimant Bernard M. Ellis pay Respondent [Moseley] the sum of $32,000.00." ³

On July 18, 1986, Moseley petitioned the district court to confirm the award, and Ellis filed a motion to vacate or modify the award pursuant to the federal Arbitration Act. 9 U.S.C. Secs. 9, 10.

Specifically, Ellis asserted three grounds for vacating the arbitrators' decision pursuant to 9 U.S.C. Sec. 10. ⁴ (1) that the arbitrators exceeded their authority in deciding the issue of the partnership's liability since the partnership itself had not submitted the issue of partnership liability to arbitration pursuant to the Uniform Partnership Act, Ill.Rev.Stat. ch. 106 1/2, p 9(3)(e); ⁵ (2) that the arbitrators exceeded their authority, rendering an award in favor of Moseley and against Ellis after the arbitrators limited the scope of the arbitration to the sole question of whether Ellis and Rossini were partners; and (3) that Ellis was denied due process since he was not allowed to present evidence relevant to the question of the partnership's liability. In the alternative, Ellis contended that the award should be modified pursuant to 9 U.S.C. Sec. 11, ⁶ even assuming he was Rossini's partner because he "is only jointly liable for any debt owed Moseley," and thus asserted that his "entire amount of ... liability is $16,000.00" rather than the $32,000.00 awarded by the arbitrators. (Appellant's Memo. of Law in Response and Opposition to Plaintiff's Petition and in Support of His Motion to Vacate or Modify Arbitrator's Decision, August 8, 1986). The district court denied Ellis's motion to vacate or modify the award and granted Moseley's motion to confirm the same. On appeal, Ellis asserts as grounds to vacate or modify the arbitration award: (1) that the arbitrators precluded him from presenting pertinent evidence regarding the question of partnership liability; (2) that the arbitrators exceeded their powers, having determined Ergo Partners' liability without all the partners' consent contrary to p 9(3)(e) of the Uniform Partnership Act, Ill.Rev.Stat. ch. 106 1/2, p 9(3)(e); and (3) that his joint liability to Moseley was satisfied since Moseley received full payment from Rossini, a joint obligor.

II.

The federal Arbitration Act, 9 U.S.C. Sec. 1 et seq., "establishes 'a federal policy favoring arbitration.' " Shearson/American Express, Inc. v. McMahon, --- U.S. ----, 107 S.Ct. 2332, 2337, 96 L.Ed.2d 185 (1987) (quoting Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983)). The corollary to this federal bias in favor of arbitration is that "judicial review of an arbitration award is extremely limited." E.I. DuPont de Nemours v. Grasselli Employees Independent Ass'n, 790 F.2d 611, 614 (7th Cir.), cert. denied, --- U.S. ----, 107 S.Ct. 186, 93 L.Ed.2d 120 (1986). Specifically, judicial review of a commercial arbitration award is limited by the Arbitration Act. Sections 10 and 11 of the Act set forth the exclusive grounds for vacating or modifying a commercial arbitration award. See Shearson Hayden Stone, Inc. v. Liang, 653 F.2d 310, 312 (7th Cir.1981) (Holding that "[w]e can set aside an arbitration award only on the grounds set forth in section 10 of the Federal Arbitration Act.") (emphasis added); Tamari v. Bache Halsey Stuart, Inc., 619 F.2d 1196, 1198 n. 2 (7th Cir.), cert. denied, 449 U.S. 873, 101 S.Ct. 213, 66 L.Ed.2d 93 (1980) (Wherein we noted that "[o]ur power to set aside an arbitration award is limited to the grounds in 9 U.S.C. Sec. 10.") (emphasis added); see also Stroh Container Co. v. Delphi Industries, Inc., 783 F.2d 743, 749 (8th Cir.), cert. denied, 476 U.S. 1141, 106 S.Ct. 2249, 90 L.Ed.2d 695 (1986) (Observing that sections 10 and 11 "have often been deemed the exclusive grounds for vacation or modification" of an arbitration award.); LaFarge Conseils et Etudes, S.A. v. Kaiser Cement, 791 F.2d 1334, 1338 (9th Cir.1986) (Stating that the "federal Arbitration Act provides the exclusive grounds for challenging an arbitration award within its purview."). ⁷ As we noted: "Arbitration is an alternative to the judicial resolution of disputes, and an extremely low standard of review is necessary to prevent arbitration from becoming merely an added preliminary step to judicial resolution rather than a true alternative." Grasselli, 790 F.2d at 614. Further, we are in the same position as the district court when it comes to reviewing an arbitration award; thus, we determine whether Ellis has established that he is entitled to vacation or modification of the commercial arbitration award pursuant to sections 10 and 11 of the Arbitration Act. See, e.g., id. at 614-17 (Wherein we reviewed the award under the standard applicable to labor arbitration awards, determining whether the award failed to "draw its essence from the collective bargaining agreement."). But see Bonar v. Dean Witter Reynolds, Inc., 835 F.2d 1378, 1383 (11th Cir.1988) ("[R]eviewing the district court's refusal to vacate under the narrow 'abuse of discretion' standard.").

Initially, Ellis claims that the arbitrators precluded him from presenting evidence regarding the amount, if any, of the partnership's liability. The appellant points out that the arbitrators...