between the guarantor, WSA, and the clearing broker, Becker, to arbitrate disputes relating to the guaranty. Defendants argue that even if the dispute between Friedman and Wise and WSA can be viewed as related to the guaranty, the agreement does not obligate them, the general partners, to arbitrate against the limited partnership.
In response, plaintiff argues that as a matter of partnership law, because the general partners signed the guaranty on behalf of the partnership, the general partners are bound to arbitrate. Furthermore, plaintiff argues that by joining defendant Becker's motion to compel arbitration, in which Becker acknowledged its obligation to arbitrate before the AAA under the guaranty, defendants Wise and Friedman also obligated themselves to arbitrate before the AAA.
Assuming for the purposes of this motion only that defendants Wise and Friedman did not agree to arbitrate before the AAA, we nonetheless find no basis for vacating the award on that ground. The determination that the AAA had jurisdiction over Wise and Friedman to hear this controversy is the law of the case. The law of the case doctrine requires that courts adhere to their own decisions rendered at an earlier stage of the litigation unless there are cogent or compelling reasons not to, such as an intervening change of controlling law, the availability of new evidence, or the need to correct a clear error or prevent manifest injustice. Sanders v. Sullivan, 900 F.2d 601, 605 (2d Cir. 1990). We are unconvinced by defendants' argument that an intervening change in the controlling law renders our prior decision incorrect.
Defendants rely on three cases: Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Georgiadis, 903 F.2d 109 (2d Cir. 1990); PaineWebber, Inc. v. Rutherford, 903 F.2d 106 (2d Cir. 1990); and Roney & Co. v. Goren, 875 F.2d 1218 (6th Cir. 1989). Defendants argue that these cases establish that where a party does not agree to arbitrate before a particular forum, that forum does not have jurisdiction. The facts surrounding the arbitration agreements in those cases, as well as their procedural posture, distinguish them from the case at hand.
It is true, as defendants argue, that the three cases stand for the proposition that an agreement to arbitrate before a particular forum is as integral a term of a contract as any other, which courts must enforce. However, in all three cases, the parties had agreed to a particular forum in contracts before the dispute arose, and then one party sought to arbitrate in another forum. For example, in Georgiadis, the plaintiff, a customer of Merrill Lynch, had signed a customer agreement which provided for arbitration before the NASD or the New York Stock Exchange. The plaintiff filed for arbitration before the AAA, based on a provision of the American Stock Exchange Constitution, which provided that customers could elect to arbitrate before the AAA.
The Second Circuit held that the arbitration provision of the American Stock Exchange Constitution was superseded by the arbitration provision in the customer agreement. In other words, where the parties have specifically agreed by contract to arbitrate in a particular forum, that agreement will take precedence over the general rules providing for arbitration in fora of different organizations of which the parties are members. Analogous factual circumstances underlie the other two cases.
The case before this Court is factually quite different. Because the parties present two interpretations of the facts surrounding the arbitration agreements, we will discuss both alternatives. According to defendants, there was no specific agreement between Wise and Friedman and WSA to arbitrate before the AAA; there were only the general agreements to arbitrate under the rules of the various exchanges. If that is true, then the cases cited above, which control in the situation where there is a specific agreement that is in conflict with a general agreement, are inapposite. According to plaintiff, there was a specific agreement in the guaranty to arbitrate before the AAA, and therefore, under the cases discussed above, that specific agreement should take precedence over any general agreements of the exchanges. Regardless of which version of the facts is adopted, jurisdiction of the AAA is not defeated by the later case law.
The second difference, and perhaps the crucial one between the three cases and the one before this Court, lies in their procedural posture. In all three cases, the appeal from the district court's decision directing the parties to arbitrate before a given forum occurred prior to the arbitration. In this case, the arbitration has already occurred, and in fact took place over a five year period. None of the cases cited supports the proposition that a court should overturn a lengthy, completed arbitration because the parties, although agreeing to arbitrate, did not agree on the particular forum.
Finally, plaintiff argues that even if the arbitration should not have gone forward before the AAA, defendants have not shown that they were prejudiced in any way. We agree. Defendants cannot demonstrate prejudice merely because they lost. Certainly there can be no doubt that had defendants won, the question of the appropriateness of the AAA as the forum would not be before us.
The crux of defendants' remaining arguments is this: plaintiff, the limited partnership, argued to the arbitration panel that Friedman, Wise and Becker defrauded the limited partners through the offering memoranda. This was a fraud allegedly perpetrated against the limited partners, a claim which the limited partnership had no standing to raise. Therefore, defendants argue, in ruling for the plaintiff, the arbitration panel both exceeded its authority by considering matters unrelated to the guaranty, and acted in manifest disregard of the law. Although these arguments are really two sides of the same coin, we will address them separately as the parties have done.
B. Defendants' argument that the AAA lacked jurisdiction because the claims did not relate to the guaranty:
Defendants argue that the award must be vacated pursuant to § 10(a)(4) of the Arbitration Act because none of the claims presented to the arbitrators related to the guaranty, and therefore the arbitrators exceeded the scope of their authority, which extended only to controversies arising out of or related to the guaranty.
Defendants' basis for this argument is that the guaranty standing alone could not have caused any damage to the plaintiff, because the plaintiff admitted during the arbitration that no money was ever drawn on the guaranty. In other words, defendants argue that the only way the plaintiff could have been injured by guaranteeing the account of WARCO was for Becker to call on plaintiff to pay on WARCO's behalf, and that never happened. Defendants conclude from this that any award to plaintiff could not have been related to the guaranty, and therefore the panel must have acted beyond its power.
As the Second Circuit has consistently stated, "if an arbitrator offers even a barely colorable justification for his decision, we will not vacate it on the basis of a claim that he exceeded his authority by misinterpreting the parties' contract." United States Steel and Carnegie Pension Fund v. Dickinson, 753 F.2d 250, 252 (2d Cir. 1985). We believe that defendants have taken too narrow a view both of plaintiff's claims and of the term "related to" in the arbitration clause of the guaranty. The Second Circuit in Rochdale Village, Inc. v. Public Service Emp., 605 F.2d 1290, 1295 (2d Cir. 1979) explained:
Arbitration clauses are to be construed broadly, and there is "a strong presumption favoring arbitrability." Nolde Bros., Inc. v. Local 358, 430 U.S. 243, 254, 51 L. Ed. 2d 300, 97 S. Ct. 1067 (1977). The application of this policy is clearest when a party asserts that a particular type of claim falls outside the scope of an arbitration clause. In such cases, "an order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage." United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83, 4 L. Ed. 2d 1409, 80 S. Ct. 1347 (1960).
The cases cited by Becker in its brief are inapposite on this point, because they all deal with the situation where the arbitration agreement or governing law prohibits the arbitration panel from awarding a certain type of damages or fashioning a certain type of remedy, and the board ignores that contractual limitation. See, Fahnestock & Co. v. Waltman, 935 F.2d 512, (2d Cir.), cert. denied, 116 L. Ed. 2d 331, 112 S. Ct. 380 (1991); Barbier v. Shearson Lehman Hutton, Inc., 948 F.2d 117 (2d Cir. 1991); Collins & Aikman Floor Coverings v. Froehlich, 736 F. Supp. 480 (S.D.N.Y. 1990). The arbitration panel here was not similarly limited.
Defendants characterize the arbitration clause as a narrow one, covering only certain types of disputes. However, the clause by its very terms covers any dispute arising out of or related to the contract or the breach thereof. Plaintiff's claims, although not resting solely on the guaranty, do relate to the guaranty. Plaintiff has conceded that no funds were transferred under the guaranty. However, plaintiff alleges that through this guaranty, and other cross-guaranties among the three partnerships of which Wise and Friedman were the general partners, the defendants were able to treat the three partnerships as one entity. By doing so, plaintiff alleges, the defendants were able wrongfully to magnify the leverage with which they traded the account of WSA, thus enabling the huge losses sustained by WSA.
Defendants allege that plaintiff abandoned the guaranty argument in the Third Amended Claims. However, plaintiff pleaded this theory of recovery in a number of places, for example at P 66 of the Third Amended Claims:
Since the Wall Street Associates' cross-guaranty of Wall Street Arbitrage meant that Wall Street Associates was also guarantying the accounts of SARCO, the effect was that Wise and Friedman, with Becker's assistance, could utilize Wall Street Associates' capital on behalf of SARCO, and SARCO's capital on behalf of Wall Street Associates. As a result, Wise and Friedman had increased the leverage in all three entities, and gave them the opportunity to put on more positions than they would have otherwise have been permitted.