Trustees of Lawrence Academy v. Merrill Lynch

• Decision Date: 19 May 1993
• Docket Number: Civ. No. 89-480-SD.
• Citation: 821 F. Supp. 59
• Court: U.S. District Court — District of New Hampshire
• Parties: TRUSTEES OF LAWRENCE ACADEMY AT GROTON v. MERRILL LYNCH PIERCE FENNER & SMITH, INC.; Eric C. Lehto.

821 F. Supp. 59

TRUSTEES OF LAWRENCE ACADEMY AT GROTON v. MERRILL LYNCH PIERCE FENNER & SMITH, INC.; Eric C. Lehto.

Civ. No. 89-480-SD.

United States District Court, D. New Hampshire.

May 19, 1993.

William L. Chapman, Concord, NH, for plaintiff.

Edward A. Haffer, Manchester, NH, for Merrill Lynch.

Gary S. Lenehan, Manchester, NH, for Lehto.

ORDER

DEVINE, Senior District Judge.

Plaintiff Trustees of Lawrence Academy at Groton ("Lawrence Academy") filed suit in this court on October 12, 1989, in its alleged capacity as a residuary legatee under the will of Dorothy Whitman Bunce. Plaintiff alleged that defendants Merrill Lynch Pierce Fenner & Smith, Inc., Shearson Lehman Hutton, Inc.,¹ and Eric C. Lehto engaged in violations of section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and of New Hampshire Revised Statutes Annotated (RSA) 421-B:3 and 421-B:25 II, in addition to committing the New Hampshire common-law torts of conversion, fraudulent misrepresentation, and negligent misrepresentation, and that defendant Lehto breached a fiduciary duty owed to Mrs. Bunce under New Hampshire common law, all in connection with defendants' involvement in the purchase and sale of securities on behalf of Mrs. Bunce. This court has jurisdiction (1) over plaintiff's federal securities law claims under 28 U.S.C. § 1331, and (2) over plaintiff's New Hampshire law claims under 28 U.S.C. § 1367.

On December 13, 1989, defendant Merrill Lynch filed a motion to compel plaintiff to submit the case to arbitration, which motion this court granted in its order of December 14, 1990, approving the Report and Recommendation of the magistrate judge. Pursuant to said order, on December 19, 1990, the clerk of court ordered the case stayed pending arbitration.

In November 1991 Lawrence Academy filed an arbitration claim with the New York Stock Exchange. On March 11, 1992, this court issued an order terminating all pending motions upon determining that "motions need not remain active during the pendency of the stay as no action can be taken." On November 19, 1992, the Arbitration Panel of the New York Stock Exchange ("Panel") awarded Lawrence Academy $435,872.

Defendant Merrill Lynch filed a motion to vacate the arbitration award on January 14, 1993. On May 14, 1993, the clerk of this court granted defendant Lehto's unobjected-to motion to join in Merrill Lynch's objection and memoranda pertaining to plaintiff's motion to confirm arbitration award.

Presently before the court are the following motions and their objections: (1) defendant Merrill Lynch's motion to vacate arbitration award; (2) plaintiff's motion to confirm arbitration award pursuant to 9 U.S.C. § 9; (3) defendant Lehto's motion to join in Merrill Lynch's motion to vacate arbitration award;² (4) defendant Merrill Lynch's motion for a more definite statement, or, alternatively, for dismissal for failure to state a claim on which relief can be granted; and (5) defendant Lehto's motion to dismiss for failure to state a claim on which relief may be granted (statute of limitations).

Discussion

1. Background

In the context of the arbitration proceeding, defendants argued that (1) plaintiff's New Hampshire common-law claims relating to events occurring before October 12, 1983, were barred by the limitations period set forth at RSA 508:4, as in effect before July 1, 1986; (2) plaintiff's claims under RSA 421-B were barred by the limitations period set forth at RSA 421-B:25 VII; and (3) plaintiff's claims under section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder were barred by the limitations period set forth in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, ___ U.S. ___, ___, 111 S.Ct. 2773, 2782, 115 L.Ed.2d 321 (1991). Memo re Motion to Vacate, Attachment 1 (Answer of Merrill Lynch filed with the Panel) at 3-5.

Plaintiff countered by arguing that (1) as to its New Hampshire common-law claims and its claims under RSA 421-B, the applicable statutes of limitations were tolled by the New Hampshire equitable doctrines of discovery and fraudulent concealment, Lawrence Academy's Memorandum of Law in Opposition to the Relief Sought by Defendants, Attachment 1 (Claimant's Memorandum of Law on Statute of Limitations and Damages filed with the Panel) at 10-16; and (2) as to its claims under federal securities law, the applicable statute of limitations was RSA 508:4, and said statute was tolled by the federal equitable doctrines of discovery and fraudulent concealment, id., Attachment 1 at 4-5, 12-16.

2. Standard of Review

The statutory bases for review of arbitration awards are set forth at 9 U.S.C. § 10 (Supp.1993).³ See, e.g., Advest, Inc. v. McCarthy, 914 F.2d 6, 8 (1st Cir.1990). Defendants do not contend that any of the provisions of section 10 apply to this case.⁴

In addition to the statutory bases of review provided in section 10, the First Circuit has identified two types of cases in which a court may properly vacate an arbitral award: (1) cases in which the award is contrary to the plain language of a collective bargaining agreement, and (2) cases in which the award was made in "manifest disregard" of the applicable law. Advest, Inc. v. McCarthy, supra, 914 F.2d at 9-10 (citations omitted). In Advest, the First Circuit held that

the phrase `manifest disregard' ... means that, to vacate an arbitration award, `there must be some showing in the record other than the result obtained, that the arbitrators knew the law and expressly disregarded it.' In this context, then, `disregard' implies that the arbitrators appreciated the existence of a governing legal rule but willfully decided not to apply it.

Id. at 10 (quoting O.R. Securities, Inc. v. Professional Planning Assoc., Inc., 857 F.2d 742, 747 (11th Cir.1988)) (emphasis added).

This case does not involve a collective bargaining agreement. Accordingly, the arbitral award at issue is subject to review only if "the arbitrators appreciated the existence of a governing legal rule but willfully decided not to apply it." See id.

3. Defendants' "Manifest Disregard" Arguments

Defendants make the following contentions with respect to the arbitrators' putative recognition of the applicable law and failure to apply same: (1) "In spite of all the statute-of-limitations arguments by all parties, and in spite of all the extensive citations to legal authority on that issue, the Panel's decision ... contains not one word on the statute of limitations," Merrill Lynch's Memorandum of Law in Support of its Motion to Vacate Arbitration Award ("Memo re Motion to Vacate") at 4-5; and (2) the "record demonstrates that `the arbitrators must have appreciated the existence of a clearly defined legal principle, but decided to ignore or pay no attention to it,'" id. at 5 (quoting Merrill Lynch v. Bobker, 808 F.2d 930, 933 (2d Cir. 1986)) (emphasis and bracketed material in original).

a. The Panel's Failure to Explain

In its decision, the Panel did not find that plaintiff's claims were barred by the statute of limitations, Memo re Motion to Vacate, Attachment 8. See Decision of the Arbitrators (attached hereto as Appendix), nor did it discuss its reasons for failing to decide the case in a manner consistent with defendant's arguments concerning statutes of limitations. See id. However, in this regard, the First Circuit has held that

it has long been settled that arbitrators are not required to make formal `findings of fact' to accompany the awards they issue. Indeed, `arbitrators have no obligation ... to give their reasons for an award at all.' It is, accordingly, manifest that we cannot set aside an arbitration award merely because the arbitrators chose not to provide the parties with the reasons for their decision.

Raytheon Co. v. Automated Business Systems, Inc., 882 F.2d 6, 8 (1st Cir.1989); see generally Advest, supra, 914 F.2d at 10 ("a showing of manifest disregard is `extremely difficult' where the arbitrators have opted not to state reasons") (citing and quoting O.R. Securities, supra, 857 F.2d 742, 747 & n. 4). Therefore, the Panel's failure to explain its implicit finding that none of plaintiff's claims were barred by statutes of limitations does not provide the court with a basis for vacating the decision.

b. The Colloquy

Defendants cite the following "colloquy between the Panel and counsel" as evidence demonstrating that "the arbitrators ... appreciated the existence of a clearly defined legal principle, but decided to ignore or pay no attention to it":

THE CHAIRMAN: You need to know that this is running through our minds. How much are we bound by the law?

MR. HAFFER: Well, we think you are; and in fact, —

ARBITRATOR CARENS: Supposing there are three laymen sitting up here?

MR. HAFFER: Well, if there were — lets — hypothetically, hypothetically, let's say that there is not basis on which the Statute of Limitations could be disregarded, and the panel nevertheless disregarded the Statute of Limitations. We are entitled under the Federal Arbitration Act to go back into the Federal District Court and to argue that there's been a manifest disregard of law, and to ask that court to review this record and to reverse the determination of the panel.

THE CHAIRMAN: A manifest disregard for the law; that's the basis.

MR. HAFFER: Yes.

MR. CHAPMAN: Our position, for the panel's benefit, is that we filed this case in Federal Court and Merrill Lynch wanted the Arbitrator. And as you all know, an arbitration panel is — the purpose of arbitration is to do equity. The arbitration case has made that abundantly clear. That doesn't mean you can totally ignore the law, but equitable principles confuse your decisionmaking process. And it is our position that when you apply equitable principles as well as the applicable legal principles, then you're permitted to disregard the Statute of Limitations.

MR. HAFFER: We disagree one hundred percent with that, as you

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