Shearson Hayden Stone, Inc. v. Liang

• Decision Date: 30 June 1980
• Docket Number: No. 79 C 2241.,79 C 2241.
• Citation: 493 F. Supp. 104
• Parties: SHEARSON HAYDEN STONE, INC., Plaintiff, v. Paul LIANG, Defendant.
• Court: U.S. District Court — Northern District of Illinois

493 F. Supp. 104

SHEARSON HAYDEN STONE, INC., Plaintiff, v. Paul LIANG, Defendant.

No. 79 C 2241.

United States District Court, N. D. Illinois, E. D.

June 30, 1980.

Thomas M. Knepper, Abramson & Fox, Chicago, Ill., for plaintiff.

Ronald Wilder, Schiff Hardin & Waite, Chicago, Ill., for defendant.

MEMORANDUM OPINION

FLAUM, District Judge:

This matter comes before the court on a motion for partial summary judgment on count I of the counterclaim and a motion to dismiss the complaint by the defendant Paul Liang ("Liang") and a motion to dismiss the counterclaim by the plaintiff Shearson Hayden Stone, Inc. ("Shearson"). After Shearson's complaint was filed, Liang simultaneously filed a motion to dismiss Shearson's complaint, a counterclaim, and a motion for partial summary judgment on count I of the counterclaim. Shearson then filed a motion to dismiss the counterclaim but did not respond to the motion for partial summary judgment. Since the complaint and count I of the counterclaim arise out of the same occurrence, the court construes Liang's motion for partial summary judgment as a motion for summary judgment on both the complaint and count I of the counterclaim. Accordingly, for the reasons set forth below, the court denies Liang's motion to dismiss the complaint but grants Liang's motion for summary judgment on the complaint and count I of the counterclaim. In addition, the court denies Shearson's motion to dismiss count I of the counterclaim, but grants Shearson's motion to dismiss counts II and III of the counterclaim.

Liang was an employee of Shearson from 1976 to 1978. The employment was terminable at will and upon termination by Shearson, Liang instituted an arbitration proceeding against Shearson before the New York Stock Exchange pursuant to the following arbitration provision agreed to by Shearson and Liang:

I agree that any controversy between me and any member or member organization or affiliate or subsidiary thereof arising out of my employment or the termination of my employment shall be settled by arbitration at the instance of any such party in accordance with the arbitration procedure prescribed in the Constitution and Rules then obtaining of the New York Stock Exchange, Inc.

Subsequent to the conclusion of the arbitration proceeding, the arbitrators entered an award in favor of Liang for $50,000. Shearson filed a complaint with this court requesting vacation of the award alleging that the award: (1) does not draw its essence from the contract between Shearson and Liang; (2) is in manifest disregard of the law; (3) is fundamentally irrational; and (4) was procured by undue means. In addition, Shearson alleges that the arbitrators exceeded their powers in granting the award. Finally, Shearson also alleges that the award must be vacated because of fraud in that evidence was discovered subsequent to the arbitration proceeding which shows that Liang was president of Liang Insurance Agency and Investments, Inc., an Illinois corporation, at the time that Liang filled out Shearson's employment questionnaire stating only that he was part owner of Festival Theatre, Inc. Liang filed a counterclaim against Shearson asking for confirmation and specific enforcement of the arbitration award. Liang further alleges defamation by Shearson during the arbitration proceeding where Shearson allegedly stated that Liang was terminated because he was exhibiting "pornographic" movies and that Shearson intentionally sought to remove Liang as a securities representative and solicited Liang's customers, asking for actual and punitive damages and attorney's fees.

LIANG'S MOTION TO DISMISS THE COMPLAINT

In determining whether a motion to dismiss should be allowed, the well-pleaded material allegations of fact must be taken as true. 2A Moore's Federal Practice ¶ 12.08 at 2267 (2d ed. 1979). Furthermore, a complaint should not be dismissed unless it appears to a certainty that plaintiff is entitled to no relief under any state of facts which could be proved in support of the claim. Id. at 2274. In this case, the complaint cannot be dismissed unless it appears to a certainty that Shearson could not have the arbitration award vacated under any state of facts alleged in the complaint. Accordingly, a brief review of the applicable law and grounds for vacating an arbitration award is warranted.

The first inquiry is whether the United States Arbitration Act, 9 U.S.C. § 1 (1976), is applicable to this case. The Act governs all written arbitration agreements arising from, among other things, a contract "evidencing a transaction involving commerce." Id. § 2. Interstate commerce is a necessary basis for application of the United States Arbitration Act, and a contract or agreement not predicated upon interstate commerce must be governed by state arbitration law. Pawgan v. Silverstein, 265 F.Supp. 898, 901 (S.D.N.Y.1967).

The contract between a New York Stock Exchange brokerage firm and its employee is a contract involving interstate commerce governed by the Act. Stokes v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 523 F.2d 433, 436 (6th Cir. 1975); Fox v. Merrill Lynch & Co., 453 F.Supp. 561, 564 (S.D.N.Y.1978); Macchiavelli v. Shearson, Hamill & Co., 384 F.Supp. 21, 30 (E.D.Cal. 1974); Legg, Mason & Co. v. Mackall & Coe, Inc., 351 F.Supp. 1367, 1370 (D.D.C.1972); Dickstein v. duPont, 320 F.Supp. 150, 152 (D.Mass.1970), aff'd, 443 F.2d 783 (1st Cir. 1971). Once a dispute is covered by the Act, federal law applies to all questions regarding validity and enforceability. Coenen v. R. W. Pressprich & Co., 453 F.2d 1209, 1211 (2d Cir.), cert. denied, 406 U.S. 949, 92 S.Ct. 2045, 32 L.Ed.2d 337 (1972); Romnes v. Bache & Co., 439 F.Supp. 833, 838 (W.D.Wis.1977). Thus, the United States Arbitration Act, rather than state arbitration law, governs in this case.

Under federal arbitration law, a federal court may vacate an arbitration award only under the specific grounds set forth in the statute:

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

(b) Where there was evident partiality or corruption in the arbitrators . . .

(c) Where the arbitrators were guilty of misconduct in refusing to postpone the hearing . . . or . . . hear evidence . . . .

(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. § 10 (1976). See Bell Aerospace Co. v. Local 516, International Union AAW, 500 F.2d 921, 923 (2d Cir. 1974); I/S Stavborg v. National Metal Converters, Inc., 500 F.2d 424, 429-30 (2d Cir. 1974); Saxis S.S. Co. v. Multifacs International Traders, Inc., 375 F.2d 577, 581 (2d Cir. 1967); Oceania Shipping Corp. v. Thos. P. Gonzalez Corp., 442 F.Supp. 997, 999 (S.D.N. Y.1977); Kirschner v. West Co., 247 F.Supp. 550, 552 (E.D.Pa.), aff'd per curiam, 353 F.2d 537 (3d Cir. 1965), cert. denied, 383 U.S. 945, 86 S.Ct. 1202, 16 L.Ed.2d 208 (1966); see also Wilko v. Swan, 346 U.S. 427, 436 n. 22, 74 S.Ct. 182, 187 n. 22, 98 L.Ed. 168 (1953).

Applying these specific grounds to the complaint, Shearson has not alleged any partiality or misconduct regarding the conduct of the hearing on the part of the arbitrators. Thus, the only statutory grounds which might be applicable to Shearson's allegations regarding the award are: (a) the award was procured by corruption, fraud, or undue means or (d) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award was not made. In counts I and II of the complaint, Shearson alleges that the award does not draw its essence from the contract between Shearson and Liang since there was no evidence in the arbitration proceeding showing that Shearson had interfered with Liang's future employment or that Liang's employment with Shearson was not terminable at will. According to Shearson, this makes the award fundamentally irrational, in manifest disregard of the law, and procured by undue means. In addition, Shearson alleges that good cause was not necessary to terminate Liang and, even assuming arguendo that good cause was necessary, the evidence before the arbitrators showed good cause. In count III of the complaint, Shearson alleges that the arbitration award must be vacated since Shearson discovered, subsequent to the arbitration proceeding, that Liang is president of an Illinois corporation. Liang had responded to the Shearson employment questionnaire that his only outside affiliation was part owner of Festival Theatre, Inc.

Based upon the allegations in the complaint, Shearson does allege the specific grounds necessary for vacating an arbitration award under 9 U.S.C. § 10 (1976). Accordingly, Liang's motion to dismiss the complaint is denied.

LIANG'S MOTION FOR SUMMARY JUDGMENT

As previously stated, the court construes Liang's motion for partial summary judgment as a motion for summary judgment on both the complaint and count I of the counterclaim. According to Fed.R.Civ.P. 56(c), summary judgment shall be rendered if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.

Taking Shearson's various allegations and applying them to the specific grounds for vacating an arbitration award under 9 U.S.C. § 1 (1976), the allegation regarding good cause for termination is not a proper inquiry for this court. The court can vacate the award only under the specific grounds in 9 U.S.C. § 10 (1976) and cannot set aside an arbitration award on the grounds of erroneous finding of fact or misinterpretation of the law. Amicizia Societa Navegazione v. Chilean Nitrate & Iodine Sales Corp., 274 F.2d 805, 808 (2d Cir.), cert. denied, 363 U.S. 843, 80 S.Ct. 1612, 4 L.Ed.2d 1727 (1960). Thus, Shearson's allegations regarding good cause do not...