The opinion of the court was delivered by: Robert W. Sweet, United States District Judge
Petitioners Weiss, Peck & Greer, LLC ("WPG") and Roger J. Weiss ("Weiss") have moved pursuant to Section 10 of the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (the "FAA"), to vacate the $159,965 arbitration award rendered by an arbitration panel of the National Association of Securities Dealers ("NASD") in October 2002 to Respondent Susan Robinson ("Robinson"). Robinson has cross-moved to confirm the award, to direct entry of judgment in the amount of $159,965 plus post-judgment interest and for an award of attorneys' fees for the cost of opposing the motion to vacate.
For the following reasons, the award is confirmed, and Robinson shall receive post-judgment interest in the amount of nine percent from the time of the award to the time of payment. She shall not receive attorney's fees.
After the death of her husband in June 1996, Robinson sought advice from her husband's long-time friend, Weiss, for how best to invest $500,000. The petitioners assert that Robinson informed Weiss that she did not need to generate income from the investment to meet expenses, that her net worth was in excess of $2 million and that she was seeking an investment for long-term capital growth. Robinson had no prior business relationship with Weiss.
Weiss suggested several investments to Robinson, including municipal bonds, equity securities and managed funds. One of the recommended funds was the WPG-Schainuck Fund, L.P. (the "Fund"). WPG, a co-general partner of the Fund along with a WPG principal, James Schainuck ("Schainuck"), at the time had approximately $15 billion of assets under management.
On January 13, 1997, at Robinson's request, Weiss mailed to her the Fund's Confidential Memorandum, Subscription and Investment Representation Agreement, Investor Suitability Questionnaire and Limited Partnership Agreement. In a cover letter dated January 13, 1997, Weiss stated, "I want to emphasize to you that while I believe the investment is extremely attractive I do not want you to make it unless you feel comfortable with it. I am available to answer any questions that you may have."
About two weeks later, Robinson subscribed to the Fund. She executed the Fund's Subscription and Investment Representation Agreement, Investor Suitability Questionnaire and Limited Partnership Agreement and forwarded the executed documents to the Fund with her check dated February 1, 1997, for $500,000. As part of the executed subscription documents, Robinson represented and agreed that she had read and understood the fund Confidential Memorandum and Limited Partnership Agreement; that she understood and evaluated the risks set forth in the Confidential Memorandum; that she determined the investment was suitable; that she had the financial ability to bear the complete loss of the investment; that she had adequate means to provide her current needs; and that she had no need for liquidity. By executing the Subscription and Investment Representation Agreement, Robinson also represented that she "relied solely . . . on the information contained in the Memorandum and Limited Partnership Agreement," and that "[n]o representations or warranties relating to the Partnership have been made to [her] by the Partnership or the General Partners or any partner, officer, employee, agent or affiliate of any of them" (including petitioner Weiss) and that "there are no representations . . . except as stated or referred to" in the subscription agreement, Limited Partnership Agreement and the Investor Suitability Questionnaire. The Confidential Memorandum also stated that "NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATION, OR GIVE ANY INFORMATION WITH RESPECT TO THE INTERESTS, EXCEPT THE INFORMATION CONTAINED HEREIN."
The petitioners have referred to specific representations made to Robinson. The Confidential Memorandum on its first page stated:
PARTNERSHIP INTERESTS . . . ARE SUITABLE ONLY FOR
SOPHISTICATED INVESTORS FOR WHOM AN INVESTMENT IN THE
PARTNERSHIP DOES NOT CONSTITUTE A COMPLETE INVESTMENT
PROGRAM AND WHO FULLY UNDERSTAND AND ARE WILLING TO
ASSUME THE RISKS INVOLVED IN THE PARTNERSHIP'S
SPECIALIZED INVESTMENT PROGRAM (See "Certain Risk
It also stated:
THERE CAN BE NO ASSURANCE THAT THE INVESTMENT
OBJECTIVES OF THE PARTNERSHIP WILL BE ACHIEVED OR THAT
THE HISTORICAL INVESTMENT PERFORMANCE OF THE ACCOUNTS
IS INDICATIVE OF THE INVESTMENT PERFORMANCE WHICH WILL
BE ACHIEVED BY THE PARTNERSHIP IN THE FUTURE. IN
FACT, THE PRACTICES OF SHORT SELLING, LEVERAGE AND LTD
DIVERSIFICATION CAN, IN CERTAIN CIRCUMSTANCES,
MAXIMIZE THE ADVERSE IMPACT TO WHICH THE PARTNERSHIP'S
INVESTMENT PORTFOLIO MAY BE SUBJECT. (SEE "CERTAIN
Among the "Certain Risk Factors" referred to were the following disclosures:
The Partnership is a recently-formed entity and has a
limited operating history upon which investors can
evaluate the likely performance of the Partnership.
The Partnership's investment program is speculative and
presents a risk of substantial loss.
An investment in the Partnership provides limited
liquidity since the Interests are not freely transferable
and generally Partners may withdraw their capital only on
the 12-month anniversary of their admission and at the
end of each fiscal year thereafter.
All securities investments present a risk of loss of
A significant portion of the Partnership's portfolio is
generally concentrated in a small number of investment
positions at any one time and, on an occasional basis,
may be concentrated in a single investment, and to the
extent the Partnership uses leverage or engages in short
sales or uncovered options transactions, the risk of
erroneous investment analysis will be maximized.
No guarantee or representation is made that the
Partnership's program will be successful.
The allocation of 20% of the Partnership's net capital
appreciation to the General Partners may create an
incentive for the General Partners to cause the
Partnership to make investments that are riskier or
more speculative than would be the case if this
special allocation were not made.
The Limited Partnership Agreement provides that an investor may withdraw from the Fund only on the twelve-month anniversary of the date of admission to the Fund and thereafter on December 31 of any year, in each case upon sixty days' written notice to the general partners (WPG and Schainuck) stating the amount to be withdrawn. Withdrawal under any other circumstances requires the consent, which is entirely discretionary, of the general partners.
In 1998, after her investment had declined in value, Robinson asked to withdraw from the hedge fund earlier than she was entitled to do so.*fn1 The general partners of the fund requested that she execute a release, and she agreed. She signed the General Release on October 8, 1998, which released WPG's "heirs, executors administrators, successors and assigns from all actions, causes of action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialities, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims and demands whatsoever." Robinson later received a check from the fund for $340,035, representing a loss of $159,965 from her original investment.
Robinson commenced arbitration in August 2001, claiming that the hedge fund investment had not been suitable for her, that the petitioners wrongfully refused Robinson's January 1998 request to withdraw from the WPG Fund, and that the ...