O.R. Securities, Inc. v. Professional Planning Associates, Inc.

• Decision Date: 12 October 1988
• Docket Number: No. 87-8531,87-8531
• Parties: Fed. Sec. L. Rep. P 94,757, 12 Fed.R.Serv.3d 855 O.R. SECURITIES, INC., Plaintiff-Appellant, v. PROFESSIONAL PLANNING ASSOCIATES, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 742

857 F.2d 742

Fed. Sec. L. Rep. P 94,757, 12 Fed.R.Serv.3d 855

O.R. SECURITIES, INC., Plaintiff-Appellant, v. PROFESSIONAL PLANNING ASSOCIATES, INC., Defendant-Appellee.

No. 87-8531.

United States Court of Appeals Eleventh Circuit.

Oct. 12, 1988.

Thompson & Mitchell, W. David Wells, Lawrence Friedman, St. Louis, Mo., for plaintiff-appellant.

Steven Jay Gard, Page & Bacek, Terry Weiss, Vaughan, Davis Birch & Murphy, Atlanta, Ga., for defendant-appellee.

Appeal from the United States District Court, Northern District of Georgia.

Before FAY and CLARK Circuit Judges, and GONZALEZ ^*, District Judge.

GONZALEZ, District Judge:

This is an appeal by O.R. Securities, Inc. ("O.R."), from an Order of the district court dismissing O.R.'s Complaint and Application to Vacate Arbitration Award. O.R. had filed suit in district court to vacate an award in the amount of $81,998.00 made by a National Association of Securities Dealers, Inc. ("NASD") arbitration panel against O.R. and in favor of appellee Professional Planning Associates, Inc. ("PPA").

We begin with a brief description of the parties and the arbitration proceedings. WZW Financial Services, Inc. ("WZW"), PPA and O.R. each provide financial planning services to customers. On April 1, 1985, pursuant to an agreement between WZW and PPA, approximately 20 financial planners who had been licensed through WZW resigned from that firm and transferred their licenses to Professional Planning Associates Investments ("PPA Investments"), a newly formed broker dealer wholly owned by PPA. Subsequently, a dispute developed over the amount of commissions which members of PPA Investments claimed were owed to them by WZW pursuant to the agreement. WZW refused to pay the commissions and PPA brought an arbitration proceeding against WZW on August 14, 1985.

On March 6, 1986, PPA amended its claim before the arbitration panel to include O.R., an NASD member, as an additional party. PPA contended that O.R. was properly included in the arbitration proceeding because in October 1985 WZW had transferred "substantially all of its assets" to O.R. ¹

O.R. moved to dismiss the arbitration proceeding against it, on the ground that it was not liable to PPA on a theory of successor liability because it never explicitly or implicitly assumed WZW's liabilities. PPA filed a written response. The arbitration panel did not expressly decide the motion to dismiss, but instead, considered the merits of the parties' respective positions at the arbitration hearing. On July 25, 1986, the panel issued its award in favor of PPA.

In its Complaint and Application to Vacate Arbitration Award filed in the district court, O.R. alleged that the arbitration award "reflected manifest disregard of the law, was arbitrary and capricious, was irrational and was plainly contrary to public policy because it made O.R. Securities liable for WZW's obligations to PPA when O.R. Securities had no legal liability whatsoever to PPA." O.R. also contended that the award "was procured through corruption, fraud, collusion and undue means between PPA and WZW, and the arbitrators did not consider this evidence." O.R. also sought to conduct discovery in order to clarify certain issues raised in the Complaint, namely, (1) the extent and nature of the alleged collusion between WZW and PPA; (2) whether the arbitrators considered O.R.'s arguments against the imposition of liability; and (3) whether there were actual factual and legal bases for imposing liability on O.R. as a successor to WZW.

PPA opposed opening discovery and filed a motion to dismiss the complaint for failure to state a claim for which relief could be granted under the Federal Arbitration Act, 9 U.S.C. Sec. 1 et seq. The district court denied the request to conduct discovery and dismissed O.R.'s complaint. In dismissing the complaint, the district court refused to recognize the "manifest disregard of the law" standard proposed by O.R. and stated that even if it were a proper ground for vacating the arbitration award, manifest disregard of the law was not shown on the face of the complaint. The district court also found that O.R.'s Complaint did not state sufficient facts to support vacating the arbitration award on the ground of fraud. The district court's Orders denying discovery and dismissing O.R.'s Complaint are now before us. ²

O.R. contends the district court erred in dismissing O.R.'s complaint because PPA failed to prove that O.R. could "prove no set of facts in support of [its] claim which would entitle it to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). O.R. argues that under the rules of notice pleading, Fed.R.Civ.P. 8(a), it had stated a claim for vacating the arbitration award and the district court erred in dismissing the Complaint and in not permitting discovery on the claims raised.

O.R. misconstrues the procedures which the district courts must follow when considering a request to vacate an arbitration award. Under the Arbitration Act, an application to vacate an award "shall be made and heard in the manner provided by law for the making and hearing of motions." 9 U.S.C. Sec. 6. Rule 81(a)(3), Federal Rules of Civil Procedure, provides that the Federal Rules of Civil Procedure apply to proceedings brought under the Arbitration Act "only to the extent that matters of procedure are not provided for in those statutes." Fed.R.Civ.P. 81(a)(3). Under Fed.R.Civ.P. 7(b), "[a]n application to the court for an order shall be by motion which, unless made during a hearing or trial, shall be made in writing, shall state with particularity the grounds therefor, and shall set forth the relief or order sought."

The policy behind section 6 "is to expedite judicial treatment of matters pertaining to arbitration." World Brilliance Corp. v. Bethlehem Steel Co., 342 F.2d 362, 365-66 (2d Cir.1965) citing S.Rep. No. 536, 68th Cong., 1st Sess. (1924); H.R.Rep. No. 96, 68th Cong., 1st Sess. (1924). "The statutes and rules do not permit a party to initiate a challenge to an arbitration award by filing a complaint or an "Application [to Vacate Arbitration Award]." Interior Finish Contractors Association of Delaware Valley v. Drywall Finishers Local Union No. 1955, 625 F.Supp. 1233, 1240 (E.D.Pa.1985). It is clear that such a request for relief shall be made in the form of a motion as provided in Fed.R.Civ.P. 7(b).

The manner in which an action to vacate an arbitration award is made is obviously important, for the nature of the proceeding affects the burdens of the various parties as well as the rule of decision to be applied by the district court. If, as O.R. contends, the application to vacate the award may be brought in the form of a complaint, then the burden of dismissing the complaint would be on the party defending the arbitration award. The defending party would be forced to show that the movant could not prove any facts that would entitle him to relief from the arbitration award. See Conley, 355 U.S. at 45-46, 78 S.Ct. at 102, 2 L.Ed.2d at 84. If the defending party did not prevail on its motion to dismiss, the proceeding to vacate the arbitration award would develop into full scale litigation, with the attendant discovery, motions, and perhaps trial. This is the procedure which O.R. argues the district court should have applied.

We disagree. It is well-established that "[t]he purpose of the Federal Arbitration Act was to relieve congestion in the courts and to provide parties with an alternative method for dispute resolution that would be speedier and less costly than litigation." Ultracashmere House, Ltd. v Meyer, 664 F.2d 1176, 1179, (11th Cir.1981). The policy of expedited judicial action expressed in section 6 of the Federal Arbitration Act, 9 U.S.C. Sec. 6, would not be served by permitting parties who have lost in the arbitration process to file a new suit in federal court. The proper procedure, as discussed above, is for the party seeking to vacate an arbitration award to file a Motion to Vacate in the district court.

The fact that this motion came before the district court on PPA's Motion to Dismiss Complaint does not affect our disposition of this case. "The liberality of the ... Federal Rules is such that an erroneous nomenclature does not prevent the court from recognizing the true nature of a motion." Sacks v. Reynolds Securities, Inc., 593 F.2d 1234, 1239 (D.C.Cir.1978) (citation omitted). The memoranda of both parties submitted to the district court adequately briefed the issue of whether the arbitration award in question should have been vacated. Thus, we hold that the district court did not err in considering the merits of O.R.'s request to vacate the arbitration award. ³ We now review the proceedings below as though O.R. had filed a Motion to Vacate and PPA had opposed that motion. See id. at 1239.

In reviewing the district court's disposition of a motion to vacate, we consider whether the district court abused its discretion under the Arbitration Act. Bonar v. Dean Witter Reynolds, Inc., 835 F.2d 1378, 1383 (11th Cir.1988). Section 10 of the Arbitration Act specifies the following grounds for vacating an arbitration award:

(a) Where the award was procured by corruption, fraud, or undue means.

(b) Where there was evident partiality or corruption in the arbitrators, or either of them.

(c) Where the arbitrators were guilty of misconduct in refusing to postpone the hearing ... or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced.

(d) Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not made.

9 U.S.C. Sec. 10. Courts are generally prohibited from vacating an arbitration award on the basis of errors of law or interpretation. Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 ...