Schottenstein v. J.P. Morgan Sec.

• Decision Date: 08 May 2022
• Docket Number: 21-cv-20521-BLOOM/Otazo-Reyes
• Parties: BEVERLEY B. SCHOTTENSTEIN, Individually and as Co-Trustee Under the Beverley B. Schottenstein Revocable Trust U/A/D April 5, 2011, as Amended, Petitioner, v. J.P. MORGAN SECURITIES, LLC; EVAN A. SCHOTTENSTEIN; and AVI E. SCHOTTENSTEIN, Respondents.
• Court: U.S. District Court — Southern District of Florida

BEVERLEY B. SCHOTTENSTEIN, Individually and as Co-Trustee Under the Beverley B. Schottenstein Revocable Trust U/A/D April 5, 2011, as Amended, Petitioner, v. J.P. MORGAN SECURITIES, LLC; EVAN A. SCHOTTENSTEIN; and AVI E. SCHOTTENSTEIN, Respondents.

No. 21-cv-20521-BLOOM/Otazo-Reyes

United States District Court, S.D. Florida

May 8, 2022

ORDER CONFIRMING ARBITRATION AWARD AND DENYING MOTION TO VACATE ARBITRATION AWARD

BETH BLOOM, UNITED STATES DISTRICT JUDGE.

THIS CAUSE is before the Court upon Petitioner Beverley B. Schottenstein's (“Petitioner”) Petition for Entry of Final Judgment Confirming Arbitration Award and Awarding Damages and Other Relief, ECF No. [1] (“Petition”). Respondents Evan A. Schottenstein and Avi E. Schottenstein's (collectively “Respondents”) filed an Amended Motion to Vacate Arbitration Award and Opposition to Beverly Schottenstein's Petition to Confirm, ECF No. [75] (“Motion to Vacate”). Petitioner filed an Opposition to Respondents' Amended Motion to Vacate Arbitration Award, ECF No. [80] (“Response”).^[1] The Court has carefully reviewed the Petition, the Motion, the record in this case, the applicable law, and is otherwise fully advised. For the reasons set forth below, the Court confirms the Arbitration Award in its entirety and denies Respondents' Motion.

I. BACKGROUND

On February 5, 2021, Petitioner filed her Petition seeking to confirm the decision of a Financial Industry Regulatory Authority (“FINRA”) arbitration panel that awarded her damages on her claims for constructive fraud common law fraud, and elder abuse (“Award”). See ECF No. [1] at 1-2. The Award required Respondent Evan Schottenstein to pay Petitioner $9, 000, 000.00 in compensatory damages plus interest, $172, 630.50 in costs, and one-half of Petitioner's attorney's fees. Id. at 2. The Award required Respondent Avi Schottenstein to pay Petitioner $602, 251.00 in compensatory damages plus interest. Id. On March 8, 2021, Respondents filed their first Motion to Vacate the Arbitration Award, ECF No. [6].

On March 18, 2021, the parties filed a Stipulated Motion for Extension of Briefing Deadlines, ECF No. [14] (“Stipulated Motion”). In the Stipulated Motion, the parties stated that they had reached an “oral agreement concerning the amount of a settlement sum to be paid by [R]espondents to [P]etitioner to resolve [the Petition and the first Motion to Vacate].” Id. at 1. The Stipulated Motion stated that a “written settlement agreement [would] be prepared, revised, agreed upon, and executed by March 24, 2021.” Id. The Stipulated Motion further stated that if “[R]espondents fail[ed] to timely make the settlement payment, the settlement agreement [would] be null and void and [the parties would] return to their present postures and positions in [the] action.” Id. at 1-2. However, if Respondents timely made the settlement payment, Petitioner and Respondents would “stipulate to the voluntary dismissal of [the] proceeding.” Id. at 2.

On March 19, 2021, the Court administratively closed the case without prejudice, pending the filing of a settlement agreement for the Court's “consideration and/or appropriate dismissal documentation.” ECF No. [15] at 1. The Court further stated that should Petitioner and Respondents “fail to finalize a written settlement agreement and comply with the agreed payment schedule, they [may] move to reopen the case and proceed with the claims asserted in [the] action.” Id. On June 8, 2021, Petitioner filed her Motion to Reopen the Case stating that “[a]fter extensive negotiations, [the parties] have been unable to reach [an] agreement on the provisions and content of a written settlement agreement, and no written settlement agreement has been finalized.” ECF No. [16] at 3. The Court subsequently granted the Motion to Reopen the Case. See ECF No. [18].

On March 7, 2022, Respondents filed the instant Motion to Vacate, arguing that the Court should vacate the Award. See ECF No. [75]. On March 22, 2022, Petitioner filed her Response, arguing that the Court should deny the Motion to Vacate and confirm her Award. See generally ECF No. [80].

II. LEGAL STANDARD

The Supreme Court has recognized an “emphatic federal policy in favor of arbitral dispute resolution.” Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631 (1985); see also Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 217 (1985) (noting that where parties have seen fit to adopt arbitration clauses in their agreements, there is a “strong federal policy in favor of enforcing [them]”). Since the United States' accession to the New York Convention in 1970 “and the implementation of the Convention in the same year by amendment of the Federal Arbitration Act, that federal policy applies with special force in the field of international commerce.” Mitsubishi Motors, 473 U.S. at 631; see also Smith/Enron Cogeneration Ltd. P'ship, Inc. v. Smith Cogeneration Int'l, Inc., 198 F.3d 88, 92 (2d Cir. 1999) (“The adoption of the Convention by the United States promotes the strong federal policy favoring arbitration of disputes, particularly in the international context.”).

Chapter 2 of the Federal Arbitration Act (“FAA”) ratifies and incorporates the New York Convention. See 9 U.S.C. §§ 201-208; see also Czarina, L.L.C. v. W.F. Poe Syndicate, 358 F.3d 1286, 1290 (11th Cir. 2004). “When reviewing an arbitration award, ‘confirmation under the Convention is a summary proceeding in nature, which is not intended to involve complex factual determinations, other than a determination of the limited statutory conditions for confirmations or grounds for refusal to confirm.'” Chelsea Football Club Ltd. v. Mutu, 849 F.Supp.2d 1341, 1344 (S.D. Fla. 2012) (quoting Zeiler v. Deitsch, 500 F.3d 157, 169 (2d Cir. 2007)).

Section 10 of the FAA permits courts to vacate arbitration awards under the following grounds:

(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; or

(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. § 10(a).

Finally, “the party seeking to avoid summary confirmance of an arbitral award has the heavy burden of proving that one of the . . . defenses applies.” Sural (Barbados) Ltd. v. Gov't of the Republic of Trinidad, No. 1:15-CV-22825-KMM, 2016 WL 4264061, at *3 (S.D. Fla. Aug. 12, 2016) (quoting VRG Linhas Aereas S.A. v. MatlinPatterson Glob. Opportunities Partners II L.P., 717 F.3d 322, 325 (2d Cir. 2013)).

III. ANALYSIS

a. Misconduct in Refusing to Postpone Hearing

Respondents first argue that by refusing to postpone the hearing indefinitely such that the hearing could be held in person rather than over videoconference, the arbitrators were guilty of misconduct prejudicial to Respondents. See ECF No. [75] at 21-23; FAA § 10(a)(3). Respondents submit that the FINRA Code of Arbitration Procedure (“Code”) includes several provisions related to moving a hearing location, see FINRA Rules 12213, 12600, 12800, but no provision allows arbitrators to dispense with an in-person location entirely. See ECF No. [75] at 22. The Code further provides that certain limited proceedings may be conducted in a manner other than through an in-person hearing, see FINRA Rules 12500, 12501, 12206(b)(4), 12504(a)(5), 12800, 12805, but the Code does not expressly provide that final hearings may proceed by videoconference. See ECF No. [75] at 22.

Respondents cite Naing Int'l Enters., Ltd. v. Ellsworth Assocs., Inc., 961 F.Supp. 1, 3 (D.D.C. 1997), where the court determined that “if the failure of an arbitrator to grant a postponement or adjournment results in the foreclosure of the presentation of ‘pertinent and material evidence,' it is an abuse of discretion. See ECF No. [75] at 21, 23. Respondents also cite CM S. E. Texas Houston, LLC v. CareMinders Home Care, Inc., 662 Fed.Appx. 701, 704 (11th Cir. 2016), where the Eleventh Circuit held that “[p]rejudice might occur when, for example, the arbitrator's choice not to postpone a hearing entirely prevents a party from presenting a key witness' material, noncumulative testimony.” See id. at 23. In this case, Respondents argue that the panel's refusal to postpone the hearing deprived Respondents of key documents and witnesses. Respondents submit that non-parties Alexis Schottenstein and Wells Fargo Bank successfully opposed Respondents' efforts to obtain key documents and testimony during the arbitration proceedings by arguing that arbitrators may not compel third parties to produce documents without also compelling the third parties to appear in person at the hearing. See id. at 22-23 (citing Managed Care Advisory Group, LLC v. CIGNA Healthcare, Inc., 939 F.3d 1145, 1159-60 (11th Cir. 2019) (an “arbitrator's subpoena power [is restricted] to situations in which the non-party has been called to appear in the physical presence of the arbitrator and to hand over the documents at that time”)).

Petitioner responds that a court may vacate an arbitration award under Section 10(a)(3) only where the movant proves that “no reasonable ground existed” for refusing to postpone the proceedings. ECF No. [80] at 10 (quoting Liberty Secs Corp. v. Fetcho, 114 F.Supp.2d 1319, 1322 (S.D. Fla. 2000); citing Schmidt v. Finberg, 942 F.2d 1571, 1573 (11th Cir. 1991)). In this case, Petitioner notes that she demanded arbitration...