Petition for Writ of Certiorari — Zinsmeyer Trusts Partnership v. Paine Webber Group, Inc.

=> a e tiés

"(7 guprems Court, 0.8,

RIL ED

991180 JAN 1 8 2000

No.

In THE

Supreme Court of the Anited States

OcToBER TERM, 1999

ZINSMEYER TRUSTS PARTNERSHIP,

Petitioner,

Vv.

PaInEWEBBER Group, INC.; PAINEWEBBER, INC.;

MirTcHELL Hutcuins Asset MANAGEMENT, INC.;

and WixuiaM J. Reik, Jr.,

Respondents.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Eighth Circuit

PETITION FOR A WRIT OF CERTIORARI

Tuomas E. DouGLass

(Counsel of Record)

Lewis R. MiLts

Bruce D. RypDerR

THOMPSON CoBURN LLP

One Mercantile Center

St. Louis, Missouri 63101

(314) 552-6000

Attomeys for Petitioner

St. Louis Law Printing, Inc. 14239 Manchester Rd. Manchester, MO 63011 314-231-4477

ee A NE

QUESTIONS PRESENTED FOR REVIEW

1. Does the intentional concealment of material evidence by a

party to an arbitration proceeding constitute “undue means” (and

therefore grounds for vacating an arbitrators’ award) within the

meaning of Section 10(a)(1) of the Federal Arbitration Act, 9

U.S.C. § 10(a)(1)?

2. When a federal district court makes factual findings in vacat-

ing an arbitrators’ award under Section 10(a)(1) of the Federal

Arbitration Act (9 U.S.C. § 10(a)(1) must a federal court of

appeals accept those findings unless they are “clearly errone-

ous”?

3. To vacate an award under the Federal Arbitration Act on the

ground that the award was procured through the intentional

concealment of evidence, is it sufficient to find that the con-

cealed evidence was materially related to an issue in the arbitra-

tion? Or must the district court find that the award would not

have been entered but for the intentional concealment?

-- EEE

LIST OF PARTIES

The parties are as stated in the caption.

Petitioner Zinsmeyer Trusts Partnership is a partnership made

up of trusts, none of which have any corporate affiliations.

acacia bie aii

— lli—

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED FOR REVIEW ............... i

IE aititieiciicctcaetinc ac li

acpi Sika ap) eed CeO ao a ili

BABES OF AUTHORITIES 2.0... Vii

oils spthn weectvy CE 1

JURISDICTIONAL POMP i 1

STATUTE INVOLVED IN i | Ee ae 1

STATEMENT OF THE CASE ...................... 2

cove weg | a A SE ONIN A aR ea 8

1. Does intentional concealment of material evi-

dence by a party to an arbitration proceeding

constitute “undue means” (and therefore

grounds for vacating an arbitrators’ award)

within the meaning of Section 10(a)(1) of the

Federal Arbitration Act, 9 U.S.C. §

wi pin) ieee cee 207 8

2. When a federal district court makes factual

findings in vacating an arbitrators’ award un-

der Section 10(a)(1) of the Federal Arbitration

Act (9 U.S.C. § 10(a)(1)), must a federal court

of appeals accept those findings unless they

are “Clearly erroneous”? .o........sceeeessoseccs..... 15

— iv —

3. Tovacate an award under the Federal Arbitra-

tion Act on the ground that the award was

procured through the intentional concealment

of evidence, is it sufficient to find that the

concealed evidence was materially related to

an issue in the arbitration? Or must the district

court find that the award would not have been

entered but for the intentional concealment?

CONCLUSION «..zesscsrorsecocssernneneoenennennnenereonen TT

APPENDIX A

PaineWebber Group, Inc., et al. v. Zinsmeyer Trusts

Partnership, 187 F.3d 988 (8 Cir. 1999)

(Caplan) renter te ds

APPENDIX B

Zinsmeyer Trusts Partnership v. Morgan Stanley & Co.,

et al., Nos. 4:95 CV02528ERW, 4:95MC

00318ERW (E.D. Mo. April 15, 1997) (Memoran-

Auer B00 OREIT) aoveennnvennsenncnnetessoerrenee re

APPENDIX C

Zinsmeyer Trusts Partnership v. Morgan Stanley & Co.,

et al., Nos. 4:95CV02528ERW,

4:95MC00318ERW (E.D. Mo. Jan. 29, 1998)

(Memorandum and Orde?) «..--v-esseveneresesensenesensesrer®

APPENDIX D

PaineWebber Group, Inc., et al. v. Zinsmeyer Trusts

Partnership, No. 98-1649/1741 EMSL (8 Cir.

Oct. 19, 1999) (Order denying rehearing) ..--+-+-+++-

20

Page

A-13

A-51

APPENDIX E

Exhibit 5 to Plaintiff’s Second Supplemental Memoran-

dum in Support of Motion to Vacate, filed in

Zinsmeyer Trusts Partnership v. Morgan Stanley &

Co., et al. Nos. 4:95CV02528ERW,

4:95MC00318ERW (E.D. Mo. Sept. 18, 1996)

(Arbitration Exhibit 447) (handwritten notes)......

APPENDIX F

Exhibit 6 to Plaintiff’s Second Supplemental Memoran-

dum in Support of Motion to Vacate, filed in

Zinsmeyer Trusts Partnership v. Morgan Stanley &

Co., et al. Nos. 4:95CV02528ERW,

4:95MC00318ERW (E.D. Mo. Sept. 18, 1996)

(Arbitration Exhibit 179) (“Preliminary Memoran-

QUE) aossesceséssscscisonscoesnsbicucpnisctstcsbiiseseisnbanteviubtuetoe

APPENDIX G

Exhibit 3 to Plaintiff’s Second Supplemental Memoran-

dum in Support of Motion to Vacate, filed in

Zinsmeyer Trusts Partnership v. Morgan Stanley &

Co., et al. Nos. 4:95CV02528ERW,

4:95MC00318ERW (E.D. Mo. Sept. 18, 1996)

(PaineWebber memorandum to Robert M. Berson

from Mark Commander and Mary Joan Hoene,

dated June 11, 1990 (“Final Memorandum”))......

APPENDIX H

Exhibit 7 to Plaintiff’s Second Supplemental Memoran-

dum in Support of Motion to Vacate, filed in

Zinsmeyer Trusts Partnership v. Morgan Stanley &

Co., et al. Nos. 4:95CV02528ERW,

4:95MC00318ER W (E.D. Mo. Sept. 18, 1996) (ex-

cerpt from Arbitration Hearing Transcript Mar. 28,

1995, 9. 423-24) ....<s0csccssscersonsccceveccseesocsssoesceccorenee

A-56

A-57

A-63

—

APPENDIX I

Exhibit 2 to Plaintiff’s Second Supplemental Memoran-

dum in Support of Motion to Vacate, filed in

Zinsmeyer Trusts Partnership v. Morgan Stanley &

Co., et al. Nos. 4:95CV02528ERW,

4:95MC00318ERW (E.D. Mo. Sept. 18, 1996)

(Paine Webber memorandum to file from Robert M.

Berson, dated Feb. 13, TOPE) evisinesisentssssaisocosisenseee

— vii—

TABLE OF AUTHORITIES

Page(s)

Cases

A.G. Edwards & Sons, Inc. y. McCollough, 967 F.2d

1401 (9" Cir. 1992), cert. denied, 506 U.S. 1050

lane a een nT ME eR Oe ERED 12,21

American Postal Workers Union v. U.S. Postal Service,

| 52 F.3d 359 (D.C. Cir. APA Pkt 12

Anderson v. City of Bessemer C ity, 470 U.S. 564

j FoR wainncnnGaniuctn 15,16,18,25

Barnes v. Logan, 122 F.3d 820, 821 (9" Cir. 1997), cert.

denied, 523 U.S. 1059 8) CCN ee TREES 16,26

Bonar v. Dean Witter Reynolds, 835 F.2d 1378 (11" Cir.

Soh gear Nt Naa 13,15,22

Commonwealth C. oatings Corp. v. Continental C asualty

Co., 393 U.S. 145 PRP cient ct Passim

Dogherra v. Safeway Stores, Inc., 679 F.2d 1293, 1297

(9" Cir.), cert. denied, 459 U.S. 990 (1982) .......... passim

First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938

RP ernie 15,16,19,25

Flexible Manufacturing Systems Pty. Ltd. v. Super Prod-

ucts Corp., 86 F.3d 96 C7 Che. be) Curae 12

Gateway T, echnologies, Inc. v. MCI T, elecommunica-

tions Corp., 64 F.3d 993 (O° Cir, 1995) .:.....-... 14

Gingiss International, Inc. y. Bormet, 58 F.3d 328 Ys

gee) chal, en aI ea ea Oa 21

Kelley v. Michaels, 59 F.3d 1050 (10" Cir. ED odiniccas 16,26

— viii —

Robbins v. Day, 954 F.2d 679 (11" Cir. 1992) ..........04. 19

Rodriguez de Quijas v. Shearson/American Express,

TG, A a ATE RTE etietitiataninatineie 9

Shearson/American Express, Inc. v. McMahon, 482 U.S.

TROL RIOT) ‘scisinintomentnnpniiiintseonidaiepnemaiiemaiine 9

Trans Chemical Ltd. v. China Nat. Mach. Import &

Export Corp., 978 F. Supp. 266, 304 (S.D. Tex.

1997), aff'd, 161 F.3d 314 (5™ Cir. 1998) ............ 12

Wackenhut Corp. v. Amalgamated Local 515, 126 F.3d

AOE Gs STD ecdedididnamammnninaen 16,26

Wilko v. Swan, 346 U.S. 427 (1953)........sscssscsscsssesssees 9

Statutes

Federal Arbitration Act, 9 U.S.C. § 1 oo ceeeeees 10

Federal Arbitration Act, 9 U.S.C. § 10(a)(1).............0. passim

Securities Act of 1933, 15 U.S.C. § 778......ccccccccssescssess 9,10

Securities and Exchange Act of 1934, 15 U.S.C.§ 78a 9,10

BRU DE. © TE se icceierstnckistsist abcess. 1

BB OSG, & BG inseivssicicsntcitneesianisapaicneeiciinsthnimateass 5

GR es TE IO Lccatiaeehaniainitionlijieantaadaniaiaidinid $

Other Authorities

American Arbitration Association, Annual Report

SOND sssascone<uhcnsinitatahhessaptibisinaiasaltsadeaiidlicibetiatgs annals 8

Judicial Business of the United States Courts .............. 8

National Association of Securities Dealers, Inc., Annual

NE SI issn taicancceapencsaeieinictdeaentiilibiain 8

— IX

Rules

Rule 52(a) of the Federal Rules of Civil Procedure

passim

re

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PETITION FOR WRIT OF CERTIORARI

Petitioner Zinsmeyer Trusts Partnership respectfully requests

that this Court issue a writ of certiorari to review the judgment

of the United States Court of Appeals for the Eighth Circuit in

this case.

OPINIONS BELOW

The opinion of the United States Court of Appeals for the

Eighth Circuit is reported at 187 F.3d 988. (Appendix, p.A-10.)

The orders of the United States District Court for the Eastern

District of Missouri, vacating the arbitration award and denying

the motions to alter or amend the judgment, are not published.

(Appendix, pp. A-13, A-51.) The denial of the petition for

rehearing en banc and the petition for rehearing by the panel is

unofficially reported at 1999 U.S. App. LEXIS 26487. (Appen-

dix, p. A-55.)

JURISDICTIONAL STATEMENT

The judgment of the United States Court of Appeals for the

Eighth Circuit was entered on August 16, 1999. (Appendix, p.

A-1.) A petition for rehearing or rehearing en banc, timely filed,

was denied on October 19, 1999. (Appendix, p. A-55.) The

jurisdiction of this Court is invoked under 28 U.S.C. § 1254(1).

STATUTE INVOLVED IN THE CASE

Section 10(a) of the Federal Arbitration Act, 9 U.S.C. § 10(a),

provides as follows:

§ 10. Same; vacation; grounds; rehearing

(a) In any of the following cases the United States court

in and for the district wherein the award was made may

make an order vacating the award upon the application of

any party to the arbitration—

(1) Where the award was procured by corruption, fraud,

or undue means.

on, oa

(2) Where there was evident partiality or corruption in

the arbitrators, or either of them.

(3) Where the arbitrators were guilty of misconduct in

refusing to postpone the hearing, upon sufficient cause

shown, or in refusing to hear evidence pertinent and mate-

rial to the controversy; or of any other misbehavior by

which the rights of any party have been prejudiced.

(4) Where the arbitrators exceeded their powers, Or SO

imperfectly executed them that a mutual, final, and definite

award upon the subject matter submitted was not made.

(5) 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.

STATEMENT OF THE CASE

1. The Parties. The petitioner Zinsmeyer Trusts Partnership

(herein referred to as “ZTP”) is a substantial investor. The

respondents are Mitchell Hutchins Asset Management, Inc.

(“Mitchell Hutchins”), an investment advisor and portfolio

manager; PaineWebber Incorporated, the parent of Mitchell

Hutchins: and PaineWebber Group, Inc., the parent of

Paine Webber Incorporated (these three respondents are herein

referred to collectively as “PaineWebber”). An additional

respondent is William J. Reik, Jr., (herein sometimes referred to

as “Reik”); he was an employee of Mitchell Hutchins from

before 1986 until February, 1991.’

>. The Relationship Between the Parties. In 1986, ZTP

retained Reik and Mitchell Hutchins as investment advisors and

! William D. Witter, Inc., which employed Reik after he left Paine Webber,

was a party below, but ZTP has not named it as a respondent in this

proceeding.

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gave them discretionary authority to invest a significant portion

of ZTP’s assets. During the next six years, Reik managed the

investment of those funds.

3. The NA.S.D. Claim. 1n 1994, ZTP filed a claim for

arbitration before the National Association of Securities Deal-

ers, Inc. (“NASD”) against respondents Paine Webter, Reik, and

others. ZTP alleged that Reik had invested its assets (as well as

the assets of his other clients) in the thinly traded stocks of

Neutrogena Corp. and two other corporations. ZTP further

alleged that Reik used its funds to manipulate the market for

Neutrogena Corp. stock and to purchase such stock for its

account at inflated prices, and that it had been damaged as a

result.

4. The Documents. In 1990, well prior to the commencement

of the arbitration proceeding, three closely related documents

were prepared at Paine Webber in the course of a review of Reik’s

transactions in Neutrogena stock. These were: (i) a handwritten

outline of a memorandum reviewing those transactions (Appen-

dix, p. A-56), (ii) a preliminary draft of a portion of the memo-

randum (the “Preliminary Memorandum”) (Appendix, p. A-57),

and (ili) the final version of the memorandum (the “Fina!

Memorandum”) (Appendix, p. A-63). As more fully described

below,” the Final Memorandum contained material information

concerning Reik’s manipulation of the market for Neutrogena

stock.

5. The Concealment of the Final Memorandum. During the

arbitration proceedings Paine Webber produced the handwritten

outline and the Preliminary Memorandum. Nevertheless, it cat-

egorically denied the existence of the Final Memorandum.

During the examination of a witness before the arbitration panel

concerning the Preliminary Memorandum, the following collo-

* See pp. 22-24, infra.

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quy occurred between counsel for ZTP (Mr. Douglass) and

counsel for Paine Webber:

MR. DOUGLASS: Ken, this is the form document for

179 that was produced to us; all right? If you have a

complete copy of the memo and it exists, we would appre-

ciate it being produced.

MR. LYONS: I will just say for the record what we’ve

said many, many times in the course of discovery: That is

the only document that exists in the files. You have asked

many times for that document. We’ve verified for you

many times that that is all that we have in the files.

MR. DOUGLASS: All right, but in light of Mr. Cavell’s

testimony, and in light of this memo, I’m asking if there is

a III and IV; okay?

MR. HIGGINS: Mr. Cavell didn’t tell you there wasa lll

and IV.

MR. DOUGLASS: I understand that. If there is one, I’d

like to see it.

MR. LYONS: For the record, I will repeat what we’ve

said many, many times in the past; you have everything that

exists in our client’s file.

(Appendix, p. A-73.) The statements by Paine Webber’s counsel

were false. The Final Memorandum did of course exist and it had

not been produced. At no time during the arbitration did

PaineWebber produce the Final Memorandum, nor did it ever

advise the arbitration panel that its counsel’s statements were

false.

6. The Results of the Arbitration. On November 30, 1995, the

NASD arbitration panel denied ZTP’s claims.

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7. The Commencement of Litigation. Still unaware of the

existence of the Final Memorandum, ZTP then brought an action

in the Circuit Court for St. Louis County, Missouri, to vacate the

arbitration award. That action was timely removed to the United

States District Court for the Eastern District of Missouri, Eastern

Division, on grounds of the existence of a federal question (28

U.S.C. § 1331) and diversity (28 U.S.C. § 1332). After removal,

the district court consolidated the case with another action

Paine Webber had brought in federal court to confirm the arbitra-

tion award.

8. The Discovery of the Final Memorandum. In other

litigation against Paine Webber (based on claims by other inves-

tors that Reik manipulated markets), the United States District

Court for the Eastern District of Missouri on September 5, 1996,

rejected PaineWebber’s claims of privilege and ordered it to

produce a number of documents, including the Final Memoran-

dum. ZTP learned of the Final Memorandum for the first time

when PaineWebber produced it in that other litigation.

9. Amendment of Litigation. Immediately thereafter, ZTP

filed a supplement to its motion in the district court to vacate the

arbitration award. The supplement included as grounds that the

award had been procured through “undue means” because

Paine Webber lied about and improperly concealed the existence

of the Final Memorandum and other documents,’ and that it had

thereby intentionally misled both ZTP and the arbitration panel.

10. Evidence before the District Court. The district court

reviewed the handwritten notes, the Preliminary Memorandum,

* One of these documents is a memorandum by Robert Berson of

Paine Webber dated February 13, 1991, that was neither produced nor listed

in Paine Webber’s privilege log. The memorandum describes a conversation

between Berson and William Witter and sets forth, inter alia, Berson’s

statement to Witter that “the customer situations involved millions of dollars

of potential losses and that there is reason to believe Reik was primarily

responsible for same. .. .“ (Appendix p. A-74; emphasis added.)

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the Final Memorandum, the other documents not produced

during the arbitration, PaineWebber’s response to the charge of

concealing evidence, and the transcript of the arbitration pro-

ceedings.

11. Initial Decision by the District Court. Asa result of that

review, on April 15, 1997, the district court vacated the arbitra-

tion award in favor of Paine Webber and Reik. (Appendix, p. A-

13.) It found, inter alia, that the record “clearly shows” that the

Final Memorandum and other documents “were hidden by

PaineWebber and kept from [ZTP’s] discovery during the arbi-

tration.” (Appendix, p. A-45; emphasis added.) It further found

that Paine Webber and its counsel “improperly withheld docu-

ments from discovery. The record evinces bad faith and miscon-

duct in withholding such discovery.” (Appendix, p. A-45; em-

phasis added.)

The district court also rejected Paine Webber’s argument that

the award should be confirmed because the concealed evidence

would not have changed the outcome of the arbitration. The

district court held that it was “not required to reweigh the

evidence in light of the withheld documents and evidence.”

(Appendix, p. A-46.) Instead, the court held that it “need only

conclude that there be some causal relation between the conduct

and that party’s obtaining the arbitration award.” (Appendix, p.

A-46.) The district court found that the concealed documents

were material and relevant to ZTP’s claims. “As such, their

absence undoubtedly impacted on [ZTP’s] ability to pursue its

case and examine key witnesses; their absence could certainly

have impacted the decision making process of the arbitrators.”

(Appendix, p. A-47.)

12. The District Court’s Decision on Motion to Alter or

Amend. In denying motions to alter or amend its judgment, the

district court on January 29, 1998, found: “PaineWebber’s

mischaracterization of its behavior . .. by describing its conduct

ses tai.

- ». aS unintentional and incidental is in direct conflict with the

record and the Court’s conclusions.” (Appendix, p. A-53;

emphasis added.)

13. Decision by the Eighth Circuit. On appeal, the Court of

Appeals for the Eighth Circuit reversed. (Appendix, p. A-1.)

Without discussing the appropriate scope of appellate review (or

even mentioning the “clearly erroneous” standard of Rule 52(a)

of the Federal Rules of Civil Procedure), the Court of Appeals

reviewed the decision of the district court de novo. It held that

PaineWebber’s “mistakes” were not the kind of intentional

misconduct that constitutes “undue means” under 9 U.S.C. §

10(a)(1). (Appendix, p. A-8.)

As an additional ground, the court also held that even if

PaineWebber’s “mistakes” constituted “undue means,” there

was no showing that there was a sufficient causal connection

between those “mistakes” and the award. (Appendix, p. A-10.)

The court based this holding on its assumption that the arbitra-

tion panel would have upheld a claim of privilege by Paine Webber

as to the Final Memorandum. It assumed that even if ZTP had

known of the existence of that memorandum it could not have

compelled its production. (Appendix, p. A-10.) As a third

ground for its decision, the court further held that ZTP failed to

Show that the evidence before the arbitration panel would have

been any different if ZTP had received the full text of the Final

Memorandum at the outset of the arbitration. (Appendix, p. A-

10.)

14. Denial of Motion for Rehearing. On October 19, 1999,

the Court of Appeals denied ZTP’s motion for rehearing and

rehearing en banc, Judge McMillian dissenting. (Appendix, p.

A-55.)

pre Reon

ARGUMENT

1. Does intentional concealment of material evidence by a

party to an arbitration proceeding constitute “undue

means” (and therefore grounds for vacating an arbitra-

tors’ award) within the meaning of Section 10(a)(1) of

the Federal Arbitration Act, 9 U.S.C. § 10(a)(1)?

In the last two decades, arbitration has become a significant

alternative to litigation for the resolution of disputes. In 1998 the

National Association of Securities Dealers, Inc. (“NASD”)

administered the arbitration of 1,918 cases.’ Most of these

NASD cases involved claims based on federal securities law,

and they would have been filed in federal district courts if they

were not arbitrated. Additional arbitration cases involving the

federal securities laws were administered by the New York

Stock Exchange. In addition, thousands of other disputes were

resolved through arbitration not administered by the NASD or

the New York Stock Exchange.” It is impossible to ascertain

how many of these other arbitrations would be within the

jurisdiction of the federal district courts, but the number is almost

certainly in the thousands and perhaps in the tens of thousands.

During 1998, fewer than 9.500 civil cases were tried in federal

district courts.© Thus, the number of civil disputes resolved

through private arbitration is of at least the same order of

magnitude as the number of civil disputes tried in the federal

judicial system. If the disputes that are now resolved through

‘ National Association of Securities Dealers, Inc., Annual Report 1998,

page 28. During 1998, 4,938 cases were filed with the NASD. As with the

federal courts, many more cases are filed with the NASD than are tried.

5 In 1998 a total of 92,100 arbitration cases were filed with the American

Arbitration Association. American Arbitration Association, Annual Report

1998, page 23. Of course, many other arbitrations are not administered by any

organization.

6 Judicial Business of the United States Courts 1998, page 30.

ial

arbitration were to be litigated, the caseload of our already

overburdened federal judicial system would be significantly

increased.

The growth and importance of arbitration as a significant

adjunct to the federal judicial system is reflected in the decisions

of this Court. In Wilko v. Swan, 346 U.S. 427 (1953), the Couri

held that an agreement by a customer of a securities dealer to

arbitrate all future disputes was unenforceable. Underlying its

decision was a lack of confidence that the rights conferred by the

federal Securities Act of 1933, 15 U.S.C. § 77a et seq. would be

adequately protected in arbitration. Jd. at 437. By 1987,

however, the Court’s confidence in the adequacy of arbitration

had increased substantially. In Shearson/American Express,

Inc. v. McMahon, 482 U.S. 220 (1987), the Court refused to

extend the holding in Wilko to predispute agreements to arbitrate

claims arising under the Securities and Exchange Act of 1934 15

U.S.C. § 78a et seq., as amended. Justice O’Connor, writing for

the majority, stated that “Wilko must be read as barring a waiver

of a judicial forum only where arbitration is inadequate to protect

the substantive rights at issue.” Jd. at 229. She went on to note

that in 1975 the arbitration rules of the securities industry’s self-

regulatory organizations became subject to oversight by the

Securities and Exchange Commission, and that the Commission

had approved the arbitration rules of the NASD, the New York

Stock Exchange, and the American Stock Exchange. She

concluded that, under these changed circumstances, arbitration

was adequate to protect the important federal rights of investors

conferred by the 1934 Act. /d. at 233-34. Her conclusions were

reiterated in Rodriguez de Quijas v. Shearson/American Ex-

press, Inc., 490 U.S. 477 (1989), where a divided Court over-

ruled Wilko.

None of these three decisions was unanimous. The divisions

in the Court reflect the tensions between two strong federal

policies. One policy is embodied in the Federal Arbitration Act;

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‘t favors enforcement of agreements to resolve disputes through

arbitration rather than litigation. The other policy is reflected in

the Securities Act of 1933, the Securities Exchange Act of 1934

and other federal securities laws; it favors protection of investors

and the integrity of the securities markets. The resolution of this

tension requires that the arbitration system have sufficient integ-

rity to ensure that investors receive a fair hearing.

There is, therefore, a strong federal interest in maintaining and

improving the arbitration process. At the same time, however,

the courts need to be cautious about excessive intrusion into the

arbitration process. In short, there needs to be a balance. The

courts need to intervene when it is necessary to preserve the

integrity of the arbitration process — to ensure that arbitration

remains an adequate method of protecting important federal

statutory rights. A court, however, should not intervene simply

because it believes the arbitrators in a particular case reached the

wrong result. The courts need not undertake to correct the honest

mistakes of arbitrators.

Congress established the mechanism for achieving the neces-

sary balance in the Federal Arbitration Act, 9 U.S.C. § | ef seq.

Section 10(a) of that Act lists the grounds on which a federal

district court may vacate an arbitral award. Under the statute a

court may vacate an arbitrators’ award:

(1) Where the award was procured by corruption, fraud,

or undue means.

(2) Where there was evident partiality or corruption in the

arbitrators, or either of them.

(3) Where the arbitrators were guilty of misconduct in

refusing to postpone the hearing, upon sufficient cause

shown, or in refusing to hear evidence pertinent and

material to the controversy; or of any other misbehav-

ior by which the rights of any party have been preju-

diced.

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(4) Where the arbitrators exceeded their powers, or so

imperfectly executed them that a mutual, final, and

definite award upon the subject matter submitted was

not made.

These statutory grounds all relate to the integrity of the process

of arbitration. They do not relate to the question of whether the

arbitrators made the right decision. They concern, rather, the

fairness and integrity of the process and the tribunal.

This focus on process rather than result is also shown in the

Only decision of this Court vacating an arbitrators’ award,

Commonwealth Coatings Corp. v. Continental Casualty Co.,

393 U.S. 145 (1968). That case involved a claim by a subcon-

tractor against a prime contractor. Each party appointed one

arbitrator, and those two together selected the third arbitrator,

That third arbitrator had a business relationship with the prime

contractor that neither he nor the prime contractor disclosed to

the subcontractor. The arbitrators found for the prime contrac-

tor, and both the federal district court and the United States Court

of Appeals for the First Circuit refused to vacate the award. This

Court, however, directed that the arbitrators’ award be vacated.

Justice Black wrote the majority Opinion:

Section 10 [of the Federal Arbitration Act] sets out the

conditions upon which awards can be vacated. The two

courts below held, however, that § 10 could not be con-

strued in such a way as to justify the vacating of the award

in this case. We disagree and reverse. Section 10 does

authorize vacation of an award where it was “procured by

corruption, fraud, or undue means”. . . .

393 U.S. at 147.

Justice Black went on to note:

It is true that petitioner does not charge before us that the

third arbitrator was actually guilty of fraud or bias in

saan OE aria

deciding this case, and we have no reason, apart from the

undisclosed business relationship, to suspect him of any

improper motives. But neither this arbitrator nor the prime

contractor gave to petitioner even an intimation of the close

financial relations that had existed between them for a

period of years.

Id. at 147-48 (emphasis added).

Justice Black imposed a duty of disclosure not only on the

third arbitrator but also on the prime contractor. The nondisclo-

sure by the prime contractor was thus deemed to constitute

“undue means” within the meaning of § 10(a)(1) of the Federal

Arbitration Act.

Thus, the general rule is clear: Judicial intervention is war-

ranted if the arbitration process is tainted by fraud, corruption,

undue means, biased arbitrators, or the like; bona fide errors of

fact or law by the arbitrators, however, do not justify judicial

intervention. See Flexible Manufacturing Systems Pty. Ltd. v.

Super Products Corp., 86 F.3d 96, 99-100 (7" Cir, 1996).

Although the general rule is clear, its application to specific

cases is nevertheless largely uncharted. What constitutes “un-

due means” within the meaning of Section 10(a)(1) of the

Federal Arbitration Act and Commonwealth Coatings? In the

statute the phrase “undue means” is harnessed with “fraud” and

“corruption,” and its meaning therefore may be colored by those

terms. Some wrongfulness, immorality, or bad faith may be a

required ingredient of “undue means.” A.G. Edwards & Sons,

Inc. v. McCollough, 967 F.2d 1401 (9" Cir. 1992), cert. denied,

506 U.S. 1050 (1993); see also American Postal Workers Union

v. US. Postal Service, 52 F.3d 359, 362 (D.C. Cir. 1995); Trans

Chemical Ltd. v. China Nat. Mach. Import & Export Corp., 978

F. Supp. 266, 304 (S.D. Tex. 1997), aff'd, 161 F.3d 314 (5" Cir.

1998). These cases do not address the question of whether

intentionally lying to the arbitration panel (and opposing coun-

pai A

sel) about the existence of a relevant document is sufficiently

wrongful, immoral, or lacking in good faith to constitute “undue

means” within the meaning of the statute.

Closer in point is Bonar v. Dean Witter Reynolds, 835 F.2d

1378 (11" Cir. 1988). In that case, the expert witness for the

claimants lied about his qualifications at the hearing before the

arbitrators. The arbitrators held for the claimants, and they

awarded punitive damages against Dean Witter. The evidence

supporting the punitive damages award was primarily the expert’s

testimony. After the award Dean Witter discovered the expert’s

perjury and asked the district court to vacate the award. Al-

though the claimants admitted their expert’s perjury, the district

court confirmed the award without opinion. The Eleventh

Circuit reversed, holding that the expert’s perjury was “fraud”

within the meaning of Section 10(a)(1). It held that Dean Witter

was entitled to a new hearing before different arbitrators on the

issue of punitive damages.

This case is like Bonar. In this case the district court explicitly

found that Paine Webber had acted in “bad faith” and was guilty

of “misconduct.” Do these findings support the district court’s

decision to vacate the award on the ground that PaineWe'»ber

procured the arbitrators’ award by “undue means”? This Court

should issue its writ of certiorari in this case to resolve that

question.

There are, of course, many good reasons’ why the Court could

hold that deliberately concealing and lying about the existence of

material evidence in an arbitration constitutes “undue means”

within the meaning of the statute:

* Such concealment taints the arbitration process.

’ These arguments are here mercly suggested and not developed. It would

be premature to develop them fully at this stage of these proceedings. If and

when the Court issues its writ of certiorari, the merits can be fully briefed.

oe ae

* Most people would refuse to arbitrate if they knew

their opponents could hide incriminating evidence

with impunity.

* No one would view the arbitrators’ award as fair if

they knew that the prevailing party had prevented the

arbitrators from obtaining full knowledge of the rel-

evant facts.

¢ The prevailing party should not be allowed to profit

from its misdeeds.

* If both sides concealed material evidence, discovery

in arbitration would become a mockery, and arbitra-

tions would have to proceed without meaningful dis-

covery.

* When the parties have agreed to arbitrate pursuant to

specific rules — in this case rules that explicitly

provide for discovery — the parties should not be

permitted to ignore those rules. See Gateway Tech-

nologies, Inc. v. MCI Telecommunications Corp., 64

F.3d 993, 996-97 (5™ Cir. 1995).

Permitting judicial review of the conduct of the parties during

discovery in arbitration has some costs. It could lead to an

increase in the number of actions seeking to vacate arbitrators’

awards, with a concomitant expenditure of judicial time and

effort that could otherwise be devoted to other tasks. Increased

judicial supervision of arbitration could diminish the anticipated

savings in costs and time that make arbitration attractive in many

situations.

Thus, the question presented by this petition comes down to a

balancing of risks. Does

(a) the threat to the integrity and adequacy of the arbitration

process arising from permitting a party intentionally to

conceal material evidence and to lie about that evidence

[eee ee ee

i heh hw teal aac tee as

vats OE dts

outweigh

(b) the risks of increased litigation and accompanying

dissipation of judicial energy arising from permitting judi-

cial intervention to set aside awards procured by such

concealment and mendacity?

In this case, the Eighth Circuit did not properly balance the

competing interests. It stretched to reverse the district court and

uphold the arbitrators’ award. It gave undue weight to a

supposed federal policy of upholding such awards. This Court

has already rejected the view that the review of arbitrators’

awards should be tilted in favor of confirming awards. First

Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947-49

(1995). This Court should reaffirm that ruling by granting

certiorari and reversing the court of appeals’ decision in this

case.

Viewed from a slightly different angle, the question in this

case becomes: Is Commonwealth Coatings the controlling

authority for this case? Is this case so different from Bonar that

its ultimate result should be different? These are important

questions of federal law that have not been, but should be, settled

by this Court.

2. When a federal district court makes factual findings in

vacating an arbitrators’ award under Section 10(a)(1)

of the Federal Arbitration Act (9 U.S.C. § 10(a)(1)),

must a federal court of appeals accept those findings

unless they are “clearly erroneous”?

Rule 52(a) of the Federal Rules of Civil Procedure provides in

part that “Findings of fact [by a district court], whether based on

oral or documentary evidence, shall not be set aside unless

clearly erroneous. ...” This Court adopted the same standard of

review in Anderson v. City of Bessemer City, 470 U.S. 564

(1985). In First Options of Chicago, Inc. v. Kaplan, 514 U.S.

weiss Cini

938, 947-49 (1995), this Court approved the “clearly erroneous”

standard of review in a case involving a district court’s factual

finding that the parties had not agreed to arbitration.

Moreover, at least three federal Courts of Appeals have held

that the “clearly erroneous” standard of Rule 52(a) applies te the

review of findings of fact made by a district court in vacating or

confirming an arbitral award. Wackenhut Corp. v. Amalgamated

Local 515, 126 F.3d 29, 31 (2d Cir. 1997); Barnes v. Logan, 122

F.3d 820, 821 (9" Cir. 1997), cert. denied, 523 U.S. 1059 (1998);

Kelley v. Michaels, 59 F.3d 1050, 1053 (10" Cir. 1995).

Nevertheless, in this case the Court of Appeals for the Eighth

Circuit ignored Rule 52(a). It did not cite the Rule nor even

discuss the scope of its review of the district court’s decision. It

did not cite or discuss Anderson v. City of Bessemer City or First

Options of Chicago, Inc. v. Kaplan. The words “clearly errone-

ous” do not appear in its opinion. Not only was Rule 52(a) not

mentioned, it was not applied. The Court of Appeals simply

substituted its own view of the facts for that of the district court.

The district court reviewed the transcript of the hearing before

the arbitration panel, the Final Memorandum, and the other

documents in question. The transcript included the denial by

PaineWebber’s counsel that the Final Memorandum existed.

The district court also deemed inadequate PaineWebber’s re-

sponse to the charge that it had improperly concealed the Final

Memorandum:

In their response to [ZTP’s] supplemental memorandum,

Paine Webber does not contest that this document was not

produced by them; it asserts only the matters discussed in

this document were not central or relevant to [ZTP’s] case

and would not have made a difference in the outcome of the

arbitration.

ak”. Sa

(Appendix, p. A-45.) In short, in its response Paine Webber did

not deny that it had lied. It argued only that no prejudice to ZTP

resulted from its deceptions.

After its review of this documentary evidence, the district

court found that the record “clearly shows” that the Final

Memorandum and other documents “were hidden by

Paine Webber and kept from [ZTP’s] discovery during the arbi-

tration.” It further found that PaineWebber and its counsel

“improperly withheld documents from discovery. The record

evinces bad faith and misconduct in withholding such discov-

ery.” (Appendix, p. A-45.) These are Clearly findings of fact

made after a review of the documentary evidence.

The district court reiterated its factual findings in its order

denying respondents’ motions to alter or amend its judgment. It

there found: “PaineWebber and Reik submit that the evidence

before Court does not support a finding of intentional miscon-

duct.... PaineWebber’s mischaracterization of its behavior .

. . @S unintentional and incidental is in direct conflict with the

record and the Court’s conclusions.” (Appendix, pp. A-45, A-

46; emphasis added.)

On appeal, the Court of Appeals for the Eighth Circuit

reversed. Without discussing the appropriate scope of appellate

review, the Court of Appeals reviewed the decision of the district

court de novo. Its view of the evidence was remarkably different

from that of the district court. It found that Paine Webber’s

“mistakes” were not the kind of intentional misconduct that

constitutes “undue means” under 9 U.S.C. § 10(a)(1). It re-

garded the false denial of the existence of the Final Memoran-

dum and other concealment of evidence as “the kinds of errors

and oversights that are apt to attend the process of claiming

privilege for a large group of documents.” (Appendix, p. A-8.)

The striking difference between how the district court viewed

the facts and how the Court of Appeals viewed those facts

is NR as

stemms from their different answers to the same fundamental

question. That fundamental question is:

Did counsel for PaineWebber know of the existence of the

Final Memorandum when he denied that it existed?

This is a question of fact. The district court, after reviewing of

the documentary evidence and noting that Paine Webber had

made no attempt to explain its counsel’s statement, answered

that question clearly and in the affirmative. It expressly found

that Paine Webber’s conduct was not unintentional. (Appendix,

p. A-45.)

The district court’s finding on this factual issue is not clearly

erroneous. The denial by PaineWebber’s counsel was not a

casual mistake. By his own admission, he had denied the exist-

ence of the Final Memorandum “many, many times.” Indeed, he

even repeated the phrase “many, many times.” Moreover, it is

unlikely that counsel was truly unaware of such a “smoking

gun.”

The district court found the facts to be that “Paine Webber and

its counsel overstepped” the proper bounds of zealous represen-

tation and “improperly withheld documents from discovery.”

(Appendix, p. A-45.) It found bad faith and misconduct. It found

that Paine Webber’s conduct was not unintentional. Its findings

should not have been set aside by the Court of Appeals. See

Anderson v. City of Bessemer City, 470 U.S. 564 (1985).

The issue of counsel’s mendacity should not be confused with

the issue of privilege. At the hearing before the arbitrators,

counsel for Paine Webber was asked about the existence of the

Final Memorandum. He did not assert a claim of privilege.

Rather, he falsely stated that it did not exist. Falsehood and

privilege are separate and distinct issues.

The Final Memorandum was listed among almost 2000 en-

tries in PaineWebber’s 347-page privilege log. It was not

nen Ba:

described there in a way that disclosed or even hinted that it was

the final version of the Preliminary Memorandum, and conse-

quently ZTP did not move to compel production of the document

as described in the privilege log. Nevertheless, as counsel for

Paine Webber admitted, ZTP did ask for production of the Final

Memorandum, or at least an acknowledgement of its existence,

“many, many times.”

When asked about the Final Memorandum, counsel for

Paine Webber could have, and Clearly should have, simply re-

plied that the document did exist and that it was privileged. That

would have been honest and forthright, but that is not what he

did. Rather, he denied that it existed. He thereby precluded

further efforts by ZTP to obtaina copy of the Final Memorandum

or make any challenge to Paine Webber’s claim of privilege. In

these circumstances, the fact that Paine Webber had a vague

entry in its privilege log referring to the Final Memorandum does

not excuse its counsel’s falsehoods. Counsel cannot deliberately

deny the existence of a highly relevant and incriminating docu-

ment merely because he believes the document may be privi-

leged.

The district court found, based on the documentary evidence,

that Paine Webber acted in bad faith. The Eighth Circuit re-

viewed that finding of fact de novo. In so doing it may have

adopted the double standard approach that the Eleventh Circuit

had used in Robbins v. Day, 954 F.2d 679 (11" Cir. 1992), i.e.,

reviewing district court decisions that vacate arbitration awards

more rigorously than decisions confirming awards. This Court.

however, rejected that double standard in First Options of

Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995).

In any event, the Eighth Circuit did not use the “clearly

erroneous” standard mandated by Rule 52(a). On the important

federal question of whether that standard is applicable to district

court decisions vacating arbitrators’ awards, the decision of the

ns ON ss

Court of Appeals for the Eighth Circuit in this case is in conflict

with the decisions of the other United States Courts of Appeals.

The Court should issue its writ of certiorari to resolve this

conflict among the Circuits.

3. To vacate an award under the Federal Arbitration Act

on the ground that the award was procured through the

intentional concealment of evidence, is it sufficient to

find that the concealed evidence was materially related

to an issue in the arbitration? Or must the district court

find that the award would not have been entered but for

the intentional concealment?

The Eighth Circuit also held in this case that ZTP had failed

to show any causal connection between (a) the false statements

by Paine Webber’s counsel and (b) the decision of the arbitrators.

it reasoned that even if ZTP had known of the existence of the

Final Memorandum, it could not have procured a copy of it

because the arbitrators would have upheld Paine Webber’s claim

of privilege. “Therefore, [ZTP] has failed to prove that

Paine Webber’s errors in the privileged document process, even

if intentional and therefore a form of undue means, ‘procured’

the arbitration award.” (Appendix, p. A-10.)

There are multiple defects in this line of reasoning. It ignores,

inter alia, the ruling of a federal district court in related litigation

rejecting PaineWebber’s claim of privilege with respect to the

Final Memorandum. That is how ZTP finally learned of its

existence and received a copy. If a federal court denied the

privilege, it is reasonable to conclude that the arbitrators would

have done likewise.

Furthermore, it is the party that is guilty of the misconduct that

should bear the burden of showing a lack of causal connection

between the misconduct and the result. Otherwise, the wrong-

doer may well profit from his own wrongdoing.

sie Rc

_

Moreover, where as here the arbitrators followed the common

practice of expressing no reasons for their award, it is well-nigh

impossible to show what would have (as opposed to what

reasonably might have) caused them to reach a different result.

In this context, the imposition of a “but-for” causation test is

equivalent to reading Section 10(a)(1) out of the Federal Arbitra-

tion Act; no one could ever show Causation with that degree of

certainty.

Finally, and most importantly, the Eighth Circuit’s decision is

contrary to the controlling precedent set by this Court in Com-

monwealth Coatings Corp. v. Continental Casualty Co., 393

U.S. 145 (1968), discussed above. There this Court vacated the

arbitrators’ award even though there was no showing that the

undisclosed relationship between the prime contractor and the

arbitrator “procured” the award. It did not impose on the losing

party the impossible burden of Showing the result would have

been different if the undisclosed facts had been disclosed. Thus,

the Eighth Circuit decided this important federal question in a

way that conflicts with the relevant decision of this Court.

The foregoing, by itself, would be sufficient grounds for this

Court to issue its writ of certiorari. Nevertheless, it may be worth

demonstrating that on this important federal question the deci-

sion of the Eighth Circuit conflicts with the decision of at least

one other Court of Appeals on that same federal question.

Dogherra v. Safeway Stores, Inc. » 679 F.2d 1293, 1297 (9% Cir.),

cert. denied, 459 U.S. 990 (1982), held that a party seeking

vacation of an arbitrators’ award under Section 10(a)(1) of the

FAA need not prove “but-for” causation. His burden is lighter;

he must show only that the fraud was materially related to an

issue in the case: “The fraud must materially relate to an issue

in the arbitration.” Jd. This description of the requisite causation

was approved in Gingiss International, Inc. v. Bormet, 58 F.3d

328, 333 (7" Cir. 1995); A.G. Edwards & Sons, Inc. v.

McCollough, 967 F.2d 1401 (9" Cir. 1992), cert. denied, 506

win AE ais

U.S. 1050 (1993); Bonar v. Dean Witter Reynolds, Inc.,835 F.2d

1378, 1383 (11" Cir. 1988).

The Final Memorandum was materially related to several

issues in the arbitration.® One of the issues in the arbitration was

whether Reik had manipulated the market for the shares of

Neutrogena. The Final Memorandum reviewed “the activity in

Neutrogena stock” by Reik. It noted that on April 18 and 19,

1990, Reik purchased a total of 124,000 shares of Neutrogena

stock. It noted that order tickets for these substantial Neutrogena

purchases by Reik were not processed until the day before

settlement, that Reik did not time stamp order tickets for

Neutrogena purchases, and that it was impossible to tell when

such orders were entered or executed. (Appendix, p. A: 56.) It

recognized that this practice gave rise to “significant questions”

not only because it violated applicable regulations but also

because it permitted Reik to “warehouse” significant positions.

“The ability to absorb selling pressure is also enhanced when

additional time to locate purchasers is thus made available.”

(Appendix, p. A-67.) This information is obviously relevant to

ZTP’s claim of market manipulation.

In its “Conclusion,” the Final Memorandum recommended

that Reik be prohibited from making any additional purchase

transactions in Neutrogena. The Final Memorandum also rec-

ommended “a review of the overall nature and attendant risks of

Reik’s investment style, especially as related to the trading

practices employed in the securities of issuers [such as

Neutrogena] where a substantial position isowned.” (Appendix,

p. A-72.) Asa result of that compliance review, Reik’s employ-

ment was terminated.

It is clear from the foregoing that the Final Memorandum was

“materially related” to an issue in the arbitration. That is

* If Paine Webber had not thought the Final Memorandum was important,

it would not have lied about its existence.

CASES oe -

ane Ra.

Sufficient to meet the causation requirements imposed by

Dogherra and more than sufficient to meet the requirements

imposed by Commonwealth C oatings.

Nevertheless, in a variation on the “but-for” theme, the Eighth

Circuit held, without reference to the record, that (in its view) the

information in the Final Memorandum was merely cumulative.

It concluded, therefore, that ZTP failed to show the requisite

causal connection between the concealment of the Final Memo-

randum and the result reached by the arbitrators:

The documents appear to add little to the evidence pre-

sented during the thirty-eight day hearing [sic] regarding

Reik’s trading activities and Paine Webber’s investigation

of those activities... . But [ZTP] fails to show how

production of those four documents would have resulted in

additional facts being presented to the arbitration panel.

For this reason, too, [ZTP] failed to prove that the alleged

undue means procured the arbitrators’ award.

(Appendix, p. A-10, A-11: emphasis in original.) As shown

above, this imposition of a “but-for” test is inconsistent with

Commonwealth Coatings and Dogherra.

Moreover, the Final Memorandum was relevant and impor-

tant for reasons other than the information it contained about

Reik’s manipulative conduct. Richard Englehardt was an im-

portant witness at the arbitration hearings. He is a former

Paine Webber compliance officer who had investigated Reik’s

activities while at PaineWebber. He is identified in the Final

Memorandum as one of the people who compiled the informa-

tion set forth therein. (Appendix, p. A-63.) He testified before

the arbitrators that he believed Reik had manipulated the market

for Neutrogena. A critical issue in the case therefore was

Englehardt’s credibility. Indeed, counsel for Paine Webber tried

hard to establish that Englehardt was a lone, rogue voice whose

conclusions were not shared by anyone at PaineWebber. Many

pee, eae

of the facts and conclusions that Englehardt had developed

during his investigation and testified to during the arbitration,

however, are set forth in the Final Memorandum as the views of

Paine Webber’s management; i.e., its compliance director Mark

Commander and the general counsel of Mitchell Hutchins Mary

Joan Hoene. If ZTP had had a copy of the Final Memorandum,

this endorsement of Englehardt’s findings by PaineWebber’s

management could have been used as evidence to convince the

arbitrators of Engelhardt’s credibility.

Bill Cavell, another PaineWebber compliance officer who

testified at the arbitration hearings, is also listed in the Final

Memorandum as one of the sources of the information set forth

therein. (Appendix, p. A-63.) During his testimony, Cavell

denied that Paine Webber had concluded that Reik engaged in

market manipulation. If counsel for ZTP had had a copy of the

Final Memorandum when he interrogated Cavell during the

arbitration, that interrogation might well have been more effec-

tive.

Finally, the Final Memorandum is significant not only for the

information it contains but also as evidence that Paine Webber’s

top management had knowledge of Reik’s improper activities as

| early as June, 1990. This fact is relevant to PaineWebber’s

| liability for Reik’s activities.

To summarize, in this case the Eighth Circuit held that

PaineWebber’s intentional concealment of evidence would not

justify vacating the arbitrators’ award because ZTP did not show

that but for the concealment it would have prevailed in the

arbitration. That is an inappropriate test, as shown by both

| Commonwealth Coatings and Dogherra. This Court should

issue its writ of certiorari both to correct the Eighth Circuit’s

reading (or lack thereof) of Commonwealth Coatings, and to

resolve the conflict between the Eighth Circuit’s decision in this

case and that of the Ninth Circuit in Dogherra.

ee | Lem

CONCLUSION

This case presents three separate but related questions, any

one of which justifies the issuance by this Court of its writ of

certiorari.

The first question is whether the intentional concealment of

evidence by a party during an arbitration proceeding is grounds

for vacating an award made in favor of the concealing party, i.e.,

is such intentional concealment “undue means” within the mean-

ing of Section 10(a)(1) of the Federal Arbitration Act? This

question goes to the heart of the integrity of the arbitration

process, and its adequacy to protect the federal Statutory rights of

investors. This question is already very important, and it will

become even more important as the number of cases resolved

through arbitration increases. Should the courts permit parties to

arbitration proceedings to lie with impunity about the existence

of material evidence? Will the value of arbitration as a valuable

supplement to both the federal and state judicial systems be

undermined because there is no remedy for such mendacity? Do

the obvious benefits of providing such a remedy outweigh its

costs? These are questions that this Court is uniquely capable of

answering.

The second important question concerns the roles of district

courts and federal appellate courts in the review of arbitral

awards. Generally, facts as found by a district court, whether on

oral testimony or documentary evidence, must be accepted by a

federal appellate court unless those findings are clearly errone-

ous. This familiar general rule is embodied in Rule 52(a) of the

Federal Rules of Civil Procedure. Is the review of awards under

section 10(a) of the Federal Arbitration Act so different from

other forms of litigation that Rule 52(a) is not applicable? That

is the second important federal question presented by this case.

The district court found that Paine Webber was guilty of miscon-

duct and had concealed evidence. Without discussing, citing, or

following Rule 52(a), Anderson v. C ity of Bessemer City, ot First

ve, aoe

Options of Chicago, Inc. v. Kaplan, the Eighth Circuit substi-

tuted its own interpretation of the record. Because it ignored

Rule 52(a) and this Court’s rulings, the decision of the Eighth

Circuit in this case is in conflict with the decisions of the Second

Circuit in Wackenhut Corp. v. Amalgamated Local 515, supra;

of the Ninth Circuit in Barnes v. Logan, supra; and the Tenth

Circuit in Kelley v. Michaels, supra. This Court should issue its

writ of certiorari to resolve these conflicts.

The third important federal question presented by this case

concerns the burden of proof of causation in cases under section

10(a)(1) of the Federal Arbitration Act. Does the party seeking

to vacate an award on grounds of fraud, corruption, or undue

means have the burden of showing that but for such misconduct

the award would have been different? In Commonwealth Coat-

ings this Court expressly noted the absence of any showing of

“but-for” causation, but it nevertheless vacated the arbitrators’

award. In this case, the Eighth Circuit reversed the district court

on the ground that ZTP had failed to prove “but-for” causation.

Its holding on this point is in conflict not only with this Court’s

decision in Commonwealth Coatings but also with the decision

of the Fifth Circuit in Dogherra v. Safeway Stores, Inc., supra.

The resolution of these conflicts is yet another reason why this

Court should issue its writ of certiorari in this case.

Any one of these three important federal questions would

support the issuance by this Court of its writ of certiorari.

Considerations of judicial efficiency strongly suggest that it

resolve all three in this action.

THOMAS E. DOUGLASS

Counsel of Record

LEWIS R. MILLS

BRUCE D. RYDER

Thompson Coburn LLP

One Mercantile Center

St. Louis, Missouri 63101

(314) 552-6000