# Opposition Brief — Remmey v. PaineWebber, Inc.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1995
- **Citation:** 513 U.S. 1112

## Text

No. 94-916

In The

OFFICE OF TRE SiaRK

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,
Vv.
PAINEWEBBER INCORPORATED
and ARNOLD MARKS,

Respondents.

Petition For Writ of Certiorari
To The United States Court Of Appeals
For The Fourth Circuit

BRIEF IN OPPOSITION

MACK SPERLING*
BROOKS, PIERCE, McLENDON,

HUMPHREY & LEONARD, L.L.P.

Suite 2000 Renaissance Plaza

230 North Elm Street (27401)

Post Office Box 26000
Greensboro, North Carolina 27420
Telephone: 910/271-3125

Attorney for Respondents
*Counsel of Record

TABLE OF CONTENTS

Page
Res OF Gs PE sce bee eaineds ii
STATEMENT OF THE CASE AND FACTS ....... 2
REASONS FOR DENYING CERTIORARI ........ +
I. The Petition Is Premised On The Unfounded
Argument That Arbitration Awards Are To Be
Closely Scrutinized By The Federal Courts .... 4
Il. Petitioners Did Not Meet The High Standard,
Which Prevails Uniformly Throughout The
Circuits, Necessary To Establish “Evident
Partiality” In THe Award . ic wee ees 7
A. “Evident Partiality” Is Established By
An Arbitrator’s Financial Interest In
The Arbitration Or A Relationship
With One Of The Parties ........... 8
B. The Minor Disciplinary History Of
Arbitrator Johnson Is Not “Evident
REO ARS ee ere 9
Ill. The Complaint That Arbitrators Lewis And
Schwimmer Were Not Properly Qualified To
Be Arbitrators Is Without Merit........... 13

CRM Ce Shea ees C6 ES Swe oka. 15

TABLE OF AUTHORITIES

Page
CASES
Affiliated Ute Citizens v. United States,

ee of POR ee aw re wa 7
Apperson v. Fleet Carrier Corp.,

879 F.2d 1344 (6th Cir. 1989); ;

cert. denied 493 U.S. 809 (1980 ......... 7,9
Atlantic Shores Resort Joint Venture v. Martin,

731 F. Supp. 1279 (D.S.C. 1990) ........ 11
Burchell v. Marsh, 58 U.S. 344 (1855) ........... 5
Commonwealth Coatings Corp. v. Continental

Casualty Co., 393 U.S. 145 (1968) ..... 8, 15
Herrin v. Milton M. Stewart, Inc. , 558 So.2d 863

GE Te 6 kk ERENCE ea 9
Merit Insurance Co. v. Leatherby Insurance Co. ,

714 F.2d 673 (7th Cir.),

cert. denied, 464 U.S. 1009 (1983) ........ 7
Middlesex Mutual Insurance Co. v. Levine,

675 F.2d 1197 (1ith Cir. 1982)........... 7

Morelite Const. Corp. v. New York City
District Council Carpenters Benefit Fund,
748 F.26 79 (24 Cis. 1964) 2. cece wee 7

TABLE OF AUTHORITIES - Continued
Page
Peoples Security Life Insurance Co. v. Monumental
Life Insurance Co., 991 F.2d 141
CG SUE Ss hd och obo bo oe aes 8, 11

Remmey v. PaineWebber, Inc. , 32 F.3d 143
NR Eh. hu ng gos ok, 4 os ees wn 1

Richmond, Fredericksburg & Potomac R.R. Co. v.
Transportation Communications International
Union, 973 F.2d 276 (4th Cir. 1992) ........ 5

Ruffin Woody and Associates, Inc. v. Person County,
92 N.C. App. 129, 374 S.E.2d 165 (1988)
rev. denied, 324 N.C. 337,
ER Bo, rn rr 11

Sanford Home for Adults v. International Federation
of Health Professionals, 665 F. Supp. 312
li win eth he o 9&0, 0 0 0 9

Shearson/American Express v. McMahon,
Oe Bea REE: WO ib oe Pdi views ec eee 4

Toyota of Berkeley v. Automobile Salesmen's Union,
834 F.2d 751 (9th Cir. 1987),
cert. denied, 486 U.S. 1043 (1988) ......... 7

U.S. Bulk Carriers, Inc. v. Arguelles,
ER SE BE fi Gre ow kan 0 ne Wad 0 eo 5

Union Pacific R.R. Co. v. Sheehan,
8 Eo ee er eee 5

iV

TABLE OF AUTHORITIES - Continued

STATUTES

P LEE ob 884 Oe ER eee 2

F Utes GO 6 a be se oy a Wed bee eee 5,6

No. 94-916

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

v.
PAINEWEBBER INCORPORATED
and ARNOLD MARKS,
Respondents.

Petition For Writ of Certiorari
To The United States Court Of Appeals
For The Fourth Circuit

BRIEF IN OPPOSITION TO THE
PETITION FOR WRIT OF CERTIORARI

Respondents PaineWebber Incorporated and Arnold
Marks respectfully submit that a Writ of Certiorari to review
the opinion of the United States Court of Appeals for the
Fourth Circuit in Remmey vy. PaineWebber Inc. , 32 F.3d 143
(4th Cir. 1994), is unnecessary and should not issue for the
reasons set forth below.

STATEMENT OF THE CASE AND FACTS

The issues raised by this Petition concern the integrity
of the three member arbitration panel which heard and
rejected Petitioners’ claims. Petitioners assert that each panel
member was biased or unqualified to serve as an arbitrator
and the award should be vacated under the Federal
Arbitration Act, 9 U.S.C.§1 ef seq.

There are no novel questions here, no new rule of law
and no change in existing law advocated by the Petitioners.
They say only that the courts below did not properly apply
settled law to the facts now before this High Court. Two
courts have already reviewed the facts and considered the
law, however, and the four judges of those two courts have
been in unanimity that there is no basis for disturbing the
decision of the arbitrators. The Petition for Certiorari should
be denied.

The facts in this securities arbitration, which was
conducted under the auspices of the National Association of
Securities Dealers (the “NASD”), were hotly contested.
They were presented in ten hearing sessions over a period of
five days. Petitioners contended that their decedent (Louise
Remmey) was incompetent at the time that she made
investments with the Respondents in certain real estate limited
partnerships. There was substantial countervailing evidence
presented by the Respondents as to the competence of the
decedent and her intentions in making these investments.
Mrs. Remmey was described by her own family as “strong

3

willed” and “independent”. (JA138).' Her friends described
her as a “businesswoman” and “completely lucid”. (JA160).
Her personal physician testified that she was competent to
conduct her financial affairs. (T27 [S7-8]). She followed her
investments closely, and she personally came to the brokerage
firm office once a week. (JA124). She maintained detailed
ledgers of her investments. (JA127, 141). The limited
partnerships in which she decided to invest met her
investment objectives of current income and potential
appreciation of the underlying property. (JA75-76, 171).

Mrs. Remmey signed a statement for each of her
partnership purchases that she had received a prospectus and
that she had knowledge of its contents. (JA92-93, 97).
Investments of his type did not carry in the late 1980's the
negative connotation that they do today. The real estate
limited partnerships in which Mrs. Remmey invested had at
that time a ten year track record of successful syndications.
(JA84, 96). They had been offered by a “leader” in the
business, according to Mrs. Remmey’s own expert witness.
(JA111).

There was conflicting evidence too of the extent of

Mrs. Remmey’s loss. Every one of these partnerships was
continuing to make regular, quarterly payments to Mrs.
Remmey at the time of the arbitration hearing. (JA171).
There was evidence that her account had an overall profit of
$90,000 duririg the time Mr. Marks served as her broker.
Hindsight may have proven that better investments could have

'The references to “JA” are to the Joint Appendix filed
with the Fourth Circuit. The references to “T” are to the
Transcript of the arbitration proceeding.

4

been made, but if that were the test, every bad investment
would be the basis for a claim of fraud.

The arbitrators credited the testimony presented by the
Respondents and found for the broker and the brokerage firm.
They awarded Petitioners nothing on their claims.
Petitioners’ unflagging effort since then to upset the
determination of the arbitrators has been targeted at the
qualifications and character of the arbitrators.

REASONS FOR DENYING CERTIORARI
I,

The Petition Is Premised On The Unfounded Argument
That Arbitration Awards Are To Be Closely Scrutinized
By The Federal Courts.

The standard of review of arbitration awards is an
important concern here. Petitioners advocate that the federal
courts are to engage in searching oversight of the arbitration
process, relying on Shearson/American Express v. McMahon,
482 U.S. 220 (1987). That case does not say (as Petitioners
say it does) that it is the job of the judiciary to supervise the
decisions of arbitrators. What the Court said in that case was
this:

we have indicated that there is no reason to
assume at the outset that arbitrators will not
follow the law; although judicial scrutiny of
arbitration awards necessarily is limited,
such review is sufficient to ensure that
arbitrators comply with the requirements of
the statute.

Id. at 232 (emphasis added).

Review of arbitration awards is indeed limited, as the
Fourth Circuit noted in Richmond, Fredericksburg & Potomac
R.R. Co. v. Transportation Communications Int'l Union, 973
F.2d 276 (4th Cir. 1992):

‘[T)he effectiveness of any pro-arbitration
policy is dependent, in the first instance, on a
limited scope of judicial review of the
arbitrator’s determination.’ U.S. Bulk
Carriers, Inc. v. Arguelles, 400 U.S. 351, 360
(1971)(Harlan, J., concurring). Thus, judicial
review of an arbitration award is ‘among the
narrowest known to the law.’ Union Pac.
R.R. Co. v. Sheehan, 439 U.S. 89, 91 (1978).
‘Every presumption is in favor of the
validity of the award.’ Burchell v. Marsh, 58
U.S. 344, 351 (1855).

973 F.2d at 278 (emphasis added).

The scope of judicial review of the awards of
arbitrators is created and bounded by the terms of 9 U.S.C.
§10(a). The pertinent part of the statute reads as follows:

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 application of any party to the
iii. .

6

(1) Wheré the award was
procured by corruption, fraud,
or undue means.

(2) Where there was evi-
dent partiality or corruption in
the arbitrators, or either of
them.

(3) Where the arbitrators
were guilty of misconduct in
refusing to postpone the hear-
ing, 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).

Petitioners have not bothered to detail in their Petition
the statutory ground for their challenge, but the attack on the
integrity of Arbitrator Johnson is presumably one of “evident
partiality or corruption” under §10(a)(2). The attack upon
Arbitrators Lewis and Schwimmer is not one of partiality, but

7

only that they were not properly qualified to be arbitrators.
That claim does not fit well into the statute, but it is perhaps
a suggestion that “the award was procured by. . .undue
means.” Jd. at §10(a)(1). Both claims are without merit.

I.

Petitioners Did Not Meet The High Standard, Which
Prevails Uniformly Throughout The Circuits,
Necessary To Establish “Evident Partiality”

In The Award.

There is no split among the Circuits, as Petitioners
contend, regarding the standard applicable to determining
whether there has been “evident partiality.” The required
showing is that “a reasonable person would have to conclude
that an arbitrator was partial” to the successful party at the
arbitration. Apperson v. Fleet Carrier Corp., 879 F.2d 1344,
1358 (6th Cir.), cert. denied, 493 U.S. 809 (1989); Morelite
Const. Corp. v. New York City District Council Carpenters
Benefit Fund, 748 F.2d 79 (2d Cir. 1984); Accord Middlesex
Mut. Ins. Co. v. Levine, 675 F.2d 1197, 1201 (11th Cir.
1982)(“reasonable impression of partiality”); Merit Ins. Co.
v. Leatherby Ins. Co. , 714 F.2d 673, 681-82 (7th Cir.), cert.
denied, 464 U.S. 1009 (1983)(circumstances -must be
“powerfully suggestive of bias”); Toyota of Berkeley v.
Automobile Salesmen’s Union, 834 F.2d 751, 756 (9th Cir.
1987), cert. denied, 486 U.S. 1043 (1988)(“a reasonable
impression of partiality.”).”

The reliance of Petitioners on Affiliated Ute Citizens v.
United States, 406 U.S. 128 (1972) to establish the
materiality of the alleged “non-disclosure” of Arbitrator

8

The Fourth Circuit’s ruling was consistent with this
standard. It said in its opinion that “a mere appearance of
bias is insufficient to demonstrate evident partiality... .[An
appellant] must establish specific facts that indicate improper
motives on the part of an arbitrator.” 32 F.3d at 148 (quoting
Peoples Sec. Life Ins. Co. v. Monumental Life Ins. Co., 991
F.2d 141, 146 (4th Cir. 1993)). It is the “specific facts”
indicating improper motive which were never presented by
Petitioners, and which caused them to fall short of the
“reasonable person” standard which prevails throughout the
Circuits.

A.

“Evident Partiality” Is Established By An
Arbitrator’s Financial Interest In The Arbitration
Or A Relationship With One Of The Parties.

Evident partiality typically arises when there is an
arbitrator who has either a financial interest in the arbitration
or a preexisting relationship with one of the parties, or both.
That was the situation confronted by this court in
Commonwealth Coatings Corp. v. Continental Cas. Co., 393
U.S. 145 (1968), where the arbitrator and one of the parties
had "close financial relations that had existed between them
for a period of years." id. at 148.

Johnson is more than curious. Affiliated Ute creates a
presumption of reliance in securities fraud cases that an
omitted fact was “material” for liability purposes. To
Respondent's knowledge, the doctrine has never been applied

in an arbitration case.

9

The factors which courts therefore traditionally
examine in assessing a claim of evident partiality are the
financial interest, the directness of the relationship, and the
timing of the relationship. Sanford Home for Adults v.
International Federation of Health Professionals, 665 F.
Supp. 312, 320 (S.D.N.Y. 1987); Apperson v. Fleet Carrier
Corp., 879 F.2d 1344, 1360 n.21 (6th Cir.), cert. denied,
493 U.S. 809 (1989). These are the only factors which will
establish bias. See, e.g., Herrin v. Milton M. Stewart, Inc.,
558 So.2d 863, 865 (Miss. 1990)(“Personal bias of an
arbitrator cannot be shown by means other than pecuniary
interest or some other actual relationship between the

parties.”).

The problem that has plagued Mrs. Remmey
throughout her tortuous course through the courts below is
that her suggestion of partiality is without any foundation
whatsoever. There is nothing here to cause a reasonable
person to conclude that any arbitrator was partial to the
Respondents.

The Minor Disciplinary History Of
Arbitrator Johnson Is Not “Evident Partiality.”

There are no facts here that any of the arbitrators had
an interest in the outcome of the arbitration. What the
Petitioner contends is the “evident partiality” here is that
Arbitrator Johnson had a record of discipline with the NASD,
and that this was not disclosed to him. There were disciplines,
were of a bookkeeping nature. None involved a customer
complaint like the one at issue in this arbitration.

10

The first violation was sixteen years old. It was
resolved by settlement, apparently without any complaint
being filed. Some transactions at Arbitrator Johnson's firm
had not been booked for a period of four days in 1978. There
were some inaccuracies in ledgers, and some transactions had
not been liquidated in the proper period of time. The firm
was also charged with failing to maintain adequate
supervisory procedures, since four people designated to
perform such functions were no longer with the firm. The
firm replaced its bookkeeping personnel and updated its
supervisory procedures to reflect its then current personnel.
The firm was fined $500. (JA289-91).

The only Complaint ever filed personally against
Arbitrator Johnson (as opposed to the firm for which he
worked) which resulted in any penalty was Complaint No. W-
361, which was filed with the NASD in November 1979.
(JA282-85). This Complaint alleged that (I) Arbitrator
Johnson's firm had failed to comply with the SEC's net
capital rules, (ii) it had failed to report its net capital
deficiency to the proper authority and (iii) it had put a sticker
on “various prospectuses” which obscured the names of some
of the other underwriters for the offering.

This Complaint was also settled. The NASD found
the net capital “violations” to be extremely minor, and to
have lasted all of a day. It found the stickering matter "more
serious", but noted that the recipients of the prospectuses
were primarily longstanding clients of the firm who were
familiar with its business. Arbitrator Johnson and the firm

11

were fined the sum of $1,000, jointly and severally, for these
violations. (JA285).°

Arbitrator Johnson’s “record”, such that it was, had
been “clean” for over twelve years when the arbitration took
place. If these violations established some sort of bias, that
bias was certainly minimized by the remoteness of the
violations. See Ruffin Woody and Associates, Inc. v. Person
County, 92 N.C.App. 129, 141, 374 S.E.2d 165, 172
(1988)(refusing to set aside arbitration award where one
arbitrator had performed services for a party in the 1960's;
work was “remote enough in time to dissipate any partiality.
...”), rev. denied, 324 N.C. 337, 378 S.E.2d 799 (1989).

But what Petitioners have never shown is how these
minor disciplines from the NASD equate to bias on the part
of Arbitrator Johnson. Petitioners point to no facts which
establish that these minor sanctions impaired Arbitrator
Johnson's ability to fairly hear and rule upon the evidence.
In fact, precisely the opposite inference might be warranted
here — that the sanctions made Arbitrator Johnson more
circumspect in judging the conduct of other brokers and
biased him against the Respondents. Either way, however,
the suggestion of bias is only speculation. The law requires
more than that. The party seeking to set aside an arbitration
award must show that the bias is “direct, definite and
capable of demonstration. . . .” Peoples Security Life Ins.
Co. v. Monumental Life Ins. Co. , 991 F.2d 141, 146 (4th Cir.
1993)(emphasis added); Atlantic Shores Resort Joint Venture
v. Martin, 731 F. Supp. 1279 (D.S.C. 1990).

*Another NASD complaint against Arbitrator Johnson's
firm dates back to 1971. It was dismissed. (JA302).

12

There is no argument to be made here that the NASD
Rules required disclosure of these matters. The NASD’s
Code of Arbitration Procedure provides only that a party is
entitled to “the arbitrators’ names and employment histories
for the past ten (10) years” and that further inquiry may be
made. NASD Code §21 (emphasis added). These ancient
matters were not required to be disclosed, but they were
hardly a secret. Petitioners discovered them on their own,
after the arbitration was over, through the NASD’s “Public
Disclosure Program”. This information was readily available
for the asking before the arbitration began, but Petitioners did
not obtain it. It would hardly have involved the “time-
consuming and expensive. . .background check on the
arbitrators” which Petitioners suggest would have been
necessary for them to have requested this information in
advance of the arbitration.

To the extent the Petitioners complain that Arbitrator
Johnson did not disclose these disciplines to the NASD when
he applied to be an arbitrator, that contention is also not a
basis for certiorari. The “concealment” is hardly clear from
the disclosure form, but the NASD was the body which had
meted out the discipline. It surely knew of these disciplines
when it qualified Mr. Johnson as an arbitrator. There was no
evidence presented in the court below that these minor and
dated disciplines disqualified Arbitrator Johnson from being
an arbitrator.

This Court should not grant certiorari to entertain this
after the fact challenge to the award.

13
il.

The Complaint That Arbitrators
Lewis and Schwimmer Were Not
Properly Qualified Is Without Merit.

The challenges raised to Arbitrators Lewis and
Schwimmer have equally little substance. Arbitrator Lewis,
it is suggested, was not properly qualified as a public
arbitrator.‘ The reason is that he “might” have spent more
than 20% of his time since retiring as a Deputy Securities
Commissioner for the State of South Carolina acting as an
expert witness for securities firms. There is nothing to
substantiate that claim. Petitioners brought forward no
evidence to establish the extent of Arbitrator Lewis’ activity
in this arena. But if Arbitrator Lewis had such an affiliation,
he was required to disclose it. Section 23 of the NASD Code

Says in pertinent part that:

(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
etxpartial determination. Each arbitrator shall
disclose:

‘The NASD Rules provided that this panel was to be
composed of one arbitrator affiliated with the securities
industry, and two public arbitrators without such an
affiliation. NASD Code §19(a). A person cannot be a public
arbitrator if he “is an attorney, accountant, or other
professional who has devoted twenty (20) percent or more of
his or her professional work effort to securities industry
Clients within the last two years.” Id. at §19(c)(5).

14

* * %

(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.

NASD Code §23(a)(2)(emphasis added). Arbitrator Lewis
would have been required to disclose his expert witness
activities if they had occurred. He did not, and the
presumption must be that he was qualified to be a public
arbitrator.

Arbitrator Schwimmer is a target of the Petitioners’
unhappiness with the result they obtained because he may not
have ever completed an arbitrator profile form. Testimony
from the NASD, however, made it clear that Arbitrator
Schwimmer had properly qualified as an arbitrator before
such forms began being used. The NASD’s Director of
Arbitration made it unequivocally clear that the lack of a
completed form did not disqualify Mr. Schwimmer from
service in an Affidavit she signed. (JA366 at 443, 6).

Petitioners argue that Arbitrator Lewis and Arbitrator
Schwimmer could not have been properly qualified as
arbitrators because they did not return a questionnaire to
update their arbitrator profiles. Petitioners contend that this
violated regulations of the Securities and Exchange
Commission, but they point to no such regulations and in fact
there are none. The Director of Arbitration made it clear in
the Affidavit she filed with the District Court that the lack of
a completed questionnaire did not disqualify a person as a
public arbitrator. (JA366 at (3). As the Fourth Circuit noted

15

in its opinion, “appellants’ counsel conceded at oral argument
that no NASD Rule required return of the questionnaire
form.” before an arbitrator could be properly qualified. 32
F.3d at 147. All the NASD Rules say on this subject is that
the Director of Arbitration is charged with appointing panels
of arbitrators “from the existing pool of arbitrators.” NASD
Code §4.

Petitioners have complained long and loudly that they
should have received the NASD’s internal records on the
arbitrators, but there is no requirement in the NASD Rules
that a party to an arbitration be given such unfettered access
to the business history of an arbitrator. Such a requirement
would indeed be contrary to direct precedent from this Court,
which is that an arbitrator “cannot be expected to provide the
parties with his complete and unexpurgated business
biography.” Commonwealth Coatings Corp. v. Continental
Cas. Co., 393 U.S. 145, 151 (1968)(White, J., concurring).
The Petitioners refuse to accept that there are limits on the
information they were entitled to obtain regarding the
arbitrators. The NASD’s Code of Arbitration Procedure
provides only that a party is entitled to “the arbitrators’
names and employment histories for the past ten (10) years”
and that further inquiry may be made. NASD Code §21.
Petitioners simply were not entitled to the information which
they complain was due them.

CONCLUSION

Petitioners claim that the Fourth Circuit’s opinion
“guts the concept of arbitration, which is to provide a
convenient and less expensive way to resolve disputes.” Pet.
at 24. It is Petitioners, however, who have done the gutting.
Their extensive post-arbitration litigation in pursuit of their

16

effort to obtain what the Fourth Circuit referred to as “the
ultimate attempt at a second bite” at the apple (32 F.3d at
147) has eviscerated any of the expediency and convenience
of an arbitration proceeding. Petitioners had their day in
Court (they actually had five of them) and they did not
prevail. This case should end now, and Respondents
respectfully request that the Petition for Certiorari be denied.

Respectfully submitted,

MACK SPERLING*

BROOKS, PIERCE, McLENDON,
HUMPHREY & LEONARD, L.L.P.
Suite 2000 Renaissance Plaza

230 North Elm Street (27401)

Post Office Box 26000

Greensboro, North Carolina 27420
Telephone: 910/271-3125

Attorney for Respondents
*Counsel of Record

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386012_0857%3A3. Public record. Not legal advice.