Shearson Hayden Stone, Inc. v. Liang, No. 79 C 2241.

CourtUnited States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)
Writing for the CourtRonald Wilder, Schiff Hardin & Waite, Chicago, Ill., for defendant
Citation493 F. Supp. 104
PartiesSHEARSON HAYDEN STONE, INC., Plaintiff, v. Paul LIANG, Defendant.
Decision Date30 June 1980
Docket NumberNo. 79 C 2241.

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.


493 F. Supp. 105

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.
493 F. Supp. 106

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 . . . .
493 F. Supp. 107
(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...

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51 practice notes
  • Lettis v. U.S. Postal Service, No. CV 95-737 (ADS).
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
    • August 12, 1998
    ...for by the collective bargaining agreement and its provisions for a grievance machinery"); Shearson Hayden Stone, Inc. v. Liang, 493 F.Supp. 104, 109 (N.D.Ill.1980) (testimony in arbitration proceeding was absolutely privileged), aff'd, 653 F.2d 310 (7th Cir.1981); Barnes v. Avis Rent A Car......
  • Burke County Public Schools Bd. of Ed. v. Shaver Partnership, No. 94
    • United States
    • North Carolina United States State Supreme Court of North Carolina
    • July 8, 1981
    ...to the New York Stock Exchange pursuant to which he would seek prospective customers nationwide); Shearson Hayden Stone, Inc. v. Liang, 493 F.Supp. 104 (N.D.Ill.1980) (contract between New York Stock Exchange brokerage firm and employee); Fox v. Merrill Lynch & Co., Inc., 453 F.Supp. 561 (S......
  • Mpj v. Aero Sky, L.L.C., Civil Action No. SA-09-CV-693-XR.
    • United States
    • United States District Courts. 5th Circuit. Western District of Texas
    • November 30, 2009
    ...126 (1993); Dean Foods Co. v. United Steel Workers of Am., 911 F.Supp. 1116, 1124 (N.D.Ind.1995); Shearson Hayden Stone, Inc. v. Liang, 493 F.Supp. 104, 108 (N.D.Ill.1980), aff'd, 653 F.2d 310 (7th Cir.1981). Although "fraud" and "undue means" are not defined in section 10(a) of the FAA, co......
  • Austin Mun. Securities, Inc. v. National Ass'n of Securities Dealers, Inc., No. 84-1237
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • April 15, 1985
    ...443 F.2d 783, 785 (1st Cir.1971) (NYSE arbitration agreement with employee involved commerce); Shearson Hayden Stone, Inc. v. Liang, 493 F.Supp. 104, 106 (N.D.Ill.1980); Macchiavelli v. Shearson, Hammill & Co., Inc., 384 F.Supp. 21 (E.D.Cal.1974); Legg, Mason & Co., Inc. v. Mackall & Coe, I......
  • Request a trial to view additional results
51 cases
  • Lettis v. U.S. Postal Service, No. CV 95-737 (ADS).
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
    • August 12, 1998
    ...for by the collective bargaining agreement and its provisions for a grievance machinery"); Shearson Hayden Stone, Inc. v. Liang, 493 F.Supp. 104, 109 (N.D.Ill.1980) (testimony in arbitration proceeding was absolutely privileged), aff'd, 653 F.2d 310 (7th Cir.1981); Barnes v. Avis Rent A Car......
  • Burke County Public Schools Bd. of Ed. v. Shaver Partnership, No. 94
    • United States
    • North Carolina United States State Supreme Court of North Carolina
    • July 8, 1981
    ...to the New York Stock Exchange pursuant to which he would seek prospective customers nationwide); Shearson Hayden Stone, Inc. v. Liang, 493 F.Supp. 104 (N.D.Ill.1980) (contract between New York Stock Exchange brokerage firm and employee); Fox v. Merrill Lynch & Co., Inc., 453 F.Supp. 561 (S......
  • Mpj v. Aero Sky, L.L.C., Civil Action No. SA-09-CV-693-XR.
    • United States
    • United States District Courts. 5th Circuit. Western District of Texas
    • November 30, 2009
    ...126 (1993); Dean Foods Co. v. United Steel Workers of Am., 911 F.Supp. 1116, 1124 (N.D.Ind.1995); Shearson Hayden Stone, Inc. v. Liang, 493 F.Supp. 104, 108 (N.D.Ill.1980), aff'd, 653 F.2d 310 (7th Cir.1981). Although "fraud" and "undue means" are not defined in section 10(a) of the FAA, co......
  • Austin Mun. Securities, Inc. v. National Ass'n of Securities Dealers, Inc., No. 84-1237
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • April 15, 1985
    ...443 F.2d 783, 785 (1st Cir.1971) (NYSE arbitration agreement with employee involved commerce); Shearson Hayden Stone, Inc. v. Liang, 493 F.Supp. 104, 106 (N.D.Ill.1980); Macchiavelli v. Shearson, Hammill & Co., Inc., 384 F.Supp. 21 (E.D.Cal.1974); Legg, Mason & Co., Inc. v. Mackall & Coe, I......
  • Request a trial to view additional results

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