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CONGRESSIONAL SECURITIES, INC. v. FISERV SECURITIES

United States District Court, S.D. New York


April 14, 2004.

CONGRESSIONAL SECURITIES, INC, et al., Petitioners, -against- lead case FISERV SECURITIES, INC, as successor to Fiserv Correspondent Services, Inc., Respondent

The opinion of the court was delivered by: RICHARD J. HOLWELL, District Judge

Memorandum Opinion and Order

This matter comes before the Court as a petition to vacate an arbitration award. Presently pending is Petitioners' pro se Rule 60(b) motion to set aside the previous judgment confirming the arbitration award. Respondent has also moved for attorney fees. Neither motion is opposed. For the following reasons, Petitioners' motion is denied and Respondent's motion is granted.

I. BACKGROUND

  Petitioners in this case are a securities brokerage firm, Congressional Securities, Inc. ("Congressional"), and a group of investors who maintained trading accounts at the firm. Respondent Fiserv Securities, Inc. ("Fiserv"), acted as a clearing house for the brokerage firm. Each of the Petitioners purchased shares on margin of Interface Systems, Inc. ("Interface"), a company that is not a party to the present action. Fiserv issued margin calls to Petitioners when the price of Interface stock declined and later initiated arbitration proceedings against Petitioners when the margin calls were not honored. Fiserv prevailed in the arbitration, receiving an award totaling over $10 million plus attorney fees and interest Petitioners then filed this action to vacate the arbitration award.

  This matter was originally assigned to the Honorable John S. Martin, United States District Court for the Southern District of New York. Before Judge Martin, Petitioners argued that the arbitrators improperly denied Petitioners' request to postpone the arbitration. Petitioners also argued that the arbitrators acted improperly when they permitted David H. Zimmer, who was a party to the arbitration proceedings and an officer of the petitioner brokerage firm, to act as the attorney for Petitioners at an earlier stage of the arbitration. Judge Martin denied Petitioners' motion to vacate the arbitration award and granted Respondent's cross-motion to affirm the award. See Cong. Secs., Inc. v. Fiserv Secs., Inc., 02 Civ. 6593,02 Civ. 7914, 02 Civ. 3740,02 Civ. 8634, 2003 WL 21664678 (S.D.N.Y. Jul. 15, 2003). On January 15,2004, this matter was reassigned to this Court

 II. DISCUSSION

  A. Petitioners' Rule 60(b) Motion

  Section 13 of the Federal Arbitration Act ("FAA") provides that a judgment confirming an award, once entered, has the same force and effect as a judgment in a standard civil action and is subject to all the provisions of law relating to judgments, see 9 U.S.C. § 13, including the provisions of the Federal Rules of Civil Procedure. See Clarendon Nat'l Ins. Co. v. TIG Reins. Co., 183 F.R.D. 112,117 (S.D.N.Y. 1998). Rule 60(b)(2) states that, "[o]n motion and upon such terms as are just, the court may relieve a party . . . from a final judgment, order, or proceeding [if there is] newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b)". Fed.R.Civ.P. 60(b)(2). The decision to set aside a prior judgment under Rule 60(b) is within the sound discretion of the district court. See Clarendon, 183 F.R.D. at 117-18. In considering relief under Rule 60(b), a party's need for substantial justice must be weighed against the need for preserving the finality of judgments. See id at 118. Indeed, because Rule 60(b) allows for "extraordinary judicial relief', the moving party must demonstrate "exceptional circumstances" for such relief. See Paddington Partners v. Bouchard, 34 F.3d 1132,1142 (2d Cir. 1994).

  A pro se party is afforded some degree of "flexibility" in pleading their action. See Boguslavsky v. Kaplan, 159 F.3d 715, 720 (2d Cir. 1998). Therefore, the Court reads Petitioners' papers liberally and interprets them "to raise the strongest arguments that they suggest." Id.

  Petitioners argue that, in the course of their litigation in the United States District Court for the Eastern District of Michigan against Interface and its officers-litigation that occurred after the arbitration, evidence was discovered that would "exonerate or significantly reduce the award against Petitioners in the arbitration." (Rule 60(b)(2) Mot. for Relief from J. Due to Newly Disc. Evid. at 3 (hereinafter "Pet'r Mot.").) Petitioners argue that discovery in (he arbitration proceedings was more limited in scope than the discovery in the Michigan action and that, by declining to defer the arbitration proceedings, the panel wrongfully precluded Petitioners from introducing exculpatory evidence that would have altered the outcome of the arbitration hearing.*fn1 (See id. at 3-5.) Petitioners' motion fails for two reasons. First, the alleged exculpatory evidence does not indicate any fault with Judge Martin's order confirming the arbitration award. Judge Martin's order held that "the arbitrators clearly acted reasonably in denying an application for a continuance made on the day of a hearing which had been scheduled more than seven months earlier." Cong. Secs., 2003 WL 21664678, at *2. The order also held that "there was nothing unreasonable in the panel accepting Zimmer's representation that he was authorized to appear for all of the [Petitioners]." Id. at 3. The possible existence of evidence exonerating Petitioners' actions with respect to the margin calls underlying the arbitration proceedings-evidence allegedly discovered after the proceedings-does not effect Judge Martin's conclusion that the arbitration panel acted reasonably considering the information available at the time of the proceedings.

  This brings the Court to the second reason why Petitioners' motion fails: neither Rule 60(b) nor any other rule involving "newly discovered evidence" is available to vacate an arbitration award, which is the apparent intent of Petitioners' motion. Although Rule 60(b) may be used to modify a judgment confirming an arbitration award, "[i]t is well-established that Rule 60(b) does not apply" to the arbitration award itself. Clarendon, 183 F.R.D. at 117. Accord Washington-Baltimore Newspaper Guild, Local 35 v. Washington Post Co., 442 F.2d 1234,1239 (D.C. Cir. 1971) ("[W]e think that neither Rule 60(b) nor any judicially constructed parallel thereto was meant to be applied to final arbitration awards"); Cook Chocolate Co. v. Salomon Inc., 748 F. Supp. 122, 125 (S.D.N.Y. 1990) ("Rule 60(b) is unavailable . . . in contesting the arbitrators' decision"). Section 10 of the FAA outlines the grounds for vacating an arbitration award, see 9 U.S.C. § 10; "newly discovered evidence" is not one of those grounds.*fn2 Cf. Grey v. FDIC, No. 88 Civ. 7452, 2002 WL 959564, at *10 (S.D.N.Y. May 8, 2002) (finding court lacks power to review arbitration award on the basis of newly discovered evidence that was not before arbitrators). Absent a statutory basis for modification or vacatur, the district court has little choice but to confirm an arbitration award, as mandated by Section 9 of the FAA. See Cook Chocolate, 748 F. Supp. at 126,30.

  Indeed, there is good reason why "newly discovered evidence" is not one of the grounds specified by the FAA. As the Washington-Baltimore court explained, the parties to an arbitration agreement bargained to have disputes settled by arbitration, knowing all of the advantages and drawbacks of the proceedings. See Washington-Baltimore, 422 F.2d at 1238 & n.4 (quoting Bridgeport Rolling Mills Co. v. Brown, 314 F.3d 885, 886 (2d Cir. 1963) ("[T]he parties, having agreed to an arbitration of their differences, are bound by the arbitration award made upon the testimony before the arbitrator")); cf. Paperhandlers Union No. 1 v. U.S. Trucking Corp., 441 F. Supp. 469, 476 (S.D.N.Y. 1977) (quotations omitted) (`The plight of a litigant who discovers new and important evidence after an adverse arbitration award has been handed down, may be an unfortunate one, but that is one of the risks which he assumed in submitting the controversy to arbitration"). "Unless parties are bound by the records made before the arbitrators, the piecemeal or staggered submission of evidence would be likely to erode the effectiveness of arbitration as a speedy and efficient forum for resolving . . . disputes." Washington-Baltimore, 422 F.2d at 1238. Thus, "[t]he fact that there is an argument against the truth of any of the statements [made during arbitration] does not establish that the arbitration award" should be set aside. Cook Chocolate, 748 F. Supp. at 126; accord Hines v. Anchor Motor Freight, Inc., 424 U.S. 554,571 (1976) ("Petitioners are not entitled to relitigate [the arbitrator's findings] merely because they offer newly discovered evidence that the charges against them were false and that in fact [what petitioners argued was true]").

  For these reasons, the Court denies Petitioners' Rule 60(b)(2) Motion for Relief from Judgment Due to Newly Discovered Evidence.

  B. Respondent's Motion for Attorney Fees

  Although the American Rule typically precludes a party that prevailed in litigation from recovering attorney fees expended in that litigation, see Hirschfeld v. Ed. of Elections in City of New York, 984 F.2d 35,40 (2d Cir. 1993), Fed.R.Civ.P. 54 allows motions for recovery of attorney fees if there is a "statute, rule, or other grounds entitling the moving party to the award".*fn3 Fed.R.Civ.P. 54(d)(2)(B). Respondent claims that the contracts between Petitioners and Respondent authorize a judgment for attorney fees. (See Resp't Mot for Atty Fees at 2.) More specifically, Respondent asserts that Congressional is liable for attorney fees because the agreement between Fiserv and Congressional states that "[Congressional], its agents, successors and assigns, will be responsible for, will pay, and will fully indemnify [Fiserv] . . . from all losses, claims, actions and expenses, including reasonable attorney fees and costs, which are incurred by [Fiserv] and arise by reason of [Congressional's] failure to comply with" the agreement (Fully Disclosed Correspondent Agreement at ¶ 14, attached as Ex. 1 to the Decl. of Steven D. Plissey.) Respondent also asserts that the individual investors, who were clients of Congressional, are liable for a portion of attorney fees because the agreement disclosed on the backs of trade confirmations for the investments in question states:

"If required payment or delivery of securities is not made by Customer by settlement date, [Fiserve] and/or [Congressional] may . . . charge Customer and his/to/its account for all expenses, losses and all other costs incurred, including but not limited to all reasonable attorney's fees and legal costs incurred in respect thereof
In the event of any breach or default in connection with any such Customer obligations or liabilities . . . Customer is and shall remain liable for any balance due and any loss and/or expenses incurred by [Fiserv] and/or [Congressional] in acting pursuant hereto." (Agreement at ¶¶ 7,9, attached as Ex. 2 to the Decl. of Steven D. Plissey.)
Respondent notes that the arbitration panel relied on these agreements to award Respondent attorney fees and costs associated with the arbitration proceedings and that the panel devised a formula to allocate the fees and costs among the individual investors.*fn4(See Resp't Mot. for Atty Fees at 2; Decl. of Steven D. Plissey, ¶ 3.)

  The agreement between Congressional and Fiserv specifies that it should be construed according to Colorado law. (See Fully Disclosed Correspondent Agreement at ¶ 26, attached as Ex. 1 to the Decl. of Steven D. Plissey.) The agreement on the backs of trade confirmations similarly references Colorado law. (See Agreement at ¶ 9, attached as Ex. 2 to the Decl. of Steven D. Plissey.)

  Pursuant to Colorado law, when provided for by contract, a party may recover its attorney fees incurred in enforcing its rights undo' the contract.*fn5 See Singer Housing Co. v. Seven Lakes Venture, 466 F. Supp. 369,377 (D. Colo. 1979). Thus, the Court finds that Respondent has grounds entitling it to an award for attorney fees under Rule 54. Having reviewed the billing records submitted by Respondent's counsel, the Court also finds that the requested attorney fees are reasonable. For these reasons, the Court grants Respondent's motion for attorney fees. III. CONCLUSION

  For the foregoing reasons, Petitioners' Rule 60(b)(2) Motion for Relief from Judgment Due to Newly Discovered Evidence [02cv3704,45-1; 02cv6593,28-1] is DENIED and Respondent's Motion for Attorney Fees [02cv7914,4-1] is GRANTED.

  Applying the arbitration panel's formula for apportioning liability among the Petitioners, the Court finds that Petitioners are liable to Respondent for attorney fees incurred in confirming the arbitration award pursuant to the following schedule:

  1. Petitioners the Sheldon L. Contract DDS PA Employees Profit Sharing Plan Dated 9-17-87 and Congressional are jointly and severally liable to and shall pay to respondent Fiserv the sum of $4,970.06, with interest on such amount until paid.

  2. Petitioners David C. Diephouse and Congressional are jointly and severally liable to and shall pay to respondent Fiserv the sum of $599.03, with interest on such amount until paid.

  3. Petitioners Youness E. Hendifar, Mahnaz Hedifar and Congressional are jointly and severally liable to and shall pay to respondent Fiserv, the sum of $2,140.84, with interest on such amount until paid.

  4. Petitioners Bernard Klitzner and Congressional are jointly and severally liable to and shall pay to respondent Fiserv, the sum of $180.43, with interest on such amount until paid.

  5. Petitioners Sandra J. Lachance and Congressional are jointly and severally liable to and shall pay to respondent Fiserv, the sum of $514.87, with interest on such amount until paid. 6. Petitioners Ella M. Leffler and Congressional are jointly and severally liable to and shall pay to respondent Fiserv, the sum of $14,381.43, with interest on such amount until paid.

  7. Petitioners Warren M. Merguerian Jr. DDS PA Profit Sharing Plan Dated 6-1-85 and Congressional are jointly and severally liable to and shall pay to respondent Fiserv, the sum of $1,394.08, with interest on such amount until paid.

  8. Petitioners Jan B. Newman, Sandra Newman and Congressional are jointly and severally liable to and shall pay to respondent Fiserv, the sum of $162.72, with interest on such amount until paid.

  9. Petitioners Martin Newman and Congressional are jointly and severally liable to and shall pay to respondent Fiserv, the sum of $1,490.28, with interest on such amount until paid.

  10. Petitioners Jay M. Walshon and Congressional are jointly and severally liable to and shall pay to respondent Fiserv, the sum of $493.19, with interest on such amount until paid.

  11. Petitioners Sherry M. Zimmer and Congressional are jointly and severally liable to and shall pay to respondent Fiserv, the sum of $8,741.86, with interest on such amount until paid

  12. Petitioners the David H. Zimmer Money Purchase Plan and Congressional are jointly and severally liable to and shall pay to respondent Fiserv, the sum of $10,574.61, with interest on such amount until paid.

  13. Petitioners the Sherry M. Zimmer Money Purchase Plan and Congressional are jointly and severally liable to and shall pay to respondent Fiserv, the sum of $12,151.58, with interest on such amount until paid. 14. Petitioners John Joseph and Congressional are jointly and severally liable to and shall pay to respondent Fiserv, the sum of $93.98 with interest on such amount until paid.

  The Cleric is directed to close this case.

  SO ORDERED


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