The opinion of the court was delivered by: SEYBERT
Presently pending before the Court is Defendants' motion to modify and confirm an arbitration award rendered April 16, 1997, by an panel of arbitrators in accordance with National Association of Securities Dealers ("NASD") regulations. Plaintiff initially moved in New York State Supreme Court, Nassau County, to vacate the award and Defendants removed the action to this Court. The Court will address Plaintiff's motion to vacate and Defendants' joint motion to modify and to confirm the award.
1. THE ACCOUNT, TRANSACTIONS AND COMPLAINT
Defendants Anthony W. Schweiger and Katherine Schweiger (the "Schweigers"), are a married couple that agreed, after solicitation, to invest in securities with a broker from Stratton Oakmont ("Stratton"), and opened a Stratton customer account in or about 1994. (Schweiger Aff. PP 1, 7.) Plaintiff Shamah, a vice-president of Stratton, was placed in control of the account. (Schweiger Aff. P 8.)
Defendants' allege that Plaintiff Shamah executed unauthorized transactions in their account resulting in losses in the amount of $ 113,854.00. Moreover, Shamah purportedly retained proceeds from trades he was instructed to execute.
(Schweiger Aff. P 15.) Defendants claim that Plaintiff's conduct constituted a breach of the brokerage agreement, a breach of the fiduciary duty owed to Defendants, misappropriation and conversion of funds as well as misrepresentation of material facts and negligence. (Ex. C.) Plaintiff Shamah denied all allegations claiming that all transactions were authorized and/or ratified and that the losses were caused by Defendants' own negligence. (Ex. C.)
Defendants initiated a claim in accordance with the NASD Code of Arbitration Procedure and as required under the Customer Agreement ("Agreement") executed upon establishing the account. (Schweiger Aff. P 16.) In accordance thereof, a Statement of Claim was filed and duly served upon Plaintiff Shamah, submitting the dispute to arbitration. (Schweiger Aff. PP 16, 17, 18.) Shamah interposed an answer and filed a Uniform Submission Agreement. (Schweiger Aff. PP 19, 20; Exs. F & G.)
A notice of hearing was sent to the parties, on or about December 20, 1996, and the arbitration hearing was scheduled for March 26 and 27, 1997. (Schweiger Aff. P 25; Ex. J.)
Until January 13, 1997, Plaintiff Shamah was represented by counsel, however, on that date Shamah's attorneys notified the NASD that they were withdrawing as counsel and requested a six month adjournment of the hearing because Shamah was in a distressed financial condition, could not retain new counsel and would not be able to attend the scheduled hearings. (Schweiger Aff. P 26; Ex. K.) The arbitration panel refused the requested adjournment and once again notified the parties of the assigned hearing dates. (Schweiger Aff. P 31.)
Shamah then notified the NASD that he would not be attending the hearing but would make himself available to testify telephonically. (Schweiger Aff. P 32.) This request was opposed by Defendants' counsel, and rejected by the arbitration panel. (Schweiger Aff. PP 34, 35; Ex. P.)
The hearing was held as scheduled, and although Plaintiff Shamah was not in attendance and was not available by telephone, testimonial and documentary evidence was received into the record. ((Schweiger Aff. PP 36, 38.)
II. THE HEARING AND AWARD
The hearing was held as scheduled on March 26, 1997, in Philadelphia, Pennsylvania, in front of a panel of three arbitrators and lasted two sessions.
(Ex. C.) The panel determined that Shamah received notice of the matter as well as the date and time of the hearing but failed to appear, and is therefore bound by the panel's rulings and determinations. (Ex. C.) The panel also determined that Pennsylvania law applied. (Ex. C.)
The arbitration panel unanimously awarded (hereinafter the "Award"), the Schweigers $ 178,710.75 in compensatory and consequential damages, as well as prejudgment interest calculated at the rate of 6 percent per annum. (Ex. C.) In addition, the panel determined that Shamah was also liable to the Schweigers in the amount of $ 20,000.00 in punitive damages for his egregious willful and malicious conduct, and Shamah was assessed $ 1500.00 in fees for the hearing sessions. (Ex. C.)
III. SHAMAH'S MOTION TO VACATE THE AWARD
Plaintiff Jordan Shamah, through counsel, brought a motion on or about May 5, 1997, in Nassau County Supreme Court, to vacate the arbitration award. The action was removed by Defendants, based on diversity jurisdiction, to the Eastern District of New York, on or about July 7, 1997. Plaintiff's motion alleges the following grounds for vacatur: (1) the panel engaged in misconduct for failing to grant Shamah's requests for adjournment and to attend the hearing telephonically; (2) proper notice of the hearing pursuant to CPLR § 7506 was not provided in that Plaintiff did not receive notice by either personal service, registered mail or certified mail. (Ex. A.) Plaintiff Jordan Shamah decided to represent himself pro se, and on May 1, 1998, Shamah and his former counsel, Wexler & Burkhart, executed a Consent To Change Attorneys, which this Court So Ordered on May 15, 1998.
IV. DEFENDANTS' MOTION TO MODIFY AND CONFIRM THE AWARD
Defendants' move to modify the award because the arbitrators allegedly miscalculated the prejudgment interest by applying Pennsylvania's statutory 6 percent rate instead of New York's statutory 9 percent rate. The Defendants also assert that the award should, in all other respects, be confirmed in its entirety, because there are no valid grounds to vacate the award. Specifically, Defendants' assert that Plaintiff received actual notice of the hearing, and waived his right to object to service thereof by interposing an Answer and a Uniform Submission Agreement without raising objection to service therein. (Exs. F & G.) Additionally, Defendants aver that the arbitration panel's decision not to adjourn the hearing or to allow telephonic testimony did not constitute misconduct, but rather was in accordance with NASD Code of Arbitration Procedure. Finally, Defendants maintain that awarding punitive damages was proper under the teachings of Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 115 S. Ct. 1212, 131 L. Ed. 2d 76 (1995), and that Plaintiff was precluded from contesting the punitive portion of the award by the doctrine of collateral estoppel and the doctrine of waiver.
The parties to this case are citizens of different states and have invoked this Court's diversity jurisdiction. As the transactions at issue involve interstate commerce, the provisions of the Federal Arbitration Act ("FAA") are applicable. Barbier v. ...