Moore, Feinberg and Mulligan, Circuit Judges.
This is an interlocutory appeal from an order of the United States District Court for the Southern District of New York, Milton Pollack, J., that remanded an arbitration proceeding to the arbitrators to fulfill their "obligation to furnish some explanation of the ultimate findings embodied in their decision." 338 F. Supp. 287, 299 (1971). We hold that in the circumstances of this case the arbitrators have no such obligation to explain their award, and we reverse the order of the district court.
The arbitration that led to this appeal was first requested in November 1967 by appellee Herbert Sobel, who was a customer of appellant Hertz, Warner & Co., a stock brokerage firm and a member of the New York Stock Exchange.*fn1 As a customer, Sobel had the right under Article VIII of the Constitution of the New York Stock Exchange to demand arbitration of any controversy he might have with a member firm growing out of its "business."*fn2 Briefly, Sobel claimed that between December 1965 and March 1966 he had purchased 10,200 shares of the common stock of Hercules Galion Products, Inc., upon the recommendation of his long-time broker, Edward Wetzel, and Michael Geier, both then employed by Hertz, Warner, and that Wetzel and Geier had made fraudulent misstatements and omissions of material facts on which Sobel had relied to his detriment. As their employer, Hertz, Warner was, according to Sobel, liable for the damages he had suffered.*fn3 Sobel continued to hold his Hercules shares until Hertz, Warner demanded, in connection with the arbitration, that they be sold to fix damages. This was done in May 1968, and Sobel thereafter claimed a direct loss of about $34,000.*fn4
In 1970, both parties signed a formal submission to arbitration pursuant to the provisions of the Stock Exchange Constitution and the rules of the Board of Governors. Under the Constitution, Sobel's claim was heard by a panel consisting of two persons "engaged in the securities business" and three not so engaged. The panel held two hearings at which it heard the testimony of three witnesses and received documentary evidence. At the hearings, of which there is a full transcript, both sides were ably represented by counsel.
In May 1971, the panel issued the following decision:
We, the undersigned, being the arbitrators selected to hear and determine a matter in controversy between the above-mentioned claimant and respondents set forth in a submission to arbitration signed by the parties on April 6, 1970 and April 10, 1970 respectively;
And having heard and considered the proofs of the parties, have decided and determined that the claim of the claimant be and hereby is in all respects dismissed;
That the costs, $240.00, be and hereby are assessed against the claimant.
After an unsuccessful request to the arbitrators for reconsideration, Sobel moved in the Southern District under 9 U.S.C. § 10 to vacate the arbitration award on the grounds that it had been "procured by undue means" and "that the Award is contrary to public policy, in that the arbitrators refused to make their Award in accordance with the applicable Federal Securities laws." Judge Pollack heard argument on the motion to vacate and concluded, in an exhaustive opinion, that he could not decide the question without "an indication, now wholly lacking from the record, of the basis on which the petitioner's claim was dismissed." 338 F. Supp. at 289. Holding that "a District Court is justified in requiring some statement of the facts the arbitrators found decisive," id. at 298, the judge remanded the controversy to the arbitrators for that purpose. Thereafter, he certified as an interlocutory appeal under 28 U.S.C. § 1292(b) the question whether his action was proper, and we permitted the appeal.
Although Sobel's claims before the arbitrators rested on state statutory law and common law fraud concepts, as well as on federal securities acts, only the last are significant on this appeal. The district judge was clearly disturbed by Sobel's claim that the arbitrators must have ignored the prohibitions of sections 12(2) and 17(a) of the Securities Act of 1933, 15 U.S.C. §§ 77 l (2), 77q(a), section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j (b), and Rule 10b-5 promulgated thereunder. The judge's opinion emphasized that Wetzel and Geier had been indicted in 1967 -- not long after the transactions complained of by Sobel -- for conspiring to create market activity in the Hercules shares and to induce the purchase of the security by others, and that in 1971 Wetzel had pleaded guilty to the conspiracy charge and Geier had been found guilty of that and other counts after a jury trial. Sobel argued to the district court that unless the arbitrators explained their decision, there was no way of telling whether it was in "manifest disregard" of the provisions of the securities acts. The quotation is from Wilko v. Swan, 346 U.S. 427, 98 L. Ed. 168, 74 S. Ct. 182 (1953), which -- oddly enough, in the context of Sobel's use of it here -- stands primarily for the proposition that certain kinds of claims cannot be forced to arbitration despite a pre-dispute agreement to arbitrate. Wilko v. Swan held that an agreement to arbitrate future controversies was an impermissible waiver of the plaintiff-customer's right to have his claim of securities act violations heard in court. In the course of its opinion, however, the Court also said:
Power to vacate an award is limited. While it may be true, as the Court of Appeals thought, that a failure of the arbitrators to decide in accordance with the provisions of the Securities Act would "constitute grounds for vacating the award pursuant to section 10 of the Federal Arbitration Act," that failure would need to be made clearly to appear. In unrestricted submissions, such as the present margin agreements envisage, the interpretations of the law by the arbitrators ...