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KRUSE v. SANDS BROTHERS & CO.

October 3, 2002

PETER KRUSE, PETITIONER.
V.
SANDS BROTHERS & CO., LTD. AND PETER PAK, RESPONDENTS.



The opinion of the court was delivered by: Whitman Knapp, Senior United States District Judge

OPINION & ORDER

INTRODUCTION

On July 25, 2002. Petitioner Peter Kruse ("Petitioner" or "Kruse") moved, pursuant to Section 9 of the Federal Arbitration Act (the "FAA"), 9 U.S.C. § 9, for an order confirming a securities industry award (the "Award") issued on June 18 p00? The Award was entered by three arbitrators of the National Association of Securities Dealers ("NASD") and directed Respondents. Sands Brothers & Co. ("Sands") and Peter Pak ("Pak") jointly and severally, to pay Kruse the amount of $300,960.08. The NASD requires that "all monetary awards shall be paid within thirty (30) days of receipt unless a motion to vacate has been filed with a court of competent jurisdiction." NASD Manual Rule 10330. Neither Respondent has paid Kruse any of the sum awarded him. Kruse filed his petition to confirm the Award on July 25. 2002. On August 9, 2002. Respondents filed an Answer to Kruse's Petition to Confirm and a Counter-Petition to Vacate.

JUDICIAL REVIEW OF ARBITRAL AWARDS

Confirmation of Awards

Under the Federal Arbitration Act, a party wishing to confirm an arbitration award may apply to the court for a confirmation order any time within one year "and thereupon the court must grant such an order unless the award is vacated, modified, or corrected as prescribed in sections 10 and ii of this title." 9 U.S.C. § 9. "`The confirmation of an arbitration award is a summary proceeding that merely makes what is already a final arbitration award a judgment of the Court.'" Yusuf Ahmed Alghanim & Sons. W.L.L. v. Toys "R" Us, Inc. (2d Cir. 1997) 126 F.3d 15, 23, cert. denied (1998) 522 U.S. 1111. Hence, "the showing required to avoid summary confirmation is high." Ottley v. Schwartzberg (2d Cir. 1987) 819 F.2d 373, 376. "Absent a statutory basis for modification or vacatur, the district court's task . . . [is] to confirm the arbitrator's final award as mandated by section 9 of the Act." Id.

Vacature of Awards

The grounds upon which a court may vacate an arbitration award are narrowly proscribed. The Federal Arbitration Act provides that a court may make an order vacating an award upon the application of any party to the arbitration in one of four circumstances. See 9 U.S.C. § 10 (a). This section "severely restricts the power of a court to vacate an award to cases involving fraud in procurement of the award, misconduct, or arbitrators clearly exceeding their powers." Florasynth, 750 F.2d at 175.

A party seeking vacatur must proceed by motion to the court. 9 U.S.C. § 6. See U.S. Ship Management, Inc. v. Maersk Line, Limited (S.D.N.Y. 2002), 188 F. Supp.2d 358, 363. The Federal Arbitration Act provides that "[a]ny application to the court . . . shall be made and heard in the manner provided by law for the making and hearing of motions. except as otherwise herein expressly provided." Id. Rule 81(a)(3) of the Federal Rules of Civil Procedure states. in part: An proceedings under Title 9, U.S.C. relating to arbitration . . . [the Federal Rules of Civil Procedure] apply only to the extent that matters of procedure are not provided for in those statutes." FED. R. Civ. P. 81(a)(3). Thus, the language of Section 6 preempts the Federal Rules. The policy behind this section "is to expedite judicial treatment of matters pertaining to arbitration." World Brilliance Corp. v. Bethlehem Steel Co. (2d Cir. 1965), 342 F.2d 362, 365-66, citing S.Rep. No. 536, 68th Cong., 1st Sess. (1924); H.R.Rep. No. 96, 68th Cong., 1st Sess. (1924). To this end, "the statutes and rules do not permit a party to initiate a challenge to an arbitration award by filing a complaint or an Application [to Vacate Arbitration Award]." O.R. Securities, Inc. v. Professional Planning Associates, Inc. (11th Cir. 1988), 857 F.2d 742, 745 (quoting Interior Finish Contractors Association of Delaware Valley v. Drywall Finishers Local Union No. 1955 (E.D.Pa. 1985), 625 F. Supp. 1233, 1240)(internal quotations omitted). A request for vacatur must be made in the form of a motion.

The availability of vacatur is further limited by the Federal Arbitration Act. Section 12 provides that "Notice of a motion to vacate . . . an award must be served upon the adverse party or his attorney within three months after the award is filed or delivered." 9 U.S.C. § 12. The Second Circuit has made clear that there is no exception to this three month limitation period: "a party may not raise a motion to vacate, modify, or correct an arbitration award after the three month period has run, even when raised as a defense to a motion to confirm." Florasynth, 750 F.2d at 175. "Although it is important to the fair administration of arbitration that a party have the means to vacate an unjustly procured award. there is also good reason for the Act's three month limitation on this right." Id. at 176. The review of arbitration awards is "very limited . . . in order to avoid undermining the twin goals of arbitration namely, settling disputes efficiently and avoiding long and expensive litigation." Folkways Music Publishers. Inc. v. Weiss, (2d Cir. 1993), 989 F.2d 108, 111.

Standard of Review

The scope of review of arbitral awards is "very limited . . . in order to avoid undermining the twin goals of arbitration. namely, settling disputes efficiently and avoiding long and expensive litigation)." Folkways Music Publishers. Inc. v. Weiss. (2d Cir. 1993), 989 F.2d 108. 111. Under the FAA, "the validity of an award is subject to attack only on those grounds listed in § 10. and the policy of the FAA requires that an award be enforced unless one of those grounds is affirmatively shown to exist." Wall Street Assocs. L.P. v. Becker Paribas Inc. (2d Cir. 1994), 27 F.3d 845, 849 (emphasis added).

APPLICATION

Respondent's Counterer-Petition ...


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