The opinion of the court was delivered by: ROBERT SWEET, Senior District Judge
Petitioners Sam Prasad, Dr. Prema Prasad, Bloomfield Health Services,
Inc., Dr. T.S. Sudarshan, Chitra Sudarshan, and Materials Modification,
Inc. (collectively, "Petitioners"), have moved pursuant to Section 10 of
the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq.,
to vacate the arbitration decision rendered by an arbitration panel of
the National Association of Securities Dealers ("NASD") in favor of
respondent MML Investor Services, Inc. ("MMLISI"). MMLISI has cross-moved
to confirm the award. For the following reasons, the award is confirmed.
The following facts are taken from Petitioners' and MMLISI's motion
papers and do not represent findings of fact.
Petitioners claim to have been defrauded in 1996 by Natarajan
Ramachandran ("Ramachandran") and Nagaraja Thyagarajan ("Thyagarajan")
when Ramachandran and Thyagarajan persuaded them to loan money to
Compuacct Consulting, Inc. ("Compuacct") with the promise that Compuacct
would pay them high interest returns between 36 and 48 percent per year.
Ramachandran and Thyagarajan provided promissory notes in which they
personally guaranteed in writing both the interest payments and the repayment of the loans. The
business relationship turned out to be a Ponzi scheme.*fn1
On or about February 4, 2002, Petitioners Sam Prasad, his wife Dr.
Prema Prasad (collectively, the "Prasads") and Dr. Prasad's company,
Bloomfield Health Services, Inc., filed a Statement of Claim with the
NASD, asserting claims against MMLISI for breach of contract, breach of
fiduciary duty, fraud and negligent supervision. They sought to hold
MMLISI liable for their losses because Thyagarajan was a registered
representative of MMLISI for a period in 1996 when Petitioners first
loaned money to Compuacct. According to Petitioners, MMLISI learned of
Thyagarajan's activities on August 5, 1996, and on August 8, 1996,
Thyagarajan was terminated for cause.
On or about April 9, 2002, Petitioners Dr. T.S. Sudarshan, his wife,
Chitra Sudarshan (collectively, the "Sudarshans") and their company, Materials Modification, Inc.,
filed their Statement of Claim with the NASD, asserting substantially the
same claims as the Prasads against MMLISI.
On or about August 21, 2002, the parties moved jointly to consolidate
the cases. The NASD granted the motion to consolidate by letter dated
August 27, 2002. The arbitration proceeding commenced on January 29, 2003
and concluded on November 25, 2003. During that time, the NASD
Arbitration Panel (the "Panel") heard testimony on twelve separate
One of the ten witnesses who testified at the hearings was Stanley Farr
("Farr"). Farr is a former MMLISI compliance officer who had investigated
Thyagarajan's involvement in Compuacct and who had recommended that
MMLISI terminate its relationship with Thyagarajan. Farr has spent
several decades in the securities and insurance business and now operates
his own compliance consulting business. He testified before the Panel on
May 5, May 21, July 7 and November 20, 2003.
On or about September 8, 2003, between hearing dates, Petitioners
submitted a letter brief to the Panel claiming that the compensation of
Farr by MMLISI was illegal compensation of a fact witness and that the
time Farr spent in "witness prep" amounted to witness tampering and
constituted subornation of perjury. On or about September 25, 2003, MMLISI submitted a letter brief in
response to Petitioners' allegations.
On or about October 7, 2003 the Panel announced that Petitioners would
be allowed to recall Farr for additional questioning regarding his
invoices to and payments from MMLISI. On November 20, 2003, Petitioners
recalled Farr and cross-examined him at that time as well. Farr testified
that he was not paid to testify in any particular manner and that MMLISI
agreed to reimburse him at the rate of $125 per hour because he was
self-employed and that was the rate he received in his consulting
business. (See Transcript of Arbitration Proceedings ("Tr.") at
2540-41, 2195, 2473-75.) He also testified that he himself did not
prepare witnesses for the arbitration hearing, but was present during
witness preparation meetings when he was in town to testify. (See
id. at 2501-05.) The invoices indicate that in addition to being
compensated for his time, Farr was reimbursed for his travel expenses
including air-fare, meals, car rental, and hotel. (Affidavit of Mitchell
Cobert, dated Jan. 14, 2004 ("Cobert Aff."), Exs. E & F.)
At the close of Farr's testimony, Petitioners moved to strike the
testimony of all of MMLISI's witnesses on the grounds that MMLISI had
improperly paid Farr for his testimony and to prepare the other
witnesses. (See Tr. at 2569-73.) On November 20, 2003, the
Panel met in executive session to consider Petitioners' motion and determined that it would hold the "motion
in abeyance pending its deliberation toward the final decision."
(Id. at 2574-75.)
On December 17, 2003, the Panel issued its decision (the "Award")
denying Petitioners' claims in their entirety, denying Petitioners'
motion to strike the testimony of MMLISI's witnesses, and issuing an
assessment of fees due to the Panel by both parties. The Panel did not
explain the basis of the Award except to state that the arbitrators had
considered "the pleadings, the testimony and evidence presented at the
hearing" in reaching their decision. (Cobert Aff., Ex. G.)
Petitioners filed a petition to vacate the Award on January 15, 2004.
MMLISI filed a cross-petition to confirm the Award on February 19, 2004.
No oral arguments were held, and the petition and ...