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HAKALA v. DEUTSCHE BANK AG

May 11, 2004.

JONATHAN HAKALA, Petitioner, -against- DEUTSCHE BANK AG (FORMERLY BANKER'S TRUST CORPORATION), AND DEUTSCHE BANK, INC. (FORMERLY BT SECURITIES, INC.), Respondents


The opinion of the court was delivered by: MIRIAM CEDARBAUM, Senior District Judge

OPINION

Petitioner pro se Jonathan Hakala seeks to vacate an arbitration award rendered against him and in favor of his former employer, BT Securities, Inc. (now Deutsche Bank, Inc.), and its parent company, Banker's Trust Corporation (now Deutsche Bank AG). For the following reasons, the petition is denied.

Background

  In July of 1989, BT Securities hired Hakala to serve as the head of its high-yield bond trading division. In August of 1991, BT Securities terminated Hakala. In August of 1997, Hakala initiated an arbitration proceeding against BT Securities and Batnker's Trust Corporation, with the National Association of Securities Dealers (NASD). His statement of claim comprised two counts: wrongful termination and breach of contract. Hakala claimed that BT Securities terminated him in retaliation for his refusal to fraudulently inflate the value of his bond portfolio. Hakala also claimed that when he was hired in 1989, BT Securities orally guaranteed that he would receive a bonus in 1989 as well as a bonus the following year. Later, he agreed to forego a portion of the 1990 bonus in exchange for a guaranteed bonus in 1991 that would include the portion of the 1990 bonus that he did not receive. BT Securities breached these agreements, Hakala argued, by refusing to pay him the agreed-upon bonus in 1991.

  Over the course of a year, a panel of three arbitrators held fifty hearing sessions on Hakala's claims. Hakala called 13 witnesses and offered 117 exhibits into evidence. At the conclusion of the proceeding, the arbitrators ruled unanimously in favor of BT Securities and Banker's Trust. The panel did not issue a written ruling that explained the basis of its decision.

  Hakala timely filed a petition to vacate the arbitration award in this court. The court dismissed the petition sua sponte because Hakala failed to allege subject matter jurisdiction. See Hakala v. Deutsche Bank, 00 Civ. 1335 (RWS), 2000 WL 1425049 (S.D.N.Y. Sept. 26, 2000). Hakala filed a second petition in state court. Respondents removed the case to federal court on diversity grounds. The court then dismissed Hakala's second petition for failure to adhere to N.Y. C.P.L.R. § 7511(a), which sets a 90-day time limit on petitions to vacate or modify arbitration awards. See Hakala v. Deutsche Bank AG, 01 Civ. 3366 (CBM), 2002 WL 498629, at *5 (S.D.N.Y. Apr. l, 2002). On appeal, the Second Circuit held that N.Y. C.P.L.R. § 205(a), which grants a six-month grace period to a party that wishes to refile an action terminated because of a curable defect, applies to petitions to vacate arbitration awards timely commenced under N.Y. C.P.L.R. § 7511(a). See Hakala v. Deutsche Bank AG, 343 F.3d 111, 116 (2d Cir. 2003). Because Hakala's first petition was timely under § 7511(a), and his second petition was filed within the six-month grace period, the Second Circuit reversed the district court's dismissal of the petition. See id.

  Discussion

  A reviewing court must accord great deference to the decisions of an arbitration panel. See Duferco Int'l Steel Trading v. T. Klaveness Shipping A/S, 333 F.3d 383, 388 (2d Cir. 2003). Judicial review of arbitration awards is "very narrowly limited. . . .[and] the burden of proving a ground for vacating an award rests on the party who seeks to vacate it." Application of National Association of Broadcast Employees and Technicians, 707 F. Supp. 124, 128 (S.D.N.Y. 1988) (citations omitted). Limited review serves to "avoid undermining the twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation." Folkways Music Publishers. Inc. v. Weiss, 989 F.2d 108, 111 (2d Cir. 1993).

  The Federal Arbitration Act (FAA) empowers federal courts to vacate arbitration awards in four narrow circumstances:
(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
9 U.S.C. § 10(a). To these, the Second Circuit has added several additional grounds for vacating an arbitration award: manifest disregard of the law, manifest disregard of the evidence, and violation of well-established public policy. See Greenberg v. Bear, Stearns & Co., 220 F.3d 22, 27 (2d Cir. 2000); Halligan v. Piiper Jaffray, Inc., 148 F.3d 197, 202, 204 (2d Cir. 1998); Wallace v. Buttar, 239 F. Supp.2d 388, 392 (S.D.N.Y. 2003).

  Hakala offers four reasons why the arbitration award against him should be vacated: (1) respondents procured the award by corruption, fraud, or undue means; (2) the arbitration panel demonstrated evident partiality or misbehavior; (3) the arbitration panel manifestly disregarded the law and the facts; and (4) the decision is contrary to public policy. I. Fraud. Corruption, or Undue Means

  Hakala argues that BT Securities and Banker's Trust engaged in a pattern of fraud during the course of the arbitration proceeding, thereby engineering an award in their favor. Hakala makes two specific claims of fraud. First, he argues that respondents committed a number of willful discovery violations. According to Hakala, respondents denied the existence of critical documents during discovery and waited until the first day of the proceeding to admit that the documents had been found in an off-site storage facility. Respondents' intentional disregard of their discovery obligations, Hakala contends, forced him to devote significant amounts of hearing time to examining witnesses on the existence and discovery of the documents, thus curtailing the amount of time he could spend presenting his case. Hakala also notes that respondents failed to produce witnesses on several occasions and were fined accordingly.

  Second, petitioner claims that respondents suborned perjury. Hakala alleges that respondents coordinated the false testimony of a number of witnesses concerning Hakala's job performance in order to rebut his claim of retaliatory firing. Hakala argues that the testimony to the effect that he was a poor employee was "patently incredible," and points out that one of respondents' witnesses admitted to reviewing the testimony of another witness before testifying in the proceeding himself. In order to establish that respondents procured the arbitration award by corruption, fraud, or undue means, Hakala must make a three-part showing. First, he must demonstrate that respondents engaged in fraudulent activity. Second, he must show that the fraud was material to an issue in dispute during the arbitration. Third, he must show that he could not have discovered the fraud before or during the arbitration proceeding through the exercise of due diligence. See Karppinen v. Karl Kiefer Mach. Co., 187 F.2d 32, 35 (2d Cir. 1951); McCarthy v. Smith Barney. Inc., 58 F. Supp.2d 288, 293 (S.D.N.Y. 1999).

  While respondents dispute petitioner's claims of fraud, it is not necessary to weigh the merits of each side's arguments, because the third requirement stated above precludes review of Hakala's claims. Hakala does not offer a persuasive justification for his failure to discover the alleged fraud before the arbitration panel issued its ruling. Indeed, at least with respect to respondents' alleged discovery violations, he appears to have done so. He argued to the panel that these violations were deliberate attempts to obstruct the proceeding. With respect to respondents' alleged subornation of perjury, the fact that the accusation is based only on the recorded statements of witnesses indicates that Hakala was well aware of the basis for the claim during the pendency of the proceeding. The purpose of requiring fraud to be "newly discovered" before vacating an arbitration award on that ground is "to avoid reexamination, by the courts, of credibility matters which either could have been or were in fact called into question during the course of the arbitration proceedings." A. Halcoussis Shipping Ltd. v. Golden Eagle Liberia Ltd., 88 Civ. 4500 (MJL), 1989 WL 115941, at *3 (S.D.N.Y. Sept. 27, 1989). Hakala had the opportunity to present to the arbitrators evidence of ...


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