Petition for Writ of Certiorari — Baghdady v. Sadler

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Bupreme Court, U.S.

“ae FILED

i 210 ; FEBS 1993

No. {

"DFFICE OF THE CLERK

Supreme Court of the United Strtes

October Term, 1992

ELIE J. BAGHDADY,

Petitioner,

VAY

LARRY D. SADLER, and MERRILL, LYNCH, PIERCE,

FENNER, AND SMITH, INC.

Respondents.

Petition for a Writ of Certiorari to the United States Court of

Appeals for the First Circuit

PETITION FOR A WRIT OF CERTIORARI

JACK C. CHILINGIRIAN

Attorney at Law

Attorney for Petitioner

42400 Grand River Avenue

Suite 109

Novi, Michigan 48375

(313) 348-7400

3216

ve late (800) 3 APPEAL « (800) 5 APPEAL * (800) BRIEF 21

ervices, inc.

QUESTIONS PRESENTED

1. Whether the District Court erred in denying Petitioner's

request for a jury trial and ordering arbitration when there was 2

dispute of material fact as to whether the parties had agreed to

arbitrate the claims in issue between them.

2. Whether the “manifest disregard” standard for vacating an

arbitration award was properly applied in this case.

TABLE OF CONTENTS

Page

ee Pee i

pe ee ii

pe PTET ETC iv

CPUS DOUG oinkck cen dnnwacensane neous |

FP eTTT Tree 2

Statutory Provisions Involved ..................2005. 2

SUMNER OT IG oo an 00000 605 440058eeeee 2

| PTET TTT ee 3

B. The DistrictCourtOpinions .......eccceseses 6

C. The Court OfAppeals’ Opinion ............... 8

Reasons for Granting the Writ .................0008- 9

I. The federal policy favoring arbitration should not

apply in cases where facts alleging fraud are

asserted and where a timely demand for jury trial is

requested under 9 U.S.C. $4. ......ccccccccens 9

A. The Statutory Right To A Trial Pursuant To

9 U.S.C. § 4 Should Not Be Undermined And

FUROR TORRE. 06 6ascecdeteeneaee 9

| . . )

ili

Contents

Page

B. Standard Of Review And Applicable Law. .. 10

C. The First Circuit Decision In The Instant Case

Conflicts With The Third Circuit Opinion Of

Par -Knit Mills v. Stockbridge Fabrics ..... 16

II. The federal policy upholding arbitration should not

undermine the vitality of 9 U.S.C. § 4 and should be

modified to protect investors who claim fraud. ... 19

A. Further Erosion Of The Principles Of Prima

Paint As Reflected In The FAA Should Cease.

ah awee ck kweensschessenss occas 19

B. The Last Stand For The Investors — This

Court Should Level The Playing Field. ..... 20

III. A uniform stand for vacating arbitration awards

should be established by this Court. ........... 22

A. The Standard For Vacating Of An Arbitration

erry Teer ee ee ee 22

B. This Court Should Modify The Standard Set

Forth In Advest In Order To Deny

Confirmation To Arbitration Awards That

Lack Any Rational Basis Or Otherwise To

Prevent The Miscarriage Of Justice In Cases

Such As The Instant Case. .............-- 25

TCC Cec ck ane eeGesencanscnssencrecens 30

;

Contents

TABLE OF CITATIONS

Cases Cited:

Page

Advest, Inc., v. McCarthy, 914 F.2d 6 (1st Cir. 1990) ....8,23,25

Arnold v. Arnold Corp., 920 F.2d 1269 (6th Cir. 1990) ...

Aronson v. Dean Witter Reynolds, Inc., 675 F. Supp. 1324

Ge UG EE 40 sug S cd cdunecnesannakeueaeunxs

Begosian v. Gulf Oil Corp., 561 F.2d 434 (3rd Cir. 1977)

Bernhardt v. Polygraphic Company of America, Inc., 350

dk CURE we hhcbadsusciucninvesdaseceesd<h

Brown v. Richard A. Wacholz, Inc., 467 F.2d 18 (10th Cir.

SPOEe . £00 ce cde w da eee eees eeAeaa eee seas kee

CBS Employees Federal Credit Union v. Donaldson,

Rufkin & Jenrette Securities Corp., 912 F.2d 1563 (6th

PR EL AN SG Nahe coneeen See eka keane cares ees

Celotex Corporation v. Catrett, 477 U.S. 317(1986) ....

Coffran v. Hitchcock Clinic, Inc., 683 F.2d 5 (1st Cir.), cert.

denied, 459 U.S. 1987 (1982) .............. APT

Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985) .

DeFuertes v. Drexel] Burnham Lambert, Inc., 855 F.2d 10

Contents

Page

Dougherty v. Mieczkowski, 661 F. Supp. 267 (D. Del.

BSED bs wi NG66 base ees eaecedetvecasaekve tend 16, 18,19

EI du Pont de Nemours & Co. v. Collins, 432 U.S. 46

CREED bck WeN cen Wenueenenesewshennnazesawasnes 27

Fenner & Smith v. Bobker, 808 F.2d 930 (2nd Cir. 1986)

PP ere Tre Tee TTT yee ere eee 23,24

Gilmer v. Interstate Johnson Lane Corporation, 500

8g EERE. TR SRAOCIPPE) ce acosivvssvesnese 19

Gulfstream Aerospace Corp. v. Mayacomas Corp., 485

CB BUR MIOD Sachse NC be ene eRsdeeeeeeceweas 7

Hale v. Friedman, 281 F.2d 635 (D.C. Cir. 1960) ........ 10

Hulburt v. Gantshar, 674 F. Supp. 385 (D.C. Mass. 1987)

cs phe akueGhak ONS GRETA SOR SS EINE Stee eee Es 12, 13

Interocean Shipping Co. v. National Shipping & Trading

0, 462 RAGGTS md Cee, IGTEZ) oon cccescccccces 18

Jordan v. Global Natural Resources, Inc., 564 F. Supp. 59

eS | errr rT Tr rTerr rer TT re 12

Leone v. Advest, Inc., 624 F. Supp. 297 (S.D.N.Y. 1985) . 13

Main v. Merrill, Lynch, Pierce, Fenner & Smith, 67 Cal.

App. 3rd 19, 136 Cal. Rptr.378 (1977) ...........-. 10

Contents

Page

Merrill Lynch, Pierce Fenner & Smith v. Bobker, 808 F.2d

PG CUD Sine cadena euseaKecuerusenn wes 23

Mitsubishi Motors v. Soler Chrysler-Plymouth, 473 U.S.

PERO PE re Per errr yy eer rs rere ey re 19, 20, 21

Mosely v. Electronic Facilities, 374 U.S. 167 (1963) .... 13

Moses H. Cone Mem. Hosp. v. Mercury Construction

ow ts Rh | PPPeeeervereerr TT TT rere 10, 19

OR Securities v. Professional Planning Assoc., 857 F.2d

pits le PPT Tear ee err ree 27

Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., Ltd., 636

ww & jie i Bl erererr errr ree 8,9, 12, 16,17, 18

Phav v. Trueblood, Inc., 915 F.2d 764 (1st Cir. 1990) .... 28

Prima Paint Corporation v. Flood & Conklin Mfg. Co., 388

MOE CMED Vuwsttvccdvnesenecena 9, 10, 13, 14, 16, 19, 20

Rhoades v. Powell, 644 F. Supp. 645 (E.D. Cal. 1986) ... 14

Robbins v. Day, 954 F.2d 679 (11th Cir. 1992) .......... 26

Rodriquez de Ouijas v. Shearson/American Express, Inc.,

PME T COED Ceccnnccnssaun ake ces nebevwws 19, 20

San Martine Compania De Navegacion v. Saguenay

RE, wc cccccvacnscnesan cae SeOtananees 24

vil

Contents

Page

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

220, 106 S. Ct. 2332 (1987) ......cceceeee 16, 19, 20, 24, 29

Siegel v. Tital Industries Corp., 779 F.2d 891 (2nd Cir.

|: | POPP OPUCC OTOL TROT CTT TT Tee 24

Southland Corp. v. Keating, 465 U.S. 1 (1984) ......... 12

Tinaway v. Merrill Lynch & Co., 658 F. Supp. 567

CRE is PED 4 co cet cavssdeunneesesadeesennss 29

Torres-Troche v. Municipality of Uaco, 873 F.2d 499 (ist

a Peeeererrrer ere TrTe rrr Teri i te 28

Trott v. Paciolla, 748 F. Supp. 305 (E.D. Pa. 1990) ...... 12

United States Postal Service v. National Association of

Letter Carriers, 847 F.2d 775 (11th Cir. 1988) ....... 27

Wilko v. Swan, 346 U.S. 427 (1953) ..........4-. 19, 20, 23, 24

Woodyard v. Merrill, Lynch, Pierce, Fenner & Smith, 640

F. Supp. 760 (S.D. Tex. 1986) .......... se eeeeeees 18,21

Statutes Cited:

8 Bag >) eee er eer rrr eT eT ree re 10, 11,1219

DER D8 chs Wa 00 000s 950 ede wens eudeaerkerNaed 2

Vili

Contents

Page

PES ine eae Ge Cen ee ea hook ek Reon eae 2,22

ck | I Ra eee ee, en ene ae i eee 7

Se ee PRAM? | 6 Oka whee khakcnees ’ ceheecabas 2, 19,30

Ps BREED 6 ia wasn he ndewks Week eee ek ieeers 2

Rule Cited:

Federal Rule of Civil Procedure 56(c) ................ 12

Other Authorities Cited:

Robert R. Gregory, Arbitration: It’s Mandatory But It Ain’t

Patt, 19Sec. Res. LJ. 181 (1991) ......ccccccccscs 22

S. Kupperman & G. Freeman, Achieving Justice in

Arbitration, 65 Tulane L. Rev. 1547(1991) ......... 25

APPENDIX

Appendix A — Opinion of the United States Court of

Appeals for the First Circuit Dated September 9, 1992

LVKC6EASORIERNOD ORS OAAAE DR ESRDOGOEAD US Ow oe ee la

Appendix B — Judgment of the United States Court of

Appeais for the First Circuit Dated September 9, 1992

KOLAMAh eS DECREE AN THESE ODOR ERAK EERE ee tee 8a

Appendix C — Memorandum of the United States District

Court, District of Massachusetts, Dated January

oe he ce, MEE EET RE OCT OCTET eT ee 9a

Contents

Page

Appendix D — Order Extending Time of the Supreme

Court of the United States Dated November 20, 1992 . 12a

Appendix E— Relevant Statutes ...............0-05- 13a

No.

In The

Supreme Court of the United States

October Term, 1992

ELIE J. BAGHDADY,

Petitioner,

vs.

LARRY D. SADLER, and MERRILL, LYNCH, PIERCE,

FENNER, AND SMITH, INC.,

Respondents.

Petition for a Writ of Certiorari to the United States Court of

Appeals for the First Circuit

PETITION FOR A WRIT OF CERTIORARI

Elie J. Baghdady, respectfully petitions for a writ of certiorari

to review the judgment of the United States Court of Appeals for

the First Circuit in this case.

OPINIONS BELOW

The opinion of the Court of Appeals (App., infra, 1a-7a) is

not a reported case.' The opinion of the District Court denying

1. Subsequent to the decision of the First Circuit, Respondents filed a

motion for publication of the September 9, 1992 opinion, specifically reciting as

one of the grounds the right of the District Court Judge to decide the need for a

trial, jury or nonjury, under the Federal Arbitration Act, 9 U.S.C. § 4. As of this

date, there has been no ruling on the motion.

Petitioner’s request for vacating, modifying, or correcting the

arbitration award and granting in part and denying in part

Respondent’s motion to confirm the arbitration award is attached.

(App., infra, 9a-11a).

STATEMENT OF JURISDICTION

The Court of Appeals entered its judgment on September 9,

1992. (App., infra, 8a). A timely appliction to extend the time for

docketing the case was granted on November 20, 1992. (App.,

infra, 12a). The jurisdiction of this court is invoked under 29

U.S.C. § 1254(1).

STATUTORY PROVISIONS INVOLVED

United States Arbitration Act:?

Section 3,9 U.S.C. §3

Section 4,9 U.S.C. § 4

Section 10,9 U.S.C. § 10

STATEMENT OF THE CASE

This case involves the enforceability of agreements to

arbitrate disputes under Section 12(2) of the Securities Act of

1933, 15 U.S.C. § 77(1)(2), and whether Petitioner’s demand for a

jury trial under 9 U.S.C. § 4 was improperly denied based upon a

dispute of material fact as to whether there was an arbitration

agreement between the parties in the first instance.

2. The text of these provisions is reproduced in full at (App., infra, 13(a) -

16(a)).

This case is a paradigm of the problems faced today by

customers with substantial grievances against their stockbrokers.

Petitioner Elie J. Baghdady (“Baghdady”) suffered damages in the

millions of dollars as a result of the wrongful conduct of

Respondents Merrill, Lynch, Pierce, Fenner & Smith (“Merrill

Lynch”) and Larry D. Sadler (“Sadler”) and his deceased former

broker, John Voll (“Voll”). When Baghdady brought a pro se

complaint against Respondents in the District Court, he was

compelled to submit his claim to binding arbitration, even though

he had never agreed to be bound by arbitration when the account in

dispute was initiated. When Baghdady did go to arbitration, the

arbitration panel found the Respondents liable, but then proceeded

to issue an award that reflected a manifest disregard of well-known

legal principles applicable to his case.

Then, when Baghdady sought to vacate the arbitration award

in the District Court, he was told that the award would be upheld

because the respondents had provided a “rational” explanation for

the award, even though the Respondents had all but admitted in

their District Court pleadings that the purported explanation of the

arbitration award was factually erroneous. The District Court also

ruled that it was Baghdady’s burden to show that the arbitration

award was irrational, but then refused out-of-hand to review the

undisputed facts which Baghdady presented to show the District

Court that the award was irrational.

A. Factual Background.

Petitioner will present only the salient facts leading up to his

involvement with Mermll Lynch.

In July, 1981, Baghdady opened an account with Merrill

Lynch’s office in Boston, Massachusetts transferring his securities

position from another brokerage firm. Merrill Lynch assigned the

account the number 818-73322. (C.A. App. 751).

When Baghdady opened the account with the Boston office of

Merrill Lynch, he was asked to sign a “Standard Option

Agreement”, which he did. The agreement contained a provision

for mandatory arbitration of disputes. This agreement, however,

never came into play because Baghdady’s account with the Boston

office of Merrill Lynch functioned as he expected it would. The

Boston account remained open from April to November 3, 1981

when the account was terminated by mutual agreement.’ Baghdady

never asserted any claim concerning his account at the Merrill

Lynch office in Boston. (C.A. App. 038-39).

In November, 1981, Baghdady searched for a broker who

could develop an options strategy with a new different objective

for him. At that time and in the course of that search, he met with

Respondent Sadler, who was then the manager of Merrill Lynch’s

office in Burlington, Massachusetts, and with John Voll, who was

then a broker in the Burlington office. Sadler and Voll

recommended to Baghdady a conservative strategy with respect to

his new objectives. After having these discussions with Sadler and

Voll and hearing the strategy outlined, Baghdady decided in mid-

December, 1981 to open a new account at the Burlington office.

When Baghdady decided to bring his business to the Burlington

office in December, 1981, it was his intent and express

understanding that he was opening a new account. (C.A. App. 040-

42). He was opening an account at a different branch, with different

brokers, and with a different objective based on a new liability

against his stock positions, and thus, requiring a different

investment strategy than he had in his Boston account with Merrill

Lynch. Merrill Lynch assigned his account with the Burlington

office a new number — 822-55654. The account in Boston was

closed out.

3. As a result of discussions between Respondent's representatives and

Petitioner, a letter was sent requesting that Baghdady take his account elsewhere,

effectively terminating the contractual relationship. (NASD Hearings,

November 1, 1990, Vol. 6, pp. 182-183).

Sadler, the manager at the Burlington office, who was

Baghdady’s only point of contact in opening the Burlington

account, also viewed the Burlington account as a new account.

(C.A. App. 055-56). The only relationship between the Boston and

Burlington accounts was that the securities position in Baghdady’s

already terminated Boston account was transferred to the

Burlington account, just as his Boston account had been started by

transferring his securities position from another brokerage firm to

his Boston account with Merrill Lynch.

Baghdady never signed an agreement to arbitrate disputes

arising in his account (no. 822-55654) at the Burlington office.

(C.A. App. 041). Nor was he told, nor did he understand or agree

that the option agreement he had signed in July, 1981 for his

account at the Boston office would be resurrected and apply to the

account he opened in December, 1981 at the Burlington office.

When he opened the Burlington account, neither Sadler nor Voll

nor anyone else told him that Merrill Lynch deemed the option

agreement from the Boston office to apply to his new account at the

Burlington office. Likewise, Baghdady did not know that Merrill

Lynch had altered the face of the option agreement he had signed,

without his consent (by crossing out the old Boston account

number 818-73322 and writing in the new Burlington account

number 822-55654). (C.A. App. 040, 047). Baghdady did not

know until after he had filed suit against Merrill Lynch in the

federal court that Merrill Lynch took the position that the option

agreement for his previously terminated Boston account applied to

his new account in Burlington. (C.A. App. 041).

Unfortunately, things did not go well in the Burlington

account. From the beginning, Sadler and Voll did not effect the

strategy in the account that they had outlined for Baghdady.

Indeed, the records of the account obtained from Merrill Lynch

revealed numerous violations of securities laws, Respondent’s

own policies, falsified reports of the condition of Petitioner’s

account, and violations of federal regulations.

When Baghdady closed the account at Burlington, he had lost

$1,432,248.91. (C.A. App. 418-422, 482). He had brought to

Sadler and Voll a portfolio valued at $2,420,762.50, burdened only

with a margin debt of $604,172.53 — in other words, an account

worth $1,816,589.97 and capable of unlimited appreciation within

the market. (C.A. App. 421). When he closed the account, it was

worth $384,381.06, and saddled with restrictions that foreclosed

any real chance of recovery. Specifically, when he closed the

account, his stock was shackled with in-the-money call options

with distant expiration dates, as well as a margin debt of

$1,243,840.19 that exceeded minimum margin requirements,

which in combination was shown to have doomed Petitioner’s

account to inevitable loss irrespective of whether the market value

of the securities actually went up or down or remained unchanged.

As a result, Baghdady was ultimately forced to sell a

substantial quantity of his stock, at a cost to him of $4,228,794.93.

(The basis for this figure was explained in Baghdady’s Arbitration

Memorandum and appears in the Appendix at C.A. App. 293-96.)

B. The District Court Opinions.

Baghdady filed suit in the District Court on August 2, 1985,

asserting violations of the federal securities laws, false and

deliberate misrepresentation, and negligence, and claiming

damages in the amount of $4,300,000.00. His claims arose out of

the transactions in his securities account with the Merrill Lynch

office in Burlington, Massachusetts. On November 1, 1985, the

Respondents Merrill Lynch and Sadler moved for an order

compelling arbitration of the matter. Baghdady vigorously

opposed arbitration, contending that there was no arbitration

agreement between him and Merrill Lynch concerning disputes

arising from transactions in his account with Merrill Lynch in

Burlington, Massachusetts. On April 2, 1987, after submissions of

affidavits and briefs, the District Court granted the Respondents’

motion and ordered Baghdady to arbitrate his claims. This order by

the District Court to arbitrate was done in contravention of 9

U.S.C. § 4. Baghdady noted an appeal of this order, but

subsequently withdrew the appeal as premature.‘

As ordered by the District Court, Baghdady filed a request for

arbitration with the National Association of Securities Dealers on

April 28, 1988. After a substantial delay, the case was assigned for

hearing by a panel of arbitrators in Boston on September 19, 1990.

On that day, and on six subsequent days, Baghdady and the

Respondents presented witnesses, exhibits, and arguments in

support of their respective positions. On February 26, 1991, the

panel rendered their decision holding Merrill Lynch and Sadler

liable to Baghdady, but awarding only the sum of $60,720.15.

On May 24, 1991, Baghdady filed a petition for vacation or

correction of the arbitration award, alleging that the award

reflected a manifest disregard of the law applicable to the dispute

and contained an evident miscalculation by the arbitrators.

Respondents opposed Baghdady’s petition and moved for

confirmation of the award. The parties submitted briefs, including

references to the substantial arbitration record, which was made

part of the record in the District Court. On January 14, 1992, the

District Court denied Baghdady’s petition and allowed

Respondents’ cross-motion to confirm. Baghdady then requested

that the District Court formally consolidate that ruling with the

Court’s prior ruling compelling arbitration, so that the issues might

4. Respondents attempted to argue in their brief filed in the First Circuit

that Petitioner's appeal was untimely. Both Congress and this Court clarified this

issue. Congress made it clear when it enacted 9 U.S.C. § 16(b)(2) that immediate

appeals from orders compelling arbitration were prohibited. This enactment

followed this Court’s pronouncement in Gulfstream Aerospace Corp. v.

Mayacamas Corp., 485 U.S. 271 (1988). That decision declared that an appeal

should be brought only after completion of the compelled arbitration. The First

Circuit followed Gulfstream in DeFuertes v. Drexel Burnham Lambert, Inc., 855

F.2d 10 (1st Cir., 1988).

be appealed together to the First Circuit Court of Appeals. On

January 27, 1992, the District Court consolidated the actions and

entered final judgment.

C. The Court Of Appeals’ Opinion.

The Court of Appeals’ opinion affirmed the District Court’s

order confirming the arbitration award. The Court of Appeals held

that the language in the agreement executed between the parties

pertaining to the Boston account also applied to the Burlington

account and was clear and was binding and that Petitioner was not

entitled to a jury trial.

The Court of Appeals rejected Petitioner’s reliance upon Par-

Knit Mills, Inc. v. Stockbridge Fabrics Co., Ltd., 637 F.2d 51 (3rd

Cir. 1980) which suggested that if there was a doubt to an express,

unequivocal arbitration agreement, the matter, upon proper and

timely demand, should be submitted to a jury. In the instant case,

Petitioner had, in fact, requested on a timely basis a jury demand,

which the District Court rejected without any determination and

fact finding.

The Court of Appeals completely refused out-of-hand to

review the facts and assertions in Baghdady’s complaint and

affidavit in opposition to the Respondents’ motion to compel

arbitration. Essentially, Petitioner’s arguments contending that

there were never any agreements binding him to Respondents to

arbitrate any of his claims was totally rejected. The Court of

Appeals also rejected the “manifest disregard” arguments

presented by Baghdady citing Advest, Inc. v. McCarthy, 914 F.2d 6

(1st Cir. 1990).

sd re

REASONS FOR GRANTING THE WRIT

1. The petition should be granted because the Court of

Appeals failed to follow this Court’s decision in Prima Paint

Corporation v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1961)

which held tht a federal court may consider issues relating to the

making and performance of the agreement to arbitrate if there is a

claim of fraud in the inducement of the arbitration clause in issue.

2. The writ should also be granted because the Court of

Appeals’ decision conflicts with another Court of Appeals’

decision in Par-Knit Mills, Inc. v. Stockbridge Fabrics Co., Ltd.,

636 F.2d 51 (3rd Cir. 1980), as well as numerous other federal court

decisions.

3. This Court should enunciate a manifest disregard standard.

THE FEDERAL POLICY FAVORING ARBITRATION

SHOULD NOT APPLY IN CASES WHERE FACTS

ALLEGING FRAUD ARE ASSERTED AND WHERE A

TIMELY DEMAND FOR JURY TRIAL IS REQUESTED

UNDER 9 U.S.C. § 4.

A. The Statutory Right To A Trial Pursuant To 9 U.S.C. § 4

Should Not Be Undermined And Further Eroded.

There is no question that federal law generally favors

arbitration. This Court has recently stated that:

Section 2 [of the United States Arbitration Act]

is a congressional declaration of a liberal

federal policy favoring arbitration agreements,

notwithstanding any state substantive or

procedural policies to the contrary. . . .

Moses H. Cone Mem. Hosp. v. Mercury Construction Corp., 460

U.S. 1 at21 (1983). See also, Southland Corp. v. Keating, 465 U.S.

1 (1984).

Nevertheless, this Court has acknowledged that the

Arbitration Act of 1925 was enacted to make agreements to

arbitrate future disputes “as enforceable as other contracts, but not

more so”. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388

U.S. 395, 404, n. 12 (1967). This Court has also recognized the

drawbacks of arbitration. Bernhardt v. Polygraphic Company of

America, Inc., 350 U.S. 198 (1955). Against the benefits of the

informality of arbitration, dispatch and finality must be weighed

the disadvantages of limited review, the possibilities of arbitrary

and capricious results at the hands of untrained and possibly biased

arbitrators, and the absence of any definite rule of law, any record,

or any requirement that the arbitrators articulate the factual and

legal conclusions tht underlie the award. Hale v. Friedman, 281

F.2d 635 (D.C. Cir. 1960).

In the context of a freely negotiated contract between parties

of equal bargaining power there may be no unfairness in enforcing

an arbitration provision despite the inherent shortcomings of

arbitration. However, to force arbitration on an individual who did

not execute an agreement and knowingly bargain away the right to

a judicial forum is patently unfair:

The right to select judicial forum, vis-a-vis

arbitration, is a “substantial right”, not lightly

to be deemed waived.’

B. Standard Of Review And Applicable Law.

The critical issue reduced to its simplest form is whether

Baghdady’s claim of fraud relates to the making of the arbitration

5. Main v. Merrill, Lynch, Pierce, Fenner & Smith, 67 Cal. App. 3rd 19,31,

136 Cal. Rptr. 378, 383 (1977).

agreement. If it does, the court should adjudicate the fraud claim. If

it does not, the Federal Arbitration Act requires that the fraud claim

be decided by an arbitrator. In the present case, there was a factual

dispute whether there was an agreement to arbitrate Petitioner's

claims. The District Judge erroneously resolved the factual dispute

without holding any trial, let alone a jury trial, as required by 9

U.S.C. § 4. This is clearly exemplified in the following actual

disputes:

1. When faced with Petitioner's affidavit that

he did not intend or understand that the option

agreement he signed when he opened his

account in Boston would apply to his account

in Burlington (C.A. App. 36), as opposed to

Respondent’s representative’s affidavit who

was not even involved in the opening of the

Burlington account preventing conflicting

testimony that Merrill Lynch did intend the

agreement to apply to the Burlington account

(C.A. App. 32), the District Judge simply sided

with Respondents, rather than submitting the

issue to a jury, as 9 U.S.C. § 4 requires.

2. When faced with the Respondent’s “new

account” form (C.A. App. 9) describing the

Burlington account as both a “new account”

(Terminology that was admitted to by

Respondent Sadler himself [C.A. App. 17])

and, arguably, as a “transferred” account, the

lower court judge resolved all inferences in

support of arbitrability, rather than submitting

the issue to a jury, as 9 U.S.C. § 4 requires.

3. When faced with the fact that there was no

i signed arbitration agreement for the

i Burlington account (C.A. App. 41), the District

| Judge drew the inference that the parties

intended a prior agreement to apply to the

account, rather than allowing a jury to draw the

obvious contrary inference that the absence of

a signed arbitration agreement for the

Burlington account evidenced that the parties

did not agree to arbitration of the disputes in the

Burlington account.

The standard of review for a motion to compel arbitration is

the same as a motion for summary judgment under Fed. R. Civ. P.

56(c). Trott v. Paciolla, 748 F. Supp. 305, 308 (E.D. Pa. 1990); Par-

Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54, n. 6

(3rd Cir. 1980). Accordingly, “the moving party has the burden of

showing conclusively that there exists no genuine issue as to a

material fact, and the evidence, together with all inferences to be

drawn therefrom, must be read in a light most favorable to the party

opposing the motion”. Jordan v. Global Natural Resources, Inc.,

564 F. Supp. 59, 63 (S.D. Ohio, 1983) (emphasis in original).

Indeed, the court must read the allegations in plaintiff’s complaint

“liberally, giving plaintiff the benefit of all inferences which fairly

may be drawn therefrom”. Begosian v. Gulf Oil Corp., 561 F.2d

434, 444 (3rd Cir. 1977).

The party opposing arbitration bears the initial responsibility

of presenting the court the basis for its Opposition. This burden is

not unlike that of a party opposing summary judgment. Celotex

Corporation v. Catrett, 477 U.S. 317 (1986).

Pursuant to Section 2 of the Federal Arbitration Act, 9 U.S.C.

§ 2, agreements to arbitrate are valid “save upon grounds as exist at

law or in equity for the revocation of any contract”. Based on this

section, numerous courts have determined that a party may assert

general contract defenses such as fraud and/or breach of contract to

avoid enforcement of an arbitration agreement. Southland Corp. v.

Keating, 465 U.S. 1 (1984); see also, Hurlburt v. Gantshar, 674 F.

Supp. 385 (D.C. Mass. 1987) (party may assert general contract

defenses to avoid enforcement of arbitration agreement).

Indeed, the federal courts are required to adjudicate claims

where they are directed towards the validity or enforceability of an

arbitration clause within a contract (as opposed to the entire

contract). Leone v. Advest, Inc., 624 F. Supp. 297 (S.D.N.Y. 1985).

As this Court ruled in Prima Paint Corp. v. Flood & Conklin Mfg.

Co., 388 U.S. 395 (1967), any defense to a contract which is

applicable to an arbitration provision within the contract so as to

render that provision invalid, is sufficient to place this case before

the court, not a panel of arbitrators.

In Prima Paint, supra, the partes signed a written agreement

by which Prima purchased Flood’s paint manufacturing business

and retained Flood’s services as a consultant. The agreement

included a clause calling for arbitration of any controversy or claim

arising out of or in relation to this agreement, orthe breach thereof.

Shortly after the execution of the agreement, Flood filed for

bankruptcy. When Prima complained that Flood had fraudulently

induced Prima to enter into the purchase and consulting

agreements on the false representation that Flood was solvent,

Flood promptly demanded that the dispute be arbitrated. Prima

then filed suit in the federal district court seeking rescission of the

consulting agreemer on the basis of the alleged fraudulent

inducement and contemporaneously sought an order restraining

Flood from proceeding with the arbitration.

As this Court in Prima Paint held: “If the claim is fraud in the

inducement of the arbitration clause itself — an issue which goes

to the ‘making of the agreement to arbitrate’ — the federal court

may proceed to adjudicate it.” 388 U.S. at 403-04. This Court in

Prima Paint found its holding consistent with the decision in

Mosely v. Electronic Facilities, 374 U.S. 167 (1963), and with the

statutory purpose of the Arbitration Act — to make arbitration

agreements as enforceable as other contracts. 388 U.S. at 404, n.

12. In Moseley, this Court held that where a plaintiff’s pleading

attacks the contract in general, as well as the arbitration clause

contained therein, the allegation of fraud as to the arbitration

clause should be decided by the District Court. 374 U.S. at 171.

In interpreting Prima Paint, the lower court in Rhoades vv.

Powell, 644 F. Supp. 645, 653 (E.D. Cal. 1986), held:

The Prima Paint holding can be reduced to the

fairly simple proposition that a challenge based

on fraud in the inducement of the whole

contract (including the arbitration clause) is for

the arbitrator to decide, while a challenge

based on fraud in the inducement of the

arbitration clause only is for the court to

decide.

The Prima Paint doctrine is not limited,

however, to rescission based on fraudulent

inducement, but extends to all challenges to the

making of a contract: “The teaching of Prima

Paint is that a federal court must not remove

from the arbitrators consideration of a

substantive challenge to a contract unless there

has been an independent challenge to the

making of the arbitration clause itself. The

basis of the underlying challenge to the

contract does not alter the [Prima Paint]

principle.” Unionmutual Stock Life Insurance

v. Beneficial Life, 774 F.2d 524, 529 (CA 1,

1985) (frustration of purpose as ground for

rescission); Hull v. Norcom, 750 F.2d 1547,

1549-50 (CA 11); reh'g denied, 757 F.2d 287

(1985) (challenge based on lack of mutuality of

arbitration clause); Merrill Lynch v. Haydu,

637 F.2d 391 (CA 5, 1981) (duress and

unconscionability to be decided by arbitrator).

Here, Respondents failed to meet the standard required to

divest the District Court of jurisdiction over the case by failing to

establish the absence of material facts with respect to the validity

or enforceability of the arbitration provision in the “Standard

Option Agreement”. Moreover, the challenge was based on

asserted facts that there was no agreement to arbitrate in the first

instance.

Respondents have essentially argued that Petitioner did not

create “a substantial issue” regarding the validity of the arbitration

clause. A party opposing a motion to compel arbitration has the

“affirmative duty of coming forward by way of affidavit or

allegation of fact to show why the Court should not compel

arbitration”. Aronson v. Dean Witter Reynolds, Inc., 675 F. Supp.

1324, 1325 (S.D. Fla. 1987). Consistent with the Aronson holding

is the opinion of the recent case of Arnold v. Arnold Corp., 920 F.2d

1269 (6th Cir. 1990). In Arnold, the appellant argued that the

District Court erred when compelling him to arbitrate his claim,

arguing that he had sufficiently alleged fraud in the inducement

with respect to the arbitration provision of the contract. In rejecting

the appellant’s contentions and in affirming the lower court’s order

compelling arbitration, the Sixth Circuit noted:

Before a court may adjudicate an agreement to

arbitrate, the party seeking to avoid the

arbitration must make “a well-founded claim

that an arbitration agreement resulted from the

sort of fraud or excessive economic power”

that would provide grounds for the revocation

of acontract.

Arnold, 920 F.2d at 1277, quoting Shearson/

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

220, 226, 106 S. Ct. 2332, 2337 (1987).

Petitioner claims that his submissions clearly nullified the

nght of the District Court to compel arbitration.

This Court’s holding in Prima Paint left the door open for a

person challenging arbitration to recite well-founded allegations

of fraud in connection with the “making” of an agreement to

arbitrate. This Petitioner accomplished in his affidavit in response

to Respondents’ motion to compel arbitration.°®

C. The First Circuit Decision In The Instant Case Conflicts

With The Third Circuit Opinion Of Par-Knit Mills vy.

Stockbridge Fabrics.

The Third Circuit, in Par-Knit Mills v. Stockbridge Fabrics,

636 F.2d 51 (3rd Cir. 1980), was faced with a situation similar to

the case at bar. The Third Circuit characterized the plaintiff’s

position as follows:

Par-Knit claims that there was never a

“meeting of the minds” on the terms and

conditions contained in the confirmations

which were signed by its production manager

and which contained an arbitration agreement

and that absent such agreement, there can be no

duty to arbitrate.

Id. at 53.

6. At the arbitration hearings, Petitioner argued that the agreement to

arbitrate had been “tampered” with. A contract induced by fraud is voidable.

Claims of forgery or “tampering” are distinguishable. Forgery relates to fraud in

the execution, and contracts involving forgery are void. See Dougherty v.

Mieczkowski, 661 F. Supp. 267, 274 (D. Del. 1987).

In reversing the District Court’s order compelling arbitration,

and ordering that the issue as to whether there was an arbitration

agreement be tried before a jury pursuant to Section 4, the Third

Circuit said:

Before a party to a lawsuit can be ordered to

arbitrate and thus be deprived of a day in court,

there should be an express, unequivocal

agreement to that effect. If there is doubt as to

whether the agreement exists, the matter, upon

a proper and timely demand, should be

submitted to ajury . . . The district court, when

considering a motion to compel arbitration

which is opposed on the ground that no

agreement to arbitrate has been made between

the parties, should give to the opposing party

the benefit of all reasonable doubts and

inferences that may arise.

Id. at 54 (emphasis added).

The Third Circuit in Par-Knit recognized that the general

policy of favoring arbitration could be undermined if it was too

easy to invoke the Section 4 right to a jury trial on the issue of

whether there is an applicable arbitration agreement. Hence, the

court ruled as follows:

A naked assertion, however, by a party to a

contract that it did not intend to be bound by the

terms thereof is insufficient to place in the issue

“the making of the arbitration agreement” for

the purposes of Section 4 of the Federal

Arbitration Act. An unequivocal denial that the

agreement had been made, accompanied by

supporting affidavits, however in most cases

Should be sufficient to require a jury

determination on whether there had in fact

been a “meeting of the minds”.

Interocean Shipping Co. v. National Shipping & Trading Co., 462

F.2d 673 (2nd Cir. 1972).

Id. at 55.

The Par-Knit Court said that the standard to be applied in

determining whether to hold a Section 4 jury trial is the summary

judgment standard, which requires the court to accept as true the

affidavits of the party opposing the motion. Obviously, the District

Court in the instant case did not give Petitioner the benefit of the

doubt. Not only did it not assume that Petitioner’s affidavit was

true, it ignored the affidavit.

Petitioner fully met the above quoted Par-Knit standard. The

District Court erred in not holding a trial on the fundamental

factual question of whether there was a meeting of the minds

between Petitioner and Respondents to a:vitrate disputes arising

from his account.

The premise on which a court can order arbitration is the

existence of such an agreement. If no agreement or contract exists,

there is no right to arbitration. See Dougherty v. Mieczkowski, 661

F. Supp. 267 (D. Del. 1987).

Other courts have followed the admonitions recited by this

Court in Prima Paint and Mitsubishi and advanced in Par-Knit.

See Woodyard v. Merrill, Lynch, Pierce, Fenner & Smith, 640 F.

Supp. 760 (S.D. Tex. 1986); CBS Employees Federal Credit Union

v. Donaldson, Rufkin & Jenrette Securities Corp., 912 F.2d 1563

(6th Cir. 1990).

The Court of Appeals in this case completely missed the issue

2 AAD he MY ile BE OR

raised by Petitioner that there was no contract between the parties.

In Dougherty v. Mieczkowski, supra, as in the instant case, the

uncontroverted affidavit of the plaintiff contending the documents

were “doctored” mandated a trial pursuant to 9 U.S.C. § 4.

Il.

THE FEDERAL POLICY UPHOLDING

ARBITRATION SHOULD NOT UNDERMINE THE

VITALITY OF 9 U.S.C. § 4 AND SHOULD BE MODIFIED

TO PROTECT INVESTORS WHO CLAIM FRAUD.

A. Further Erosion Of The Principles Of Prima Paint As

Reflected In The FAA Should Cease.

In the ensuing years after Prima Paint, this Court has rendered

decisions in a number of cases upholding a strong federal policy in

favor of arbitration. In Moses H. Cone Memorial Hosp. v. Mercury

Constr. Corp., 460 U.S. 1 (1983), this Court stated, “any doubts

concerning the scope of arbitrable issues should be resolved in

favor of arbitration, whether the problem at hand is the

construction of the contract language itself or an allegation of

waiver, delay, or a like defense to arbitrability”. Jd. at 24-25; see

also, Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (1985)

(Arbitration Act requires district court to compel arbitration of

pendant arbitrable claims); Mitsubishi Motors Corp., 473 U.S. 614

(1985) (anti-trust claims subject to arbitration); McMahon, 482

U.S. 220 (1987) (Securities Exchange Act of 1934 & RICO claims

subject to arbitration); Rodriquez de Ouijas v. Shearson/American

Express, Inc., 490 U.S. 477 (1989) (claim arising under Securities

Act of 1933 subject to arbitration, overruling this Court’s prior

holding in Wilko v. Swan, 346 U.S. 168 (1953)); Gilmer v.

Interstate Johnson Lane Corporation, 500 U.S. __, 114 L. Ed. 2d

26 (1991) (claim under age discrimination in Employment Act held

to be subject to compulsory arbitration.)’

7. As Justice Stevens in Gilmer pointed out, this Court “has effectively

rewritten the statute”, referring to the FAA. (S00 U.S. at ___, 114 L. Ed. 2d at p.

48).

B. The Last Stand For The Investors — This Court Should

Level The Playing Field.

Subsequent to this Court’s 5 to 4 decision in Rodriguez de

Quijas v. Shearson/American Express, 490 U.S. 477 (1989), the

right of the investing public to challenge the validity of arbitration

agreements was effectively wiped out. The current state of the law

requires federal security law claims to be arbitrated. Both the

McMahon and Rodriguez decisions open the door to mandatory

arbitration as a universal practice in the securities industry, which

had never been the intent of Congress.*

The only remaining door to a challenge to break through the

wall mandating arbitration that has been built by this Court is to

recall the admonitions recited in Wilko, Prima Paint, and

Mitsubishi. In all of these cases, this Court correctly noted a theme

that still remains vital today:

Accordingly, the first task of a court asked to

compel arbitration of a dispute is to determine

whether the parties agreed to arbitrate that

dispute. The court is to make this

determination by applying the “federal

substantive law of arbitrability, applicable to

any arbitration agreement within the coverage

of the act”.

Mitsubishi Motors v. Soler Chrysler-Plymouth, 473 U.S. at 626.

And, it has also been stated:

8. As Justice Stevens in Rodriguez said: “we, of course, are not subject to

the same restraint when asked to upset one of our own precedents. but when our

earlier opinion gives a statutory provision concrete meaning, which Congress

elects not to amend during the ensuing three and half decades, our duty to respect

Congress’ work product is strikingly similar to the duty of other Federal courts to

respect our work product”. (490 U.S. at 486).

Of course, courts should remain attuned to

well-supported claims that the agreement to

arbitrate resulted from the sort of fraud or

overwhelming economic power that would

provide grounds “for the revocation of any

contract”.

Mitsubishi Motors v. Soler Chrysler-Plymouth,473 U.S. at 627.

Lower courts have established the reasons why this Court

should be diligent in prohibiting fraud to go unchecked by judicial

scrutiny. In Woodyard v. Merrill, Lynch, Pierce, Fenner & Smith,

640 F. Supp. 760 (S.D. Tex. 1986), the court indicated that the case:

presented a classic example of an

unsophisticated investor who has sought,

received, and relied upon the superior

knowledge of a securities advisor. Upon

entering the relationship of trust, it is

understandable that the customer’s adversarial

instincts would be lulled. Thus, equitable

principles leave little space for the subsequent

operation of the doctrine of caveat emptor. At —

the very least, pre-dispute arbitration

agreements between brokers and their public

customers should remain subject to meaningful

judicial inquiry. There is a potential for

conflicts of interest when _ investors

marketplace intermediary, upon entering a

fiduciary relationship, has one unilateral,

adversarial eye cocked upon possible litigation

between the parties to a standarized brokerage

contract.

640 F. Supp. at 766.

It has been stated in numerous commentaries that the playing

field at the present time is not level. The brokerage houses have it

all their way. Arbitration may be mandatory, but it is not fair.’ The

reasons for this are numerous. The panelists are representatives of

the securities industry. The brokerage firms and their attorneys

know the ins and outs and exchange information not presently

available to investor litigants. The rules are set by the securities

industry. Discovery is limited. The primary problem is the lack of

an effective right to an appeal. Arbitration will never be accepted

unless the public perceives that the arbitration process is fair in fact

and appearance. This is certainly not the case where an investor,

such as the Petitioner in this case, receives less than 5 percent of his

provable claims!

The underlying philosophy of the securities arbitration

process, as is presently structured, is not equally appropriate for

both litigants. The basic problem is the standard upon which

arbitrators base their decision. The current uncertainty regarding

the standard that should guide arbitrators is another reason for this

Court to grant the writ and to set out and develop a guideline to

balance the playing field between the brokerage houses and the

investing public.

III.

A UNIFORM STANDARD FOR’ VACATING

ARBITRATION AWARDS SHOULD BE ESTABLISHED

BY THIS COURT.

A. The Standard For Vacating Of An Arbitration Award.

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

provides in pertinent part:

9. See Robert R. Gregory, Arbitration: It’s Mandatory But It Ain't Fair, 19

Sec. Reg. L.J. 181 (1991).

The United States court in and for the district

wherein [an arbitration] award was made may

make an order vacating the award upon the

application of any partly to the arbitration. .. .

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.

In addition, this Court has recognized the non-statutory

ground of “manifest disregard of the law” as an additional basis for

vacating arbitration awards. See Wilko v. Swan, 346 U.S. 427, 436-

37 (1953). This standard has been applied by numerous courts

around the country, including the First Circuit. See, e.g., Advest,

Inc., v. McCarthy, 914 F.2d 6 (1st Cir. 1990); Merrill Lynch, Pierce,

Fenner & Smith v. Bobker, 808 F.2d 930, 933 (2nd Cir. 1986).

The Bobker court explained the standard of manifest disregard

of the law as requiring “more than error or misunderstanding with

respect to the law”. 808 F.2d at 933. It requires: (1) an error that

would be “readily and instantly perceived” by a typical arbitrator;

and (2) that the arbitrator was aware of the proper legal standard

but proceeded to disregard it in fashioning the award.” /d.

Awareness of the proper legal standard need not be explicitly

stated, but may be inferred. /d. As the First Circuit explained in

Advest, “the governing law may have such widespread familiarity,

pristine clarity, and irrefutable applicability that a court could

assume the arbitrators knew the rule and, notwithstanding, swept it

under the rug”. 914 F.2d at 10. The court in Bobker acknowledged

that the bounds of the standard have never been interpreted to

require something “more than error or misunderstanding with

respect to the law”. Jd. The Second Circuit in Bobker found that

under the “manifest disregard” standard:

The arbitrator’s error must have been obvious

and capable of being readily and instantly

perceived by the average person qualified to

serve as an arbitrator. Moreover, the term

“disregard” implies that the arbitrator

appreciates the existence of a clearly

governing legal principle but decides to ignore

Or pay no attention to it.

808 F.2d at 933.

As so interpreted, the “manifest disregard” standard does not

require arbitrators to strictly comply with the law. This

interpretation merely requires that arbitrators not flaunt the law.

The implication of the language used by the Bobker court in

analyzing the “manifest disregard” standard would seem to be that

arbitrators can base their awards on whatever grounds they choose

as long as the result is not obviously in conflict with the outcome

that would be required by law.

The strict interpretation of the “manifest disregard” standard

was suggested by this Court in Wilko and McMahon. That standard

has not been followed in numerous federal decisions.

The Ninth Circuit in San Martine Compania De Navegacion v.

Saguenay Terminals Ltd., found that “manifest disregard of the law

must be something beyond and different from a mere error in the

law or failure on the part of the arbitrators to understand or apply

the law”. The court in San Martine decided that manifest disregard

“might be present when arbitrators understand and correctly state

the law, but proceed to disregard the same”. The requirement that

arbitrators must understand the law, correctly state it, and then

reject it before a court will find “manifest disregard” of the law was

also adopted by the Second Circuit in Siegel v. Tital Industries

Corp., 779 F.2d 891 (2nd Cir. 1985). Thus, the Ninth and Second

Circuits have applied an interpretation of the manifest disregard

standard that does not so much require arbitrators to comply with

applicable law as it requires arbitrators merely not to ignore the law

when it is understood. This interpretation is a curious analysis of

the “manifest disregard” standard. The interpretation suggests that

if an arbitrator does not understand the applicable law, he need not

apply it. Such an interpretation might place a premium on an

arbitrator’s ability to remain ignorant of the law. Pursuant to this

interpretation, without an understanding of the law, there cannot be

disregard of the law.

B. This Court Should Modify The Standard Set Forth In

Advest In Order To Deny Confirmation To Arbitration

Awards That Lack Any Rational Basis Or Otherwise To

Prevent The Miscarriage Of Justice In Cases Such As The

Instant Case.

As explained above, the District Court construed the manifest

disregard test set forth in Advest, Inc. v. McCarthy, 914 F.2d 6 (1st

Cir. 1990), to preclude review of factual matters. Petitioner

maintained that the manifest disregard test must include some

consideration of facts in that the court must assess how the

arbitrators in a case have applied the law to the facts and expecially

to undisputed facts. The Petitioner requested that the First Circuit,

if it concluded the District Court’s interpretation of Advest was

correct, that they modify the Advest test to include consideration of

how the law was applied to the facts or otherwise to avoid 4

miscarriage of justice in cases such as this. The First Circuit

refused to modify Advest.

There is ample precedent from other jurisdictions interpreting

the manifest disregard standard to include consideration of both

law and facts.'° Perhaps the most common interpretation requires a

10. Indeed, the First Circuit’s opinion in Advest has specifically been

criticized for its failure to incorporate a rational basis analysis. See S.

Kupperman & G. Freeman, Achieving Justice in Arbitration, 65 Tulane L. Rev.

1547 (1991).

court to determine whether there is any “rational basis” for the

award. This test was described by the Eleventh Circuit as follows in

Robbins v. Day, 954 F.2d 679, 684 (11th Cir. 1992):

When no rationale is given for a lump sum

award, as in this case ... we must first

determine whether a rational ground for the

arbitrators’ decision can be inferred from the

facts of the case. Where a “ground for the

arbitrator’s decision can be inferred from the

facts of the case, the award should be

confirmed”. Raiford v. Merrill Lynch, Pierce,

Fenner & Smith, Inc., 903 F.2d 1410, 1413 (CA

11, 1990) (citing Siegel v. Tital Indus. Corp.,

779 F.2d 891, 894 (CA 2, 1985) (quoting Sobel

v. Hertz, Warner & Co., 469 F.2d 1211, 1216

(CA 2, 1972); Drummon Coal Co. v. United

Mine Workers of Am, 748 F.2d 1497 (CA 11,

1984) (cited by Raiford for the proposition that

an arbitration award may be vacated if

irrational); Barbier v. Shearson Lehman

Hutton, Inc., 948 F.2d 117 (CA2, 1991).

954 F.2d at 684.

- The Robbins court went on to explain that the burden of

proving a lack of rational basis falls on the party seeking vacation

of the arbitration award: “The onus is on the party requesting the

vacatur to refute. . .every rationai basis upon which the arbitrator

could have relied.” Jd.

Obviously, the burden outlined in Robbins is a very high one,

but it was met in this case. As set forth above, Petitioner carefully

refuted all possible reasons for which the arbitrators could have

determined to award him losses on only two out of twenty-five

margin transactions. The one justification for this calculation,

offered up by Respondents, is contradicted by the arbitration

record and was all but conceded by Respondents below.

Another formuiation of the “rational basis” test that has been

adopted by several courts incorporates the “arbitrary and

capricious” standard developed in the administrative law context.

The Eleventh Circuit applied this test in United States Postal

Service v. National Association of Letter Carriers, 847 F.2d 775

(11th Cir. 1988), where it observed:

While great deference is normally accorded an

arbitration award, an award is not required to

be enforced which is arbitrary or capricious.

See, Drummon Coal Co. v. United Mine

Workers of Am, 748 F.2d 1495, 1497 (CA 11,

1984) (citing Loveless v. Eastern Air Lines, Inc,

681 F.2d 1272, 1276 (CA 11, 1982); United

Steelworkers of Am v. US Gypsum Co., 492

F.2d 713, 730 (CA5), cert denied, 418 US 998

(1974); Safeway Stores v. Am Bakery &

Confectionary Workers Int'l Union, Local 111,

390 F.2d 79, 81 (CAS, 1968).

Petitioner urges the Court to adopt the “arbitrary and

capricious” standard for which there is a well-developed

jurisprudence." Application of this test in the present case would

11. The use of this standard is warranted because it accords great

deference to those hearing a case as an initial matter. In the administrative

context, great deference is due because the initial decision-maker, the

administrative agency, has special expertise and statutorily-mandated

responsibility to make the initial decision. See EJ du Pont de Nemours & Co. v.

Collins, 432 U.S. 46, 54-55 (1977). In the arbitration context, great deference is

due because of the strong legislative preference for resolving disputes through

arbitration. See OR Securities v. Professional Planning Assoc., 857 F.2c © +2,

747-48 (11th Cir. 1988).

have required vacation of the arbitrators’ award. In light of the

arbitrators’ finding that Respondents were liable to Petitioner and

the undisputed evidence of damages presented by him, an

arbitration award that excluded 95 to 99 percent of his undisputed

damages is “arbitrary and capricious”, at best.

In the alternative, Petitioner submits that this Court should

interpret “manifest disregard of the law” to encompass the familiar

standard used in ruling on motions to set aside jury verdicts. Under

that standard, courts have set aside a civil jury award “when the

verdict is against the clear weight of the evidence. . . or will result

in aclear miscarriage of justice”. Torres-Troche v. Municipality of

Uaco, 873 F.2d 499 (1st Cir. 1989) [quoting Coffran v. Hitchcock

Clinic, Inc., 683 F.2d 5, 6 (1st Cir.), cert. denied, 459 U.S. 1987

(1982)].

Thus, for example, in the recent case of Phav v. Trueblood,

Inc., 915 F.2d 764 (1st Cir. 1990), the District Court for the District

of Massachusetts set aside a jury award of $5,000.00 in the face of

clear evidence that the plaintiff's damages were far more than that

amount. Upon retrial, the plaintiff was awarded $370,000.00, and

the judgment was affirmed on appeal. See also, Brown v. Richard

A. Wacholz, Inc., 467 F.2d 18 (10th Cir. 1972) (to the same effect).

As with the “arbitrary and capricious” standard, the use of this

test is appropriate because it accords great deference to the intial

trier of fact. The test is triggered only in cases where there is an

enormous discrepancy between the evidence presented and the

result ordered, or where the result would effect a “miscarriage of

justice”. Petitioner respectfully submits that the review of

arbitration awards in all Circuits should function under the same

standard to prevent grossly unjust results.

The difficulty in demonstrating bias or arbitrary and

capricious conduct undermines the rights of investors and leaves

them without any meaningful standard upon which to challenge

arbitration awards. However, the lack of a proper basis for an

arbital decision is not to be overlooked and should arouse a court's

suspicion when the award is less than a minimal percentage of the

undisputed losses of an investor.

In Tinaway v. Merrill Lynch & Co., 658 F. Supp. 567 (S.D.N.Y.

1987), the court held that an arbitration panel’s award of 5 percent

of an investor’s documented loss in the absence of some stated

basis could “only represent ‘evident impartiality’ on the part of the

arbitrators”. (658 F. Supp. at 579).

In this case, we have exactly that situation. A de minimus

amount was awarded which Petitioner claims shows evident

partiality requiring reversal.

Since there is limited review of arbitration proceedings, the

appeal by Justice Blackmun in McMahon must not be taken lightly.

This Court should take seriously the duty to review the results of

arbitration in which there is manifest disregard of the law.

Petitioner lost millions of dollars as a result of Respondents’

wrongful conduct. Although he did not agree to arbitrate, he went

to arbitration and proved that Respondents caused these losses. He

presented undisputed evidence of negligence, falsification of

records, violation of trust and governing rules and federal

regulations and obtained a finding of liability against Respondents.

Then, at the end of the line, he was presented with an award,

lacking any rationale, that does not even begin to compensate him

for his undisputed substantial losses. This is a miscarriage of

justice, if there ever was one, and this Court must now allow it to

stand even under the strictest level of review. This Court should

clearly enunciate a standard for manifest disregard for all

investors who will be protected in the arbitration process.

CONCLUSION

This Court should grant the petition for a writ of certiorari.

There is a split in the Circuits on the issue of the entitlement to a

jury trial under factual circumstances where fraud is alleged. With

respect to issues involving claims under Section 12(2) of the 1933

Securities Act where there is a previously terminated arbitration

agreement which is resurrected and tampered with and becomes

the basis of the alleged enforceability of an arbitration agreement

and there is a dispute as to the validity and actual execution of this

agreement, such issues are not for arbitration and must be decided

by the District Court.

Moreover, the First Circuit’s “manifest disregard” standard

conflicts with that enunciated by this Court and other Circuits.

Also, this Court needs to come to the aid of investors and prevent

further erosion of rights delineated under 9 U.S.C. § 4.

Based on all of the foregoing reasons, the judgment of the

United States Court of Appeals for the First Circuit should be

reversed and Petitioner’s Section 12(2) claims under the 1933

Securities Act ordered tried in the Fedezal District Court.

Respectfully submitted,

JACK C. CHILINGIRIAN

Attorney at Law

Attorney for Petitioner

42400 Grand River Avenue

Suite 109

Novi, Michigan 48375

(313) 348-7400

Dated: February 2, 1993

APPENDIX A — OPINION OF THE UNITED STATES

COURT OF APPEALS FOR THE FIRST CIRCUIT DATED

SEPTEMBER 39, 1992

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

No. 92-1214

ELIE J. BAGHDADY,

Plaintiff, Appellant,

LARRY D. SADLER, ETAL.,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

(Hon. Joseph L. Tauro, U.S. District Judge]

Before

Cyr and Boudin, Circuit Judges,

and Hornby,”* District Judge.

Edward F. Haber with whom Andrew A. Rainer and Spairo,

Grace & Haber were on brief for appellant.

Bryan G. Killian with whom David A Guberman, Barbara

O'Donnell and Sherin and Lodgen were on brief for appellees.

* Of the District of Maine, sitting by designation.

Appendix A

September 9, 1992

HORNBY, District Judge. This appeal challenges a decision

compelling arbitration of a dispute between a securities firm and a

customer, and the eventual confirmation of the arbitrator’s award.

The record satisfies us that there was an enforcable agreement

between the parties to arbitrate disputes. We therefore conclude

that the lower court properly compelled arbitration under the

Federal Arbitration Act, 9 U.S.C. §§ 1-16. Because the challenge to

the award reveals only frustration with the results, there is no basis

to vacate the district court’s decision to confirm the award. We

therefore affirm.

Facts

Elie J. Baghdady held a substantial number of shares in a

company called Teledyne, Inc. (“Teledyne”). Unhappy with the

handling of his securities account at another brokerage firm, in

July, 1981, Baghdady transferred his Teledyne shares to the Boston

office of merrill Lynch, Pierce, Fenner & Smith, Inc. (“Merrill

Lynch”). According to Baghdady, he opened the Merrill Lynch

account for the single purpose of containing risks he was facing on

certain call options. He expected the arrangement to last only until

he could find a broker with sufficient “expertise in options to help

him out of [his] precarious investment situation”. When he opened

the Merrill Lynch account on July 29, 1981, Baghdady signed an

agreement called a “Standard Option Agreement.” The agreement

provided that “[aJny controversy between [Baghdady and Merrill

Lynch] arising out of such option transactions or [the] agreement

shall be settled by arbitration only before the National Association

of Security Dealers. ...”

In November, 19481, Baghdady met Larry D. Sadler and John

Voll, two stockbrokers operating out of Merrill Lynch's

Appendix A

Burlington, Massachusetts, office with expertise in options

trading. Believing that the Burlington office would better serve his

needs and perhaps find a way to reduce the losses that had

continued to escalate under Merrill Lynch’s watch, in December,

1981, Baghdady directed Merrill Lynch to open an account in his

name at the Burlington location. Merrill Lynch did so by

transferring the trade balances in the Boston account to a newly

assigned account at Burlington. Once at the Burlington office, a

slightly different investment strategy was pursued although it still

involved options trading against the Teledyne stock. Baghdady’s

misfortunes continued at the Burlington office and by the time he

closed that account in 1982 his losses had mounted to

$1,432,248.91.

On August 2, 1985, Baghdady brought this action against

Merrill Lynch and Sadler, seeking damages for their alleged

mishandling of his securities account. Merrill Lynch and Sadler

moved to compel arbitration under the Federal Arbitration Act, 9

U.S.C. §§ 1-16. That motion was granted over Baghdady’s

objections and the case proceeded to arbitration before the

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

February 26, 1991, following an evidentiary hearing, a three-

member NASD panel awarded Baghdady the amount of

$60,720.15. Baghdady petitioned the District Court to vacate or

correct the NASD award, but on January 14, 1992, the court

confirmed the award. Baghdady has appealed challenging both the

initial order to arbitrate and the final confirmation of the award.

The Decision to Combel Arbitration

The document that Baghdady signed on July 29, 1981,

explicitly governed “any transaction” executed by Merrill Lynch

for put and call options. It stated that “any controversy between us

arising out of such option transactions . . . shall be settled by

Appendix A

arbitration. . . .” The document did not limit its terms to a particular

account. Instead, its scope extended to all accounts the customer

might have with Merrill Lynch.' The controversy here involves put

and call options exercised by Merrill Lynch on behalf of Baghdady.

It is thus clearly within the terms of the agreement to arbitrate.

Baghdady asserts that he did not read the printed text of the

document when he signed it, did not intend to enter into an

arbitration agreement and did not intend that the agreement would

apply to any other account. He likewise asserts that when he

opened the Burlington account in December, 1981, he did not

intend the July agreement to apply. Although these may be

disputed matters, they are not material. The document Baghdady

did sign was clear on its face and its scope was unrestricted.” There

is no suggestion that Baghdady was prevented from reading the

document before he signed it.

Baghdady argues that under this interpretation of the

document, a new account opened 30 years later in Melbourne,

Australia, would still be subje-t to arbitration. If the customer's

relationship with Merrill Lynch was ongoing during the 30 years

(as it was here during six months), that might well be the case.

1. Paragraph 3, forexample, provided: “Any securities and funds held by you

in any accountof mine with you shall be held by you as security for the performance by

me of my obligations to you under this Agreement.” Paragraph 8 also made clear that

Merrill Lynch contract documents applied to more than one account: “Any agreement

by me with you, whether previously or hereafter made applicable to any account of

mine with you, shall also apply to such option transactions except to the extent which

itconflicts with this agreement. In the event of aconflict, this agreement shall control,

and where there is no conflict, each provision of each agreement shall apply.”

2. Baghdady is bound by his “external expression of intention as distinguished

from [any] undisclosed intention.” Restatement (Second) of Contracts § 2 cmt. b

(1981).

Appendix A

Neither in that case nor in this case do we have a situation where the

contractual relationship has come to an end such that the parties

might reasonably expect their legal agreement to have lost any

continuing vitality. Instead, Baghdady transferred his stock

directly from the Boston account to the Burlington account.

Baghdady also points to the language in Par-Knit Mills, Inc. v.

Stockbridge Fabrics Co., Ltd., 636 F.2d 51, 54 (3rd Cir. 1980), that

“fi]f there is doubt as to whether [an express unequivocal

arbitration agreement] exists, the matter, upon a proper and timely

demand, should be submitted to a jury.” The “doubt” in Par-Knit,

however — and thus the genuine issue of material fact — was

whether a company's production manager had authority to bind the

corporation for which he spoke. There is no dispute here that

Baghdady had authority to bind himself. Since we find the

language clear in the contract he signed, there is no issue for a trial,

jury or nonjury, under the Federal Arbitration Act, 9 U.S.C. § 4.

We conclude therefore that the district court properly ordered

arbitration under the Federal Arbitration Act.

The Arbitration Award

The Federal Arbitration Act permits a district court to vacate

an arbitration award where it finds certain wrongdoing or abuses in

the arbitration process. 9 U.S.C. § 10. Baghdady has not asserted

that any such statutory abuses have occurred here. Rather, he

contends that the award should have been vacated because there

was evidence of a “manifest disregard of the law,” citing Wilko v.

Swan, 346 U.S. 427, 436-37 (1953) (creating a judicial standard for

reviewing arbitration awards outside the Federal Arbitration Act),

overruled on other grounds by Rodriquez de Quijas v. Shearson/

American Express, Inc., 490 U.S. 477 (1989).

Appendix A

Cut to its essence, Baghdady’s claim is that the arbitrators

fully understood established legal principles for calculating

damages, but disregarded those principles. Baghdady insists that

such disregard of the law is proven by the amount of damages

actually awarded. He maintains that the $60,720.15 awarded was

the“sum of [his] losses on precisely two transactions in the

account.” If that was the basis for the award, he argues, then there

must have been a manifest disregard of the law because the

arbitration panel could not justifiably have distinguished those two

transactions from the losses demonstrated on “the 25 other

transactions in his account.” Baghdady’s displeasure with his

recovery, however, provides no basis for vacating the award. For us

to find a manifest disregard of the law, “there must be some

showing in the record, other than the result obtained, that the

arbitrators knew the law and expressly disregarded it.” Advest, Inc.

v. McCarthy, 914 F.2d 6, 10 (1st Cir. 1990) (emphasis supplied)

(citations omitted).? Here, Baghdady has nothing but the

arbitration result to buttress his claim of manifest disregard. That is

simply insufficient.

Advest left open one other additional possibility: “In certain

circumstances, the governing law may have such widespread

familiarity, pristine clarity, and irrefutable applicability that a

court could assume the arbitrators knew the rule and,

notwithstanding, swept it under the rug.” /d. at 10. But like Advest,

this is not such a case. As Advest recognized, “arbitrators possess

latitude in crafting remedies as wide as that which they possess in

deciding cases. . . . That leaway is at its zenith when, as here, the

3. Baghdady also seeks to have us modify Advest to include “consideration of

how the law was applied to the facts or otherwise to avoid a miscarriage of justice.”

We see no reason to do so. Such a modification would cut against decades of judicial

treatment of arbitrators’ decisions.

Appendix A

arbitration clause imposes no limitations on choice of remedies.”

Id. at 10-11 (citations omitted). Even if the award here was based

on two specific transactions as Baghdady suggests, the panel may

have found that the defendants had breached a promise to rescind

those transactions. Baghdady argues that this finding would have

been erroneous. That, however, is a matter beyond the scope of our

review. As we have said before, we “do not sit to hear claims of

factual or legal error by an arbitrator as an appellate court does in

reviewing decisions of lower courts.” Advest, 914 F.2d at 8

(quoting United Paperworkers Int'l Union v. Misco, Inc., 484 U.S.

20, 38 (1987)). “[As] long as the arbitrator is even arguably

construing or applying the contract and acting within the scope of

his authority,’ a court’s conviction that the arbitrator made a

serious mistake or committed grievous error will not furnish a

satisfactory basis for undoing the decision.” Advest, 914 F.2d at 9

(quoting Misco, 484 U.S. at 38). Whatever its reasoning, the

panel’s award here was at least within the realm of possible

remedies that could have been fashioned in this case. The district

court properly confirmed the awad.

Judgment AFFIRMED.

APPENDIX B - JUDGMENT OF THE UNITED STATES

COURT OFAPPEALS FOR THE FIRST CIRCUIT DATED

SEPTEMBER 3, 1992

UNITED STATES COURT OF APPEALS

FOR THEFIRSTCIRCIT —

No. 92-1214

ELIE J. BAGHDADY,

Plaintiff, Appellant,

LARRY D. SADLER, ETAL.,

Defendants, Appellees.

JUDGMENT

Entered: September 9, 1991

This cause came on to be heard on appeal from the United

States District Court for the District of Massachusetts, and was

argued by counsel.

Upon consideration whereof, it is now ordered, adjudged and

decreed as follows: The judgment of the district court is affirmed.

By the Court,

FRANCIS P. SCIGLIANO

Clerk

APPENDIX C - MEMORANDUM OF THE UNITED

STATES DISTRICT COURT, DISTRICT OF

MASSACHUSETTS, DATED JANUARY 14, 1992

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

CA No. 85-3101-T #58

CANo. 91-11484-T#12

ELIE J. BAGHDADY,

Plaintiff,

, J»

MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., et al.,

Defendants

MEMORANDUM

January 14, 1992

TAURO, Ch.J.

Dr. Elie J. Baghdady petitions to modify or vacate an

arbitration award which the defendants, Merrill Lynch, Pierce,

Fenner & Smith, Inc., and broker Larry Sadler (collectively,

“Merrill Lynch ”) move to confirm. Baghdady lost approximtely

$1.4 million in his account with Merrill Lynch. He sued, alleging

violations of federal and state law. The dispute went to a panel of

the National Association of Securities Dealers, which, after a six-

day hearing, awarded Baghdady $60,720.15.

10a

Appendix C

An arbitral award will be vacated only if the arbitrators

recognized the applicable law and ignored it; or, in other words,

that they acted irrationally or arbitrarily. Advest, Inc. v. McCarthy,

914 F.2d 6, 9 (Ist Cir. 1990). Baghdady must show something in

the record, other than the result, that indicates that the arbitrators

knew the law and expressly disregarded it. Jd. at 10 (citation

omitted).

The arbitrators do not need to explain their award, id., and they

did not do so here. As the First Circuit recognized, the absence of

an explanation makes it extremely difficult for a petitioner, like

Baghdady, to challenge an award. See id. (citation omitted).

Baghdady succeeds, however, in identifying the award as

equalling his losses “on precisely two transactions in the account.”

See Petitioner's Brief at 20. This in itself suggests that the award

was rationally based, and not arbitrary. Baghdady argues that it

was arbitrary, because the evidence did not permit the arbitrators to

distinguish two out of twenty-five transactions. Merrill Lynch,

however, points to record evidence that suggests that these two

transactions were distinguishable from all other transactions,

because Merrill Lynch had apparently agreed to rescind them. See

Defendants' Memorandum at 9.

In any event, it is not Merrill Lynch’s burden to show that the

award was rational, but Baghdady’s to point to record evidence of

the arbitrators’ manifest disregard of the law. Baghdady musters

what he calls “undisputed evidence” of his losses and of Merrill

Lynch’s violations of its authority. But such “evidence” is a factual

matter, and the court’s role is not to hear allegations of factual

error. Advest, 914 F.2d at 8 (citation omitted).

lla

Appendix C

Baghdady also asserts that he should have been awarded

prejudgment interest on the award but, again, does not show by

what legal authority he was entitled to the interest. Arbitrators are

entitled to craft remedies they deem appropriate. /d. at 10-

11.Where there is no limitation on their remedial power, and none

is apparent here, an award without prejudgment interest does not

contravene any legal authority. Although M.G.L. c. 231 S 6C

provides that prejudgment interest shall be awarded in contract

actions, and although Baghdady’s claim against the defendants

was essentially contractual, “the arbitrators may have concluded

that [his] entitlement was equitable, rather than contractual, and

that therefore interest was discretionary.” Nicoletti v. E.F. Hutton

& Co., Inc., 761 F. Supp. 312, 314-315 (S.D.N.Y. 1991) (noting

that petitioner cited no case in which an arbitration award was

vacated for failure to award prejudgment interest). See also

Oppenheimer & Co., Inc. v. Graziano, No. 90-C6236, 1991 U.S.

Dist. LEXIS 2101 at *2 (N.D. Il. Feb. 21, 1991) (absent proffer of

authority, petitioner not entitled to prejudgment interest).

Mermill Lynch moves to confirm the award and to be given

attorneys’ fees, because, it says, Baghdady’s petition is

groundless. Although the award merits confirmation, Merrill

Lynch does not show that Baghdady prosecuted this action in bad

faith, so as to justify a discretionary award of fees. See Brigham &

Women's Hosp. v. Massachusetts Nurses Ass'n, 684 F. Supp. 1120,

1125 (D. Mass. 1988).

An order will issue.

s/ J.F. Tauro

United States District Judge

12a

APPENDIX D — ORDER EXTENDING TIME OF THE

SUPREME COURT OF THE UNITED STATES DATED

NOVEMBER 20, 1992

SUPREME COURT OF THE UNITED STATES

No. A-406

Elie J. Baghdady,

Petitioner

Larry Sadler, et al.

ORDER

UPON CONSIDERATION of the application of counsel for

the petitioner,

ITIS ORDERED that the time for filing a petition for a writ of

certiorari in the above-entitled case, be and the same is hereby,

extended to and including February 5, 1993.

D.H. Souter

Associate Justice of the Supreme

Court of the United States

Dated this 20th day of November, 1992.

| eee

13a

APPENDIX E — RELEVANT STATUTES

9U.S.C. § 3:

If any suit or proceeding be brought in any of

the courts of the United States upon any issue

referabie to arbitration under an agreement in

writing for such arbitration, the court in which

such suit is pending, upon being satisfied that

the issue involved in such suit or proceeding is

referable to arbitration under such an

agreement, shall on application of one of the

parties stay the trial of the action until such

arbitration has been had in accordance with the

terms of the agreement, providing the

applicant for the stay is not in default in

proceeding with such arbitration.

9U.S.C. § 4:

Failure to arbitrate under agreement;

petition to United States court having

jurisdiction for order to compel

arbitration; notice and service thereof;

hearing and determination

A party aggneved by the alleged failure,

neglect, or refuval of another to arbitrate under

a written agreement for arbitration may

petition any United States district court which,

save for such agreement, would have

jurisdiction under Title 28 [28 USCS §§ 1 et

seq.], in a civil action or in admiralty of the

subject matter of a suit arising out of the

controversy between the parties, for an order

14a

Appendix E

directing that such arbitration proceed in the

manner provided for in such agreement. Five

days’ notice in writing of such application shall

be served upon the party in default. Service

thereof shall be made in the manner provided

by the Federal Rules of Civil Procedure [USCS

Rules of Civil Procedure]. The court shall hear

the parties, and upon being satisfied that the

making of the agreement for arbitration or the

failure to comply therewith is not in issue, the

court shall make an order directing the parties

to proceed to arbitration in accordance with the

terms of the agreement. The hearing and

proceedings, under such agreement, shall be

within the district in which the petition for an

order directing such arbitration is filed. If the

making of the arbitration agreement or the

failure, neglect, or refusal io perform the same

be in issue, the court shall proceed summarily

to the trial thereof. If no jury trial be demanded

by the party alleged to be in default, or if the

matter in dispute is within admiralty

jurisdiction, the court shall hear and determine

such issue. Where such an issue is raised, the

party alleged to be in default may, expect in

cases of admiralty, on or before the return day

of the notice of application, demand a jury trial

of such issue, and upon such demand the court

shall make an order referring the issue or issues

to a jury in the manner provided by the Federal

Rules of Civil Procedure [USCS Rules of Civi!

Procedure], or may specially call a jury for the

purpose. If the jury find that no agreement in

1Sa

Appendix E

writing for arbitration was made or that there is

no default in proceeding thereunder, the

proceeding shall be dismissed. If the jury find

that an agreement for arbitration was made in

writing and that there is a default in proceeding

thereunder, the court shall make an order

summarily directing the parties to proceed with

the arbitration in accordance with the terms

thereof.

9 U.S.C. § 10:

§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.

(2) Where there was evident partiality

or corruption in the arbitrators, oreither

of them.

(3) Where the arbitrators were guilty of

misconduct in refusing to postpone the

hearing upon sufficient cause shown, or

in refusing to hear evidence pertinent

and material to the controversy; or of

any other misbehavior by which the

16a

Appendix E

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.

(b) The United States district court for the

district wherein an award was made that was

issued pursuant to section 590 of title 5 may

make an order vacating the award upon the

application of a person, other than a party to the

arbitration, who is adversely affected or

aggrieved by the award, if the use of arbitration

or the award is clearly inconsistent with the

factors set forth in section 582 of title 5.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.