Porzig v. Dresdner Kleinwort, Benson, N. America

• Decision Date: 07 August 2007
• Docket Number: Docket No. 06-1212-cv.
• Citation: 497 F.3d 133
• Parties: Bernhard B. PORZIG, Plaintiff-Appellant, v. DRESDNER, KLEINWORT, BENSON, NORTH AMERICA LLC and Dresdner Bank Ag, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

497 F.3d 133

Bernhard B. PORZIG, Plaintiff-Appellant, v. DRESDNER, KLEINWORT, BENSON, NORTH AMERICA LLC and Dresdner Bank Ag, Defendants-Appellees.

Docket No. 06-1212-cv.

United States Court of Appeals, Second Circuit.

Argued: February 16, 2007.

Decided: August 7, 2007.

Michael K. O'Donnell, Law Office of Michael K. O'Donnell, Greenwich, CT, for Plaintiff-Appellant.

Barry Cozier (Kenneth J. Kelly, David J. Clark, of counsel, on the brief) Epstein, Becker & Green, P.C., New York, NY, for Defendants-Appellees.

Before: GUIDO CALABRESI, BARRINGTON D. PARKER, PETER W. HALL, Circuit Judges.

HALL, Circuit Judge:

Bernhard Porzig seeks vacatur of a modified arbitration award. The award was the result of Porzig's success in an underlying arbitration proceeding in which Porzig had alleged intentional age discrimination in violation of State and Federal laws. On appeal, Porzig asserts that the award he received for attorney's fees was issued in manifest disregard of the law. We find that a portion of the award in this case was issued in violation of the Federal Arbitration Act and that additional significant portions were issued in manifest disregard of the law based on the convergence of multiple factors implicating the integrity of the award. Accordingly, we vacate the order of the District Court, and remand to that court for further proceedings.

I. Factual and Procedural Background

Porzig was hired as Vice President of Central Bank Sales by Dresdner Securities, a subsidiary of Dresdner Bank, in December 1995. As a condition of his employment, Porzig was required by the NASD, the industry self-regulatory organization, to sign and execute a standard "U-4" form containing an agreement to arbitrate any future disputes. Porzig agreed he would "arbitrate any dispute, claim or controversy that may arise between [himself] and [his] firm ... that is required to be arbitrated under the rules, constitutions, or by-laws of the [NASD]." The NASD regularly required such agreements as a condition of employment. See id. at 198 & n. 1. According to this pre-dispute agreement, the arbitration was to be conducted in accordance with NASD's Code of Arbitration Procedure.

In January of 1998, Porzig was fired. Initially, he filed an action against the Defendants Dresdner, Kleinwort, Benson, North America LLC and Dresdner Bank ("Dresdner") in the Southern District of New York making a claim under the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. § 623, et. seq. Upon motion by Dresdner, the District Court stayed the action because the dispute was subject to the arbitration provisions of the agreement Porzig had signed upon entering employment. Thereafter, the parties submitted their dispute to a three member Arbitration Panel ("Panel") at the NASD.

The Panel concluded that "age was a factor" in Dresdners' decision to terminate Porzig's employment. The Panel awarded Porzig $96,200 in compensatory damages, plus $27,679 of interest, and $96,200 in punitive damages. Contrary to statutory requirements,¹ the Panel did not award Porzig attorney's fees or costs and, in fact, assessed $13,840.75 against Porzig in forum, filing, and arbitrators' fees (hereinafter the "Original Award").

Porzig appealed the Original Award to the Southern District of New York, seeking a modification to provide him an award of attorney's fees and costs and to vacate the Panel's assessment against him of the various fees. The District Court (Jones, J.) concluded the arbitrators had acted in manifest disregard of the law with respect to attorney's fees, finding there had been "ample evidence to support the conclusion that the arbitrators were made aware of the applicable law but either refused to apply it or ignored it altogether." The court remanded the case to the Panel to determine the reasonable attorney's fees to which Porzig was entitled and to fashion a new award. Although in its initial order the District Court denied Porzig's motion to vacate or modify the award as to costs, it subsequently granted his motion when it reconsidered its decision on that point. Concluding on the motion to reconsider that the arbitrators had in fact disregarded the law with respect to costs "just as they did with respect to attorney's fees," the court vacated the original award as to costs and instructed the Panel also to modify the award and assess the $13,840.75 in costs against Defendants, not Porzig.

On remand, Porzig submitted to the Panel a fee application that consisted of an Attorney Affirmation and a Memorandum of Law. The application included detailed billing records outlining each fee request delineated on a spreadsheet that set out the date of the service, a description of the service, the time spent, and the rate charged, documenting a total of $249,996.95 in attorney's fees and $12,050.09 in costs. The billing records included entries for the representation Attorney Michael K. O'Donnell had provided before the District Court successfully arguing Porzig's right to receive attorney's fees and costs. Porzig explicitly informed the Panel that he was entitled to attorney's fees to compensate him for the time his attorney spent preparing the fee application and for litigating the fee claim. In support of this position, he cited Gagne v. Maher, 594 F.2d 336, 344 (2d Cir.1979), aff'd on other grounds, 448 U.S. 122, 100 S.Ct. 2570, 65 L.Ed.2d 653 (1980), which clearly states that attorneys are to be recompensed for time spent litigating attorney's fees.

For their part, Dresdner filed an affidavit in opposition to Porzig's fee application arguing contrary to law, see Blanchard v. Bergeron, 489 U.S. 87, 109 S.Ct. 939, 103 L.Ed.2d 67 (1989), that Porzig's contingency fee arrangement with Mr. O'Donnell "should set the maximum limit ($73,359.67) on the amount Porzig can recover under the fee-shifting statute." To that end, Dresdner requested the Panel require Porzig to disclose the details of his fee agreement with his counsel to help the Panel determine the new award. Dresdner suggested, also contrary to law, see 29 U.S.C. § 626(b); Hagelthorn v. Kennecott Corp., 710 F.2d 76, 86 (2d Cir.1983), that in circumstances such as Porzig's, "an award of attorneys' fees may ... be unnecessary to achieve the purposes of the statutory fee-shifting provision." They indicated to the Panel that "Porzig's attorney fee application should be substantially reduced, if not denied in its entirety." (Emphasis added). While Dresdner did not specifically deny Porzig's accurate recitation of settled law establishing Porzig's right to collect fees and costs for the time spent litigating his right to those fees, Dresdner's statement that Porzig's contingency fee "should set the maximum limit" on his recovery clearly precludes fees expended to recover attorney's fees. Dresdner also requested reimbursement of $26,261.19 in fees accrued in connection with the removed federal action Porzig brought initially. Porzig filed papers opposing that position.

In response to the parties' motions, the Panel issued an order requesting that Mr. O'Donnell provide the Panel with copies of all fee agreements between him and Porzig. Porzig requested the Panel reconsider that request or, at minimum, require Dresdner's counsel's billing and expense records for comparison of fees. The Panel denied both of Porzig's requests. Porzig ultimately submitted the information regarding his fee contract with Mr. O'Donnell, which allowed O'Donnell "one-third (33-1/3[] percent) of any recovery by settlement or otherwise" and stated that Porzig would be responsible for "any out-of-pocket expenses and disbursements which may be incurred," as well as a $2,500 retainer fee. The affidavit Mr. O'Donnell submitted with the fee agreement concluded the "attorney's fees, costs, and net disbursements" from his representation of Porzig amounted to $79,937.81, plus the $2,500 retainer fee, for a total of $82,437.81.

The Panel issued its modified arbitration award (hereinafter "Modified Award") on May 19, 2004. The Modified Award granted Porzig's application in part, ostensibly awarding $75,000 for attorney's fees and $8,500 in costs. It stated:

[Defendants] are jointly and severally liable for and shall pay to Respondent's counsel, Mr. O'Donnell, the sum of $75,000.00 for reasonable attorneys' fees (which sum includes interest from the date of the award of damages to Respondent) in the above matter, and an additional sum of $8,500.00, the reasonable amount of costs and disbursements, for a total amount of $83,500.00.

[Porzig's] counsel, Mr. O'Donnell, shall remit to Respondent Porzig the sum of $82,437.81, which Mr. O'Donnell[] has represented as constituting all attorneys' fees, costs, disbursements, and expenses retained by him out of the Panel's award, or otherwise paid to him by [Porzig].

Porzig again appealed to the District Court from that Modified Award, requesting the court vacate that award with respect to attorney's fees and again remand the issue to the Panel with instructions that it use the lodestar method of calculation to determine the reasonable fees, direct Dresdner to submit evidence of their attorney billing and expense records, vacate the Modified Award with respect to its instruction to Attorney O'Donnell to reimburse Porzig's paid contingency fee, and modify that award to ensure all forum, filing, and arbitrators' fees and expenses are paid by Defendants. The District Court denied Porzig's motion, and Porzig appealed to this Court seeking essentially the same relief.²

II. Analysis

Porzig argues principally that the Modified Award reflected once again the Panel's manifest disregard of the law. The Dresdner Defendants in turn contend that under the limited standard of review, there is no basis to vacate or modify the Modified Award.

"When a party challenges the district court's review of an arbitral award under the manifest disregard standard, we review the district court's application of the standard ...