UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
September 24, 1998
MARY TERESE CAMPBELL, Petitioner, against CANTOR FITZGERALD & CO., INC., et al., Respondents.
The opinion of the court was delivered by: CHIN
In this case, Mary Terese Campbell ("Campbell") petitions the Court to vacate an arbitration award rendered by a three-member National Association of Securities Dealers ("NASD") panel on March 5, 1998. Respondents oppose the petition. For the following reasons, the petition to vacate is denied and the arbitration award is confirmed. In addition, the separate suit filed by petitioner pending before the Court, Campbell v. Cantor Fitzgerald & Co., Inc., et al., No. 98 Civ. 4547 (DC), is dismissed with prejudice.
Campbell was employed by respondent Cantor Fitzgerald & Co., Inc. ("Cantor Fitzgerald") as an institutional sales person from October 19, 1987 until March 25, 1992, when she was discharged. (Resp. Mem. at 3). On April 20, 1992, Cantor Fitzgerald filed with the NASD a Form U-5, a termination notice that stock brokerages must file with the NASD when the employment of certain employees is terminated, reporting that Campbell had been "discharged" for "FAILURE TO FOLLOW FIRM PROCEDURES." (Knopf Aff. Ex. A).
On March 25, 1995, Campbell initiated an arbitration proceeding against respondents before the NASD. Campbell alleged that she was wrongfully discharged and that she was defamed by the notation on her Form U-5. After initiating arbitration, Campbell amended her claim.
Shortly thereafter, respondents moved to dismiss it. (Resp. Mem. at 6). The arbitration panel reserved decision on the motion and Campbell was permitted to present her case to the panel. What follows is a brief synopsis of the parties' accounts of the events precipitating the termination of Campbell's employment.
Until 1991, both Campbell and her husband worked at Cantor Fitzgerald. (Pet. PP 1-3).In January 1991, Campbell's husband learned of a U.S. Treasury notification concerning certain restrictions on agreements to sell or dispose of U.S. Treasury securities. (Id. P 5). Campbell's husband repeatedly brought what he believed were violations of the notice to the attention of Cantor Fitzgerald's chairman and chief executive officer, who allegedly ignored him. (Id. P 8). Because Cantor Fitzgerald purportedly refused to comply with the procedures, Campbell's husband "felt compelled to resign" and did so in June 1991. (Id. PP 10-13).
Later that year, the Securities & Exchange Commission (the "SEC") initiated an investigation of Cantor Fitzgerald's handling of the auction trading of U.S. Treasury issues. (Id. P 16-17). Shortly after an article appeared in the Wall Street Journal about the SEC investigation on March 11, 1992, Campbell was informed that she had been placed on "administrative leave" and should not report to work again until further notice was given. (Id. PP 18-19). Campbell's employment was then terminated at a March 25, 1992 meeting during which she was accused of violating firm procedures because she had allegedly disclosed confidential information and undercharged Chase Securities, where her husband then worked. (Id. P 20).
Respondents claimed that Campbell's allegation of wrongful termination was a tactic to obscure her own violations of firm procedures. (Resp. Mem. at 3-4). Respondents maintained that Campbell's employment was terminated for cause because she disclosed proprietary and confidential customer information to Chase, the disclosure of which was transcribed in a telephone conversation between Campbell and her husband on August 21, 1991. In addition, Campbell purportedly undercharged commissions to a Chase customer account managed by her husband. (Id. at 4). Respondents analyzed Campbell's Chase cash trades from July 1991 to March 1992 (the "Ramos Report") and concluded that she charged commissions totalling only $ 3,928.64 on trades involving $ 505 million of U.S. Government securities when the commissions should have been $ 13,882.52. (Id.). Campbell maintains that the Ramos Report was flawed and that respondents fabricated the reasons for the termination of her employment.
Campbell's hearings before the NASD began in April 1996 and concluded in August 1997. (Pet. Mem. P 7). The panel conducted thirty hearing sessions that generated 2200 pages of testimony. (Pet. Ex. A; Resp. Mem. at 7). The panel heard the testimony of four fact witnesses and one expert witness, and received 24 exhibits. (Resp. Mem. at 7). Testimony and documents concerning the SEC investigation of Cantor Fitzgerald was also allowed into evidence and considered by the panel despite respondents' contention that such evidence was irrelevant. (Id. at 18).
When Campbell rested, respondents renewed their motion to dismiss. The panel issued its award on March 5, 1998 granting respondent's motion to dismiss as to the "wrongful termination and all other claims sounding in wrongful termination" because Campbell was an at-will employee whose employment could be terminated for any or no reason. (Pet. Ex. A). As to Campbell's other claims, including her defamation claim, the panel held that she "failed to sustain her burden of proof." (Id.). The panel also assessed fees in the amount of $ 45,000 ($ 1,500 for each of 30 hearing sessions) against Campbell pursuant to Rule 10205(c) of the Code of Arbitration Procedure. (Id.).
This petition followed.
A. Judicial Review of Arbitration Awards
"The party seeking to vacate or modify an arbitration award bears the burden of proof, and the showing required of that party in order to avoid summary affirmance of the award is high." DeGaetano v. Smith Barney, Inc., 983 F. Supp. 459, 461 (S.D.N.Y. 1997) (citation omitted); see also Ottley v. Schwartzberg, 819 F.2d 373, 376 (2d Cir. 1987); Folkways Music Publishers v. Weiss, 989 F.2d 108, 111 (2d Cir. 1993). Arbitration awards are subject to "very limited review" to avoid undermining the goals of arbitration, namely, settling disputes efficiently and avoiding lengthy and expensive litigation. Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp., 103 F.3d 9, 12 (2d Cir. 1997) (quoting Folkways Music, 989 F.2d at 111). "The court's function in confirming or vacating an arbitration award is severely limited." Areca, Inc. et al. v. Oppenheimer & Co., Inc. et al., 960 F. Supp. 52 (S.D.N.Y. 1997) (quoting Amicizia Societa Navegazione v. Chilean Nitrate & Iodine Sales Corp., 274 F.2d 805, 808 (2d Cir.), cert. denied, 363 U.S. 843, 4 L. Ed. 2d 1727, 80 S. Ct. 1612 (1960)).
The Federal Arbitration Act (the "FAA") provides that an award may be vacated if: (1) the award was procured by corruption, fraud or undue means; (2) the arbitrators exhibited "evident partiality" or "corruption"; (3) the arbitrators were guilty of misconduct; or (4) the arbitrators exceeded their power. See generally 9 U.S.C. § 10(a); Halligan v. Piper Jaffray, Inc., 148 F.3d 197, 202 n.3 (2d Cir. 1998). Misconduct warranting vacatur pursuant to Section 10(a) of the FAA must be serious; it "must amount to a denial of fundamental fairness of the arbitration proceeding." Areca, 960 F. Supp. at 54-55 (citations omitted). To prove evident partiality of the arbitration panel, a party must demonstrate "more than just the 'appearance of bias.'" Id. at 56 (citations omitted). In fact, evident partiality "may not be shown by alleged procedural or evidentiary errors, by legitimate efforts to move the case along, or by failure to follow the rules of evidence." Id. (citations omitted).
In addition to the statutory grounds for vacatur, the Second Circuit also recognizes that an arbitration award may be vacated if it is in "manifest disregard of the law." Halligan, 148 F.3d at 201-02; Wilko v. Swan, 346 U.S. 427, 436-37, 98 L. Ed. 168, 74 S. Ct. 182 (1953). The "manifest disregard" test is rigorous. It requires "something beyond and different from a mere error in the law or failure on the part of the arbitrators to understand or apply the law." Siegel v. Titan Indus. Corp., 779 F.2d 891, 892 (2d Cir. 1985) (quoted in Willemijn, 103 F.3d at 12). To modify or vacate an award on this ground, a court must find that: "(1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case." Halligan, 148 F.3d at 202 (citing DiRussa v. Dean Witter Reynolds Inc., 121 F.3d 818, 821 (2d Cir. 1997), cert. denied, 139 L. Ed. 2d 639, 118 S. Ct. 695 (1993)).
B. Petitioner's Claims
Campbell asserts that the arbitration award should be vacated principally because: (1) it is in manifest disregard of the law and was arbitrary and capricious; (2) the arbitrators were biased, engaged in misconduct, and ruled in excess of their power; (3) the award violates Campbell's right to due process; and (4) it violates public policy in assessing her forum fees. (Pet. P 63; see also Pet. Mem. at 3-4).
I address Campbell's claims in turn.
1. Manifest Disregard of Law; Arbitrariness & Capriciousness
Campbell alleges that the arbitration award in this case was made in manifest disregard of the law because she proved that the respondents published and republished false and defamatory documents about her; her evidence was incontrovertible; the arbitrators disregarded the incontrovertible evidence; and the arbitrators disregarded the law presented and explained at the hearings. She also alleges that the arbitrators' ruling that she failed to sustain her burden of proof "arbitrarily and capriciously constitute[s] manifest disregard of the law." (Pet. Mem. at 3).
To support these allegations, Campbell relies on the facts surrounding her claim and what she maintains she proved during the arbitration hearings. In addition, Campbell relies on a recent Second Circuit decision in which the court vacated an arbitration award as being in manifest disregard of the law. See Halligan v. Piper Jaffray, Inc., 148 F.3d 197 (2d Cir. 1998). Because Campbell places so much emphasis on the Halligan decision (see Pet. Mem. at PP 2, 12-24, 33, 35, 37, 38, 48-49, 51; Pet. Reply at PP 1-2, 4, 6, 9, 13, 15-19), I briefly discuss its facts and the Second Circuit's holding in the case.
The petitioner in Halligan claimed that his employment was terminated in violation of the Age Discrimination in Employment Act (the "ADEA"). After extensive hearings, the arbitrators rendered a written award that set forth the parties' claims and defenses and denied relief to the petitioner. The award did not, however, contain any explanation or rationale for the result. The award was confirmed by the district court but the Second Circuit reversed.
Acknowledging that there is "strong judicial support" for arbitration, the Second Circuit pointed out, nevertheless, that there is increasing controversy over the enforceability of "mandatory pre-dispute arbitration agreements" in the context of "statutory claims of employment discrimination." Halligan, 148 F.3d at 201. The Second Circuit did not reach the issue, however, because it concluded that the arbitrators' decision in that case was rendered in manifest disregard of the law and facts. First, in view of the strong evidence that Halligan was fired because of his age, the court noted that it was "inclined to hold that [the arbitrators] ignored the law or the evidence or both." Id. at 204. Second, the court noted that its initial view was strengthened by the fact that the panel in this case did not explain its award.
The Second Circuit made clear, however, that it was "not holding that arbitrators should write opinions in every case or even in most cases." Id. Rather, Halligan stands for the proposition that where a court is inclined to find a manifest disregard of the law on the part of arbitrators, the court can take into account the arbitrators' failure to explain their decision. In essence, the court can infer from the absence of an explanation that the panel did not have a reasonable explanation for its award.
The instant case highlights some of the problems that exist with respect to mandatory arbitration of employment disputes. Although arbitration in theory is supposed to be faster, more efficient, and less expensive than litigation, the parties here were required to participate in thirty hearing sessions, spread out over sixteen months. The arbitrators ruled against Campbell, but did not explain their reasoning. The arbitrators then assessed Campbell $ 45,000 in hearing fees. Campbell's frustration is understandable.
Nonetheless, Halligan is distinguishable from the instant case because Campbell simply has not demonstrated any manifest disregard of the law or "arbitrary and capricious behavior" that would justify vacating the arbitration award. In Halligan, the evidence of discrimination was extremely strong; the arbitrators were apprised of the correct legal principles; and thus the Second Circuit concluded that the arbitrators must have manifestly disregarded the law. Here, Campbell has not demonstrated that she presented strong evidence to support her claims in the arbitration proceedings. In fact, Campbell failed to provide the Court even with the transcripts of the arbitration proceedings.
Even though the arbitrators did not explain the reasoning behind their decision, I am not persuaded that the applicable law in this case was ignored. Colonial Penn Ins. Co. v. American Centennial Ins. Co., 1997 U.S. Dist. LEXIS 133, No. 96 Civ. 6051, 1997 WL 10004 (S.D.N.Y. Jan. 10) (citation omitted), aff'd, 133 F.3d 906 (2d Cir. 1997); DiRussa v. Dean Witter Reynolds Inc., 121 F.3d 818, 821 (2d Cir. 1997). Indeed, Campbell never identifies any principle of law that the panel purportedly failed to follow. Rather, her approach is a factual one that focuses on the credibility of the evidence presented, which is not a proper basis upon which to vacate the award at issue.
Moreover, the arbitrators' reasoning in this case can certainly be inferred from the facts: Campbell was an at-will employee whose employment could be terminated for any non-discriminatory reason or for no reason at all;
her employer terminated her employment purportedly because she failed to follow firm procedures; the employer's decision was supported by, among other things, a tape recording of a conversation during which Campbell purportedly improperly disclosed confidential information and a report showing that Campbell had purportedly undercharged commissions; and, the reason for the termination of her employment was documented as required on a Form U-5. Under New York law, Campbell had no claim for wrongful termination, and the arbitrators rejected the defamation claim because they were not persuaded that Campbell had proven that the reported reasons for the discharge were false and defamatory. In addition, certain of Campbell's claims would appear to have been barred by the one-year statute of limitations for intentional torts.
Accordingly, the motion to vacate on the grounds of manifest disregard of the law and/or arbitrary and capricious behavior is denied.
2. Evident Partiality & Misconduct
Campbell alleges that the arbitrators showed "evident partiality and misconduct during the hearings" because they disregarded the law and the evidence presented. (Pet. Mem. at 3). She provides no proof, however, to support this allegation and offers instead only conclusory statements as to her view of what the evidence that she presented proved. Campbell has simply not come forward with any evidence of misconduct or partiality by the arbitrators except for the fact that the arbitrators ruled against her. Indeed, Campbell did not complain about the arbitrators or their conduct in this matter until after the adverse award was issued.
Accordingly, the motion to vacate on the grounds of evident partiality and/or misconduct is denied.
3. Due Process
Campbell also argues that the "panel's manifest disregard of the law and facts violates [her] right to due process." (Pet. Mem. at 13). As already discussed, Campbell has not met her burden of proving any manifest disregard of the law. In any event, I also hold that there was no violation of her due process rights. The mandatory arbitration to which Campbell was required to agree pursuant to the Form U-4 did not violate Campbell's constitutional due process and does not violate public policy. There is nothing in the record before me to demonstrate that fundamental fairness was violated in this case. The arbitration proceedings were conducted in accordance with NASD arbitration procedures, and it appears that Campbell was afforded a complete opportunity to present her case to the arbitration panel.
Accordingly, the motion to vacate on due process grounds is denied.
4. Forum Fees
The arbitration panel in this case, relying upon a specific NASD Rule,
assessed Campbell $ 45,000 in forum fees. Campbell contends that the assessment of forum fees against her violates public policy.
Campbell raises a serious issue: whether an employee who is required, as a condition of employment, to agree to the mandatory arbitration of employment disputes must pay for all or part of the arbitrators' fees when a dispute is submitted for arbitration. Indeed, some courts have held, in the context of statutory discrimination claims, that employees cannot be required to pay such fees when employers insist that employees agree to mandatory arbitration. See, e.g., Cole v. Burns Int'l Security Servs., 323 U.S. App. D.C. 133, 105 F.3d 1465, 1468 (D.C. Cir. 1997) (holding in Title VII case that an employer may not require an employee to arbitrate all disputes against it and also require the employee to pay all or part of the arbitrators' fees); Martens v. Smith Barney, Inc., 181 F.R.D. 243, 1998 U.S. Dist. LEXIS 9226, *24, 1998 WL 344802, at *8 (S.D.N.Y. 1998) (holding in Title VII case that an arbitration agreement "cannot impose financial burdens on plaintiff access to the arbitral forum").
I do not reach the issue in this case, however, for Campbell has not properly presented it. There is nothing in the record to suggest that Campbell submitted her claims for arbitration involuntarily. She initiated the arbitration proceedings by filing a Statement of Claim with the NASD and paying a $ 1,500 deposit. Although the parties have not submitted a complete record to the Court, the Court has been provided with copies of certain of Campbell's submissions to the arbitration panel, and none of these submissions contains any indication that Campbell objected to proceeding via arbitration rather than by litigation. Indeed, Campbell's Second Amended Statement of Claim begins by stating: "Claimant, Mary Terese Campbell, by her attorneys, . . . hereby submits the following claims in controversy to Arbitration, in accordance with the Constitution, Rules and Regulations of the National Association of Securities Dealers, Inc." The Second Amended Statement of Claim makes no mention of the Form U-4 and sets forth no objection to proceeding by arbitration. Nor has Campbell even alleged, by affidavit or otherwise, that she commenced the arbitration proceedings involuntarily.
Indeed, the record contains no indication that Campbell had any objection to the enforceability of the arbitration clause or to proceeding via arbitration rather than litigation until after the arbitrators ruled against her.
On this record, I can only conclude that Campbell commenced the arbitration proceedings voluntarily, without objection, and that she therefore is bound by the arbitrators' award.
Accordingly, the motion to vacate on the ground that the assessment of forum fees violates public policy is, in the particular circumstances of this case, denied.
C. Petitioner's Related Lawsuit
On June 26, 1998, Campbell filed a separate lawsuit, Campbell v. Cantor Fitzgerald & Co., Inc. et al., No. 98 Civ. 4547 (DC), against the same parties involved in the arbitration proceeding. This suit alleges the following four causes of action: (1) defamation; (2) intentional infliction of emotional distress; (3) injurious falsehood; and (4) making false statements to injure plaintiff. (Compl. PP 45-58). The complaint in this separate suit is based on precisely the same underlying facts as Campbell's claims in arbitration. Indeed, aside from minor variations, paragraphs 6-38 of the complaint are literally identical to paragraphs 1-34 of Campbell's petition to vacate. Because I am denying Campbell's petition to vacate and confirming the arbitration award, the complaint in case No. 98 Civ. 4547 (DC) is dismissed with prejudice as barred by res judicata.
For the reasons stated herein, the petition to vacate is denied and the arbitration award at issue is hereby confirmed. The Court also hereby dismisses with prejudice the case Campbell v. Cantor Fitzgerald & Co., Inc., et al., No. 98 Civ. 4547 (DC). The Clerk of the Court shall enter judgment accordingly.
Dated: New York, New York
September 24, 1998
United States District Judge