Ebbe v. Concord Investment Services, LLC

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

___________________________________

)

KENNETH EBBE, )

)

Petitioner, )

) Civil Action

v. ) No. 19-10289-PBS

)

CONCORDE INVESTMENT SERVICES, LLC; )

WESTMINSTER FINANCIAL SECURITIES, )

INC.; WESTMINSTER FINANCIAL )

ADVISORY CORP.; RICHARD G. CODY; )

and JILL M. CODY a/k/a JILL M. )

TRAMONTANO, )

)

Respondents. )

______________________________ )

MEMORANDUM AND ORDER

July 18, 2019

Saris, C.J.

INTRODUCTION

Petitioner Kenneth Ebbe brought claims in a Financial

Industry Regulatory Authority (“FINRA”) arbitration proceeding

against his former investment brokers, Richard and Jill Cody;1

Richard Cody’s former employer, Westminster Financial

Securities, Inc. and Westminster Financial Advisory Corp.

(collectively, “Westminster”); and both Codys’ former employer,

1 Since the events at issue in this case, Jill Cody has

changed her last name to Tramontano. Because the parties and

documents refer to her as Jill Cody, the Court will follow suit.

Concorde Investment Services, LLC (“Concorde”). Ebbe alleged

that Richard Cody falsely reported an inflated value for his

investments for over a decade, which caused him to withdraw more

money than he otherwise would have and miss the opportunity to

seek employment to replenish his losses. After a four-day

hearing, the FINRA arbitration panel issued an award for

$286,096 in compensatory damages against the Codys jointly and

severally but denied relief against Westminster and Concorde.

Ebbe moves to confirm the award against the Codys. He also

seeks to vacate the denial of relief against Westminster and

Concorde on the basis that the panel acted in manifest disregard

of the law by not finding the companies liable for the Codys’

misconduct via respondeat superior. In response, Westminster and

Concorde both cross-move to confirm the panel’s denial of relief

against them. In a pro se answer, which the Court construes as a

motion to vacate, Jill Cody alleges she did not receive notice

of the arbitration until after the panel issued its award.

After hearing and supplemental briefing concerning Jill

Cody’s notice of the arbitration, the Court ALLOWS Ebbe’s motion

to confirm the arbitration award against Richard Cody and Jill

Cody (Docket No. 1), DENIES Ebbe’s motion to vacate the award

against Concorde and Westminster (Docket No. 1), DENIES Jill

Cody’s motion to vacate (Docket No. 34), ALLOWS Concorde’s

motion to confirm (Docket No. 36), and ALLOWS Westminster’s

motion to confirm (Docket No. 40).

FACTUAL BACKGROUND

I. Kenneth Ebbe and Richard Cody

Ebbe is a resident of Rockland, Massachusetts. He worked

for Verizon from 1969 until he accepted an early retirement in

2002. Upon retirement, he cashed out the entirety of his pension

and 401k, a total of $498,000. He hired Richard Cody, an

investment professional at Leerink Swann who was recommended by

a friend and former colleague at Verizon, to manage the money.

Ebbe maintained his investments with Cody after Cody moved to

GunnAllen Financial in 2005.

Starting in 2002, Ebbe received monthly distributions from

his account of around $3,000 after tax withholding. Once he

began receiving Social Security benefits in 2009, he reduced his

distributions to around $2,500 per month. He also made

withdrawals totaling approximately $22,000 for one-time

expenses.

Throughout their relationship, Ebbe and Cody met a few

times a year for an account review. During these reviews, Cody

told Ebbe his investments were holding their value at around

$500,000 and that he was only withdrawing interest from his

account. In reality, Ebbe’s account principal steadily declined

while Cody was advising him. Although Ebbe received periodic

account statements from Cody’s employers with accurate

information about his account value, he did not understand them

and told Cody he was relying on him to provide an accurate

picture of his financial situation. Cody told Ebbe that these

account statements did not include all of his investments.

On January 11, 2008, FINRA’s Department of Enforcement

suspended Cody for a year and imposed a fine for failing to

recommend suitable investments to his clients and providing them

with misleading monthly statements. Cody v. SEC, 693 F.3d 251,

256-57 (1st Cir. 2012). Ebbe did not know about these penalties

until late 2016.

II. Westminster

In 2010, Cody began working at Westminster, a broker-dealer

and financial advisory firm headquartered in Ohio. Ebbe’s

account value, which Cody transferred to Westminster, was around

$144,000 at the time. Ebbe alleges that Cody continued to

misrepresent the value of the principal while his account was

with Westminster, but he did not produce documentary evidence at

the arbitration hearing of any misrepresentations during this

period. Ebbe never spoke with anyone from Westminster except for

Cody, even though he noticed discrepancies between Westminster’s

periodic statements and Cody’s representations about his account

value. Westminster did not have any issues with Cody during his

employment but terminated him when his FINRA suspension began in

early 2013.

III. Concorde

Cody moved Ebbe’s account to Concorde, another broker-

dealer and financial advisory firm headquartered in Michigan, in

January 2013. Ebbe’s account had a value of around $59,000 at

the time. Cody began his one-year FINRA suspension the same

month, so Jill Cody, his wife and also a new investment

professional at Concorde, took over management of his accounts,

including Ebbe’s. Since Concorde knew Jill Cody was managing her

husband’s accounts during the suspension, the company

investigated to ensure she was qualified to do so and conducted

a surprise inspection of her office. Concorde found no issues

with her management of her husband’s accounts and received no

complaints from clients.

Despite his suspension, Richard Cody communicated with Ebbe

about his investments throughout 2013, and they met multiple

times during the year. Cody formally joined Concorde once his

suspension ended in February 2014. Nevertheless, Jill Cody

continued as the listed investment professional on Ebbe’s

account during the entire period it was managed by Concorde.

Ebbe was unaware Jill Cody was his listed investment

professional, although the periodic statements he received from

Concorde included her name. Ebbe only spoke with Jill Cody once,

when she answered the telephone on behalf of her husband.

During this period, Richard Cody produced a number of false

documents that inflated the value of Ebbe’s account. For

example, he gave Ebbe a false 1099 tax form for the year 2015.

In the spring of 2016, Cody visited Ebbe at his home and showed

him the top corner of a piece of paper in his briefcase listing

an account value of around $489,000. Ebbe requested a copy of

the document, but Cody never gave it to him. The actual value of

Ebbe’s account at this time was less than $100.

In 2015, Concorde received an unrelated complaint about the

Codys that triggered an investigation of their business.

Concorde discovered that Richard Cody had contacted clients

during his suspension and that Jill Cody likely knew about it

and did not report it. Concorde terminated the Codys in July

2016. In September 2016, after receiving a late distribution

from his account, Ebbe called Concorde and was informed his

account value was $0.

IV. FINRA Arbitration

Ebbe initiated an arbitration with FINRA against Richard

and Jill Cody, Concorde, Westminster, and others on August 1,

2017. His statement of claim alleged negligence, breach of

fiduciary duty, and violations of various securities laws and

regulations. It did not specifically allege that Westminster and

Concorde were liable via respondeat superior. Pursuant to the

rules for FINRA customer arbitrations, FINRA sent a letter to

Jill Cody on August 7, 2017 notifying her that she had been

named as a respondent and explaining the process for defending

herself. FINRA used the address listed on her “Central

Registration Depository” (“CRD”) record: 409 Captain’s Way in

Neptune, New Jersey.2 On August 23, 2017, FINRA notified Ebbe’s

attorney that it had not perfected service on Jill Cody at the

Captain’s Way address, likely because she had moved elsewhere in

Neptune. Ebbe’s attorney attempted to locate her new address

but, as she had changed her last name, was unable to do so.

Neither of the Codys responded to the statement of claim or

appeared at the evidentiary hearing.3

A panel of three arbitrators presided over a four-day

evidentiary hearing from October 16 to 19, 2018. During the

hearing, Ebbe argued that Concorde and Westminster were liable

on a number of grounds, including for Richard Cody’s misconduct

under the doctrine of respondeat superior. He noted that

communicating with clients about their account values was part

2 The CRD is a centralized database for information on

individuals involved in the securities industry. See Karsner v.

Lothian, 532 F.3d 876, 880 & n.2 (D.C. Cir. 2008).

3 Richard Cody has pled guilty to investment advisor fraud in

violation of 15 U.S.C. §§ 80b-6 and 80b-17 and making a false

declaration under oath in violation of 18 U.S.C. § 1623(a). He

is also a defendant in a pending SEC civil enforcement action.

of Cody’s job responsibilities and therefore his

misrepresentations were within the scope of his employment. He

also briefly mentioned in his closing argument that Concorde

should be held vicariously liable for Jill Cody’s conduct as

well.

Both Westminster and Concorde responded that Cody’s conduct

was outside the scope of his employment because he was subject

to heightened supervision at both companies and was not

authorized to misrepresent account values to clients.

Westminster also argued that Ebbe presented no documentary

evidence of any misrepresentations while it managed his account

and that all the statements it provided Ebbe accurately

reflected his account activity and value. Concorde argued that

it was not liable because Jill Cody, not Richard Cody, was the

listed representative on Ebbe’s account and Ebbe suffered most

of his financial losses before Cody transferred his account to

Concorde in 2013.

Ebbe requested compensatory damages of $144,000, the amount

he continued to withdraw after his account moved to Westminster

on the false assumption his withdrawals were not reducing

principal; lost opportunity damages of $374,400 based on the

income he could have earned over six years if he had not falsely

believed he had half a million dollars in his account; and

punitive damages of between $200,000 and $300,000 against each

respondent.

On November 20, 2018, the panel issued the following award:

1. Respondents Richard Grant Cody and Jill M. Cody are

jointly and severally liable for and shall pay to

[Ebbe] the sum of $286,096.00 in compensatory

damages.

2. [Ebbe’s] claims against Concorde, Westminster

Financial, and Westminster Advisory are denied.

3. [Ebbe’s] request for attorneys’ fees is denied.

4. [Ebbe’s] request for punitive damages is denied.

5. Any and all claims for relief not specifically

addressed herein are denied.

Dkt. No. 2-3 at 4. The panel provided no explanation for its

award but did note that Jill Cody was properly served with the

statement of claim and received adequate notice of the hearing.

On February 14, 2019, Ebbe filed a motion to vacate in part

and confirm in part the arbitration award in the United States

District Court for the District of Massachusetts. He asks the

Court to confirm the award of $286,096.00 against the Codys and

vacate the denial of relief against Westminster and Concorde.

Ebbe argues that the arbitrators acted in manifest disregard of

the law when they declined to find Westminster and Concorde

liable for the Codys’ misconduct under the doctrine of

respondeat superior. Westminster and Concorde oppose Ebbe’s

motion to vacate and cross-move to confirm the award. Jill Cody

filed a pro se answer stating that she did not know about the

arbitration until she received notice of Ebbe’s motion in

February 2019. Richard Cody has not responded to Ebbe’s motion.

STANDARD OF REVIEW

Pursuant to the Federal Arbitration Act (“FAA”), a party to

an arbitration may apply within one year for a judicial order

confirming the award. 9 U.S.C. § 9. Upon receipt of such an

application, unless the court vacates, modifies, or corrects the

arbitration award pursuant to 9 U.S.C. §§ 10-11, it must confirm

the award. Ortiz-Espinosa v. BBVA Sec. of P.R., Inc., 852 F.3d

36, 42 (1st Cir. 2017). However, a “federal court’s authority

to defenestrate an arbitration award is extremely limited.”

First State Ins. Co. v. Nat’l Cas. Co., 781 F.3d 7, 11 (1st Cir.

2015). Courts do not “hear claims of factual or legal error by

an arbitrator as an appellate court does in reviewing decisions

of lower courts,” even “where such error is painfully clear,”

Ortiz-Espinosa, 852 F.3d at 48 (quoting Advest, Inc. v.

McCarthy, 914 F.2d 6, 8 (1st Cir. 1990)), nor do they “revisit

the arbitrators’ ultimate determination of whether or not to

impose liability,” id. At issue in this case are two grounds for

vacating an arbitration award.

I. Manifest Disregard of the Law

First, under the manifest disregard doctrine, a court may

vacate an arbitration award if it is “(1) unfounded in reason

and fact; (2) based on reasoning so palpably faulty that no

judge, or group of judges, ever could conceivably have made such

a ruling; or (3) mistakenly based on a crucial assumption that

is concededly a non-fact.” Mountain Valley Prop., Inc. v.

Applied Risk Servs., Inc., 863 F.3d 90, 95 (1st Cir. 2017)

(quoting McCarthy v. Citigroup Glob. Mkts. Inc., 463 F.3d 87, 91

(1st Cir. 2006)). The doctrine applies when “the arbitrator

recognized the applicable law, but ignored it.” Raymond James

Fin. Servs., Inc. v. Fenyk, 780 F.3d 59, 64 (1st Cir. 2015)

(quoting Bangor Gas Co. v. H.Q. Energy Servs. (U.S.) Inc., 695

F.3d 181, 187 (1st Cir. 2012)). To succeed on a manifest

disregard argument, the party challenging the award must point

to “some showing in the record, other than the result obtained,

that the arbitrator[] knew the law and expressly disregarded

it.” Ramos-Santiago v. United Parcel Serv., 524 F.3d 120, 124

(1st Cir. 2008) (alteration in original) (quoting Advest, 914

F.2d at 9).

An arbitrator is “under no compulsion” to provide a written

decision, Zayas v. Bacardi Corp., 524 F.3d 65, 70 (1st Cir.

2008), and where an arbitrator gives no reasons for the award,

the burden on the party seeking vacatur for manifest disregard

is especially heavy, see Prudential-Bache Sec., Inc. v. Tanner,

72 F.3d 234, 240 (1st Cir. 1995) (“[W]hen the arbitrators do not

give their reasons, it is nearly impossible for the court to

determine whether they acted in disregard of the law.”

(quotation omitted)). A party seeking vacatur cannot merely

point to what he perceives to be an erroneous result. See id.

Instead, in the absence of a written decision, he must show that

“the governing law [had] such widespread familiarity, pristine

clarity, and irrefutable applicability” that the arbitrator must

have “kn[own] the rule and, notwithstanding, swept it under the

rug.” Advest, 914 F.2d at 10. “If there is even a barely

colorable justification for the outcome reached” that can be

inferred from the record, a court must confirm the award. Bear,

Stearns & Co. v. 1109580 Ontario, Inc., 409 F.3d 87, 91 (2d Cir.

2005) (quoting Willemijn Houdstermaatschappij, BV v. Standard

Microsys. Corp., 103 F.3d 9, 13 (2d Cir. 1997).

In Hall Street Associates, L.L.C. v. Mattel, Inc., the

Supreme Court held that the FAA provides the exclusive grounds

for vacating an arbitration award. 552 U.S. 576, 578 (2008).

After Hall Street, the First Circuit has expressed doubt about

the continuing validity of the judicially created manifest

disregard doctrine but has declined to decide the issue where

the party challenging the award fails to meet the high burden of

showing manifest disregard. See Mountain Valley, 863 F.3d at 94-

95. Because the arbitrators did not act in manifest disregard of

the law in this case, the Court follows the First Circuit in

assuming the validity of the doctrine and need not address

Westminster’s and Concorde’s arguments as to why the manifest

disregard doctrine is no longer a basis for vacatur.

II. Fairness

Second, arbitration proceedings must satisfy “the minimal

requirements of fairness” under due process. Ramirez-de-

Arellano v. Am. Airlines, Inc., 133 F.3d 89, 91 (1st Cir. 1997)

(quoting Sunshine Mining Co. v. United Steelworkers of Am., 823

F.2d 1289, 1295 (9th Cir. 1987)). A fair proceeding requires

“(1) notice, and (2) an opportunity to present relevant evidence

and arguments.” Doral Fin. Corp. v. García-Vélez, 725 F.3d 27,

32 (1st Cir. 2013). Actual notice of a pending proceeding is not

necessary to satisfy due process. See Jones v. Flowers, 547 U.S.

220, 226 (2006). Instead, notice need only be “reasonably

calculated, under all the circumstances, to apprise interested

parties of the pendency of the action and afford them an

opportunity to present their objections.” United Student Aid

Funds, Inc. v. Espinosa, 559 U.S. 260, 272 (2010) (quoting

Mullane v. Cent. Hanover Bank & Tr. Co., 339 U.S. 306, 314

(1950)).

Courts have not settled on how to treat claims of

inadequate notice of an arbitration in a proceeding to vacate an

award under the FAA. See 21st Century Fin. Servs., L.L.C. v.

Manchester Fin. Bank, 747 F.3d 331, 336 n.8 (5th Cir. 2014)

(declining to decide whether “insufficient notice constitutes a

proper ground for vacatur” but recognizing the argument that it

fell within 9 U.S.C. § 10(a)(1) or § 10(a)(4)); Gingiss Int’l,

Inc. v. Bormet, 58 F.3d 328, 332 (7th Cir. 1995) (refusing to

vacate on the grounds of inadequate notice, which is not listed

in “the exclusive grounds for setting aside an arbitration

award” under 9 U.S.C. § 10(a), but proceeding to analyze the

inadequate notice argument as possible arbitrator misconduct

under 9 U.S.C. § 10(a)(3)); Int’l Techs. Integration, Inc. v.

Palestine Liberation Org., 66 F. Supp. 2d 3, 11 (D.D.C. 1999)

(explaining that the FAA would not “foreclose a court from

vacating an arbitrator’s award where a party was never served

with a single notice, and where that party had no constructive

notice or other knowledge of the arbitration”); cf. Doral Fin.

Corp., 725 F.3d at 31-32 (subsuming the fair hearing requirement

under 9 U.S.C. § 10(a)(3), at least for evidentiary issues). As

with the manifest disregard doctrine, the Court assumes without

deciding that a court can vacate an arbitration award due to

inadequate notice because FINRA’s attempt to serve Jill Cody

comported with due process.

DISCUSSION

I. Ebbe’s Motion to Vacate

A. Respondeat Superior

The doctrine of respondeat superior renders an employer

“vicariously liable for the torts of its employee . . .

committed within the scope of employment.” Lev v. Beverly

Enters.-Mass., Inc., 929 N.E.2d 303, 308 (Mass. 2010) (quoting

Dias v. Brigham Med. Assocs., Inc., 780 N.E.2d 447, 449 (Mass.

2002)). To prevail on a claim under respondeat superior, the

plaintiff must establish “both that (1) an employer-employee

relationship existed and (2) the alleged tortious conduct fell

within the scope of employment.” Doe v. Medeiros, 266 F. Supp.

3d 479, 484 (D. Mass. 2017) (citing Dias, 780 N.E.2d at 450-51).

An employer’s liability via respondeat superior “arises simply

by the operation of law and is only derivative of the wrongful

act of the” employee. Merrimack Coll. v. KPMG LLP, 108 N.E.3d

430, 438 (Mass. 2018) (quoting Elias v. Unisys Corp., 573 N.E.2d

946, 948 (Mass. 1991)). An employer itself need not act

wrongfully to be held liable for the tort of an employee

committed within the scope of employment. See id.

An employee’s conduct “is within the scope of employment if

it is of the kind he is employed to perform, if it occurs

substantially within the authorized time and space limits, and

if it is motivated, at least in part, by a purpose to serve the

employer.” Lev, 929 N.E.2d at 308 (alterations omitted) (quoting

Mosko v. Raytheon Co., 622 N.E.2d 1066, 1068 (Mass. 1993)). To

satisfy the motivation prong, the plaintiff need only show that

the employee acted in part to benefit his employer, even if his

“predominant motive . . . [was] to benefit himself.” Pinshaw v.

Metro. Dist. Comm’n, 524 N.E.2d 1351, 1356 (Mass. 1988).

An employer does not automatically prevail on a respondeat

superior claim if the employee acts beyond the strict confines

of his employment duties or even acts in a way the employer has

expressly prohibited. Id.; see also McIntyre ex rel. Estate of

McIntyre v. United States, 545 F.3d 27, 39 (1st Cir. 2008)

(applying Massachusetts law and “recogniz[ing] that a principal

may be responsible for conduct customarily within its agent’s

scope of employment ‘even though it is established fact that the

act was forbidden by the principal.’” (quoting United States v.

Potter, 463 F.3d 9, 26 (1st Cir. 2006))). Nevertheless, an

employee’s designated duties are relevant in determining whether

the conduct is within the scope of employment. See McIntyre, 545

F.3d at 39 (listing “a number of factors to consider in

determining whether unauthorized conduct is sufficiently similar

or incidental to authorized conduct to be within the scope of

employment”).

B. Westminster

Ebbe argues that the panel acted in manifest disregard of

the law in denying relief against Westminster because the

evidence clearly demonstrated that Richard Cody was acting

within the scope of his employment when he misrepresented Ebbe’s

account value to him. Ebbe correctly notes that even intentional

torts such as fraud can be within the scope of employment for

the purposes of respondeat superior and that an employee need

only act in part with the intent of benefiting his employer.

Ebbe’s argument that Westminster is vicariously liable for

Cody’s misconduct while he worked at the company is strong.

However, as Ebbe conceded at the hearing, one plausible

explanation of the award is that the panel found that Cody did

not engage in misconduct while employed at Westminster. The

$286,096 award is approximately the value of Ebbe’s account when

Cody transferred it to Concorde, plus the $1,200 per week Ebbe

sought as lost income for the period during which his account

was with Concorde. This calculation, along with the fact that

the panel held Jill Cody jointly and severally liable with

Richard Cody even though she did not work at Westminster,

suggests the panel determined that Richard Cody only engaged in

misconduct while at Concorde, where Jill Cody also worked.

In reaching this result, the panel may have concluded that

Ebbe presented insufficient evidence of Cody’s misconduct while

at Westminster. Ebbe relied solely on his own testimony about

Cody’s misrepresentations during this period and presented no

corroborating testimony or documentation. The panel likely found

this evidence to be insufficient. And with insufficient evidence

of Cody’s misconduct while at Westminster, the panel could not

find Westminster vicariously liable either. See Gifford v.

Westwood Lodge Corp., 507 N.E.2d 1057, 1058 (Mass. App. Ct.

1987) (“Since the agents were not liable, [the principal] could

not be vicariously liable.”). This explanation for the panel’s

award is plausible and colorable. Accordingly, the panel did not

act in manifest disregard of the law in denying relief against

Westminster.

C. Concorde

Ebbe’s argument that the panel acted in manifest disregard

of the law in denying relief against Concorde is more complex.

As just noted, the size and nature of the award suggest the

panel found both Richard and Jill Cody liable for the period

Ebbe’s account was at Concorde. Concorde could be vicariously

liable for the misconduct of either Cody because they were both

employed by the company. Accordingly, Ebbe is entitled to

vacatur of the award if he shows that the panel acted in

manifest disregard by refusing to hold Concorde vicariously

liable for the misconduct of either Richard or Jill Cody.4

1. Richard Cody

For the first year Concorde managed Ebbe’s account, Richard

Cody served his FINRA suspension and was not even employed by

4 In addition to opposing Ebbe’s manifest disregard argument

on the merits, Concorde contends that Ebbe challenges the award

on factual grounds, which are not subject to judicial second-

guessing under any circumstances. Because the panel did not act

in manifest disregard of the law in denying relief against

Concorde, the Court need not address this argument.

Concorde. Because Cody was not an employee, Concorde cannot be

vicariously liable for his misconduct in continuing to manage

Ebbe’s account during his suspension. Since Concorde employed

Cody as an investment professional for the other two years,

however, Ebbe presents a strong argument that Concorde is

vicariously liable for some of Cody’s misrepresentations about

his account value. See, e.g., Smith v. Jenkins, 732 F.3d 51, 73

(1st Cir. 2013) (finding sufficient evidence to hold a law firm

vicariously liable for the fraudulent real estate closings of

its attorney because his “acts as the closing agent were within

the purview of his job,” the “closings took place at the

[firm’s] office during regular business hours,” and his conduct

“was motivated, at least in part, by a desire to serve [the

firm’s] interests,” as the “firm received fees as the closing

agent on both transactions”).

The panel may, however, have determined that Richard Cody’s

fraudulent misrepresentations to Ebbe were outside the scope of

his employment. Throughout the three-year period Ebbe’s account

was with Concorde, Jill Cody was designated as Ebbe’s investment

professional. Concorde never assigned Richard Cody to manage

Ebbe’s account. It is plausible the panel concluded that Cody’s

relationship with Ebbe was not part of his duties as a Concorde

employee and were therefore outside the scope of his employment.

While Ebbe presents a strong argument that Cody was engaged in

exactly the type of work he was hired to do when he communicated

with Ebbe about his account, the law governing how an employer’s

delineation of an employee’s duties affects whether the

employee’s conduct is within the scope of employment is not

clear. See Potter, 463 F.3d at 26 (recognizing in the context of

the similar agency principles at issue in corporate criminal

responsibility that there is “a gray area” in which an

employer’s “restrictions, although not mechanically exculpatory

of corporate liability, may well bear upon what is or is not

within the scope of the agent’s duties”).

Though not convincing and perhaps an error of law, this

explanation is a colorable justification for the panel’s

decision. The panel therefore did not act in manifest disregard

of the law in declining to apply respondeat superior to hold

Concorde vicariously liable for Richard Cody’s misconduct.

2. Jill Cody

Ebbe’s strongest argument is that the panel acted in

manifest disregard of the law in not holding Concorde liable for

Jill Cody’s misconduct. It is undisputed that Jill Cody was an

employee of Concorde throughout the three years Concorde managed

Ebbe’s account and that she was Ebbe’s listed investment

professional for the entire period. Properly managing Ebbe’s

account was therefore within the scope of her duties as a

Concorde employee. She failed to do so by allowing Richard Cody,

during and after the period of his suspension, to communicate

with and continue to make misrepresentations to Ebbe. Her

decision to allow her husband to manage Ebbe’s account was

motivated at least in part to benefit Concorde through the fees

Ebbe was paying. Concorde is therefore vicariously liable for

her dereliction of a duty within the scope of her employment.

The panel’s decision not to hold Concorde vicariously liable was

plain error. However, Ebbe has not met the extremely high

standard of showing that the panel acted in manifest disregard

of the law.

The First Circuit has explained that a panel acts in

manifest disregard of the law when its award is “based on

reasoning so palpably faulty that no judge . . . ever could

conceivably have made such a ruling.” Mountain Valley, 863 F.3d

at 95 (quoting McCarthy, 463 F.3d at 91). Given the First

Circuit’s admonition that courts are not to correct even

“painfully clear” errors by arbitrators, Ortiz-Espinosa, 852

F.3d at 48 (quotation omitted), manifest disregard of the law

requires more than a showing of serious legal error. A party

seeking to vacate an arbitration award for manifest disregard

must instead show that the arbitrators were aware of the law and

its applicability to the dispute but chose not to apply it.

See Raymond James, 780 F.3d at 64; Ramos-Santiago, 524 F.3d at

124; see also Kashner Davidson Sec. Corp. v. Mscisz, 531 F.3d

68, 79 (1st Cir. 2008) (finding manifest disregard of the law

where the arbitration panel dismissed claims as a sanction

without first imposing lesser sanctions as required by the

“clear and unequivocal language” of a National Association of

Securities Dealers rule and where the panel “certainly knew” it

had not complied with this rule because it had “rejected

numerous requests for sanctions”). The First Circuit’s test for

finding manifest disregard in the absence of a written decision,

i.e., that “the governing law [had] such widespread familiarity,

pristine clarity, and irrefutable applicability” that the

arbitrator must have “kn[own] the rule and, notwithstanding,

swept it under the rug,” is a way of determining whether the

arbitrators expressly disregarded the law. Advest, 914 F.2d at

10.

The panel issued the equivalent of a default judgment

against Jill Cody after she failed to respond to the statement

of claim or appear at the hearing. Given the clear applicability

of respondeat superior, the panel denied relief against Concorde

either because it chose not to apply the law or because it did

not consider the ramifications of its default judgment. The

former explanation would constitute manifest disregard of the

law. The latter would not.

Ebbe has failed to meet his burden of demonstrating that

the former explanation is more likely than the latter. The

arbitration award, devoid of any reasoning, provides no help.

Neither Ebbe’s statement of claim nor Concorde’s answer mentions

common law respondeat superior. Ebbe has not submitted any

briefing provided to the arbitrators before or after the

hearing. He does not point to any statements by the arbitrators

during the four-day hearing that show they recognized the

applicability of respondeat superior to Jill Cody and Concorde’s

employment relationship but chose to disregard it. While Ebbe’s

attorney did mention once (in a conclusory fashion) that

Concorde should be held vicariously liable for Jill Cody’s

conduct, this one reference during a four-day hearing does not

persuade the Court that the arbitrators expressly chose to

ignore Concorde’s vicarious liability. More likely, the

arbitrators entered a default judgment against Jill Cody and,

giving little thought to matter, failed to consider the

consequences for Concorde’s liability. Accordingly, while the

arbitrators plainly erred in failing to hold Concorde

vicariously liable for Jill Cody’s misconduct, they did not act

in manifest disregard of the law.

II. Jill Cody’s Motion to Vacate

Jill Cody did not respond to Ebbe’s statement of claim or

appear at the FINRA arbitration hearing. In her pro se answer in

this proceeding, she explains that she did not know about the

arbitration until February 2019 when she was served with Ebbe’s

motion, well after the panel issued its award. In light of the

liberal construction given to pro se pleadings, Donovan v.

Maine, 276 F.3d 87, 94 (1st Cir. 2002), the Court construes her

answer as a motion to vacate the arbitration award on the basis

that she lacked adequate notice of the arbitration in violation

of due process.5

Pursuant to the rules governing FINRA customer

arbitrations, FINRA is responsible for notifying respondents

when a statement of claim is filed. See FINRA Code of

Arbitration Procedure for Customer Disputes § 12302(c) (2019).

When an individual registered with FINRA is named as a

respondent, FINRA “serve[s] the Claim Notification Letter . . .

directly at the person’s residential address or usual place of

abode.” Id. § 12301(a). FINRA sent notice of the arbitration

proceedings to Cody at 409 Captain’s Way in Neptune, New Jersey,

which was the address listed in her record in FINRA’s CRD

system.

A “method chosen by the parties to receive notice . . .

cannot be deemed to offend due process.” First State Ins. Co. v.

Banco de Seguros del Estado, 254 F.3d 354, 357 (1st Cir. 2001);

see also Gingiss Int’l, 58 F.3d at 332-33 (declining to vacate

5 The panel stated in its award that FINRA properly served

Cody with the statement of claim and provided her adequate

notice of the hearing. The Court agrees so does not address the

level of deference owed to the panel’s conclusion.

an arbitration award for inadequate notice where the parties

agreed to abide by the American Arbitration Association rules

and service was effectuated in accordance with those rules);

Bos. Celtics Ltd. P’ship v. Shaw, 908 F.2d 1041, 1046 (1st Cir.

1990) (holding that notice that the arbitrators determined

“substantially complied with the contractual notice provision”

in the parties’ agreement was not fundamentally unfair). Cody

agreed to abide by FINRA’s rules when she became a registered

broker. See FINRA By-Laws of the Corporation art. V, § 2(a)(1)

(2019) (“FINRA By-Laws”); FINRA Rules § 0140(a) (2019).

When Concorde terminated Cody in July 2016, FINRA notified

her that she needed to update her address in the CRD system if

she moved within two years. See FINRA By-Laws art. V, § 2(c)

(requiring that registered representatives keep their

registrations “current at all times” by filing amendments “not

later than 30 days after learning of the facts or circumstances

giving rise to the amendment”). It appears she failed to do so.

FINRA attempted to serve her at the old residential address

listed in the CRD system pursuant to the rules to which she had

consented.

In many cases where courts have rejected claims of

defective notice of an arbitration, the party seeking vacatur

had actual notice of the proceedings. See 21st Century, 747 F.3d

at 337-38; Bos. Celtics, 908 F.2d at 1046; cf. Choice Hotels

Int’l, Inc. v. SM Prop. Mgmt., LLC, 519 F.3d 200, 210 (4th Cir.

2008) (vacating an arbitration award where a party did “not

receive[] notice of the arbitration proceedings in accord with

the” contract and did “not otherwise receive[] notice”). Ebbe

provides no evidence that Cody knew about the arbitration before

February 2019, and Cody explains in an affidavit that she did

not reside at 409 Captain’s Way in August 2017 when Ebbe filed

his statement of claim. FINRA even notified Ebbe that its

attempts to perfect service on Cody had failed.

Actual notice of a pending proceeding, however, is not

necessary to satisfy due process. See Jones, 547 U.S. at 226.

Cody consented to service at the residential address on file

with FINRA. She also agreed to keep that address updated, which

she did not do. Ebbe attempted to locate another address for her

but was unable to do so because he was unaware she had changed

her last name to Tramontano. In light of Cody’s consent to the

FINRA rules and the understandable difficulty Ebbe faced in

finding her new address, FINRA’s attempt to serve Cody at 409

Captain’s Way was “reasonably calculated, under all the

circumstances, to apprise [her] of the pendency of the action

and afford [her] an opportunity to present [her] objections.”

United Student Aid Funds, 559 U.S. at 272 (quoting Mullane, 339

U.S. at 314); see also Harris v. Wells Fargo Clearing Servs.,

LLC, No. 18 Civ. 4625 (GBD), 2018 WL 6523384, at *4, *6

(S.D.N.Y. Nov. 26, 2018) (collecting cases holding that FINRA

properly serves a registered representative with notice of a

statement of claim if it uses the residential address she listed

with FINRA and concluding that such service did not violate due

process), appeal withdrawn, No. 19-60 (2d Cir. Apr. 12, 2019).

III. Motions to Confirm

Westminster and Concorde move to confirm the denial of

relief against them, and Ebbe moves to confirm the $286,096

award against Richard Cody and Jill Cody. In the absence of a

reason to vacate, modify, or correct an arbitration award, a

district court must confirm it. Ortiz-Espinosa, 852 F.3d at 42.

Having rejected Ebbe’s and Jill Cody’s arguments for vacating

certain aspects of the award, the Court must confirm the award

in its entirety.

ORDER

Ebbe’s motion to confirm the arbitration award against

Richard Cody and Jill Cody (Docket No. 1) is ALLOWED, Ebbe’s

motion to vacate the award against Concorde and Westminster

(Docket No. 1) is DENIED, Jill Cody’s motion to vacate (Docket

No. 34) is DENIED, Concorde’s motion to confirm (Docket No. 36)

is ALLOWED, and Westminster’s motion to confirm (Docket No. 40)

is ALLOWED.

SO ORDERED.

/s/ PATTI B. SARIS

Hon. Patti B. Saris

Chief United States District Judge