Appendix — Remmey v. PaineWebber, Inc.

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Supreme Court, U.S.

FILED

y) 94 916 NOV 2 1199

NO. __OQEFICE OF THE CLERK

In The

Supreme Court of The United States

October Term 1994

KATHRYN THOMPSON REMMEY and

ERNEST M. REMMEY, Executors of

the Estate of LOUISE REMMEY, Deceased,

Petitioners,

PAINEWEBBER INCORPORATED

and ARNOLD MARKS,

Respondents.

Petition For A Writ Of Certiorari

To The United States Court of

Appeals For The Fourth Circuit

APPENDIX

*David M. Clark

CLARK, WHARTON & BERRY

Post Office Box 1349

Greensboro, NC 27402

*Counsel of Record

LEGAL ADVANTAGE - Advocates in Appellate Services

1108 East Main Street * Richmond, VA 23219

(804) 780-0800

APPENDIX

TABLE OF CONTENTS

Opinions and Orders:

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT....----+eeeeeees

UNITED STATES DISTRICT COURT

MEMORANDUM OPINION 12/14/92...--++-+++:

UNITED STATES DISTRICT COURT

FINAL JUDGMENT 12/14/92.....+--++eeeeeee

UNITED STATES DISTRICT COURT

SUBSTITUTE JUDGMENT 7/15/93...:-+-+++--:

UNITED STATES DISTRICT COURT

SUBSTITUTE ORDER 7/15/93...---++++eeee:

Ce le hb ew taken eae

Order on Rehearing:

UNITED STATES COURT OF APPEALS

DENIAL OF PETITION FOR REHEARING.......

Constitution, Statutes ~

and Regulations Texts

CONSTITUTION OF THE UNITED STATES

ee Pee pe | ee eT ey ha a

NASD Manual--Code of Arbitration

Procedure § 19...-.cceeseeeerrerereeees

NASD Manual--Code of Arbitration

Procedure § 21...-.--csceeeerrercreresers

NASD Manual--Code of Arbitration

Procedure § 22...--cccceeeeresceceseces

NASD Manual--Code of Arbitration

Proceaure © Bat ess ows cheba «oe 6b0s

NASD Manual--Rules of Fair Practice,

Secs. 1 ame 2..-cbhdbdzdccdes beeen

NASD Manual--Rules of Fair Practice

ABMONGISN FF, BOG. ScccwesKiccssdecvedeacer

Other Materials:

Letter from David M. Clark,

PMGUBE 7, LHPdcccesacesessusesewssevdses

Letter from David M. Clark,

PUIBUSE 21, L9FSc cv ccvssctecstsctedecisecs

Letter from David M. Clark,

PUAGUBE 27, [SFE sc ccrecessercevrbsseesessesaese

BE rer a eee

Stanley V. Lewis, Curriculum Vitae.

NASD Public Disclosure Program

Response to Request for Information

PaineWebber Client Agreement

Arbitration Clause..............4..

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

KATHRYN THOMPSON REMMEY,

Executrix for the Estate

of Louise Remmey; ERNEST

M. REMMEY, Executor for

the Estate of Louise

Remmey ,

Plaintiffs-Appellants, : No. 93-2059

Vv.

PAINEWEBBER, INCORPORATED; :

ARNOLD MARKS, !

Defendants-Appellees.

Appeal from the United States District Court

for the Middle District of North Carolina,

at Greensboro.

Richard C. Erwin, Sexior District Judge.

(CA-90-551-2)

Argued: May 11, 1994

Decided: August 19, 1994

Before ERVIN, Chief Judge, '

WILKINSON, Circuit Judge, and ELLIS,

United States District Judge for the

Eastern District of Virginia, sitting

by designation.

Affirmed by published opinion. Judge

Wilkinson wrote the opinion, in which Chief

Judge Ervin and Judge Ellis joined.

COUNSEL

ARGUED: David McKenzie Clark, CLARK,

WHARTON & BERRY, Greensboro, North Carolina,

for Appellant. Mack Sperling, BROOKS,

PIERCE, MCLENDON, HUMPHREY & LEONARD,

L.L.P., Greensboro, North Carolina, for

Appellees.

OPINION

WILKINSON, Circuit Judge:

In this case, we are asked to overturn

the results of a contractually-compelled

arbitration. We decline to do so.

Accepting the multiple attacks upon the

arbitral process in this case would scuttle

the spirit of deference that courts have

always used in reviewing arbitral awards.

We therefore affirm the judgment of the

district court upholding the arbitral

decision.

Louise Remmey, the original plaintiff

in this case, maintained an account with

appellee Arnold Marks at the brokerage firm

of Hornblower & Weeks in the late 1970s. In

later years, when Marks joined PaineWebber,

Inc. as a broker, Remmey transferred her

account to that firm. Remmey subsequently

opened a Resource Management Account ("RMA")

at PaineWebber, thereby allowing the company

to hold securities for her and creating an

interest-bearing checking account into which

her dividends could be deposited.

In connection with the RMA, Remmey

signed a "Client's Agreement," which

included a requirement that controversies

between Remmey and PaineWebber be submitted

to arbitration. The provision stated

essentially that arbitrations would be

conducted in accordance with the rules of

the New York Stock Exchange, American Stock

Exchange, or National Association of

Securities Dealers. Remmey was permitted to

elect which organization's rules would

govern.

In early 1986, Remmey began using the

RMA to keep track of her investments, and

accordingly delivered most of her securities

to Marks. From that time until late 1989,

Marks conducted a series of trades, which

substantially changed Remmey's portfolio

mix. Most notably, Marks reduced the level

of Remmey's ownership of bonds and other

debt instruments, while establishing a

Significant stake in real estate limited

partnerships. In August 1989, Marks left

PaineWebber for a position at Prudential

Bache.

In October 1990, Mrs. Remmey filed this

action against: Arnold Marks and PaineWebber

in North Carolina federal court. She

contended that Marks had knowingly induced

her to purchase investments unsuited to her

stated objectives and that Marks had

"churned" her account by engaging in

excessive and unnecessary trading.

PaineWebber responded by pointing to the

arbitration clause in the RMA, prompting

Remmey to sign a stipulation submitting the

case to arbitration and staying the federal

court action pending the result. Remmey

elected to follow the rules of the National

Association of Securities Dealers ("NASD").

In September and December of 1991, a panel

of three arbitrators selected by the NASD

heard Remmey's claims. After taking

evidence for five days, the panel

unanimously dismissed all of Remmey's claims

against both Marks and PaineWebber.

Shortly thereafter, Remmey moved the

district court to set aside the arbitral

decision. In support of her motion, Remmey

argued that various provisions of the

Federal Arbitration Act, 9 U.S.C. §§ 1-16,

had been violated. Specifically, Remmey

maintained that the arbitrators were biased

in favor of Marks and that their ruling was

substantively flawed. In an order of July

15, 1993, the district court rejected

Remmey's motion, holding that "the award was

proper in all respects." Remmey now

appeals.?+

¢ ©

We must underscore at the outset the

limited scope of review that courts are

permitted to exercise over arbitral

decisions. Limited judicial review is

necessary to encourage the use of

arbitration as an alternative to formal

litigation. This policy is widely

recognized, and the Supreme Court has often

found occasion to approve it. See, e.g.,

Shearson/American Express, Inc. v. McMahon,

482 U.S. 220, 226 (1987); Southland Corp. v.

4 On March 20, 1993, prior to the

district court's final decision, Mrs. Remmey

died. The executors of her estate, Kathryn

and Ernest Remmey, were subsequently

substituted as plaintiffs. For purposes of

this opinion, we will continue to refer to

appellant as "Remmey" or "Mrs. Remmey. "

Keating, 465 U.S. 1, 10 (1984); Moses H.

Cone Mem. Hosp. v. Mercury Constr. Corp.,

450 U.S. 1, 24 (1983).

A policy favoring arbitration would

mean lit®@le, of course, if arbitration were

merely the prologue to prolonged litigation.

If such were the case, one would hardly

achieve the "twin goals of arbitration,

namely, settling disputes efficiently and

avoiding long and expensive litigation."

Folkways Music Publishers, Inc. v. Weiss,

989 F.2d 108, 111 (2d Cir. 1993), petition

for cert. filed, 62 U.S.L.W. 3724 (U.S. Apr.

20, 1994) (No. 93-1650); see also Eljer

Mfg., Inc. v. Kowin Dev. Corp., 14 F.3d

1250, 1254 (7th Cir. 1994). Opening up

arbitral awards to myriad legal challenges

would eventually reduce arbitral proceedings

to the status of preliminary hearings.

Parties would cease to utilize a process

that no longer had finality. To avoid this

result, courts have resisted temptations to

redo arbitral decisions. As the Seventh

Circuit put it, "[a]rbitrators do not act as

Junior varsity trial courts where subsequent

appellate review is readily available to the

losing party." National Wrecking Co. v.

International Bhd. of Teamsters, Local 731,

990 F.2d 957, 960 (7th Cir. 1993).

Thus, in reviewing arbitral awards, a

district or appellate court is limited to

determining "'whether the arbitrators did

the job they were told to do--not whether

they did it well, or correctly, or

reasonably, but simply whether they did

it.'" Richmond, Fredericksburg & Potomac

R.R. Co. v. Transportation Communications

Int'l Union, 973 F.2d 276, 281 (4th Cir.

1992} (quoting Brotherhood of Locomotive

Eng'rs v. Atchison, Topeka & Santa Fe Ry.

Co., 768 F.2d 914, 921 (7th Cir. 1985)).

Courts are not free to overturn an arbitral

result because they would have reached a

different conclusion if presented with the

same facts. In the Federal Arbitration Act,

9 U.S.C. §§ 1-16, Congress has limited the

grounds upon which an arbitral award can be

vacated. Namely, a court may vacate an

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

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.

9 U.S.C. § 10(a). The statutory grounds for

vacutur permit challenges on sufficiently

improper conduct in the course of the

proceedings; they do not permit rejection of

an arbitral award based on disagreement with

the particular result the arbitrators

reached. Accordingly, parties may not seek

a "second bite at the apple" simply because

they desire a different outcome. "To permit

such attempts would transform a binding

process into a purely advisory one."

Richmond, Fredericksburg & Potomac, 973 F.2d

at 282.

Finally, we note that arbitration has

often been used to resolve securities laws

claims brought by disappointed investors

against brokerage houses. If all claims

arising out of unprofitable investments were

subjected to the full rigors of litigation,

the result could well be increased brokerage

transactions costs that would ultimately

redound to the detriment of the investing

public. Nothing in the Federal Arbitration

Act or the various securities laws suggests

that arbitral proceedings are inappropriate

in this setting. See Rodriguez de Quijas v.

Shearson/American Express, Inc., 490 U.S.

477 (1989) (holding that agreements to

arbitrate claims under the Securities Act of

1933 are enforceable); McMahon, 482 U.S. at

238 (holding that claims under the

Securities Fxchange Act of 1934 are

arbitrable).

Ill.

Appellant raises numerous challenges to

the arbitral decision in this case. We

address each issue in turn.

Remmey's first line of attack focuses

upon the arbitrators themselves. She claims

that none of them were qualified to serve on

the panel that heard her case. NASD Code of

Arbitration Procedure § 19(b) requires that

the majority of the panel members in

controversies exceeding $30,000 "not be from

the securities industry” unless the customer

requests otherwise. Remmey maintains that

potential arbitrators were required to

complete questionnaires distributed by the

NASD in 1990 in order to qualify as "public"

arbitrators. She concludes that the failure

of arbitrators Victor Schwimmer and Stanley

Lewis to submit the 1990 questionnaires

barred them from service on the arbitral

panel, and thus that the award was obtained

by "undue means" in violation of 9 U.S.C. §

10(a) (1).

This assertion is without merit. As an

initial matter, both Schwimmer and Lewis

presented suitable credentials to serve on

the panel. Mr. Schwimmer is an attorney who

worked several years for the Securities and

Exchange Commission, nearly thirty years in

private practice, and an additional thirteen

years as an administrative law judge for the

City of New York. Mr. Lewis served sixteen

years as Deputy Securities Commissioner for

the state of South Carolina. Prior to that,

he worked as a securities examiner in the

state's Securities Division and as a

stockbroker. There can be little question

that Messrs. Schwimmer and Lewis were

qualified to address Remmey's claims against

Marks and PaineWebber.

More significantly, nothing in the

rules governing NASD arbitrations supports

Remmey's contention. While she is correct

in noting that § 23 of the NASD Code of

Arbitration Procedure requires each

arbitrator to disclose any interest in the

outcome of the arbitration, * the Code does

2 Section 23 provides, in pertinent part:

(a) Each arbitrator shall be

required to disclose to the Director of

Arbitration any circumstances which

might preclude such arbitrator from

rendering an objective and impartial

determination. Each arbitrator shall

disclose:

(1) Any direct or indirect

financial or personal interest in

the outcome of the arbitration;

(2) Any existing or past

financial, business, professional,

family, or social relationships

that are likely to affect

impartiality or might reasonably

create an appearance of partiality

or bias. Persons requested to

serve as arbitrators should

disclose any such relationships

that they personally have with any

party or its counsel, or with any

individual whom they have been

not make any mention of the 1990

questionnaire. In fact, appellant's counsel

conceded at oral argument that no NASD rule

required return of the questionnaire form.

In order to overturn the award, Remmey must

establish that a failure to complete the

questionnaire impaired the ability of the

arbitrators to render a fair decision. She

has made no showing that failure to complete

the questionnaire in any way resulted ina

decision obtained by “undue means." See 9

U.S.C. § 10(a) (1).?

told will be a witness. They

should also disclose any such

relationship involving members of

their families or their current

employers, partners, or business

associates.

(b) Persons who are requested to

accept appointment as arbitrators should

make a reasonable effort to inform

themselves of any interests or relationships

described in Paragraph (a) above.

3 Remmey contends that Lewis may have

been disqualified as a public arbitrator had

he returned the questionnaire. This

argument is based on pure speculation. We

have no reason to characterize as an

“industry arbitrator" someone whose

Appellant is even more critical of

arbitrator Marshall Johnson, the so-called

"industry" arbitrator. Remmey alleges that

Johnson was disciplined by the NASD for

noncompliance with-.the NASD's Rules of Fair

Practice, and that Johnson failed to

indicate this discipline on his arbitrator

questionnaire. Indeed, in 1978, Johnson and

his brokerage firm, McDaniel Lewis & Co.,

agreed to a $500 fine for failing to keep

the firm's books current, to liquidate

several transactions, and to maintain

adequate supervisory procedures. Johnson

and his firm were fined again in 1980, in

the amount of $1000, for placing

identification labels over the names of

managing underwriters in a number of

offerings. *

professional career was largely spent in

enforcing state securities laws.

‘ Regardless of whether NASD rules

strictly require disclosure of an

arbitrator's past NASD disciplinary

infractions, it seems apparent that public

confidence in the NASD arbitration process

Not surprisingly, the parties differ as

to the significance of these infractions.

Appellants contend they were major

infractions. Appellees insist they were of

a minor and technical nature, and point out

that they all occurred more than twelve

years before the arbitration proceedings

even took place. We need not resolve that

issue, however, because Remmey has -ot shown

that these infractions affected Johnson's

impartiality, thereby yielding an

impermissible award. Section 23 of the NASD

Code requires arbitrators to disclose

information which would affect their ability

“to decide the case impartially, such as a

financial interest in the outcome. Johnson

fully disclosed information he believed

relevant to Remmey's claim, namely that his

children were then working for Prudential

Bache, Marks' current employer. After this

would be enhanced if such information were

not only available to the parties, but was

in fact actually conveyed to them.

disclosure, Remmey did not exercise a

peremptory challenge to Johnson, as she was

permitted to do under the NASD's rules, see

NASD Code of Arb. Proc. § 22, and she agreed

to go forward with the arbitration. It

would be improper to vacate an award as

obtained by “undue means," 9 U.S.C. §

10(a) (1), when the information relating to

Johnson's interest in the outcome was freely

disclosed to Remmey before she gave her

final consent to the process.

Even if appellant could demonstrate

that Johnson's discipline in 1980 somehow

affected his impartiality, she fails to

provide us with a reason why this objection

was not raised prior to the arbitration.

Remmey obtained the information concerning

Johnson's discipline pursuant to the NASD's

"Public Disclosure Program." Although

Remmey did not avail herself of this program

until after the completion of the

arbitration process, the program was at her

disposal before the arbitration began and

nothing prevented Remmey from using it

before participating in the arbitration. By

raising this claim only after obtaining an

adverse decision, Remmey's actions appear to

constitute the ultimate attempt at a second

bite. If this challenge were sustained,

nothing would stop future parties to

arbitration from obtaining allegedly

disqualifying information, going through

with the proceedings, and then coming

forward with the information only if

disappointed by the decision.

Appellant next argues that the arbitral

proceeds were conducted in a biased manner

in violation of 9 U.S.C. § 10(a) (2) &

(a) (3). In support of this contention, she

claims that arbitrator Schwimmer, who

chaired the panel, was especially solicitous

of the defendants' well-being and made

several comments throughout the proceedings

indicative of his empathy for the

defendants. She also points to an alleged

ex parte communication between Schwimmer and

the defendants' counsel.

In attempting to secure vacatur of the

arbitral decision based on "evident

partiality," appellant carries a significant

burden. "It is well established that a mere

appearance of bias is insufficient to

demonstrate evident partiality. Arbitrators

are not held to the ethical standards

required of Article III judges... ."

Peoples Sec. Life Ins. Co. v. Monumental

Life Ins. Co., 991 F.2d 141, 146 (4th Cir.

1993) (citations omitted); seg also Health

Servs. Mgmt. Corp. v. Hughes, 975 F.2d 1253,

1264 (7th Cir. 1992). Accordingly,

appellant "must establish specific facts

that indicate improper motives on the part

of an arbitrator." Peoples Sec., 991 F.2d

at 146. Here, Remmey's evidence amounts to

nothing more than an after-the-fact attack

upon an arbitrator's informal manner.

Arbitrators are not strapped to a single

presiding style, any more than are judges.

Schwimmer's attempt t7 create a relaxed

atmosphere did not indicate a bias in favor

of either party. A review of the record

indicates that his style, although

colloquial, was consistent throughout the

proceedings. It was no more a sign of bias

for Schwimmer to teil Mr. Marks to "enjoy a

wedding" than it was for him to tell

appellant's step-daughter she was "with

friends." His humor--or attempts at

humor--were even directed at himself.* There

is no indication, however, that he took the

5 After one of appellant's witnesses

testified that people's dispositions change

as they grow cider, Schwimmer, who was then

88-years-old, quipped "Nothing personal

intended, I hope." Remmey makes much of

Schwimmer's age, referring to it several

times in her brief. At one point, she even

contends that the appointment of an

88-year-old arbitrator was violative of due

process. Despite these assertions, however,

a review of relevant portions of the

transcript shows that Schwimmer was on top

of the proceedings.

proceedings less than seriously: he devoted

five days to the introduction of evidence

and sustained objections from both parties

as to evidence and questions put forward by

the other.

Appellant's evidence regarding alleged

ex parte contacts is equally uncompelling.

Remmey points chiefly to a statement made by

Schwimmer regarding seating at the

proceedings. Apparently, the number of

people present in the motel hearing room led

to crowded conditions. At one point, during

cross-examination of plaintiff's expert

witness, plaintiff's counsel asked if he

could switch seats with defense counsel so

that plaintiff's expert and the opposing

attorney would not be so close to one

another. In refusing the request for a

seating change, Schwimmer commented that he

had talked with the defendants' counsel, who

"promised to be a good boy." Remmey's

contention that this statement evidences a

prejudicial ex parte conversation is

unconvincing for two reasons. First, given

Schwimmer's lighthearted style throughout

the proceedings, it is unclear whether

Schwimmer even had a conversation with

defense counsel, and Remmey has failed to

present any evidence that such a

conversation occurred. Second, assuming

that Schwimmer did engage in such a

conversation, appellant has failed to show

that any remarks regarding seating would

have prejudiced her case. Failure to make

such a showing bars vacatur of the arbitral

award because "the party seeking a vacation

of an award on the basis of ex parte conduct

must demonstrate that the conduct influenced

the outcome of the arbitration." M&A

Elec. Power Coop. v. Local Union No. 702,

Int'l Bhd. of Elec. Workers, 977 F.2d 1235,

1238 (8th Cir. 1992); see also Employers

Ins. of Wausau v. National Union Fire Ins.

Co. of Pittsburgh, 933 F.2d 1481, 1490-91

(9th Cir. 1991); Mutual Fire, Marine &

Inland Ins. Co. v. Norad Reinsurance Co.,

868 F.2d 52, 57 (3d Cir. 1989). Indeed, the

decision of who sits where during a

proceeding is a classic discretionary call

for a presiding officer. Remmey's attempt

to elevate this innocuous matter into a

basis for overturning the entire arbitral

result is indicative of a scatter-shot

attack on an adverse decision.

cS.

Appellant next claims that the award

must be vacated because the arbitrators

"manifestly disregarded" the law in

reaching their decision. See National

Wrecking, 990 F.2d at 961. She contends

that Marks' actions--including churning her

account and purchasing entirely unsuitable

investments--were so blatantly illegal that

the arbitrators must have ignored the law in

failing to grant her a favorable award.

In making a claim based on "manifest

disregard," an appellant once again

shoulders a heavy burden. We have

previously explained that an arbitration

panel's interpretation of the law will not

be reversed unless the "‘arbitrators

understand and correctly state the law, but

proceed to disregard the same.'" Upshur

Coals Corp. v. United Mine Workers of Am.,

Dist. 31, 933 F.2d 225, 229 (4th Cir. 1991)

(quoting San Martine Compania de Navegacion,

S.A. v. Saguenay Terminals Ltd., 293 F.2d

796, 801 (9th Cir. 1961)). Accordingly, a

court's belief that an arbitrator misapplied

the law will not justify vacation of an

arbitral award. Rather, appellant is

required to show that the arbitrators were

aware of the law, understood it correctly,

found it applicable to the case before them,

and yet chose to ignore it in propounding

their decision. See National Wrecking, 990

F.2d at 961; Folkways Music, 989 F.2d at

111-12.

Remmey can make no such showing here.

Over the course of five days, the panel

heard evidence regarding the investments

from both parties. Remmey argued to the

arbitrators that she was an elderly woman,

burdened with medical problems, and an easy

target for Marks' manipulation. She

contended that the investments purchased for

her account were illiquid and excessively

risky, and clearly conflicted with her goals

of stability and income flow. She

pacticularly stressed the inappropriateness

of buying real estate limited partnerships

for a woman of her age. Remmey further

argued that her account was overtraded, and

that proceeds from the sale of some

investments were used to purchase

substantially similar securities.

Defendants responded by presenting evidence

that the purchased investments were

well-suited to Remmey. The limited

partnerships, for example, met Remmey's

Stated goals because they had the potential

both to generate income and to realize

long-term appreciation. Defendants

contended that Marks discussed each purchase

with Remmey before it was made, and that

Remmey was a resolute businesswoman who kept

detailed ledgers of her investments and who

visited the PaineWebber office ona weekly

basis. Defendants presented further

evidence that the purchased partnerships

were well syndicated, that the annual

turnover rate in the account was far below

what courts have found indicative of

churning, and that some investments were

sold, not to purchase inappropriate

securities, but because they were starting

to generate a return of principal and,

therefore, a drop in Remmey's income.

Defendants also noted Marks' previously

unblemished record--in his 34 years in the

securities business, no one had brought a

customer complaint against him prior to this

action.

Thus, by the conclusion of the

hearings, the arbitrators had substantial

conflicting testimony which could support a

decision for either of the parties.

Appellant overlooks this fact and relies

exclusively on testimony favoring her claims

in concluding that the arbitrators ignored

the law. Remmey fails to recognize that the

arbitrators may well have chosen to credit

evidence presented by defendants that the

account was not churned, that the

investments were suitable, that Remmey's

liquidity was maintained, and that Remmey

was competent to assess her investments.

Given that the arbitrators were presented

evidence upon which such conclusions could

be based, we cannot simply assume that they

ignored the law in reaching their

conclusions.

Appellant's final challenges to the

arbitration award are that it is void

because it (1) violates public policy, and

(2) fails to constitute a "mutual, final,

and definite award" as required by 9 U.S.C.

§ 10(a) (4). Both of these arguments are

without merit.

Remmey's public policy argument is

again based on a one-dimensional view of the

evidence. Remmey argues that Marks' sale of

limited partnerships to her without

delivering current prospectuses was a

violation of criminal law, see 15 U.S.C. §

77e, and therefore that the award in favor

of Marks directly conflicts with a defined

statutory mandate. What appellant fails to

produce, however, is any evidence that the

arbitrators found a violation of the

securities laws. In a case such as this,

where the arbitrators were presented with

conflicting evidence on this point, there is

no reason to assume that they accepted

appellant's version of the facts. Rather,

the arbitral award reflects the conclusion

that Marks did not make the sales without

first delivering current prospectuses. The

arbitrators were free to reach this

conclusion, and having done so, their award

does not conflict with any established

public policy.

Remmey's § 10(a) (4) argument also

fails. The arbitral ruling states, quite

unambiguously, that "All Claims of the

Claimant, Louise Remmey, against

Respondents, PaineWebber, Inc. and Arnold

Marks, shall be and are hereby dismissed in

all respects." This statement of an

arbitral decision could hardly be more final

and definite. See Antwine v. Prudential

Bache Sec., Inc., 899 F.2d 410, 413 (Sth

Cir. 1990) (holding that a similar award

satisfied the "mutual, final and definite"

requirements). That the arbitrators’

accompanying "Case Summary" did not mention

all of Remmey's claims is of no moment here.

After all, the Supreme Court has held that

arbitrators need not state reasons for

reaching a particular result. See United

Steelworkers of Am. v. Enterprise Wheel &

Car Corp., 363 U.S. 593, 598 (1960).

Remmey's § 10(a) (4) argument appears to be

merely a final attempt to secure a second

shot at a recovery.

Iv.

There is no doubt that the arbitrators

in this case were presented with evidence

that could have supported an award in favor

of either of the parties. As a result, it

is entirely understandable that Remmey

would be disappointed with their conclusion.

It is not our function as a reviewing court,

however, to revisit the arguments and

evidence presented to the arbitrators.

Rather, our role is limited to determining

whether the arbitration process itself was

flawed. Here, evidence of such a flaw is

lacking, and therefore the arbitral result

may not be disturbed.

For the foregoing reasons, the judgment

of the district court denying appellant's

motion to vacate the arbitration award is

AFFIRMED.

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF NORTH CAROLINA

GREENSBORO DIVISION

LOUISE REMMEY,

Plaintiff,

v. : -2:90CV00551

PAINEWEBBER, INC.,

and ARNOLD MARKS,

I , Defendants.:

MEMORANDUM OPINION

ERWIN, Senior Judge

In this civil action which was filed on

October 29, 1990, plaintiff seeks recovery

from defendants Arnold Marks, an individual

stockbroker, and his employer, Painewebber,

for fraud under both federal and state laws,

breach of fiduciary duty, and negligence.

Before answering the complaint, counsel for

Painewebber presented plaintiff's counsel a

purported contract signed by Mrs. Louise

Remmey in 1984 agreeing to arbitrate any

controversies which might arise out of her

brokerage account with defendants. The

parties agreed to allow arbitration of the

dispute.

Accordingly, it was decided, in the

interest of allowing the matter to go

forward without the delay and added expense

of litigating the validity of the

arbitration agreement, that a stipulation

allowing arbitration would be signed.

Thereafter, in accordance with arbitration

procedure, plaintiff presented a statement

of claim, and defendants filed a response.

The Arbitrators

The contract signed by Mrs. Remmey

which provided for arbitration allowed her

to choose from arbitration panels provided

either by the New York Stock Exchange

(NYSE), the National Association of

Securities Dealers (NASD), or the Chicago

Board of Options Exchange (CBOE). The CBOE

was obviously inappropriate since options

were not involved. The NYSE indicated that

its arbitration sessions would be held in

Charlotte or in Raleigh. The administrator

for the NASD advised that arbitration

hearings, if the NASD was chosen, would be

held in Greensboro. Accordingly, plaintiff

chose the NASD.

The proposed panelists, whose names

were submitted by NASD, were H. Victor

Schwimmer, former administrative law judge

of New York City, Chairman; Stanley V.

Lewis, a former Deputy Securities

Commissioner from South Carolina, who

previously worked in the securities business

after completion of two years at Guilford

College; and Drew Waterbury, a person

currently employed in the securities

industry with a firm known as Quick and

Riley, location undisclosed.

By August 29, 1991, before the initial

arbitration hearings began on September 11,

1991, the parties were informed that Drew

Waterbury had withdrawn from the panel and

that Marshall H. Johnson, McDaniel Lewis &

Company, Greensboro, North Carolina, had

been substituted in his place. Plaintiff's

counsel was informed by telephone by the

NASD administrator, Ms. June Riley, that one

of Mr. Johnson's children worked as a broker

at Prudential Bache, the firm where Marks

was then employed. When plaintiff's counsel

expressed dissatisfaction with the panel, he

was told by Ms. Riley that unless this panel

was satisfactory, it would be necessary to

move the arbitration from Greensboro, since

she could not obtain arbitrators willing to

come to Greensboro. Ms. Riley reported

verbally that Arbitrator Johnson had

indicated that the presence of his family

members at Prudential Bache would not affect

-:g fairness at the hearing. Plaintiff does

not now contend that such relationship had

any bearing on the outcome of this case.

The Award

Plaintiff Louise Remmey, alleged that

defendant Arnold Marks (Marks), a broker at

Painewebber, Inc., churned her account which.

she opened at Painewebber at the beginning

of 1987. Plaintiff, a widow who is

eighty-six years old, further alleged that

she is of ill health and that defendants

were aware of her deteriorating mental and

physical capacities but nevertheless sold

most of her high-quality, high-yield

investments, frequently at a loss, and

purchased for her account illiquid,

speculative, and high risk investments such

as limited partnerships and equity and bond

funds that were unsuitable and not in

keeping with her investment objectives.

Plaintiff stated that a result of Marks'

conduct, she sustained great realized losses

from transactions in her account and that

Painewebber is liable for the activities of

its agent, Marks.

Defendants Painewebber, Inc. and Arnold

Marks denied the allegations contained in

the Statement of Claim and stated that they

are not liable to plaintiff for losses in

any amount. Defendants maintained that

plaintiff was a knowledgeable investor with

a desire to generate income and a hope to

realize long term appreciation in her

account and that Marks' handling of her

account was consistent with both objectives.

Defendants further maintained that upon a

full analysis of plaintiff's account, it

would be demonstrated that plaintiff

realized substantial profits.

After considering the pleadings, the

testimony, and the evidence presented at the

hearing, the undersigned arbitrators have

decided in full and final resolution of the

issues submitted for determination as

follows:

1. All claims of plaintiff Louise

Remmey against defendants Painewebber, Inc.

and Arnold Marks shall be and are hereby

dismissed in all respects.

2. The parties shall each bear their

own costs including attorneys' fees.

The plaintiff alleged in her complaint

that 9 U.S.C.A. § 10 (1947) has been

violated by defendants and that the award

entered by the arbitrators should be

vacated.

This court agrees with the rule of law

as stated by District Court Judge Hamilton

(now United States Circuit Judge) in

Atlantic Shores Resort v. Martin, 721 F.

Supp. 1279, 1282 (D.S.C. 1990). “Perhaps

most important, the burden of proof falls

squarely on the party moving to vacate the

arbitration award, see Andros Compania

Maritima v. Marc Ri & , .G., $79 ¥.3a4

691, 700 (2d Cir. 1978), who must "establish

substantially more than an erroneous

conclusion of law or fact."

Section 10 of the Act provides:

(a) Where the award was procured

by corruption, fraud, or undue means.

(b) Where there was evident

partiality or corruption in the

arbitrators, or either of them.

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

nisbehavior by which the rights of any

party have been prejudiced.

(d) Where the arbitrators

exceeded their powers, or so

imperfectly executed them that a

mutual, final, and definite award upon

the subject matter submitted was not

made.

(e) Where an award is vacated and

the time within which the agreement

required the award to be made has not

wep ee SS Oe

expired, the court may, in its

discretion, direct a rehearing by the

arbitrators.

The plaintiff contends that Arbitrator

Johnson's falsification of his sworn

application is misconduct and that the ex

parte contacts by Arbitrator Schwimmer with

defense counsel and/or defendant Marks was

sufficient to show prejudicial behavior.

These contentions arose prior to

arbitration. They were not settled. The

plaintiff brought them forward at the

arbitration proceedings. The plaintiff

attempted to gain additional information

with reference to the arbitrators, but such

was not received at the date the arbitration

began; but nevertheless, plaintiff proceeded

with the hearing.

The arbitrators' award as set out above

was summary in nature and without findings

of fact. However, the law in this event

concludes that any alleged bias on the part

of the arbitrators cannot be the bias for

vacating an award unless the interest or

bias is "direct, definite and capable of

demonstration rather than remote, uncertain,

Or speculative." ic 8 a Vv.

Martin, 731 F. Supp. at 1283. The evidence

does not suggest this standard. The

evidence does not support a violation under

Section 10 of the Act.

Standard of Review

The bases for review of

arbitration awards are enumerated in 9

U.S.C. § 10, gupra . . «. The statute

does not allow courts to roam unbridled

in their oversight of arbitral awards,

but carefully limits judicial

intervention to instances where the

arbitration has been tainted in certain

specific ways. In fine, section 10

authorizes vacatur of an award in cases

of specified misconduct or misbehavior

on the arbitrators' part, actions in

excess of arbitral powers, or failure

to consummate the award." See, Carte

os _btd. v, Carte

, 888 F.2d 260,

264-65 (2d Cir. 1989). The statute

contains no express ground upon which

an award can be overturned because it

rests on garden-variety factual or

legal bevues. To the precise contrary,

courts "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." United

Paperworkers Int'l Union v. Misco,

Inc., 484 U.S. 29, 38, 108 S.Ct. 364,

371, 98 L.Ed.2d 286 (1987). Even where

such error is painfully clear, "courts

are not authorized to reconsider the

merits of arbitration awards... ."

S.D. Warren Co. v. United Paperworkers '

Int'). Union, Local 1069, 845 F.2d 3, 7

(lst Cir.), cert. denied, 488 U.S. 992,

109 §.ct. $55, 102 L.Ed.2d 582 (1988).

Advest v. McCarthy, 914 F.2d 6, 8 (1st Cir.

1990).

The court notes that evidence was taken

over a course of four days. The evidence

presented by the parties conflicted; the

results being that the arbitrators could

find facts inconsistent with contentions

from either party.

As bad as the plaintiff contends her

case is and her desire to have.the award

vacated, the court must deny the same and

hold that the award was proper in all

respects. A Judgment will be rendered

contemporaneously herewith.

Richard C. Erwin

United States District Judge

December 14, 1992.

oo Bk ate

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF NORTH CAROLINA

GREENSBORO DIVISION

eh ee hee ie ee as

LOUISE REMMEY,

Plaintiff,

v. : 2:90CV00551

PAINEWEBBER, INC.,

and ARNOLD MARKS,

Defendants. : ;

PINAL JUDGMENT

The arbitration award appealed from by

the plaintiff -s hereby confirmed in all

respects and is hereby considered as the

Judgment of this court. Each party will pay

its own cost.

IT IS SO ORDERED.

Richard C. Erwin

United States District Judge

December 14, 1992

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF NORTH CAROLINA

GREENSBORO DIVISION

KATHRYN THOMAS (sic)

REMMEY and ERNEST

M. REMMEY, Executors

of the Estate of

LOUISE REMMEY,

deceased,

Plaintiffs,:

Vv. : 2:90CV00551

PAINEWEBBER, INC.,

and ARNOLD MARKS,

Defendants. :

SUBSTITUTE JUDGMENT

In this civil action which was filed on

October 29, 1990, Mrs. Louise Remmey seeks

recovery from defendants Arnold Marks, an

individual stockbroker, and his employer,

Painewebber, for fraud under both federal

and state laws, breach of fiduciary duty,

and negligence. Before answering the

complaint, counsel for Painewebber presented

Mrs. Remmey's counsel a purported contract

signed by her in 1984 agreeing to arbitrate

any controversies which might arise out of

her brokerage account with defendants. The

parties agreed to allow arbitration of the

dispute.

Accordingly, it was decided, in the

interest of allowing the matter to go

forward without the delay and added expense

of litigating the validity of the

arbitration agreement, that a stipulation

allowing arbitration would be signed.

Thereafter, in accordance with arbitration

procedure, Louise Remmey presented a

statement of claim, and defendants filed a

response.

The Arbitrators

The contract signed by Mrs. Remmey

which provided for arbitration allowed her

to choose from arbitration panels provided

either by the New York Stock Exchange

(NYSE), the National Association of

Securities Dealers (NASD), or the Chicago

Board of Options Exchange (CBOE). The CBOE

was obviously inappropriate since options

were not involved. The NYSE indicated that

its arbitration sessions would be held in

Charlotte or in Raleigh. The administrator

for the NASD advised that arbitration

hearings, if the NASD was chosen, would be

held in Greensboro. Accordingly, Mrs.

Remmey with counsel chose the NASD.

The proposed panelists, whose names

were submitted by NASD, were H. Victor

Schwimmer, former administrative law judge

of New York City, Chairman; Stanley V.

Lewis, a former Deputy Securities

Commissioner from South Carolina, who

previously worked in the securities business

after completion of two years at Guilford

College; and Drew Waterbury, a person

currently employed in the securities

industry with a firm known as Quick and

Riley, location undisclosed.

By August 29, 1991, before the initial

arbitration hearings began on September 11,

1991, the parties were informed that Drew

Waterbury had withdrawn from the panel and

that Marshall H. Johnson, McDaniel Lewis &

Company, Greensboro, North Carolina, had

been substituted in his place. Mrs.

Remmey's counsel was informed by telephone

by the NASD administrator, Ms. June Riley,

that one of Mr. Johnson's children worked as

a broker at Prudential Bache, the firm where

Marks was then employed. When Mrs. Remmey's

counsel expressed dissatisfaction with the

panel, he was told by Ms. Riley that unless

this panel was satisfactory, it would be

necessary to move the arbitration from

Greensboro, since she could not obtain

arbitrators willing to come to Greensboro.

Ms. Riley reported verbally that Arbitrator

Johnson had indicated that the presence of

OO EEE————————

eee ls Pe Paget pam ob ee Abbe

NC EAE VF

his family members at Prudential Bache would

not affect his fairness at the hearing. The

substitute plaintiffs do not now contend

that such relationship had any bearing on

the outcome of this case.

The Award

Mrs. Louise Remmey alleged that

defendant Arnold Marks (Marks), a broker at

Painewebber, Inc., churned her account which

she opened at Painewebber at the beginning

of 1987. Mrs. Louise Remmey, a widow who

was eighty-six years old at the time,

alleged that she was of ill health and that

defendants were aware of her deteriorating

mental and physical capacities but

nevertheless sold most of her high-quality,

high-yield investments, frequently at a

loss, and purchased for her account

illiquid, speculative, and high-risk

investments such as limited partnerships and

equity and bond funds that were unsuitable

and not in keeping with her investment

objectives. She stated that a result of

Marks' conduct, she sustained great realized

losses from transactions in her account and

that Painewebber is liable for the

activities of its agent, Marks.

Defendants Painewebber, Inc. and Arnold

Marks denied the allegations contained in

the Statement of Claim and stated that they

are not liable for losses in any amount.

Defendants maintained that Mrs. Remmey was a

knowledgeable investor with a desire to

generate income and a hope to realize long

term appreciation in her account and that

Marks' handling of her account was

consistent with both objectives. Defendants

further maintained that upon a full analysis

of Mrs. Remmey's account, it would be

demonstrated that she realized substantial

profits.

After considering the pleadings, the

testimony, and the evidence presented at the

hearing, the undersigned arbitrators have

ee etereeteerreeemintearmniannecianiiniiilitataatteia tiene aed

decided in full and final resolution of the

issues submitted for determination as

follows:

1. All claims of Louise Remmey against

defendants Painewebber, Inc. and Arnold

Marks shall be and are hereby dismissed in

all respects.

fl 2. The parties shall each bear their

own costs including attorneys' fees.

Louise Remmey alleged in her complaint

Pane i AN he ‘elise

that 9 U.S.C.A. § 10 (1947) has been

violated by defendants and that the award

entered by the arbitrators should be

vacated. :

This court agrees with the rule of law

as stated by District Court Judge Hamilton

(now United States Circuit Judge) in

Atlantic Shores Resort v. Martin, 731 F.

Supp. 1279, 1282 (D.S.C. 1990).

4 Perhaps most important, the burden of

3 proof falls squarely on the party

f moving to vacate the arbitration award,

see Andros Compania Maritima v. Marc

Rich & Co., A.G., 579 F.2d 691, 700 (2d

yi Sa a a

Cir. 1978), who must "establish

substantially more than an erroneous

conclusion of law or fact. Local Union

No. 251 v. Narragansett Improvement

Co,, $03 F.2d 309, 312 (lst Cir. 1974)

(emphasis added).

Section 10 of the Act provides:

(a) Where the award was procured

by corruption, fraud, or undue means.

(b) Where there was evident

partiality or corruption in the

arbitrators, or either of them (sic)

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 rights of any

party have been prejudiced.

(d) Where the arbitrators

exceeded their powers, or so

imperfectly executed them that a

mutual, final, and definite award upon

the subject matter submitted was not

made.

(e) Where an award is vacated and

the time within which the agreement

required the award to be made has not

expired, the court may, in its

discretion, direct a rehearing by the

arbitrators.

Louise Remmey contends that Arbitrator

Johnson's falsification of his sworn

MEAT AEE Me TER et MOEN NEES

application is misconduct and that the ex

parte contacts by Arbitrator Schwimmer with

defense counsel and/or defendant Marks was

sufficient to show prejudicial behavior.

These contentions arose during arbitration.

They were not settled. Louise Remmey

brought them forward at the arbitration

proceedings and attempted to gain additional

information with reference to the

arbitrators, but such was not received at

the date the arbitration began; but

nevertheless, she proceeded with the

hearing.

The arbitrators' award as set out above

was summary in nature and without findings

of fact. However, the law in this event

concludes that any alleged bias on the part

of the arbitrators cannot be the basis for

vacating an award unless the interest or

bias is "direct, definite and capable of

demonstration rather than remote, uncertain,

or speculative." Atlantic Shores-Resort v.

Martin, 731 F. Supp. at 1283. The evidence

does not suggest this standard, neither does

it support a violation under Section 10 of

the Act.

Standard of Review

The bases for review of

arbitration awards are enumerated in 9

U.S.C. § 10, supra . . « The statute

does not allow courts to roam unbridled

in their oversight of arbitral awards,

but carefully limits judicial

intervention to instances where the

arbitration has been tainted in certain

specific ways. In fine, section 10

authorizes vacatur of an award in cases

of specified misconduct or misbehavior

on the arbitrators' part, actions in

excess of arbitral powers, or failure

to consummate the award. See Carte

Blanche (Singapore) Pte. Ltd. v. Carte

, 888 F. 2d 260,

264-65 (2d Cir. 1989). The statute

contains no express ground upon which

an award can be overturned because it

rests on garden-variety factual or

legal bevues. To the precise contrary,

courts "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." United

Inc., 484 U.S. 29, 38, 108 S.Ct. 364,

371, 98 L.Ed.2d 286 (1987). Even where

such error is painfully clear, "courts

are not authorized to reconsider the

merits of arbitration awards ... ."

S.D. Warren Co. v. United Paperworkers’

Int']. Union, Local 1069, 845 F.2d 3, 7

(lst Cir.), cert. denied, 488 U.S. 992,

109 S.Ct. 555, 102 L.Ed.2d 582 (1988).

(Footnote omitted.)

2 Advest v. McCarthy, 914 F.2d 6, 8 (lst Cir.

1990).

The court notes that evidence was taken

over a course of four days. The evidence

presented by the parties conflicted; the

results being that the arbitrators could

find facts inconsistent with contentions

from either party.

As bad as Mrs. Remmey contends her case

is and her desire to have the award vacated,

the court must deny the same and hold that

¢ the award was proper in all respects.

Richard C. Erwin

United States District Judge

July 15, 1993

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF NORTH CAROLINA

GREENSBORO DIVISION

KATHRYN THOMAS (sic)

REMMEY and ERNEST

M. REMMEY, Executors

of the Estate of

LOUISE REMMEY,

deceased,

Plaintiffs, :

¥. : 2:90CV00551

PAINEWEBBER, INC.,

and ARNOLD MARKS,

Defendants.:

This case is before the court on motion

of plaintiffs which reads: "Plaintiff,

pursuant to Federal Rules of Civil Procedure

52(b) and 59, moves the Court to amend its

findings and make additional findings and to

amend the judgment in the above case

accordingly." The court finds that the

motion was timely filed.

The court is of the opinion that part

of the motion relating to the last paragraph

: of page 5 of the court's memorandum opinion

could be written clearer than it now stands.

Therefore, a new page 5 of December 14, 1992

will be substituted in the substitute

judgment in this case.

All other contentions of the plaintiffs

in the above-described motion have been

reviewed by the court, and the court has

found all those contentions to be without

merit. The court notes that the plaintiffs .

do not contend that such alleged new

' affidavits of the plaintiffs will be

| sufficient to change the judgment heretofore

entered. It does appear that the plaintiffs

have added a second occasion to argue their

original contentions. The court realized

that the events contained in this case are

difficult for the court; but, nevertheless,

the case law and the statute require this

result.

IT IS THEREFORE ORDERED that all other

contentions of plaintiffs are DENIED as

being without merit.

Richard C. Erwin

United States District Judge

July 15, 1993.

N.A.S.D. AWARD

NATIONAL ASSOCIATION OF SECURITIES DEALERS

-~-—-—“<—<—“—— <<< << ee woeoennnennwnennennen ewww wr Hr wr wr wr Or wr wr wr wr wr wr wr eK

In the Matter of the Arbitration Between

Name _ of Claimant (s)

Louise Remmey

91-00567

Name of Respondent (s)

PaineWebber, Inc.

Arnold Marks

For Claimant: David M. Clark, Esq. of Clark

Wharton & Berry.

For Respondents: Gary J. Stegeland, Esq.,

in-house Counsel for PaineWebber, Inc.

NF TION

Statement of Claim filed: February 21,

i991.

Claimant's Submission agreement signed on:

January 17, 1991.

Joint Statement of Answer of Respondents

filed on: April 18, 1991.

Respondent, PaineWebber, Inc.'s Submission

Agreement signed on: April 8, 1991.

Respondent, Arnold S. Marks' Submission

Agreement signed on: April 8, 1991.

HEARING INFORMATION

Hearing Date/Sessions:

September 11, 1991-Two (2) Sessions.

September 12, 1991-Two (2) Sessions.

December 4, 1991-Two (2) Sessions.

December 5, 1991-Two (2) Sessions.

December 6, 1991-Two (2) Sessions.

Total number of hearing sessions - Ten (10)

Sessions.

Hearing Location: Greensboro, NC.

CASE SUMMARY

Claimant, Louise Remmey, alleged that

Respondent, Arnold Marks (Marks), a broker

at PaineWebber, Inc. (PaineWebber) churned

her account which she opened at PaineWebber

at the beginning of 1987. Claimant, a widow

who is 86 years old, further alleged that

she is of ill health and that Respondents

were aware of her deteriorating mental and

physical capacities but nevertheless sold

most of her high-quality, high-yield

investments, frequently at a loss, and

purchased for her account illiquid,

speculative and high risk investments such

as limited partnerships and equity and bond

funds that were unsuitable and not in

keeping with her investment objectives.

Claimant stated that as a result of Marks'

conduct, she sustained great realized losses

from transactions in her account and that

PaineWebber is liable for the activities of

its agent, Marks.

Respondents, PaineWebber, Inc. and

Arnold Marks, denied the allegations

contained in the Statement of Claim and

stated that they are not liable to Claimant

for losses in any amount. Respondents

maintained that Claimant was a knowledgeable

investor with a desire to generate income

and a hope to realize long term appreciation

in her account and that Marks' handling of

her account was consistent with both

objectives. Respondents further maintained

that upon a full analysis of Claimants (sic)

account it would be demonstrated that

Claimant realized substantial profits.

RELIEF REQUESTED

Claimant requested monetary damages of

$692,519.00 or in the alternative

$481,030.00 and rescission of the limited

partnership acquisitions with Respondent,

PaineWebber, Inc. taking back the limited

partnership acquisitions. Claimant also

requested an award of punitive damages.

Respondents requested that the

Statement of Claim be dismissed and that the

cost of these proceedings, including

attorneys' fees be assessed against Claimant

or the party responsible for instituting

this suit.

OTHER ISSUES CONSIDERED & DECIDED

The parties have agreed that the Award

in this matter may be executed in

counterpart copies or that a handwritten,

signed Award may be entered. In either

case, the parties have agreed to receive

conformed copies of the Award while the

Originals remain on file with the NASD.

AWARD

After considering the pleadings, the

testimony and the evidence presented at the

hearing, the undersigned arbitrators have

decided in full and final resolution of the

issues submitted for determination as

follows:

1. All Claims of the Claimant, Louise

Remmey, against Respondents, PaineWebber,

Inc. and Arnold Marks, shall be and are

hereby dismissed in all respects;

2. The parties shall each bear their

own costs including attorneys' fees.

FORUM FEES

Pursuant to Section 43c of the Code of

Arbitration Procedure, the NASD, Inc. shall

retain the $250.00 non-refundable filing fee

previously deposited by the Claimant and the’

following Forum Fees are assessed:

10 Sessions x $1,000.00 = $10,000.00

Forum Fees assessed against:

1- Claimant, in the amount of

$5,000.00; however, the NASD, Inc. shall

retain the $1,000.00 hearing session deposit

previously deposited by Claimant to offset

this fee, thereby the amount due and owing

by Claimant equals $4,000.00.

2- Respondent, PaineWebber, Inc., in

the amount of $5,000.00.

Fees are payable to the National

Association of Securities Dealers, Inc.

ARBITRATION PANEL

H. Victor Schwimmer, Esq. Public/Chairman

Stanley V. Lewis Public/Panelist

Marshall H. Johnson Industry/Panelist

Date of Decision: January 17, 1992

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

Filed September 13, 1994

No. 93-2059

CA-90-551-2

KATHRYN THOMPSON REMMEY, Executrix for the

Estate of Louise Remmey; ERNEST M. REMMEY,

Executor for the Estate of Louise Remmey

Plaintiffs - Appellants

Vv.

PAINEWEBBER, INCORPORATED; ARNOLD MARKS

Defendants - Appellees

~<-—-—#8 <- e ee we woeenunnenn

On Petition for Rehearing With

Suggestion for Rehearing In Banc

~<--<_<_s eeeneneaeneaeae

The appellants petition for rehearing

and suggestion for rehearing in banc were

submitted to this Court. As no member of

this Court or the panel requested a poll on

the suggestion for rehearing in banc, and

As the panel considered the petition

for rehearing and is of the opinion that it

should be denied,

IT IS ORDERED that the petition for

rehearing and suggestion for rehearing in

banc are denied.

For the Court,

/3/ Bert M. Montague

CLERK

CONSTITUTION OF THE UNITED STATES

AMENDMENT V

No person shall be .. . deprived of

life, liberty, or property, without due

process of law

9 U.S.C. § 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, 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

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.

NASD Manual--Code of Arbitration Procedure

Sec. 19. Designation of Number of

Arbitrators (b) In arbitration matters

involving public customers and where the

amount in controversy exceeds $30,000, or

where the matter in controversy does not

involve or disclose a money claim, the

Director of Arbitration shall appoint an

arbitration panel which consists of no fewer

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

arbitrators, at least a majority of whom

shall not be from the securities industry,

unless the public customer requests a panel

consisting of at least a majority from the

securities industry.

being from the securities industry if he or

she:

(1) is a person associated with

a member or other broker/dealer,

municipal securities dealer, government

securities broker, or government

securities dealer, or

(2) has been associated with any

of the above within the past three (3)

years, or

(3) is retired (that is,

continues to receive compensation,

other than social security or

self-funded benefits) from any of the

above, or

(4) has a spouse or other member

of the household who is a person

associated with any of the above, or

(S) is an attorney, accountant,

Or other professional who has devoted

Cwenty (20) percent or more of his or

her professional work effort to

securities industry clients within the

last two years.

(dq) An arbitrator who is not from the

securities industry shall be deemed a public

arbitrator.

NASD Manual--Code of Arbitration Procedure

Sec. 21. Notice of Selection of Arbitrators

The Director of Arbitration shall

inform the parties of the arbitrators' names

and employment histories for the past ten

(10) years, as well as information disclosed

pursuant to Section 23, at least eight (8)

business days prior to the date fixed for

the first hearing session. A party may make

further inquiry of the Director of

Arbitration concerning an arbitrator's

background. In the event that prior to the

first hearing session, any arbitrator should

become disqualified, resign, die, refuse or

otherwise be unable to perform as an

arbitrator, the Director of Arbitration

shall appoint a replacement arbitrator to

fill the vacancy on the panel. The Director

of Arbitration shall inform the parties as

soon as possible of the name and employment

history of the replacement arbitrator for

the past ten years, as well as information

disclosed pursuant to Section 23. A party

may make further inquiry of the Director of

Arbitration concerning the replacement

arbitrator's background and within the time

remaining prior to the first hearing session

or the five (5S) day period provided under

Section 22, whichever is shorter, may

exercise its right to challenge the

replacement arbitrator as provided in

Section 22.

NASD Manual--Code of Arbitration Procedure

Sec. 22. Peremptory Challenge

In any arbitration proceeding, each

party shall have the right to one peremptory

challenge. In arbitrations where there are

multiple Claimants, Respondents and/or

Third-Party Respondents, the Claimants shall

have one peremptory Challenge, the

Respondents shall have one peremptory

challenge and the Third-Party Respondents

shall have one peremptory challenge, unless

the Director of Arbitration determines that

the interest of justice would best be served

by awarding additional peremptory

challenges. Unless extended by the Director

of Arbitration, a party wishing to exercise

a peremptory challenge must do so by

notifying the Director of Arbitration in

writing within five (5) business days of

notification of the identity of the persons

named to the panel. There shall be

unlimited challenges for cause.

NASD Manual--Code of Arbitration Procedure

Sec. 23. Disclosures Required of Arbitrators

(a) Each arbitrator shall be required

to disclose to the Director of Arbitration

any circumstances which might preclude such

arbitrator from rendering an objective and

impartial determination. Each arbitrator

shall disclose:

(1) Any direct or indirect

financial or personal interest in the

outcome of the arbitration;

(2) Any existing or past

financial, business, professional,

family, or social relationships that

are likely to affect impartiality or

might reasonably create an appearance

of partiality or bias. Persons

requested to serve as arbitrators

should disclose any such relationships

that they personally have with any

party or its counsel, or with any

individual whom they have been told

will be a witness. They should also

disclose any such relationship

involving members of their families or

their current employers, partners, or

business associates.

(6) Persons who are requested to

accept appointment as arbitrators should

make a reasonable effort to inform

themselves of any interests or relationships

described in Paragraph (a) above.

interests, relationships, or circumstances

that might preclude an arbitrator from

rendering an objective and impartial

determination described in subsection (a)

hereof is a continuing duty that requires a

person who accepts appointment as an

arbitrator to disclose, at any stage of the

arbitration, any such interests,

relationships, or circumstances that arise,

or are recalled or discovered.

(d) Prior to the commencement of the

first hearing session, the Director of

Arbitration may remove an arbitrator based

on information disclosed pursuant to this

section. The Director of Arbitration shall

also inform the parties of any information

disclosed pursuant to this Section if the

arbitrator who disclosed the information is

not removed.

NASD Manual--Rules of Fair Practice

ARTICLE III

Sec. 1. Business Conduct of Members

A member, in the conduct of his

business, shall observe high standards of

commercial honor and just and equitable

principles of trade.

Sec. 2. Recommendations to Customers.

In recommending to a customer the

purchase, sale or exchange of any security,

a member shall have reasonable grounds for

believing that the recommendation is

Suitable for such customer upon the basis of

the facts, if any, disclosed by such

customer as to his other security holdings

and as to his financial situation and needs.

NASD Manual--Rules of Fair Practice

APPENDIX F

Sec. 3. Suitability

(a) A member or person associated with

a member shall not underwrite or participate

in a public offering of a direct

participation program unless standards of

suitability have been established by the

program for participants therein and such

standards are fully disclosed in the

prospectus and are consistent with the

provisicns of subsection (b) of this

section.

(b) In recommending to a participant

the purchase, sale or exchange of an

interest in a direct participation program,

a member or person associated with a member

shall:

(1) have reasonable grounds to

believe, on the basis of information

obtained from the participant

concerning his investment objectives,

other investments, financial situation

and needs, and any other information

known by the member or associated

person, that:

(i) the participant is or

will be in a financial position

appropriate to enable him to —

realize to a significant extent

the benefits described in the

prospectus, including the tax

benefits where they are a

Significant aspect of the program;

(ii) the participant has a

fair market net worth sufficient

to sustain the risks inherent in

the program, including loss of

investment and lack of liquidity;

and

(iii) the program is

otherwise suitable for the

participant; and

(2) maintain in the files of the

member documents disclosing the basis

upon which the determination of

suitability was reached as to each

participant.

LETTER FROM DAVID M. CLARK

August 7, 1991

FAX NO. 212-858-4389

Ms. June Riley

Arbitration Administrator

National Association of Securities Dealers,

Inc.

33 Whitehall Street

Eighth Floor

New York, New York 10004

Re: Louise Remmey v. PaineWebber

Incorporated and Arnold Marks

NASD Case # 91-00567

Dear Ms. Riley:

This is further with regard to my

request for information about the

arbitrators. As you know, the only

information so far presented to us is that

contained on the so-called arbitrator

disclosure sheets, copies of which are

attached hereto, and really provide no

information. As you know, by letters of

July 26 and July 29, 1991, I requested

certain additional information.

I now understand that the NASD

maintains files on each of the arbitrators.

I should like to see the contents of the

files on each of the arbitrators named in

this case. If there is certain information

in those files which the NASD feels would be

inappropriate to disclose, this information

can be redacted, with a statement as to what

type of information is being redacted.

Otherwise, I see no reason we should not

have access to any information available.

For example, and without limitation, I

understand that the arbitrators have each

filed applications for appointment as

arbitrators. I would like to see those

applications.

You have certainly been most

cooperative and helpful throughout this

matter, and I appreciate it.

Sincerely yours,

David M. Clark

mtb

cc: Ms. Debbie Mussuci (via fax)

Mrs. Kaye Grove

LETTER FROM DAVID M. CLARK

August 21, 1991

FAX NO. 212-858-4389

Ms. June Riley, Arbitration Administrator

National Association of Securities Dealers,

Inc.

33 Whitehall Street, Eighth Floor

New York, New York 10004

Re: Louise Remmey v. PaineWebbber

Incorporated et al

NASD Case # 91-00567

Dear Ms. Riley:

I received today your fax of 19:48

hours on August 19, 1991. The letter you

faxed bore a date of August 8, 1991, but I

have not received it. Perhaps in the future

if you will use our post office box, No.

1349, the regular mail will be delivered

more efficiently. I also received by fax

today your indication that the above matter

has teen rescheduled for September 11, 1991,

at Greensboro. You have not indicated where

in Greensboro the hearing will be held.

Respectfully, I do not believe the

information you have provided as to the

arbitrators, Mr. Schwimmer and Mr. Lewis,

meets our requests for information as set

forth in my previous correspondence. I

would appreciate your calling me to discuss

the additional information we requested at

your earliest convenience. Also, please

refer to the second paragraph in my letter

of August 7, 1991.

Obviously, we cannot make a choice as

to any peremptory challenges with regard to

this panel, if any, until the third

arbitrator is appointed.

Thank you for your cooperation.

Yours very truly,

David M. Clark

mtb

cc: Ms. Debbie Mussuci (via fax)

Mrs. Kaye Grove

LETTER FROM DAVID M. CLARK

August 27, 1991

FAX NO. 212-858-4389

Ms. June Riley, Arbitration Administrator

National Association of Securities Dealers,

Inc.

33 Whitehall Street, Eighth Floor

New York, New York 10004

Re: Louise Remmey v. PaineWebber

Incorporated et al

NASD Case # 91-00567

Dear Ms. Riley:

Arbitration in the above case is

scheduled to begin on September 11, 1991. I

received yesterday for the first time many

documents produced by PaineWebber. Even

now, I have not received all the documents

to which we are entitled. Obviously, this

puts us at a considerable disadvantage so

far as being prepared is concerned, but I am

continuing to make a good faith effort to

meet the schedule if it can be done

consistent with the interest of our client.

I would remind you that there stil] has

not been appointed a third arbitrator for

this case. Obviously, I cannot know which

arbitrators to excuse peremptorily or object

to without knowing the full panel. Nor can

I ask an arbitrator to settle any discovery

disputes until I know which arbitrators will

be serving.

This is not your Ordinary arbitration.

It involves in excess of $500,000. I would

ask that you give the matter priority.

I would ask for the third time that you

provide for us the information in your

files, including the arbitrator's

applications, regarding the arbitrators and

their background, together with the other

information requested by our earlier

letters. Anything less will deprive us of

due process. Please respond to this request

one way or the other.

Yours very truly,

David M. Clark

mtb

cc: Ms. Debbie Mussuci (via fax)

Garry J. Stegeland (via fax)

Mrs. Kaye Grove

‘ NASD MEMORANDUM

TO: NASD Arbitrator

FROM: Deborah Masucci,

Director of Arbitration

RE: Arbitrator Profile Update

DATE: Marcn 26, 1990

I would like to take this opportunity to

thank you for participating in the

Association's arbitration program. The

success of the program depends in large

measure upon the professionalism you bring

to the arbitration forum.

In June 1987, the Supreme Court of the

United States had occasion to review the

issue of enforcement of arbitration

agreements in the Shearson Lehman/American

Express, Inc. vs. McMahon case. The Court,

in substance, ruled that there is a federal

policy favoring arbitration and that the

policy requires courts to rigorously enforce

arbitration agreements. Their Opinion was

based on an underlying belief that

arbitration 2 (sic) forums provide a fair,

just, and prompt resolution of securities

disputes.

There was, however, skepticism from both the

Court and the Securities and Exchange

Commission ("SEC") regarding the perception

of fairness in having certain individuals

with industry ties classified as public

arbitrators. This skepticism was detailed

by the SEC in a letter to the NASD and other

self-regulatory organizations recommending

certain categories to be excluded from the

pool of public arbitrators. After thorough

consideration and debate by the National

Arbitration Committee, the NASD amended its

Code of Arbitration Procedure in response to

the SEC's request. On May 10, 1989, the SEC

approved these amendments which exclude the

following categories of individuals from

serving as a public arbitrator.

a. A person associated with a member

or other broker/dealer, municipal

securities dealer, government

securities broker/dealer, or;

b. A person who has been associated

with any of the above within the

past three (3) years, or;

Ci A person who is retired from any

of the above, or;

d. An attorney, accountant, or other

professional who has devoted

twenty (20) percent or more of his

Or her individual professional

work effort to securities industry

clients within the last two years

(this does not carry over to other

members of the firm who do not

have such substantial contacts) ;

(sic) although it must be

disclosed) ;

e. A spouse or other household member

of a person who is associated with

a member or other broker/dealer,

municipal securities dealer,

government securities broker/

dealer, or;

e. An employee of a bank or Other

firm (i.e., Sears Roebuck and

Prudential Insurance Company) to

the extent that their personal

employment involvement is with

securities activities.

We are developing an updated computer

software system to better handle the

processing of NASD arbitrations. The new

database requires some additional

information from our arbitrators. The

additional information which will assist us

in classifying arbitrators as securities or

public arbitrators in accordance with the

provisions of the new rules. (sic)

It is likely that a number of individuals

now serving as public arbitrators will be

reclassified as securities arbitrators or be

removed from the national pool. In order to

accurately make this determination, we ask

that you fill cut the enclosed questionnaire

and return it to the address below.

Arbitrators should make a reasonable effort

to inform themselves of any interests or

relationships described above. In addition,

the obligation to disclose interests or

relationships is a continuing duty, and the

NASD Arbitration Department should be

informed as changes occur.

Please complete the attached questionnaire

and return it to the following address on or

before ( ): (sic)

(REGIONAL OFFICE CONTACT AND ADDRESS)

If you have any questions, please feel free

to contact (NAME OF CONTACT) at (REGIONAL

OFFICE PHONE NUMBER). Thank you for your

assistance in this effort.

DM:bb:js

Enclosure

STANLEY V. LEWIS

5307 LAKESHORE DR.

COLUMBIA, SC 29206

803-787-1820

CURRICULUM VITAE

Retired Deputy Securities Commissioner

State of South Carolina (1973-1989)

Chief Examiner, South Carolina Securities

Commission (1970-1973)

Broker, G.H. Crawford Co., Columbia

South Carolina (1965-1970)

Qualified as expert witness in South

Carolina Courts

Testified in numerous cases in State and

Federal Courts and arbitration proceedings

in South Carolina, North Carolina and

Georgia.

Have taught Securities Law and Limited

Partnerships at CLE and Bar Association

classes. Lecturer at the Universities of

North and South Carolina Law Schools.

Lecturer at the Universidad de Valle, and

Javeriana University, in Cali, Columbia SA

Panelist in various SEC, NASD and North

American Securities Administrators

Association panels concerning Arbitration

and Broker Dealer and Investment Advisor

problems.

Enrolled as an arbitrator, on the

arbitration panels of the NASD, American

Arbitration Association, the New York Stock

Exchange, the American Stock Exchange and

the National Futures Association.

Assisted in design and implementation and

enhancement of nation-wide computerized

Central Registration Depository (CRD)

securities agent and broker-dealer licensing

system.

Former member of Board of Directors of The

North American Securities Administrators

Association.

Served as Parliamentarian for NASAA business

meetings.

Served as Chairman of Non-Profit Issuer

Committee.

Served as Chairman of Theatrical Issuer

Committee.

Former member of Oil and Gas Committee.

Member of Central Registration Depository

Committee.

Born: Portsmouth, Ohio August 2, 1919

Married, no children

Attended private elementary and high

schools, Portsmouth, Ohio

Attended Guilford College, Greensboro, NC

and University of South Carolina.

(handwritten:] Input 8/29/91

NASD

April 15, 1992

(Faxed)

DAVID CLARK

125 SOUTH ELM ST.

GREENSBUROUGH (sic), NC 27402

PUBLIC DISCLOSURE PROGRAM

RESPONSE TO REQUEST FOR INFORMATION

The Board of Governors of the National

Association of Securities Dealers, Inc.

(NASD) has adopted a public disclosure

policy which permits certain types of

disciplinary information on NASD member

firms and associated persons to be available

to the general public. Section 15A(i) of

the Securities Exchange Act of 1934, as

amended, requires registered securities

associations to respond to inquiries

regarding disciplinary actions involving its

members and their associated persons. The

NASD believes that the general public should

have access to information which will help

them in their determination whether to

conduct or continue to conduct business with

an NASD member or any of the member's

associated persons. In that regard,

enclosed please find the information you

have requested.

The NASD disciosure policy provides for the

release of final disciplinary action(s), if

any, taken by self-regulatory organizations

or federal or state securities agencies that

relate to securities or commodities

transactions; and also includes criminal

convictions, if any, reported to the NASD

and required to be disclosed on uniform

forms filed by NASD member firms or

associated persons.

A list of the terms and conditions of the

NASD Public Disclosure Program is printed on

the reverse of this document.

MEMBER PERSON: JOHNSON (SR), MARSHALL HARDY

CRD NUMBER: 259892

PaineWebber

Full Account Title Louise D. Remmey

Branch GK

Account Number 00602

Broker 39

Arbitration 15. Any controversy between us

arising out of or relating to this contract

or the breach thereof, shall be settled by

arbitration, in accordance with the rules,

then obtaining, of either the Arbitration

Committee of the New York Stock Exchange,

American Stock Exchange, National

Association of Securities Dealers or where

appropriate, Chicago Board Option Exchange

or Commodities Futures Trading Commission,

as I may elect. I authorize you if I do not

make such election, by registered mail

addressed to you at your main office within

fifteen (15) days after receipt of

notification from you requesting such an

election, to make such election in my

behalf. Any arbitration hereunder shall be

before at least three arbitrators and the

award of the arbitrators, or of a majority

of them, shall be final, and judgment upon

the award rendered may be entered in any

court, state or federal, having

jurisdiction.

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.