Appendix — Sargent v. PaineWebber Inc.

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ROBERT A. ACKERMAN

1250 Fourth 8St., S.W., No.

Washington, D.C. 20024

(202) 554-2908

Counsel for Petitioners

"BEST AVAILABLE COPY

BME COURT OF THE UNITED STATES

504W

Notice: This opinion is subject to formal

revision before publication in the Federal

Reporter or U.S. App. D.C. Reports. Users

are requested to notify the clerk of any

formal errors in order that corrections

may be made before the bound volumes go to

press.

United States Court of Appeals

For the District of Columbia Circuit

Argued April 18, 1989 Decided August 15, 1989

No. 88-7133

ERNEST E. SARGENT, et al.

Vv.

PAINE WEBBER JACKSON & CURTIS, INC., ndba as

PAINEWEBBER INCORPORATED, et al., APPELLANTS

Appeal from the United states District Court

for the District of Columbia

(D.C. Civil Action No. 84-02911)

Harvey A. Levin, with whom Michael I.

Smith was on the brief, for appellants.

Stephen G. Milliken for appellee.

Before ROBINSON, BUCKLEY, and WILLIAMS,

Circuit Judges.

Opinion for the court filed by Circuit

Judge WILLIAMS.

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WILLIAMS, Circuit Judge: In August 1983

Ernest E. Sargent and his daughter Cynthia L.

| Sargent opened an account with PaineWebber.

To it they transferred 400 shares of Coleco

Industries stock, some put and call options on

Coleco, and some other (unspecified)

securities. Ernest Sargent maintains” that

this portfolio embodied his life's savings.

The price of Coleco stock had been sinking

since the Sargent's original purchase, and it

continued to do so after the transfer. Soon

after moving the account, Ernest Sargent

sought to address the problem by directing

Kevin Greenan, a PaineWebber account

executive, to implement a "“cost averaging

plan." This consisted of

purchas[ing] additional shares of Coleco

stock at the decreased market price to

reduce his average cost basis in all of

his Coleco stock. When the average cost

basis of the Coleco stock was equal or

close to the market value, Sargeant

planned to sell all of that stock thereby

eliminating or reducing any financial loss.

Arbitration Complaint ¥ 12. The obvious flaw

of such a scheme is that if the stock does not

rise as hoped, it will amount to throwing good

money after bad.

In any event, the Sargents' claim is that

PaineWebber and Greenan were negligent in not

rigorously pursuing the plan. They initially

brought suit in district court, seeking

$245,000 in compensatory damages (later

amended to $256,000) and $500,000 in punitives.

On PaineWebber's motion to stay the case

pending arbitration, as provided in the

customer agreements between the Sargents and

PaineWebber, the court dismissed the action

without prejudice. The arbitrators conducted

a three-day hearing and announced a decision

awarding the Sargents $46,000. They stated

only that

having heard and considered the proofs of

the parties, [a mejority of the

arbitrators] have decided and determined

that in full and final settlement of the

above-referenced matter, respondent

PaineWebber shall pay to the claimants the

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sum of $43,000.00 and respondent Kevin

Greenan shall pay to the claimants the sum

of $3,000.00.

The arbitrators did not explain how they

reached this figure. The parties agree that

the New York Stock Exchange rules require no

explanation; it appears to be standard

practice for arbitrators under those rules to

give none.

The Sargents filed a new complaint, asking

the district court to vacate the award, while

PaineWebber cross-moved for an crder of

confirmation. Instead the court remanded the

matter to the arbitration panel “for a full

explanation cf the manner in which damages

were computed so as to. permit effective

judicial review." It viewed such an

explanation as necessary if judicial review

was to be “meaningful.”

PaineWebber and Kevin Greenan = appeal.

They argue that the Federal Arbitration Act, 9

U.S.C. §§ 1-14 (1982), does not authorize a

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remand for explanation under the circumstances.

We agree. Before addressing the point,

however, we must dispose of the plaintiffs"

challenge to our jurisdiction and the

defendants‘ claim that the Sargents' motion to

vacate was served too late.

Appellate jurisdiction rests on 28 U.S.C.

§ 1292 (b) (1982). This allows an inter-

locutory appeal (with the consent of the court

of appeals, which in this case has been

qranted through a emotions panel of this

court), where a district judge states, in an

otherwise unappeaiable order, that he is

of the opinion that such order involves a

controlling question of law as to which

there is substantial ground for difference

of opinion and that an immediate appeal

from the order may materially advance the

ultimate termination of the litigation...

Application for an appeal under § 1292(b) does

not automatically stay proceedings in the

district court, but that court or the court of

appeals may order a stay. 28 U.S.C. § 1292(b).

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The Sargents’ attack on our jurisdiction

depends on the failure of the district court's

order to track the language of § 1292(b), and

on its omission of any citation of that

section. The order reads:

Upon consideration of the motion of

defendants for a stay pending appeal of

this Court's Orders of May 10, 1988 and

December 8, 1987, and the opposition

thereto, the Court finds (1) that

defendants will possibly suffer harm in

the lost [sic] of their right and

expectation to a speedy and conclusive

arbitrition process, (2) that defendants

have s.iown that serious questions of law

exist, as to this Court's authority to

order the arbitrators to file a memorandum

with the Court giving a full explanation

of the manner in which damages’ were

computed, and (3) that plaintiffs’

recovery will not be reduced and their

right to recovery will not be diminished

by a stay pending appeal.

Sargent v, Paine Webber Jackson & Curtis,

Inc., No. 84-2911, Order (D.D.C. June 27,

1988). The order then provides that the

remand be “stayed pending appeal, pursuant to

Rule 62, Fed. BR. Civ. P.* Id. A motions

panel of this court granted defendants’

application for an appeal, citing § 1292(b)

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and making findings in precisely its words.

It added that the court was not deciding

whether “in the absence of a section 1292(b)

certification, there is an eppealable order.”

It is hard to view our earlier order

except as reading the district court order as

a certification under § 1292(b). If there be

any ambiguity in our initial decision, however,

we have no difficulty in making that finding

ourselves. Obviously dispute may be avoided

if district courts couch their §1292(b) certi-

fications in its terms and, to remove all

doubt, cite it by section number. But the

words of § 1292(b) are not a magic incantation

(or a computer command) that has no effect if

not given exactly. The court's intentions are

plain. Not only are the words fairly close to

those of § 1292(b), but there appears. no

explanation ‘for the district court's’ stay

other than as one that § 1292(b) authorizes as

an accompaniment to a § 1292(b) certification.

We have jurisdiction.

- Ja -

Defendants claim that the Sargents' claim

was barred by the special three-months statute

of limitations contained in 9 U.S.C. § 12

(1982). It requires:

Notice of a motion to vacate, modify, or

correct an award must be served upon the

adverse party or his attorney within three

months after the award is filed or

delivered.

9 U.S.C. § 12 (1982) (emphasis added). The

Sargents' complaint and motion were served

November 26, 1986,? more than three months

after the arbitrators' decision but within

three months of the Sargents' receipt of it on

August 26, 1986.

lTfhe docket entries show only that the

new complaint and motion to vacate were filed

November 26, 1986, but the parties have

treated this as the controlling date. This is

correct if the Sargents served the papers by

mail on the date of filing, and if (despite

dismissal of the original complaint) the new

one may be regarded as a “pleading subsequent

to the original complaint" within the meaning

of Rule 5(a), Fed. R. Civ. P., as Rule 5(b)

makes service by mail complete on mailing.

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Defendants argue that "“delivered" in the

phrase “filed or delivered” must mean “mailed,

or otherwise sent.” They suggest that since

delivery must always follow a decision's

filing, to read it as referring to the arrival

at some destination would render "filed"

meaningless. Certainly defendants have

identified a curiosity in the statute, but

their interpretation hardly solves it: they

suggest no way in which mailing could precede

filing any more than delivery. Perhaps’ the

drafters contemplated the possibility of some

technically defective filing, and wanted to be

sure that in such a case the time limit would

begin to run on delivery. We certainly see no

reason to adopt a construction that hopelessly

twists the ordinary meaning of the word

"delivered" without in any way solving the

problem of possible surplusage. Nor would we

be justified in excising "delivered" from the

statute.

Defendants’ argument that delivery is not

Synonymous with receipt does no better. While

one can imagine cases in which the distinction

could play ae role, this is not one. The

Sargents acknowledge receipt of the decision

on the day it was delivered to the relevant

address, and their complaint and motion were

served within the required three months

thereafter.

Turning to the merits, we find no basis

for a remand to the arbitrators. The district

court's review proceeds under § 10 of the

Federal Arbitration Act, which eutheeions it

to vacate an arbitral award under any of the

following conditions:

(a) Where the award was procured by

corruption, fraud, or undue means.

(b) Where there was evident partiality

Or corruption in the arbitrators, or

either of them.

(c) 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

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other misbehavior by which the rights of

any party have been prejudiced.

(d) ‘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.

(e) Where an award is vacated and the

time within which the agreement required

the award to be made has not expired the

court may, in its discretion, direct a

rehearing by the arbitrators.

9 U.S.C. § 10 (1982). The district court here

appears to have proceeded under the theory

that in the absence of explanation it could

not be sure that the arbitrators had not

"exceeded their powers" under § 10(d) or

otherwise fallen into error so egregious as to

require vacation of the award under § 10.

Remand for explanation would enable it to

obtain that assurance and exclude the

possibility of a fatal error.

We reject the idea that a lump-sum award

can be rejected for want of explanation (or,

what is in effect almost the same _ thing,

remanded for an explanation) in the absence of

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facts making it appear probable that’ the

arbitrators committed an error justifying

vacation of the award. If courts required an

explanation on account of the mere possibility

of such an error, they cculd in effect be

requiring explanation almost universally. The

Supreme Court nas_ observed that arbitral

awards may be made without explanation, see

Wilko v. Swan, 346 U.S. 427, 436 (1953), and

the Second Circuit has_ so held. Sobel _v.

Hertz, Warner & Co., 469 F.2d 1211 (2d Cir.

1972). It reasoned that while arbitration

“may not always be the speedy and economical

remedy its admirers claim it is,” id. at 1215,

forcing arbitrators to explain their award

even when grounds for it can be gleaned

from the record will unjustifiably

diminish whatever efficiency the process

now achieves.

Id. (footnote omitted). In that case the

arbitrators said only that they dismissed the

claim, but, given the presence of “a number of

theories” on which they might have decided,

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id., the court found no need of further

proceedings. Thus, the court plainly believed

that the necessary “gleaning” was normally

possible so long as the record disclosed a

permissible route to the stated conclusion.

The Second Circuit has rigorously applied

this view. Even where the size of an award

was said to suggest that the arbitrators might

have considered lost profits or consequential

damages despite 3a contractual agreement

disallowing such recoveries, it held that

arbitrators may render a lump sum award

without disclosing their rationale for it,

and ... when they do, courts will not

inquire into the basis of the award unless

they believe that the arbitrators rendered

it in “manifest disregard” of the law or

unless the facts of the case fail to

support it.

Koch Oil, S.A. v. Transocean Gulf Oil Co., 751

P.2q $51, 554 (248 Cir. 1965). The court

refused to vacate the award, viewing the

challenge as no more than “speculation.”

Clearly insistence on an explanation would

increase the ability of courts to spot the

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|

sort of “manifest disregard" of the law that

justifies overturning an arbitral award.

Compare Wilko v. Swan, 346 U.S. at 440

(Frankfurter, J., dissenting, asserts ability

of courts to discover arbitrators’ disobedience

of the law, asserting as a premise the point

rejected by majority--that they must give some

form of opinion from which the disobedience

will appear). But the absence of a duty to

explain is presumably one cf the reasons why

arbitration should be faster and cheaper than

an ordinary lawsuit. We thus agree with the

Second Circuit that an explanation requirement

would unjustifiably undermine the speed and

thrift sought to be obtained by the “federal

policy favoring arbitration,” Moses H. Cone

Memorial Hospital v. Mercury Construction

Corp., 460 U.S. 1, 24 (1983).

Here there is nothing to suggest that the

arbitrators indulged in any disregard of the

law. PaineWebber's defense throughout § has

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been comparative negligence and ratification:

that Ernest Sargent (who described himself as

a first-time investor) was sophisticated, knew

the risks, himself “directed” the trading in

his account (he denied this), received notice

of PaineWebber's trades, and failed to

complain about PaineWebber's actions or

alleged inactions during the crucial first

five months he maintained an account--the

months during which the losses’ occurred.

Thus, it seems likely that in some form the

arbitrators apportioned blame to both sides

and calculated the award accordingly;

plaintiffs offer no basis for thinking that

such an outcome showed “manifest disregard" of

the law.

Plaintiffs rely heavily on decisions or

dicta approving remand of an arbitral award

for clarification of its meaning. See, e.g.,

Galt _v. Libbey-Owens-Ford Glass Co., 397 F.2d

439 (7th Cir. 1968) (approving remand to

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determine whether arbitrators treated specific

contract clause as within purview of

arbitration provision); Sobel v. Hertz, Warner

& Co., 469 F.2d at 1216 (alluding to and

distinguishing cases of remand to clarify what

issues arbitrators resolved). These clearly

have no application here. Plaintiffs'

suggestion that the panel may =not_ have

resolved the punitive damages issue is utterly

fanciful.

Plaintiffs also note the observation in

Siegel v. Titan Industrial Corp., 779 F.2d 891

(2d Cir. 1985), that where an award “appears

to have been reached on the basis of a precise

mathematical calculation,”

[a] remand for clarification ... would not

improperly require arbitrators to reveal

their reasons, but would instead simply

require them to fulfill their obligation

to explain the award sufficiently to

permit effective judicial review.

Id. at 894. We do not read this as any

material qualification of the view taken by

the Second Circuit in Sobel. The court

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proceeds to cite Sobel immediately after the

quoted passage and in fact goes on to hold

that, despite obscurity as to the arithmetic

leading to the award, there was no “manifest

error,” id., and that the district court

correctly declined to remand. Further, the

circumstance to which the Second Circuit

referred--apparent use of a "precise

mathematical calculation"--is absent here.

- The defendants’ and district court's

invocation of the goal of rendering judicial

review “effective” or “meaningful” of course

resonates with innumerable decisions in the

field of administrative law remanding to an

agency for a new or clearer articulation of

its reasoning. As early as SEC v. Chenery

Corp., 318 U.S. 80, 94 (1943), the Court

remanded for a further explanation, stating

that “the courts cannot exercise their duty of

review unless they are advised of the

considerations underlying the action’ under

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i Wises =

review." See also Greater Boston Television

Corp v. FCC, 444 F.2d 841, 850-53 (D.C. Cir.

1970). But es we have recently noted in

another context, the statement cannot be read

as a statement of any literal impossibility of

meaningful Or effective judicial review.

Women_Involved in Farm _ Ecor v. Department

of Agriculture, 876 F.2d 994, 998-1000 (D.C.

Cit. 1989). The Chenery court itself

presented the requirement as manifesting a

special form of deference to administrative

agencies: a judicial assumption that an

agency relied on a specific policy judgment,

where there was no clear reason to think it

had, would “intrude upon the domain which

Congress has exclusively entrusted" to the

agency. Chenery, 318 U.S. at 88; see also id.

at 94-95; Women Involved, 876 F.2d at 999

(reliance on an argument of counsel “might

actually restrict improperly the agency's

future freedom of action"). The concern for

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ne

preserving an agency's policymaking discretion

clearly has no- place in the context of

arbitration.

More genérally, it is simply not true that

insistence on an explanation of the decision-

maker's thought process is an automatic

requirement of “effective judicial review.”

In the context of arbitration, where there is

no statutory requirement that the panel state

its reasons, and (as here) none imposed by the

institution under whose auspices that

arbitration occurred, it would seem to turn on

a balance between the interest in rooting out

possible error and the interest in assuring

that judgment be swift and economical. We

agree with the Second Circuit that the latter

must generally prevail. As the record here

fails to indicate the probability of “manifest

disregard" of the law, there is no basis to

insist on an explanation.

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ei

On the facts before it, the district

court's duty was to grant the motion to

confirm the award. The case is remanded for

entry of a suitable order.

So ordered.

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UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

ERNEST E. SARGENT, et al. )

)

Plaintiffs, )

)

Vv. ) Civil Action

) No. 84-2911

)

PAINE WEBBER, JACKSON )

& CURTIS, INC. et al., )

)

Defendants. )

east

MEMORANDUM ORDER

(Denying Defendants’ Motion

for Reconsideration)

Defendant's Paine Webber, Jackson = and

Curtis, Ince. have moved for reconsideration

of this Court's Memorandum Orde: of December

8, 1987, which vacated the arbitral award of

August 19, 1986, and remanded the matter to

the New York Stock Exchange ("NYSE")

Arbitration Panel. The Court's Memorandum

Order directed that the arbitration panel

provide a full explanation of the manner in

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which $46,000 damages awarded to plaintiffs

were computed so as to permit effective

judicial review. Defendants argue that the

plaintiffs’ motion to vacate the August 19th

award was untimely and barred by the Federal

Arbitration Act ("FAA"). 9 U.S.C. §§ 1-14.

They also contend that this Court exceeded

its authority in vacating and remanding the

award.

After a review of the legal memoranda

submitted by the parties, as well as_ the

applicable law, this Court finds no new

evidence, argument, or law that would justify

reconsideration of the Court's December 8,

1987 Memorandum Order. For the reasons set

forth below, the Court denies the defendant's

motion for reconsideration.

FACTUAL BACKGROUND

The award in question here was rendered

on August 19, 1986, but was not filed in the

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Oe

a

™

formal sense. Rather, it was sent by letter

dated August 21, to plaintiffs' attorney,

Marc White. [It is not clear when Mr. White

received the letter. Plaintiffs state

however, and it is not disputed, that they

did not receive a copy of the arbitral

decision until August 27, 1986. On September

4, 1986, plaintiff Earnest Sargent and his

attorney both wrote to the Director of

Arbitration at the NYSE and requested a

hearing de novo. The Director denied their

requests in a letter dated September 23,

1986. Prior to receiving the Director's

letter, on September 25, 1987, attorney White

wrote to Mr. Sargent, informing him that he

was “willing to go through another hearing at

the [arbitration panel] if they grant our

request.” In the event that the request was

denied, Mr. White indicated that he would

possibly be “willing to file a motion to

vacate" the $46,000 award for the plaintiffs.

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For reasons not reflected in the record and

at a date uncertain, Mr. White later chose

not to represent the plaintiff.

As a result of attorney White's’ latent

unwillingness to file an action to vacate the

arbitration award, plaintiffs had less than

two months to file such an _e action. On

November 26, 1986, more than three months

from the date of the award, but less than

three months from plaintiffs’ August 27, 1986

receipt of the decision, plaintiffs filed a

pro se motion to vacate the arbitration

panel's award.

On December 8, 1987, this Court granted

plaintiffs’ motion and vacated the arbitral

award of August 19, 1986. Because the award

to plaintiffs represented less than 20

percent of the approximately $256,000 which

they had lost during the period the defendants

managed their investment accounts, the Court

held that it co:ld not clearly ascertain the

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- nih Se aaiaa

haat Pinay Nae 3

basis for the award, nor could it be certain

whether the arbitration panel considered all

the relevant information. Given the

uncertainty and ambiguity surrounding’ the

award, the Court ordered that the matter be

remanded to the arbitration panel for a full

explanation of the manner in which damages

were computed so as to permit effective

judicial review. Defendants’ cross-motion to

confirm the award was denied.

On December 17, 1987, defendants filed

the present motion for reconsideration of the

Court's Memorandum Order. The Sargents, now

represented by counsel, opposed the

defendants’ motion.

The Court will first address the

defendants' challenge that the plaintiff's

motion to vacate was time-barred by a

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eee cae Moe a at]

three-month statute of limitation. Section

12 of the FAA provides in part:

Notice of a motion to vacate, modify, or

correct an award must be served upon the

adverse party or his attorney within

three months after the award is filed or

9 U.S.C. § 12 (emphasis added).

The very language of 9 U.S.C. § 12 is

ambiguous -- the date that the award is

“filed or delivered" can lead to different

results as is evident from the case _ law.

Some courts have interpreted the phrase to

mean the date designated on the face of the

award. (Witt v. Reinholdt & Gardner, 587

F.2d 383, 384 (8th Cir. 1978); Colavito v.

Hockmeyer Equipment Corp., 605 F. Supp. 1482,

1487 (S.D.N.Y. 1985)). Other courts look to

the date the award was filed or entered,

referring to the date the award was actually

docketed as contrasted~- to the date on the

face of the award. (Foster v. Turley, 808

F.2d 38, 41 (10th Cir. 1986); (Toku

- 26a -

Construction Co., Ltd. ov, Corporacion

Raymond, S.A., 533 F. Supp. 1274 (S.D. Tex.

1982). However, several courts have _ held

that an application to vacate must be made

within three months of receipt of the

decision. (Dinger v. Anchor Motor Freight,

Inc., 501 F. Supp. 64 (S.D.N.Y. 1980) ("An

application to vacate or modify an arbitral

award must be made within three months of

receipt of the decision under federal law.”

Id. at 68 (citing 9 U.S.C. § 12) (emphasis

added). Because the plaintiff challenged the

arbitrator's award more than eleven months

after receiving the decision, the court held

that his claim was time-barred.) If

“delivery” of the award is deemed to be

receipt of the award, as declared in Dinger,

the motion to vacate was timely filed by the

Sargents.

1.

But even if the “delivery” of the award

is determined to be the day it was mailed,

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plaintiffs’ right to judicial review of the

award is not forfeited because the doctrine

of equitable tolling should be applied in

this case.

The equitabie tolling doctrine is “read

into every federal statute of limitation.”

Holmberg v. Armbrecht, 327 U.S. 392, 397

(1946). Numerous courts have held that the

equitable tolling doctrine is “plainly

available to federal securities law

plaintiffs.” Osterneck v. E.T. Barwick

Industries, Inc,, 825 F.2d 1521 (llth Cir.

1987) (citing Schaefer v. First National

Bank, 509 F.2d 1287, 1295-96 (7th Cir. 1975),

cert. denied, 425 U.S. 9432 (1976). While

this proceeding is not a federal securities

law case, the activities involved were of a

commercial nature. In tolling the statute of

limitations in the commercial context, courts

look for fraud on the part of the defendants

and diligence on the part of the plaintiffs.

- 28a -

Osterneck, supra, at 1535; Suslick v.

Rothschild Securities Corp., 741 F.2d 1000,

1004 (7th Cir. 1984).

Time limits for filing actions’ under

Title VII are subject to equitable tolling,

as well. in Zipes _v,. Trans World Airlines,

Inc., 455 U.S. 385, 393 (1982), the Supreme

Court held that a time limit for filing a

discrimination claim was “like a statute of

limitations, ... subject to waiver, estoppel,

and equitable tolling.” A court's ecuitable

power to toll a statute of limitations may be

exercised in carefully circumscribed

instances. The Supreme Court has laid out

examples of when a court may properly allow

tolling:

[Where] —q claimant has received

inadequate notice, ... where a motion for

appointment of counsel is pending and

equity would justify tolling the

statutory period until the motion is

acted upon, ... where the court has led

the plaintiff to believe that she _ had

done everything required of her ... [or]

where affirmative misconduct on the part

of a defendant lulled the plaintiff into

inaction.

- 29a -

Baldwin County Welcome Center v. Brown, 466

U.S. 147, 151 (1984) (per curiam) (citations

omitted).

The facts in this case fall within the

circumscribed instances as defined by the

Supreme Court. Plaintiffs believed that the

NYSE may hold a new hearing in their case;

they also thought their attorney may pursue a

possible motion to vacate the arbitrators’

award; plaint:ff Earnest Sargent explored

several avenues of additional relief; in the

end, he filed a motion to vacate the award

himself.

The fact that plaintiff Sargent filed his

motion pro se lends further support to the

application of the doctrine of equitable

tolling. This Circuit has recently held that

an appellant who brought a suit in forma

pauperis should not have his case dismissed

for failure to comply with the 30-day time

-~ 30a -

|

:

limit to serve his complaint.? Mondy v.

Secretary of the Army, No. 86-5644, slip op.

ip.€. Cit: Aectii- B36, BOGG7: In Mondy, the

plaintiff's complaint was served upon the

defendant four months after he_- received

notice regarding the final agency action on

his employment discrimination claim. Under

the relevant statute, the time for the

plaintiff to bring suit began running from

the date of his receipt of notice of final

action on his claim. Because the plaintiff

was filing in forma pauperis and diligently

pursued his complaint, the court of appeals

applied the doctrine of equitable tolling.

Id. at 6-13.

The Mondy court referred to two circuit

cases involving an in forma pauperis party

for further support. In Paulk v. United

lwhile the case before this Court was

brought pro se, there is no reason to believe

that an in forma pauperis case would be given

greater indulgence than a pro se case.

- 3la -

States, 830 F.2d 79, 83 (7th Cir. 1987), the

Seventh Circuit held that a 30-day time limit

was tolled during the pendency of a petition

to proceed in forma pauperis. In Cooper v.

Bell, 628 F.2d 1208 (9th Cir. 1980), the

Ninth Circuit found that the need for

equitable tolling is strongest when a

claimant is filing an action for himself at

the outset, because he will be “unschooled in

the filing procedure" and less’ articulate

about his claim. Id. at 1213 & n. 10.

Plaintiff Sargent acted diligently and

therefore, the Court may properly invoke

equitable principles to excuse his” slight

delay. See Baldwin County Welcome Center,

Supra, at 151. See lso, Mondy, supra, at 3,

13. The due diligence exception to 9 U.S.C.

§ 12 was recognized in Holodnak vv. Avco

Corp., 381 F. Supp. 191 (DB. Conn. 1974),

rev'd in part on other grounds, 514 F.2d 285

(2nG €ie.),

cert. denied, 423. @.8. 892

(1975). In Holodnak, the plaintiff's motion

to vacate an arbitrator's award was served

three months and one day after the filing of

the arbitration award. The district court

judge and tne magistrate who heard pre-trial

motions both cenied the defendant's argument

that the plaintiff's motion to vacate was

time-barred. They emphasized the due

diligence of the plaintiff in attempting to

perfect service within the time limit and the

absence of any prejudice suffered by the

defendants as a result of the one-day delay.

331 F. Supp. at 197. The trial court agreed

that the circumstances of the service did not

represent a bar to the action and it granted

plaintiff's motion to vacate the arbitrator's

decision.

Plaintiff Sargent's efforts to comply

with 9 U.S.C. § 12 would qualify for this

exception. Depending upon the interpretation

of “filed or delivered," plaintiff's motion

- 33a -

was anywhere from eight days late to one day

early. The courts dismissing motions for

being untimely under 9 U.S.C. § 12 have

involved cases where service has been many

months or years beyond the three month

deadline. See Witt v, Reinholdt & Gardner,

supra (Plaintiff filed suit to invalidate an

arbitration award more than two years after

the arbitration proceeding); Colavito vv,

Hockmeyer, supra (November 1983 filing was

untimely with respect to an October 1982

arbitrator's award); Gas Workers Local No, 80

v. Michigan Consol, Gas Co,, 503 F. Supp. 155

(E.D. Mich. 1980) (Proceeding to set aside

award was filed eleven months after arbitrator

denied request for reconsideration and hence,

was untimely); Pizzuto ov, Hall's Motor

Transit Co,, 409 F. Supp. 427 (E.D. Va. 1976)

(Complaint filed more than twelve months

after arbitration of employment grievance was

not timely).

- 34a -

2.

In light of plaintiff's attempt to seek a

hearing de novo, his attorney's failure to

file a motion to vacate, the plaintiff's pro

se status, and his diligent effort to serve

his motion within the three month period,

along with the different interpretations of

“filed or delivered,” this Court holds that

plaintif€é Farnest Sargent’s motion to vacate

the arbitration award of Aucust 1°, 1987, was

not time-barred.

B.

Regarding the defendants’ argument that

this Court exceeded it authority in vacating

the arbitrators’ award, this Court- adheres to

its original holding that it should not

attempt to enforce an award that is ambiguous,

indefinite or irrational. See NF & M Corp.

v. United Steelworkers of America, 524 F.2d

756 (3rd Cir. 1975) ("If an examination of

- 35a -

the record before the arbitrator reveals no

support whatever for his determinations, his

award must be vacated.” Id. at 760). The

Court upholds its position that for judicial

review to be meaningful, an arbitrator's

award cannot be absolutely immune from

scrutiny. See Siegel v, Titan Industrial

Corp., 779 F.2d 891, 894 (2d Cir. 1985);

Olympia & York Florida Equity Corp, v, Gould,

776 F.2d 42, 45-46 (2nd Cir. 1985); Cleveland

Paper Handlers & Sheet Straighteners Union,

No. ll_v, E,W, Scripps Co., 681 F.2d 457, 460

(6th Cir. 1982) (per curiam) Oil Chemical &

Atomic. Workers Int'l Union v, Rohn & Haas

Texas, Inc., 677 F.2d 492, 495 (5th Cir.

1982) (per curiam); Americas Ins. Co. Vv.

Seagull Compania Naviera, S.A., 774 F.2d 64,

67 (2nd Cir. 1980); Shearson Loeb _ Rhoades

Inc. v. Much, C.A. No. 81-4225 at 8-9 (N.D.

Ill, Jan. 3, 1983). These cases were relied

upon in the Court's December BS, 1987

- 36a -

Memoranduin Order and further cesearch

indicates that they are still good law.

When reviewing arbitration awards it is

necessary for a court to understand the

calculation methods used by the arbitrators.

Siegel, supra, at 894. The Court is not

asking too much in seeking a clarification of

the illusionary and ambiguous mathematical

calculation utilized in arriving at

plaintiffs’ $46,000 award. See Douglas

Aircraft Co. v. NLRB, 609 F.2d 352, 354 (9th

Cir. 1979) ("It was proper to obtain from the

arbitrator a clarification of his reasoning.

The original opinion was ambiguous, and

indeed the clarified opinion belied the

Board’s confident interpretation of the

Original.” Id. at 354 (citations omitted)).

The award represents ae fraction of the

$256,000 amount which the plaintiffs claim

they lost due to defendants’ breach of

fiduciary duty.

- 37a -

~~"

eet Qe ee ee a

ee a ee

To avoid judicial guessing as to the

rationale behind the award and to permit

effective judicial review, it was entirely

appropriate for this Court to vacate and

remand the arbitrators' award for further

explanation.

Accordingly, it is this 10th day of May,

2)

RDERED

That defendant's motion for

reconsideration of this Court's Memorandum

Opinion of December 8, 1987, is denied.

This matter is remanded to the NYSE

Arbitration Panel for a full explanation of

the manner in which damages were computed. so

as to permit effective judicial review. The

panel shall act expeditiously on this matter

and file an appropriate memorandum in

accordance with the Memorandum Order of

December 8, 1987, and this Order, on or

before July 1, 1988.

[signed]

. Barrington D. Parker

United States District Judge

- 39a -

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

ERNEST E. SARGENT, et al.

Plaintiff,

Civil Action

No. 84-2911

PAINE WEBBER, JACKSON

& CURTIS, INC. et al.,

Defendant.

'

ee ee he ee ee ee ee

|

MEMORANDUM ORDER

(Vacating Arbitration Award and Remand)

Plaintiffs, Ernest and Cynthia Sargent,

filed this action against the brokerage

house, Paine Webber, Jackson & Curtis, Inc.

("Paine Webber"), and several of its agents

alleging negligent management of plaintiffs’

investment accounts. On October 31, 1984, an

Order was entered dismissing without

prejudice, allowing plaintiffs the right to

- 40a -

seek appropriete judicial relief, following

the completion of arbitration proceedings as

provided under earlier agreements between the

required parties. Plaintiffs’ submission to

an arbitration board was. required by the

"Client Option Agreements,” and was mandated

by the Federal Arbitration Act ("FAA"), 9

U.S.C. §§ 1-14.+

Arbitration took place in July 41986,

before a panel of three arbitrators selected

in accordance with New York Stock Exchange

("NYSE") Rules. On August 19, 1986, in a 2-1

decision, the panel awarded the Sargents

$46,000, representing less than 20 percent of

the approximately $260,000 that plaintiffs

had lost during the period the defendants

managed their account.

1 The Federal Arbitration Act provides

that arbitration agreements “shall be valid,

irrevocable, and enforceable, save upon such

grounds as exist at law or in equity for the

revocation of any contract.” 9 U.S.C. §2

(1987).

- 4la -

Plaintiffs then moved this Court’ to

vacate the arbitral award; Paine Webber filed

a cross motion seeking confirmation of the

award.

For the reasons set forth herein, the

Court grants plaintiffs’ motion to vacate the

arbitration award and denies defendants’

cross-motion. The matter is remanded to the

NYSE Arbitration Panel for clarification.

BACKGROUND

In July 1983, plaintiffs retained Paine

Webber to manage their stock portfolio,

consisting primarily of shares of stock and

put and call options in Coleco Industries.

Sometime after their initial purchases of

Coleco, the share price of that stock

declined. To minimize or eliminate losses,

plaintiff Earnest Sargent devised a “cost

averaging plan," whereby he would purchase

additional shares of Coleco at the reduced

- 42a -

market price and hold them until the price

began to rise. Under this plan, plaintiffs

could recover losses at a per-share price

lower than that at which they made their

initial purchases. This plan required that

defendants be attentive to the daily

fluctuations in the value of Coleco stock and

to respond accordingly without delay.

Throughout the fall of 1983 and_ into

1984, plaintiffs‘ investment managers

allegedly ignored crucial changes in the

price of Coleco and failed to respond

according to instructions. As ae result,

plaintiffs lost money which they estimated at

some $256,000. In an attempt to regain their

losses, plaintiff instituted suit in this

Court.

As permitted by the NYSE rules, the

arbitration panel kept no record and entered

no findings’ of fact or conclusions) of

- 43a -

law.” Marc White, then serving as

plaintiff's attorney in the arbitration

proceedings, apparently felt the award was so

grossly deficient as to “constitute [ ] error

that must be remedied."? Even so, Mr.

White evidently did not agree with plaintiffs

on the proper basis for further action and

consequently ceased representing their

interests. Subsequent to the arbitration

award the plaintiffs' have not been

represented by counsel and their motion to

2 Rule 624 of the New York Stock

Fxchange Rules states: “Unless requested by

the arbitrators or a party or parties to a

dispute, no record of an arbitration shall be

kept." NYSE, Arbitration Rules, Article XI,

Rule 624 (1983).

3. Exhibit D to plaintiffs' Motion to

Vacate (letter from Marc A. White to Robert

S. Clemente Esq., Director of Arbitration,

NYSE, dated September 4, 1986).

~

- 44a -

vacate the arbitration award was filed pro

4

se.

DISCUSSION

A district court has the prerogative to

exercise independent review of an arbitration

award under the Federal Arbitration Act. 9

U.S.C. §§ 9-10 (1987). Section 10 of the Act

specifically gives United States district

courts the power to vacate arbitration

~

awards. ig. & i0. Even so, courts must bear

in mind that judicial review of arbitrators'

decisions is very narrowly limited.

4 plaintiffs also allege that the

dissenting arbitrator, Mr. William Jones, was

biased. According to the plaintiff, Mr. Jones

was party to Nunes _v. Leqq, Mason, Wood &

Walker, Inc., C.A. No. 81-0119, a securities

fraud action in which Paine Webber's employees

allegedly appeared as witnesses. Mr. Jones

however, was not a party to the suit, he was

merely an officer of the corporate defendant.

Paine Webber's involvement in the case was

even more tenuous -- the record reveals that

Paine Webber's deposition was noticed, not

that ait was actually’ taken. Nunes was

dismissed shortly thereafter.

- 45a -

It is well settled, however, that a court

should not attempt to enforce an award that

is ambiguous, indefinite Or irrational.

Although a court is precluded from over-

turning errors in factual determinations,

"nevertheless, if an examination of the

record before the arbitrator reveals no

support whatever for his determinations, his

award must be vacated." | a eS ie). xm” A

United Steelworkers of America, 524 F.2d 756,

760 (3d Cir. 1975) (emphasis added).

Since the record before the arbitrators

has not been presented and the decision by

the panel is very brief and unaccompanied by

any explanation of the damage calculation,”

9 The August i9, 1986, Arbitration

Decision was a standardized form with the

following customized phrase:

[In) full and final settlement of the

above-referenced matter, respondent

Painewebber [sic] shall pay to the

Claimants the sum of $43,000.00 = and

respondent Kevin Greenan shall pay to the

claimants the sum of $3,000.00, and

- 46a -

this Court cannot determine whether the award

is supported by the record. It is also

impossible to discern what calculation led to

a final award which was only one-fifth of the

amount claimed by the plaintiffs. In light

of these deficiencies, effective judicial

review of the arbitration award is extremely

difficult.

For judicial review to be meaningful, an

arbitrator's award cannot be absolutely

immune from scrutiny. Siegel v. Titan

Industrial Corporation, 779 F.2d 891, 894 (2d

Cir. 1985). Several courts have remanded

awards to arbitrators to clarify their

meaning or effect. See Olympia & York

Florida Equity Corp. v. Gould, 776 F.2d 42,

45-46 (2d Cir. 1985) (award was ambiguous and

“warrant[ed] a

further upon claimants [sic] request and with

the consent of respondents the claims of the

claimants against respondents Bruce Edginton,

C. Jordan Ball and Joan Doyle are in all

respects dismissed.

- 47a -

remand to the arbitrators to enable them to

state what their true intention was. .. .");

Americas Ins. Co, ¥,. Seagull Compania

Naviera, S.A., 774 F.2d 64, 67 (2d Cir. 1980)

("an ambiguous award should be remanded to

the arbitrators so that the court will know

exactly what it is being asked to

enforce.” ); Cleveland Paper Handlers & Sheet

Straightners Union, No. 11 v. E.W. Scripps

Co., 681 F.2d 457, 460 (6th Cir. 1982) (per

curiam) (“an ambiguous award may not be

enforced but should”~ be remanded to the

arbitrator."): Oil Chemical & Atomic Workers

International Union v. Rohn & Haas Texas,

Inc., 677 F.2d 492, 495 (5th Cir. 1982) (per

curiam) (“remand to the arbitrator is the

appropriate disposition of an _ enforcement

action when an award is patently ambicquous.

-"); Shearson Loeb Rhoades Inc. v. Much, C.A.

No. 81-4225 at 8-9 (N. D. 111., Jan. 3, 1983)

("the court concludes that the award is

- 48a -

without support in the record. ... . the

court therefore, in the exercise of its

discretion, directs a rehearing by’ the

Arbitrator of the damage calculations.")

When reviewing arbitration awards, it is

often necessary for a court to understand the

calculation methods utilized by the

arbitrators. In Siegal, the Second Circuit

held:

Where. . . . an arbitrator's award appears

to have been reached on the basis of a

precise mathematical calculation, it is

desirable, and in some cases may be

necessary, to know the basis for the

calculations underlying the award. A

remand for clarification in such

circumstances would not improperly

require arbitrators to reveal their

reasons, but would instead simply require

them to fulfill their obligation to

explain the award sufficiently to permit

effective judicial review. 779 F.2d at

894 (emphasis added).

If considerable doubt surrounds an award,

a court is justified in remanding it back to

the arbitrators. In Shearson Loeb, the

district court held that the basis for an

arbitration award favoring the brokerage

- 49a -

OUST a

house's customer was not clear and remanded

for a recalculation of the damages. Working

with more evidence and a more detailed record

than is now before this Court, the Shearson

Loeb court determined that the damage portion

of the award was based on “sheer

speculation." Noting that newly discovered

evidence is not a proper basis for remanding

an arbitration award, the court stated that

it “expects the parties to present new and

hopefully more precise methods for

determining the extent of Mr. Much's [the

customer's] damages from the primary facts

already of record.” C.A. No. 81-4225 at 3

(N. D. kal., Get. 20, 1983).

When Shearson Loeb appealed the district

court's vacation and remand of the award, the

Seventh Circuit sent the case back to the

arbitrator. Shortly thereafter, the

arbitrator held a damages hearing and the

final arbitration award, confirmed by the

- 50a -

district court, was much different than the

original award.

It is entirely appropriate for a district

court to direct arbitrators to explain their

awards. Galt v. Libbey-Owens-Ford Glass Co.,

397 F.2d 439, 442 (7th Cir. 1968). This

method avoids any judicial guessing as to the

rationale behind the award. Remands do not

constitute judicial invasions of the

arbitrator's province but rather serve to

give the parties what they bargained for -- a

clear decision from the arbitrators.

This Court cannot clearly ascertain the

basis for the plaintiff's award, nor can it

be certain whether the arbitration panel

considered all the relevant '¥ information.

Given the ambiguity surrounding the Sargents'

$46,000 award, a remand to the arbitrators

appears to be appropriate. While arbitration

awards generally receive deferential review

by the courts, deference is not abdication.

- 5la -

ene

For this Court to engage in meaningful

judicial review of plaintiff's award, the

basis for the calculations underlying the

award must be made known.

For the reasons set forth above, it is

this 8th day of December, 1987.

ORDERED

Plaintiffs' motion to vacate the arbitral

award of August 19, 1986, is granted, and the

award, be and it is vacated. This matter is

remanded to the NYSE Arbitration Panel for a

full explanation of the manner in which

damages were computed so as to permit

effective judicial review. Defendant's cross

motion to confirm is denied. The Panel shall

act expeditiously on the matter and file its

final decision with this Court 45 days from

the date of this Order.

oe | SS ND a

Barrington D. Parker

United States District Judge

- 52a -

Text of Rule 607 “Designation of Number of

Arbitrators" of Arbitration Rules of

Department of Arbitration, New York Stock

Exchange as supplied by respondent Paine-

Webber Incorporated to the United District

Court for the District of Columbia in Exhibit

I to DEFENDANTS' CROSS-MOTION TO CONFIRM

ARBITRATION AWARD filed December 12, 1986 in

C.A. No. 84-2911

Rule 607. Designation of Number of

Arbitrators

(a)(1) Except as otherwise provided in

this Code in all arbitration matters

involving public customers and other

non-members where the matter in controversy

does not exceed the amount of $500,000, or

where the matter in controversy does not

involve or disclose a money claim, the -

Arbitration Director shall appoint an

- 53a -

arbitration panel which shall consist of no

less than three (3) nor more than five (5)

arbitrators, at least a majority of whom

shall not be from the securities industry,

unless the public customer or non-member

requests a panel consisting of at least a

mayority from the securities industry.

(2) In all arbitration matters involving

public customers and other non-members where

the amount in controversy is $500,000 or

more, the Director of Arbitration. shall

appoint an arbitration panel which shall

consist of five (5) arbitrators unless the

parties agree in writing to a panel of three

(3) arbitrators, at least a majority of whom

Shall not be from the securities industry,

unless the public customer or. non-member

requests a panel consisting of at least a

majority from the securities industry.

- 54a -

(b) Composition of Panels

; The individuals who shall serve on a

particular arbitration panel shall be

determined by the Director of Arbitration.

The Director of Arbitration may name _ the

chairman of each panel.

- 55a -

Text of Rule 607 “Designation of Number of

Arbitrators” of Arbitration Rules of

Department of Arbitration, New York Stock

Exchange ("NYSE") as supplied by NYSE

Arbitration Counsel to petitioner Ernest E.

Sargent and as supplied by petitioner to the

United states District Court for the District

of Columbia in Exhibit I to MEMORANDUM AND

POINTS AND AUTHORITIES IN SUPPORT OF

PLAINTIFFS’ OPPOSITION TO DEFENDANTS’ MOTION

TO CONFIRM AND TO NOT VACATE AWARD filed

December 19, 1986 in C.A. No. 84-2911

Rule 607. Designation of Number of

Arbitrators

(a) Public Controversies

(1) Except as otherwise provided in this

Code in all arbitration matters involving

public customers, and where the matter in

controversy does not exceed the amount of

- 56a -

$100,000, or where the matter in controversy

does not involve or disclose a money claim,

the Director of Arbitration shall appoint an

arbitration panel which shall consist on no

less than three (3) nor more than five (5)

arbitrators, at least a majority of whom

shall not be from the securities industry,

unless the public customer requests a panel

consisting of at least a majority from the

securities industry.

(2) In all arbitration matters involving

public customers where the amount in

controversy is $100,000 or more, the Director

of Arbitration shall appoint an arbitration

panel which shall consist of five (5)

arbitrators, at least a majority of whom

shall not be from the securities industry,

unless the public customer requests a panel

consisting of at least a majority from the

securities industry.

- 57a -

(b) Composition of Panels

The individuals who shall serve on a

particular arbitration panel shall be

determined by the Directoz of Arbitration.

The Director of Arbitration may name _ the

chairman of each panel.

- 58a -

United States Court of Appeals

For the District of Columbia Circuit

No. 88-7133 September Term, 1989

CA 84-02911

Ernest E. Sargent, et al.

Vv.

Paine Webber, Jackson & Curtis, Inc.,

n/d/b/a PainWebber Incorporated, et Wa ss

Appellants

BEFORE: Wald, Chief Judge; Mikva, Edwards,

Ruth B, Ginsburg, Silberman,

Buckley, Williams, D.H. Ginsburg and

Sentelle, Circuit Judges

Appellants’ Suggestion For

Banc has been Circulated to

NO member of the Court

of a vote thereon,

foregoing it is

Rehearsing En

the full Court.

requested the taking

Upon consideration of the

ORDERED, by the Court en banc, that the

Suggestion is denied.

Per Curiam

FOR THE COURT:

CONSTANCE J. DUPRE, CLERK

BY: _ [signed] —___ antennae

Robert: A. Bonner

Deputy Clerk

- 59a -

United States Court of Appeals

For the District of Columbia Circuit

La Sere aeimenieheebanee

No. 88-7133 September Term, 1989

CA 84-0291] OG

—> {4

mee te

ct

Ernest E, Sargent, et al, pl

tT *

e.

Paine Webber, Jackson & Curtis, Inc.,

n/d/b/a PainWebber Incorporated, et OZ...

Appellants

BEFORE: Buckley and Williams, Circuit

Judges, Robinson, Senior Circuit

Judge

ORDER

Upon consideration of appellants’

petition for rehearing it is

ORDERED, by the Court, that the petition

is denied.

Per Curiam

FOR THE Court:

CONSTANCE },. DUPRE, CLERK

BY: [signed] __

Robert A. Ponner

Deputy Clerk

- 60a -