Remmey v. PaineWebber, Inc., 93-2059

• Citation: 32 F.3d 143
• Decision Date: 19 August 1994
• Docket Number: No. 93-2059,93-2059
• Parties: Fed. Sec. L. Rep. P 98,366 Kathryn Thompson REMMEY, Executrix for the Estate of Louise Remmey; Ernest M. Remmey, Executor for the Estate of Louise Remmey, Plaintiffs-Appellants, v. PAINEWEBBER, INCORPORATED; Arnold Marks, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

Page 143

32 F.3d 143

Fed. Sec. L. Rep. P 98,366

Kathryn Thompson REMMEY, Executrix for the Estate of Louise Remmey; Ernest M. Remmey, Executor for the Estate of Louise Remmey, Plaintiffs-Appellants, v. PAINEWEBBER, INCORPORATED; Arnold Marks, Defendants-Appellees.

No. 93-2059.

United States Court of Appeals Fourth Circuit.

Argued May 11, 1994.

Decided Aug. 19, 1994.

ARGUED: David McKenzie Clark, Clark, Wharton & Berry, Greensboro, NC, for appellant. Mack Sperling, Brooks, Pierce Before ERVIN, Chief Judge, WILKINSON, Circuit Judge, and ELLIS, United States District Judge for the Eastern District of Virginia, sitting by designation.

McLendon, Humphrey & Leonard, L.L.P., Greensboro, NC, for appellees.

Affirmed by published opinion. Judge WILKINSON wrote the opinion, in which Chief Judge ERVIN and District Judge ELLIS joined.

OPINION

WILKINSON, Circuit Judge:

In this case, we are asked to overturn the results of a contractually-compelled arbitration. We decline to do so. Accepting the multiple attacks upon the arbitral process in this case would scuttle the spirit of deference that courts have always used in reviewing arbitral awards. We therefore affirm the judgment of the district court upholding the arbitral decision.

I.

Louise Remmey, the original plaintiff in this case, maintained an account with appellee Arnold Marks at the brokerage firm of Hornblower & Weeks in the late 1970s. In later years, when Marks joined PaineWebber, Inc. as a broker, Remmey transferred her account to that firm. Remmey subsequently opened a Resource Management Account ("RMA") at PaineWebber, thereby allowing the company to hold securities for her and creating an interest-bearing checking account into which her dividends could be deposited.

In connection with the RMA, Remmey signed a "Client's Agreement," which included a requirement that controversies between Remmey and PaineWebber be submitted to arbitration. The provision stated essentially that arbitrations would be conducted in accordance with the rules of the New York Stock Exchange, American Stock Exchange, or National Association of Securities Dealers. Remmey was permitted to elect which organization's rules would govern.

In early 1986, Remmey began using the RMA to keep track of her investments, and accordingly delivered most of her securities to Marks. From that time until late 1989, Marks conducted a series of trades, which substantially changed Remmey's portfolio mix. Most notably, Marks reduced the level of Remmey's ownership of bonds and other debt instruments, while establishing a significant stake in real estate limited partnerships. In August 1989, Marks left PaineWebber for a position at Prudential Bache.

In October 1990, Mrs. Remmey filed this action against Arnold Marks and PaineWebber in North Carolina federal court. She contended that Marks had knowingly induced her to purchase investments unsuited to her stated objectives and that Marks had "churned" her account by engaging in excessive and unnecessary trading. PaineWebber responded by pointing to the arbitration clause in the RMA, prompting Remmey to sign a stipulation submitting the case to arbitration and staying the federal court action pending the result. Remmey elected to follow the rules of the National Association of Securities Dealers ("NASD"). In September and December of 1991, a panel of three arbitrators selected by the NASD heard Remmey's claims. After taking evidence for five days, the panel unanimously dismissed all of Remmey's claims against both Marks and PaineWebber.

Shortly thereafter, Remmey moved the district court to set aside the arbitral decision. In support of her motion, Remmey argued that various provisions of the Federal Arbitration Act, 9 U.S.C. Secs. 1-16, had been violated. Specifically, Remmey maintained that the arbitrators were biased in favor of Marks and that their ruling was substantively flawed. In an order of July 15, 1993, the district court rejected Remmey's motion, holding that "the award was proper in all respects." Remmey now appeals. ¹

II.

We must underscore at the outset the limited scope of review that courts are permitted to exercise over arbitral decisions. Limited judicial review is necessary to encourage the use of arbitration as an alternative to formal litigation. This policy is widely recognized, and the Supreme Court has often found occasion to approve it. See, e.g., Shearson/American Express Inc. v. McMahon, 482 U.S. 220, 226, 107 S.Ct. 2332, 2337, 96 L.Ed.2d 185 (1987); Southland Corp. v. Keating, 465 U.S. 1, 10, 104 S.Ct. 852, 858, 79 L.Ed.2d 1 (1984); Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983).

A policy favoring arbitration would mean little, of course, if arbitration were merely the prologue to prolonged litigation. If such were the case, one would hardly achieve the "twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation." Folkways Music Publishers, Inc. v. Weiss, 989 F.2d 108, 111 (2d Cir.1993); see also Eljer Mfg., Inc. v. Kowin Dev. Corp., 14 F.3d 1250, 1254 (7th Cir.1994), cert. denied, --- U.S. ---, 114 S.Ct. 2675, 129 L.Ed.2d 810 (1994). Opening up arbitral awards to myriad legal challenges would eventually reduce arbitral proceedings to the status of preliminary hearings. Parties would cease to utilize a process that no longer had finality. To avoid this result, courts have resisted temptations to redo arbitral decisions. As the Seventh Circuit put it, "[a]rbitrators do not act as junior varsity trial courts where subsequent appellate review is readily available to the losing party." National Wrecking Co. v. International Bhd. of Teamsters, Local 731, 990 F.2d 957, 960 (7th Cir.1993).

Thus, in reviewing arbitral awards, a district or appellate court is limited to determining " 'whether the arbitrators did the job they were told to do--not whether they did it well, or correctly, or reasonably, but simply whether they did it.' " Richmond, Fredericksburg & Potomac R.R. Co. v. Transportation Communications Int'l Union, 973 F.2d 276, 281 (4th Cir.1992) (quoting Brotherhood of Locomotive Eng'rs v. Atchison, Topeka & Santa Fe Ry. Co., 768 F.2d 914, 921 (7th Cir.1985)). Courts are not free to overturn an arbitral result because they would have reached a different conclusion if presented with the same facts. In the Federal Arbitration Act, 9 U.S.C. Secs. 1-16, Congress has limited the grounds upon which an arbitral award can be vacated. Namely, a court may vacate an award:

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

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

(3) Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, 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.

(4) 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(a). The statutory grounds for vacatur permit challenges on sufficiently improper conduct in the course of the proceedings; they do not permit rejection of an arbitral award based on disagreement with the particular result the arbitrators reached. Accordingly, parties may not seek a "second bite at the apple" simply because they desire a different outcome. "To permit such attempts would transform a binding process into a purely advisory one." Richmond, Fredericksburg & Potomac, 973 F.2d at 282.

Finally, we note that arbitration has often been used to resolve securities laws claims brought by disappointed investors against brokerage houses. If all claims arising out of unprofitable investments were subjected to the full rigors of litigation, the result could well be increased brokerage transactions costs that would ultimately redound to the detriment of the investing public. Nothing in the Federal Arbitration Act or the various securities laws suggests that arbitral proceedings are inappropriate in this setting. See Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989) (holding that agreements to arbitrate claims under the Securities Act of 1933 are enforceable); McMahon, 482 U.S. at 238, 107 S.Ct. at 2343 (holding that claims under the Securities Exchange Act of 1934 are arbitrable).

III.

Appellant raises numerous challenges to the arbitral decision in this case. We address each issue in turn.

A.

Remmey's first line of attack focuses upon the arbitrators themselves. She claims that none of them were qualified to serve on the panel that heard her case. NASD Code of Arbitration Procedure Sec. 19(b) requires that the majority of the panel members in controversies exceeding $30,000 "not be from the securities industry" unless the customer requests otherwise. Remmey maintains that potential arbitrators were required to complete questionnaires distributed by the NASD in 1990 in order to qualify as "public" arbitrators. She concludes that the failure of arbitrators Victor Schwimmer and Stanley Lewis to submit the 1990 questionnaires barred them from service on the arbitral panel, and thus that the award was obtained by "undue means" in violation of 9 U.S.C. Sec. 10(a)(1).

This assertion is without merit. As an initial matter, both Schwimmer and Lewis presented suitable credentials to serve on the panel. Mr. Schwimmer is an attorney who worked several years for the Securities and Exchange Commission, nearly thirty years in private practice, and an additional thirteen years as an administrative law judge for the City of New York. Mr. Lewis served sixteen years as Deputy Securities Commissioner for the state of South Carolina. Prior to that, he worked as a securities examiner in ...