United States District Court, S.D. New York
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
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.
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.
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
(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 this
alleged fraudulent behavior of respondents. The arbitrators, as the
finders of fact, had the opportunity to assess firsthand the credibility
of the allegedly perjured testimony and of respondents' explanations for
their last-minute document production. Accordingly, Hakala may not now
seek review of those issues in this court.
II. Evident Partiality or Misbehavior
Hakala. also argues that the arbitration award should be vacated
because of evident partiality or misbehavior on the part of the
arbitration panel. At one point in the proceeding, Hakala explains,
respondents' counsel sought an ex parte hearing with the arbitrators in
order to explain why a scheduled witness could not appear that day.
Respondents' counsel stated on the record that he sought a confidential
conversation because the witness's absence related to matters that could
affect the then-pending merger of Banker's Trust and Deutsche Bank. The
arbitrators granted the request. According to Hakala, the panel denied
him the opportunity to cross-examine the witness on his unavailability
when he did appear, and the panel chairman's attitude toward respondents
was "markedly more favorable" after the ex parte communication.
An arbitration award may be set aside on the basis of evident
partiality only when "a reasonable person would have to conclude that an
arbitrator was partial to one party to the arbitration." Morelite
Constr. Corp, v. New York City Dist. Counsel Carpenters Benefit Funds,
748 F.2d 79, 84 (2d Cir. 1984); see also National Association of
Broadcast Employees, 707 F. Supp. at 131. To vacate an award on the basis
of ex parte communications between the panel and one party to the
arbitration, petitioner must make a two-part showing. First, he must
demonstrate "that [the ex parte] conversation deprived him of a fair
hearing and influenced the outcome of the arbitration." Spector v.
Torenbera, 852 F. Supp. 201, 209 (S.D.N.Y. 1994). Second, he must show
that "the subject matter of the conversation [went] to the heart of the
dispute's merits." Id. at 210.
Hakala's claim of partiality must be denied, because he has failed to
establish that the ex parte conversation influenced the outcome of the
proceeding, deprived him of a fair hearing, or dealt with the merits of
the dispute. He offers only conclusory allegations of the arbitrators'
partiality toward respondents. Respondents point out that the panel made
several rulings in favor of the petitioner after the conversation, which belie his claim of
bias. Furthermore, both respondents' counsel and the panel chairman
stated on the record that the witness's unavailability was the topic of
the ex parte conversation. It was a "merely peripheral matter" that had
nothing to do with Hakala's breach of contract and wrongful termination
claims. See Spector, 852 F. Supp. at 210. The fact that the panel refused
to permit Hakala to question the witness on this peripheral matter, does
not show partiality. Indeed, such cross-examination would have defeated
the stated purpose of the ex parte communication. Nothing in the record
or in Hakala's arguments supports a finding that counsel for respondents
or the chairman of the panel misstated the subject of the communication
on the record.
Neither has Hakala shown that the arbitrators were guilty of
misconduct. "Misconduct typically arises where there is proof of either
bad faith or gross error on the part of the arbitrator." Agarwal v.
Agrawal, 775 F. Supp. 588, 589 (S.D.N.Y. 1991). The fact that the panel
granted one party's request for an ex parte conversation does not amount
to bad faith or gross error.
Accordingly, Hakala has not shown either evident partiality or
misbehavior on the part of the arbitrators.
III. Manifest Disregard of the Law or the Facts
As a third ground for vacating the award, Hakala argues that the
arbitrators manifestly disregarded either the law or the evidence in rendering their decision. He notes that the arbitrators
demonstrated their understanding of and ability to apply the law at
several crucial junctures in the proceeding, as when they denied
respondents' motion for summary judgment and ruled on evidentiary issues.
Because he properly stated the elements of his claims and offered
sufficient evidence, Hakala argues, the decision against him could only
have been the result of a manifest disregard of the law or of a refusal
to give proper weight to the evidence.
The Second Circuit has stated that judicial review for manifest
disregard of the law is "severely limited." Greenberg, 220 F.3d at: 28
(quoting DiRussa v. Dean Witter Reynolds Inc., 121 F.3d 818, 821 (2d
Cir. 1997)). To vacate for manifest disregard of the law, a court must
find "both that (1) the arbitrators knew of a governing legal principle
yet refused to apply it or ignored it altogether, and (2) the law ignored
by the arbitrators was well defined, explicit, and clearly applicable to
the case." Id. (quoting DiRussa, 121 F.3d at 821); see also National
Association of Broadcast Employees, 707 F. Supp. at 130-31.
Hakala offers no concrete basis for such a determination. He cites no
instance in the record at which the arbitrators made a clear error of
applicable law. Accordingly, manifest disregard of the law is not a
proper ground for vacating this award.
Similarly, "judicial review of an arbitrator's factual determinations is quite limited." Beth Israel Med. Ctr. v. Local 814, 99
Civ. 9828 (JSM), 2000 WL 1364367, at *6 (S.D.N.Y. Sept. 20, 2000). To
vacate an award on the basis of manifest disregard of the evidence, a
court must find that "there is `strong evidence' contrary to the findings
of the arbitrator and the arbitrator has not provided an explanation of
his decision." Id. But a reviewing court may not question a panel's
credibility determinations or the weight that it accorded to conflicting
evidence. See McDaniel v. Bear Stearns & Co., Inc., 196 F. Supp.2d 343,
351 (S.D.N.Y. 2002).
Nothing in the record of this proceeding suggests that the panel
manifestly disregarded the evidence presented to it. With respect to the
contract claim, Hakala testified that he was offered an oral guarantee of
a two-year bonus, and that he agreed to forego the second year in return
for a guaranteed bonus the following year that would include the amount
withheld from the first bonus. Respondents presented rebuttal evidence in
the form of testimony from BT Securities executives who stated that
Hakala was given no such guarantee, that two-year guaranteed bonuses were
contrary to company policy, and that no other employees had received
two-year guaranteed bonuses. The arbitrators reasonably could have
credited this evidence over Hakala's testimony.
With respect to the retaliatory firing claim, Hakala testified and
offered evidence that his performance was adequate. He also testified that respondents had asked him to commit fraud,
he had refused, and he was fired as a result. Respondents offered the
testimony of witnesses who stated that Hakala performed below expectation
and that his job performance was the reason for his termination. The
arbitrators could have found that this was the more persuasive evidence
While it is true that the arbitrators in this proceeding did not issue
a written explanation of their decision, they were under no obligation to
do so. See Sobel v. Hertz, Warner & Co., 469 F.2d 1211, 1214 (2d Cir.
1972). Hakala's arguments amount to a claim that the arbitrators must
have disregarded the law or the facts, because they ruled against him.
Such arguments do not justify vacating the arbitration award.
IV. Violation of Public Policy
Finally, Hakala argues that the award in respondents' favor violates
public policy. Specifically, he contends that by ruling in favor of
respondents despite their fraudulent behavior during the proceeding, the
arbitrators countenanced violations of Hakala's due process rights.
According to Hakala, the arbitrators' ruling in favor of BT Securities
and Banker's Trust, despite respondents' disregard of the covenant of
good faith and fair dealing inherent in every arbitration contract,
violates the policy favoring "public faith in the arbitration process."
In addition, the denial of Hakala's claim that he was wrongfully deprived of his bonus violates New York's policy disfavoring the
forfeiture of earned wages. See, e.g., Thomson v. Saatchi and Saatchi
Holdings (USA), Inc., 958 F. Supp. 808, 824-25 (W.D.N.Y. 1997).
Arbitration awards may be vacated if they violate a "well defined and
dominant public policy." Greenberg, 220 F.3d at 27 (quoting IBEW Local 97
v. Niagara Mohawk Power Corp., 143 F.3d 704, 717 (2d Cir. 1998)). Hakala
has not shown that the arbitration award in question violates public
policy. His due process and arbitration process arguments merely repeat
his claims of fraud and partiality, which are not cognizable bases for
vacating this award. Furthermore, to hold that New York public policy
regarding the forfeiture of earned wages mandates that this court vacate
the award would contradict the arbitrators' determination that no
forfeiture of wages occurred. Because the factual findings of arbitrators
are entitled to substantial deference, such a ruling would not be
Hakala appears to make an additional argument that arbitration is not
an appropriate forum for the resolution of retaliatory termination
claims. He points out that the NASD, in response to criticism from
Congress and other government agencies, recently revised its compulsory
arbitration process to exempt claims of discrimination and sexual
harassment. Hakala suggests that those revisions constitute an admission
on the part of the NASD that its arbitrators cannot be trusted to find discriminatory
intent. By extension, Hakala argues, neither can NASD arbitrators be
trusted to be impartial when a claimant accuses an NASD member firm of
illegal conduct and is fired as a result.
The Supreme Court has determined that the FAA contemplates few
exceptions to the enforceability of arbitration agreements. See Gilmer
v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991). A new exception
to the arbitrability of employment-related claims based on the NASD's
voluntary revision of its arbitration practices is not one of the
Hakala has not shown that the arbitration award violates well-defined
public policy. Accordingly, it cannot be vacated on that ground.
For the foregoing reasons, petitioner's motion to vacate the
arbitration award is denied.
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