Petition for Writ of Certiorari — R. J. Steichen & Co. v. Honn

Supreme Gsurt, 0.8.

FILED

95 144 wut 251995

Gn the

Supreme Court of the Anited States

October Term, 1995

R.J. Steichen & Company and John E. Feltl,

Petitioners,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE MINNESOTA SUPREME COURT

PETITION FOR A WRIT OF CERTIORARI

Steven E. Rau

Counsel of Record

701 Fourth Avenue South

Minneapolis, Minnesota 55415

(612) 337-9571

Attorney for Petitioners

1996 — Bachman Legal Printing & (612) 339-9618 @ FAX (612) 337-8053

/

3

3

i

:

TION P D

Whether the Federal Arbitration Act (“FAA”), 9 U.S.C.

§16(a), governs the right to appellate review of an order for

vacatur, remand and rearbitration of a National Association of

Securities Dealers arbitration award and preempts conflicting

state law that precludes appellate review of an order for vacatur,

remand and rearbitration.

T OF PARTIE

All parties to this Petition are listed in the caption.

RULE 29.1 LIST

There is no parent or subsidiary company to list.

TABLE OF CONTENTS

SSO IOI since csecesccdadbecasceseeceoreeesoeses i

Ia ii

CP Ae POF isis esc csdscecececccceccsncusvscesesaccese. iv

REE RS a 2

STATEMENT OF JURISDICTION 0.0..0......--cccccccccsesseecseeeccecces.. 2

a a

SERRE aa ae ee 6

REASONS FOR GRANTING THE WRIT ..................... 9

1. Neither the contract nor the statutes involved

provide any guicance as to which law applies. ripen 1]

2. A direct conflic’ exists between the FAA and UAA......14

NE Sag ea oe a 17

APPENDIX TABLE OF CONTENTS ...000.-oooocccccscccccscceocs. A-i

"ARSE ASEE SSS eee ee a A-1

TABLE OF AUTHORITIES

United States Supreme Court Decisions

Allied-Bruce Terminix Co., Inc. v. Dobson, 115 S.Ct. 834

1 SRE OR ne ee ePmUO Rane SMR ERIE Fort A OTF 10

Commonwealth Coatings Corp. v. Continental Casualty

ag re a ee ia henna eect haecesiracieieieces 8

Cox Broadcasting v. Cohn, 420 U.S. 469 (1975) ..........cccccceees 3

Erie v. Tompkins, 304 U.S. 64 (1938).........c.ccccccccccsesseecessesseeseeel 7

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20

EU sinhaciesnsiaticecsinatsiactuiesideisaincnscaigh tedtinly Gace ndadecsninohl 9,10

Moses H. Cone Memorial Hospital v. Mercury Construction

Comes Qi Gy Behl. ees 5, 10

N.Y. Times Co. v. Jascalevich 439 U.S. 1317 (1978)...........0000004. 3

Pennsylvania v. Ritchie, 480 U.S. 39 (1987) .........cccccccceseeseeseeees 3

Perry v. Thomas, 482 U.S. 483 (1987) ..........ccccccccecccseeseeseeeee 9,10

Rodriguez de Quijas v. Shearson/American Express, 490

A: Me I sib cssiticiciatess Fecsidbestsreidtaniiada cad utieltdapiaiicavebsnnes 9

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

TE eivishsiititsbaichncicnntssitntdicdbanistaidinatageasincatunacial 6,9

Southland v. Keating, 465 U.S. 1 (1984) ..........0.0.... 10, 14, 16, 17

iV

Volt Information Sciences, Inc. v. Leland Stanford, Jr. U.,

a NN obiakinisvrctnscstesescdisdsisiccausen 3, 10-12, 15, 17

United States Circuit Court of Appeals Decisions

Atlantic Aviation, Inc. v. EBM Group, Inc., 11 F.3d 1276

BRN deer AE CSTR pele aie rane COPE 14, 15

Forsythe International, SA v. Gibbs Oil Co., 915 F.2d 1017

sere in, MEISSNER eR ae Penance nN 13

Landy Michael Realty Corp. v. Local 32B - 37J, 954 F.2d

se. cet cases ag: eo NE TES a ae eS 16

Locals 2222, 2320 - 2327, Int’l Brotherhood of Electrical

Workers v. New England Te. & Tel. Co., 628 F.2d 644

teins spac: RM TEDL Ls SN ne 13

Mesa Operating Lid. Partnership v. Louisiana Intrastate

Gas Corp., 797 F.2d 238 (Sth Cir. 1986) ......-.ccccccccccccccseeseee 15

Northern Illnois Gas Co. v. Airco Industries Gases, 676

FPO IIE, BOI ccscn snssncincintibincceage eo. 15

Peoples Sec. Life Ins. v. Monumental Life Ins., 991 F.2d 141

or he A NE ial nS am See RE Soe 8

Schmitz v. Zilveti, 20 F.3d, 1043 (9th Cir. OI wedisiscisatisies 8

Shearson Loeb Rhoades, Inc. v. Much, 754 F.2d 773 (7th

Fe. ee MaDe en © One Ree My SeeR ar ene 16

Virgin Islands Housing Authority v. Coastal Gen. Const., 27

Fe ON IE eink 16

State Court Decisions

A.G. Edwards & Sons, Inc. v. Clark, 558 So.2d 358 (Ala.

SOI cnicasecsscsncezsjnsthinidasistiiessibiestithcsnctiandianiinadeaededhaibcailintiitinati 16

Balton v. Green, 801 S.W. 2d 923 (Tex. App. 1990)............. 8, 16

Johnson v. Piper Jaffray, Inc., 530 N.W.2d 790

SITU ROP Diskin canhinicicalasciesiledlicheclhsdiicheieialinstiiglatasstinniasmeiainnn 9

Xaphes v. Mowry, 478 A 2d 299 (Me. 1984) .000........cccccceeee 8, 16

Statutes and Rules

Se Cats SP exci bni Susississarrcsticssntiatiiadauabaaienaagaidtiald 6

ae EE IED vinewncecsicsnenntnenseacenssintniiiaandenlinelivaiiglietadiaminel 6

8 eC Serer nner ee 6

a IIE siiiiish antes ectitinciansitisinehcinsnesichliiaanciiiphiellecaeaiiaienauaa 2,3

Fe Sra: OR EI CIID citer cainnninestvitinbisinnidiandalabitaiatipialines 3

FF DOR viceviinnsitiniiciciailiintiamtisidiiaaal 6

Fas SEIT csncervicierintsticeindisinchinniiassianiaiieetaniiah 4

Fes I svtnsieissencinscensecnistlaiatsinccaiiindnpeianatansdaddactatad 7

FRAO tive snninsesecnsncisincitintetnbihinenshtbanenelatiiieettaktaalidatanaiaad i, 16

Fa SD wrxenintsisixinintdsinindiiephathdabtsmiiaaaadalaaal 2, 3, 4, 16, 17

F Si ee GP xcsicrsesssinncensnccsniniancindiniae pilin mia 5

Federal Arbitration Act (FAA) 9 U.S.C. §1 ef seq... i, 6

Judicial Impro ments and Access to Justice Act Pub L.No. 100-

702, Title X, $1019(a), 102 Stat.4671 (1988)... 4

1957 Minn. Laws Chapter 633.000.0000... cccccccccseeseseeeeeocce b

Henn ce ig ET Se 7

Minn. Stat. §572.19, subd. 1(2)......cccccsscscessccseeeseeeecccce 7

sip ost sigh ag, RE RAE OL 6

We ih cto ah yesag a CR gt eT, nn 6

Minn. Stat. §572.26, subd. 1(5)..0.00-.oc ccc 2, 3,14

Oe PO ;

Minnesota Uniform Arbitration Act (“MAA”)... 4

U. S. Supreme Court Rules 13.100 cccccccsceeeeeeec 2

$19 of the Uniform Arbitration Act... 3,14

Other Authorities

MacNeil et al, IV FEDERAL ARBITRATION LAW

060.93 ot ARSE TNOIN 2s inc iit sraiticteciend 13

Pierce, Tike Federal Ariiiration Act. Conflicting Jnterpretations

of its Scope, 61 CIN. L. REV. 623 (1992) .........ssessssssssescseeeneesnees

Thomson, Arbitration Theory and Practice: A Survey of AAA

Construction Arbitrators, 23 HOFSTRA L. REV. 137 (1994)....9

= ~

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1995

R.J. Steichen & Company and John E. F eltl,

Petitioners,

Brian L. Honn,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

MINNESOTA SUPREME COURT

INTRODUCTION

Petitioners, R.J. Steichen & Company and John E. Feitl,

(collectively referred to as “Steichen”) pray that this Court issue a

Wnit of Certiorari to review the orders of the Minnesota Supreme

Court and the Minnesota Court of Appeals refusing to review an

order of the Hennepin County District Court vacating and

OPINIONS BELOW

On September 2, 1994 the NASD served an arbitration

award on Steichen and Respondent Brian L. Honn (“Honn”),

which is included in the Appendix as Exhibit A. (A-1 through A-

6). The Hennepin County District Court denied Steichen’s motion

for confirmation of the award and granted Honn’s motion for

vacatur and remand for rearbitration in a memorandum and order

dated January 20, 1995, which is included in the Appendix as

Exhibit B. (A-7 through A-14). Steichen appealed the order

denying confirmation and granting vacatur and remand for

rearbitration to the Minnesota Court of Appeals on February 2,

1995 and on February 8, 1995 the Court of Appeals issued an

order citing Minn. Stat. §572.26 subd. 1(5) as a basis for

questioning appellate jurisdiction, which is included in the

Appendix as Exhibit C. (A-15 through A-17). On March 7, 1995

the Minnesota Court of Appeals issued an order holding that the

Federal Arbitration Act (FAA) 9 U.S.C. §16(a) “does not control

the process by which substantive rights pertaining to arbitration

are reviewed in state court”, which is included in the Appendix as

Exhibit D. (A-18 through A-20). On April 5, 1995 Steichen

petitioned the Minnesota Supreme Court for review of the

decision of the Court of Appeals and on April 27, 1995 the

Minnesota Supreme Court issued an order denying Steichen’s

petition for further review, which is included in the Appendix as

Exhibit E. (A-21).

STATEMENT OF JURISDICTION

The order of the Minnesota Supreme Court denying

discretionary review was entered on April 27, 1995. This Petition

for Writ of Certiorani is filed within ninety days of that date. U.S.

Supreme Court Rule 13.1. This Court has jurisdiction pursuant to

28 U.S.C §1257 to review the order of the Minnesota Supreme

Court by Wnit of Certiorari.

ee. a 8 DY sith «treks

Steichen disputes the validity of Minn Stat. §572.26 subd.

1(5), that precludes appellate review of the vacatur and remand

for rearbitration of a NASD arbitration award; the validity of

Minn. Stat §572.26 subd. 1(5)' is questionable under the

Supremacy Clause and under the FAA, 9 U.S.C. §16(a). This

Court found appellate jurisdiction’, for example, in Volt

Information Sciences, Inc. v. Leland Stanford, Jr. U., 489 U.S.

468 (1989), when the validity of a California statute was drawn in

question as repugnant to federal law. In Volt the California Court

of Appeals sustained California law notwithstanding its potential

conflict with the FAA and invalidity under the Supremacy clause.

489 US. at 473 n.4. This case resembles Volt albeit different

provisions of the FAA are implicated.

The jurisdictional requirement of finality contained in 28

U.S.C. §1257 is also satisfied in this case. The Minnesota

Supreme Court’s final determination that no federal right of

appellate review of the vacatur is “final” because requiring

rearbitration before appellate review renders that right a nullity.

See, e.g., Pennsylvania v. Ritchie, 480 US. 39, 47-48 (1987)

(“where the federal claim has been finally decided, with further

proceedings on the merits in the state courts to come, but in

which later review of the federal issue cannot be had...” (quoting

Cox Broadcasting v. Cohn, 420 U.S. 469, 481 (1975)); N.Y.

Times v. Jascalevich, 439 US. 1317, 1318-19 (1978). Put

differently, Steichen asserts that the FAA confers a substative

right of appellate review of an order for vacatur, remand and

' And all other similar versions of §19 of the Uniform Arbitration

Act. See Infra at 6 n.5.

? Jurisdiction in Volt was appellate and premised on 28 U.S.C.

§1257(2) (1988) which has since been amended. 489 US. at 473 n.4

Jurisdiction in this case can only be via certiorari: nevertheless, the

standards for certiorari under the current version of 28 U.S.C. §1257 are

parallel to those standards that provided a basis for this Court’s appellate

jurisdiction in Volt.

3

rearbitration and the Minnesota appellate courts have decided that

Steichen has no such right.

STATUTES INVOLVED

The FAA, 9 U.S.C. §16(a) provides as follows:

An appeal may be taken from —

(1) an order —

(A) refusing a stay of any action under §3 of |

this title, |

(B) denying a petition under §4 of this title to |

order arbitration to proceed,

(C) denying an application under §206 of this

title to compel arbitration,

(D) confirming or denying confirmation of an

award or partial award, or

(E) modifying, correcting or vacating an

award;

9 U.S.C. §16(a)’ (Emphasis added).

The FAA also provides in pertinent part that as follows:

If the parties in their agreement have agreed

that a judgment of the court shall be entered

upon the award pursuant to the arbitration,

and shall specify the court, then at any time

> Section 16 of the FAA was enacted in 1988 as part of the Judicial

Improvements and Access to Justice Act Pub.L.No. 100 - 702, Title X,

§1019(a), 102 Stat.4671 (1988). Presumably, given the similarity

between the UAA and the FAA, Congress was cognizant of the

inconsistency between Section 16 of the FAA, 9 U.S.C. §16(a)(1)(E) and

Section 19 of the UAA.

4

within one year after the award is made any

party to the arbitration may apply to the court

so specified for an order confirming the award,

and thereupon the court must grant such and

order unless the award is vacated, modified or

corrected as prescribed in §§10 and 11 of this

title. If no court is specified in the

agreement of the parties then such

application may be made to the United States

Court in and for the district within such an

award was made.

9 U.S.C. §9 (Emphasis added).‘

The Minnesota Uniform Arbitration Act (“MAA”) provides

in pertinent part as follows:

An appeal may be taken from:

(1) An order denying an application to compel

arbitration made under §572.09;

(2) An order granting an application to stay

arbitration made under §572.09 (b);

(3) An order confirming or denying

confirmation of an award;

(4) An order modifying or correcting an

award;

(5S) An order vacating an award without

directing a rehearing; or

“ Notwithstanding the last sentence contained in 9 U.S.C. §9, the

FAA has never been construed to provide an independent basis for

federal court jurisdiction. See Moses H. Cone Memorial Hospital v.

Mercury Construction Corp., 460 U.S. 1, 25 n.32 (1983).

5

(6) A judgment or decree in or pursuant to

the provisions of this chapter.

Minn. Stat. §572.26 subd. 1° (Emphasis added).

Minn. Stat. §§572.18-.25 govern post-arbitration motion

practice and do not specify which court has jurisdiction. Minn.

Stat. §572.25 provides that venue is appropriate in “the court of

the county in which the arbitration hearing shall be held....”

Finally, Minn. Stat. §572.24 defines the term court to mean “any

court of competent jurisdiction of this state.” (Emphasis added).

STATEMENT OF CASE

Honn initiated a NASD* arbitration against Steichen on June

21, 1993. (See Appendix at A-2). Honn’s Statement of Claim

asserted common law claims of fraud, breach of contract,

promissory estoppel, defamation, interference with prospective

business advantage, civil conversion, violation of the NASD rules

of fair practice and failure to pay commissions pursuant to Minn.

Stat. §181. 145. (id. at A-2 through A-3). Almost one year later,

* The MAA is derived from the Uniform Arbitration Act (UAA)

which was drafted in 1955, and is enacted in some form in at least thirty-

four (34) of the fifty (50) states and in the District of Columbia.

Minnesota’s version of the UAA was enacted in 1957. See 1957 Minn.

Laws Chapter 633.

© The NASD is a federal self-regulatory organization (“SRO”)

established pursuant to the 1938 Maloney Act amendments to the 1934

Act. 15 U.S.C. 78 (0)3. The NASD arbitration rules are subject to the

approval of the Securities and Exchange Commission (“SEC”) under

Section 19 of the 1934 Act. 15 U.S.C. 78 (s\d)(1) and 17 C.F.R.

240.19b-4. See also Shearson/American Express, Inc. v. McMahon, 482

U.S. 220, 234 (1987)(“In the exercise of its regulatory authority, the

SEC has specifically approved the arbitration procedures of the New

York Stock Exchange, the American Stock Exchange and the

NASD....”)(emphasis added).

6

on June 7, 8, and 9th and 16th of 1994, a three member panel

appointed by the NASD heard the arbitration. (/d. at A-2). Honn

alleged damages and requested an award in excess of one million

dollars.

On September 2, 1994, the panel awarded Honn $7,312.50

for his claim of unpaid commissions under Minn. Stat. §181.145.

(/d. at A-4 through A-5). The panel denied all of Honn’s other

claims. (/d.). Honn moved to vacate while Steichen moved to

confirm the award in Hennepin County District Court. On

December 15, 1994 the Honorable Delila F. Pierce heard oral

arguments; she filed her order vacating the arbitration award on

January 20, 1995.

Honn's motion to vacate asserted that the testimony of an

NASD official, who had no professional or personal connection

to the arbitrators, resulted in evident partiality under Minn. Stat.

§572.19 subd. 1(2) and 9 U.S.C. §10(b). (A-9 through A-11).

Honn also argued that nearly every other statutory basis

contained in the MAA and the FAA supported vacatur. (/d.) In

support, Honn offered the following: (a) His attorney’s affidavit

containing her opinion testimony; (b) his own affidavit replete

with hearsay; (c) a partial transcript of approximately five minutes

of the three and one-half day hearing; and (d) other assorted

documents. Honn and Steichen both relied upon the FAA and

cases interpreting that statute with respect to the substantive legal

issues argued before Judge Pierce. In addition, Judge Pierce also

relied upon the FAA in vacating and remanding the award for

rearbitration and ordered a new panel. (/d. at A-11).

In vacating and ordering rearbitration of Honn's claims,

Judge Pierce did not specifically identify the state or federal

statutory provisions that provided a court with the authority to

vacate an arbitration award under a "fundamentally fair”

standard.’ (A-44). Judge Pierce's order implied that evident

partiality (as opposed to actual bias)* existed even though there

was no showing of any nexus between the "facts" allegedly

providing a basis for a finding of evident partiality and the

arbitrators.

On February 2, 1995 Steichen appealed the Order denying

confirmation of the award and vacating and remanding this case

to a different panel for arbitration.’ Steichen’s Statement of Case

referenced the FAA and MAA as “statutes at issue”.

On February 8, 1995 the Minnesota Court of Appeals issued

an Order citing Minn. Stat. §572.26 subd. 1(5) as a basis for

questioning jurisdiction for this appeal. (A-40). The parties filed

jurisdictional memoranda on February 21, 1995 (A-42); Steichen

contemporaneously filed a Petition for Discretionary Review. (A-

49). In response to the Minnesota Court of Appeals’ jurisdictional

inquiry, Steichen asserted that it should not be forced to

rearbitrate Honn’s claims before appellate review of the vacatur

and that to the extent the MAA limited appellate review of

vacatur, the FAA preempted the MAA. On March 7, 1995, the

Minnesota Court of Appeals issued an Order holding that the

FAA “does not control the process by which substantive rights

pertaining to arbitration are reviewed in state court. See Xaphes v.

Mowry, 478 A.2d 299, 301 (Me. 1984); Balton v. Green, 801

’ Judge Pierce held the judicial standard of review of arbitration

procedures was whether a party was denied a fundamentally fair hearing.

(A-14)

* The distinction between evident partiality and actual bias is best

described in Schmitz v. Zilveti, 20 F.3d, 1043, 1047 (9th Cir. 1994). See

also Commonwealth Coatings Corp. v. Continental Casualty Co., 393

U.S. 145, 147 (1968); Peoples Sec. Life Ins. v. Monumental Life Ins., 991

F.2d 141, 146 (4th Cir. 1993).

® Judge Pierce ordered rearbitration by non-Minnesota arbitrators;

this aspect of the trial court's ruling is anomalous inasmuch as Honn

never asserted, anywhere in his motion for vacatur, that the fact that the

arbitrators were Minnesota residents was a basis for partiality.

8

S.W.2d 923, 930 (Tex. App. 1990).” (See Appendix at A-19). On

April 27, 1995, the Minnesota Supreme Court denied Steichen’s

Petition for Further Review.

REASONS FOR GRANTING THE WRIT

Arbitration is assuming ever increasing prominence as a

means of resolving commercial disputes, particularity in the

securities’ , construction'’ , and employment"? arenas. Under this

Court’s previous decisions, neither Steichen nor Honn had any

choice of fora for resolving their dispute. In Shearson / American

Express, Inc. v. McMahon, 482 U.S. 220 (1987) and its

progeny,'* Steichen was obligated under the FAA and the bylaws

of the NASD to arbitrate Honn’s claims. Similarly, this Court’s

decisions in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S.

20 (1991) and Perry v. Thomas, 482 U.S. 483 (1987), dictate that

Honn was obligated to arbitrate his claims against Steichen. See

also Johnson v. Piper Jaffray, Inc., 530 N.W.2d 790, 797-98

In 1993, more than 6,500 securities arbitrations were filed

Masucci, NASD Arbitration 1994, (Minnesota Institute of Legal

Education March 10, 1995). Of these, 83% were with the NASD. The

NASD expects these numbers to continue increasing. Jd. In fact, the

number of securities cases submitted to arbitration has increased 250%

annually since 1987 and a parallel increase has occurred in commercial

arbitration since 1972. Pierce, The Federal Arbitration Act: Conflicting

Interpretation of its Scope, 61 CIN.L. REV. 623, 623 (1992).

"' In 1993, the AAA heard 4,098 construction arbitration disputes

with total claims and counterclaims of almost 1 billion dollars. See

Thomson, Arbitration Theory and Practice: A Survey of AAA

Construction Arbitrators, 23 HOFSTRA L. REV. 137, 138 n.6 (1994).

'2 In Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 35

(1991) this Court found an agreement to arbitrate age discrimination

claims in a securities registration application.

'? See also Rodriguez de Quijas v. Shearson/American Express, 490

U.S. 477, 482-84 (1989) (holding ‘33 Act claims arbitrable).

9

(Minn. 1995). With the growing use of arbitration as a mandatory

or an elective method of dispute resolution, more and more courts

are confronted with issues relating to confirmation, modification

and vacatur of arbitration awards. This case represents the post-

arbitration conundrum courts and counsel face because of the

absence of any guidance as to what statutes (federal or state)

govern the enforcement and appellate review of arbitration

awards involving interstate commerce.

A Writ of Certiorari should be granted in this case for two

reasons. First, while this Court has held that the FAA preempts

state law that discourages arbitration, this Court has never

addressed the preemptive effect of the FAA in the context of

post-arbitration procedure. This Court’s past decisions construing

the FAA were confined to pre-arbitration procedure and to the

enforcement of arbitration agreements.'* Furthermore, neither the

FAA, the UAA, or Submission Agreements used to submit

matters to arbitration dictate which law applies to enforcement of

and appellate review of aribtration awards. Second, an explicit

conflict exists between the MAA (and obviously all other

jurisdictions that have adopted the UAA) and the FAA that is not

merely academic or episodic. This Court should clarify the

'* The vast majority of this Court’s decisions relating to FAA

preemption of state law concern the choice between litigation or

arbitration. See, e.g., Allied-Bruce Terminix Co., Inc. v. Dobson., 115

S.Ct. 834 (1995) (state courts cannot apply statute that invalidates

arbitration agreements); Gilmer v. Interstate/Johnson Lane Corp., 500

U.S. 20 (1991) (FAA applied to enforce agreement to arbitrate contained

in U-4); Volt Information Sciences v. Leland Stanford, Jr. U., 489 U.S.

168 (1989) (stay of arbitration pending outcome of litigation); Perry v.

Thomas, 482 U.S. 483 (1987) (statutory claim for wages under California

labor law conflicted with arbitration clause); Southland v. Keating, 465

U.S. 1 (1984) (conflict between contractual arbitration clause and

California Franchise Investment Law); Moses H. Cone Memorial

Hospital v. Mercury Construction, 460 U.S. 1 (1983) (attempt to avoid or

Stay arbitration). This case does not involve such a conflict but rather

concerns the integrity and enforcement of an arbitration award.

10

relationship between the UAA and the FAA and parties’ rights in

connection with post-arbitration practice in state and federal

court.

1. Neither the contract nor the statutes invo ed provide

i i lies.

n i wh Ww

This Court’s decision in Volt found that the FAA did not

preempt the California arbitration law. 489 U.S. at 478-79. In

Volt this Court looked to the arbitration agreement itself to decide

which law the parties intended to apply to the arbitration. Jd. at

479. This case, however, raises the issue of what law applies in

the absence of a contractual choice of law provision and in the

absence of a statutory provision. In the end, this Court’s decisions

mandated arbitration in this and other NASD cases but neither the

arbitration agreement, this Court’s decisions, nor federal or state

law provide specific guidance as to the rights pertaining to

appellate review of arbitration awards,

The Uniform Submission Agreement generally used in

NASD cases does not prescribe which law governs post-

arbitration motion practice.'* For instance, the agreement in this

case provided as follows:

l. The undersigned parties hereby submit the present

matter in controversy, as set forth in the attached

'* Neither does the submission agreement used in AAA securities or

construction disputes. In construction disputes, however, the contract

containing the mandatory arbitration clause also typically contains a

choice of law provision. In the context of choosing between Texas and

Minnesota, for example, such a provision would not be critical because

both states are UAA jurisdictions. But the choice of law provision

Contained in such contracts does not resolve the issue discussed in Justice

Brennan’s dissent in Volt. 489 U.S. at 488. More specifically, these

choice of law provisions resolve state law conflicts, but do not resolve a

conflict between state and federal law. Jd.

1]

statement of claim, answers, and all _ related

counterclaims and/or third party claims which may be

asserted, to arbitration in accordance with the

Constitution, Bylaws, Rules, Regulations and/or Code

of Arbitration Procedure of the sponsoring

organizations.

2. The undersigned parties hereby state that they have

read the procedures and rules of the sponsoring

organization relating to arbitration.

3. The undersigned parties agree that in the event a

hearing is necessary, such hearing shall be held at a time

and place as may be designated by the Director

Arbitration or the arbitrator(s). The undersigned parties

further agree and understand that the arbitration will be

conducted in accordance with the Constitution, Bylaws,

Rules, Regulations and/or Code of Arbitration

Procedure of the sponsoring organization.

4. The undersigned parties further agree to abide by

and perform any award(s) rendered pursuant to the this

Submission Agreement and further agree that a

judgment and any interest due thereon, may be entered

upon such award(s) and, for these purposes, the

undersigned parties hereby voluntarily consent to submit

to the jurisdiction which may properly enter such

judgment.

5. IN WITNESS WHEREOF, the parties hereto

have signed and acknowledge the foregoing Submission

Agreement.

(Emphasis added).

12

In contrast to cases like Volt, the language of the contract or

uniform submission agreement does not generally provide

guidance to courts or parties involved in post NASD arbitration

motion practice’®. Presumably, because this Court has held that

many of the disputes that arise in the securities industry must be

arbitrated under the FAA, then the FAA should govern appellate

review of post-arbitration motion practice.

Nevertheless, neither the FAA nor the UAA clearly prescribe

the applicable governing law. See supra at 4-6. The general

philosophy of the UAA is to minimize judicial involvement. This

philosophy considers a remand io rearbitration as interlocutory

and therefore not reviewable. The FAA, however, recognizes that

vacatur and remand to a different arbitration panel favors

litigation, not arbitration, because vacatur and remand set aside a

final arbitration award. As the Fifth Circuit Court of Appeals

observed in Forsythe International, SA v. Gibbs Oil Co., 915

F.2d 1017 (Sth Cir. 1990):

While the district court’s order commanded further

arbitration, it also nullified the decision of an arbitration

panel. If an order remanding the case to a different panel

renders a vacatur unreviewable, parties to an arbitration

within its narrow statutory limits governing vacatur of

the original award. Such a result would disserve the

915 F.2d at 1020 (emphasis added, footnote omitted).

the 5 aulesiiie: Miteniiien os | litigation. MacNeil et

al, IV FEDERAL ARBITRATION LAW §43.5.2 at 43.56

"* In Volt a specific choice of law clause was contained in the

contract. 489 U.S. at 471-76.

13

(1994). When the issue of appealability is inextricably intertwined

with a substantive issue, great advantages exist in “candidly

deciding the merits rather than toying with them in a jurisdictional

minuet.” Locals 2222, 2320 - 2327, Int'l Brotherhood of

Electrical Workers v. New England Tel. & Tel. Co., 628 F.2d

644, 646 (Ist Cir. 1980(LMRA §301 citation omitted). This

case and others like it that are certain to arise require a resolution

of this conflict which is a direct result of the FAA and this Court’s

decisions interpreting the FAA.

i fli i e n

The conflict between the FAA and the UAA's provision that

renders vacatur with remand nonappealable was directly

addressed in Atlantic Aviation, Inc. v. EBM Group, Inc., 11 F.3d

1276 (Sth Cir. 1994). In Atlantic the plaintiff brought suit in state

court to modify, correct and confirm an arbitration award. 11

F.3d at 1278. The defendant removed the case to federal district

court on the basis of diversity jurisdiction and counterclaimed for

vacatur and remand. Jd. The trial court found the award

unenforceable and remanded the matter for arbitration before a

new panel. Jd.

On appeal, it was asserted that the Fifth Circuit lacked

appellate jurisdiction because the contract containing the

arbitration agreement provided that the “arbitration award ‘shall

be reviewable only as provided for under the Uniform Arbitration

Act.”” 11 F.3d at 1279 n.5."" The Fifth Circuit rejected this

argument relying on Southland and held that the provisions of the

FAA governed its jurisdiction even in a diversity suit.

'” Under the UAA and MAA, an order for vacatur and remand is

not appealable. See §19 UAA; Minn. Stat. §572.26 subd. 1(5).

14

ab tes beh are.

:

:

If an arbitration agreement is within the coverage of the

FAA, its provisions are applicable in state as well as

federal court. (citations omitted).

* a *

Furthermore, the FAA governs judicial review of

arbitration proceedings notwithstanding any choice of

law provision or state law to the contrary.

11 F.3d 1280 (emphasis added) (citing Mesa Operating Lid.

Partnership v. Louisiana Intrastate Gas Corp., 797 F.2d 238,

243-44 (Sth Cir. 1986) and Northern Illinois Gas Co. v. Airco

Industries Gases, 676 F.2d 270, 274-75 (7th Cir. 1982)).'* In the

final analysis, Atlantic represents the confusion that Volt and

Southland created and the problems that Justice Brennan

identified in his dissent in Volt. 489 U.S. at 488. Arguably,

Allantic was decided wrongly under this Court’s reasoning in Volt

which would have held that the choice of law provision contained

in the contract governed. Nevertheless, the Atlantic decision

failed to cite Volt and instead relied on Cone and Southland which

were both decided before Volt. 11 F.3d at 1280.

Because this Court has held that the FAA is a body of

substantive law to be applied in state and federal courts and that

the FAA governs agreements to arbitrate contained in U-4

applications, then so too must the FAA, when applied in state

court, govern the appellate review of judicial vacatur of

arbitration awards. Failure to clarify and harmonize the express

statutory conflict that exists could give rise to post-arbitration

motion practice forum shopping.

'* The Atlantic opinion also cited to Wright & Miller who observe

that: “[E}ven in a diversity suit or an action in state court if a maritime

transaction or one in interstate or foreign commerce is involved, the

substantive rules contained in the [FAA]...are to be applied regardless of

state law." 13 B C. WRIGHT, A. MILLER, & E. COOPER, FEDERAL

PRACTICE AND PROCEDURE, §3569 (2nd Ed. 1984) (emphasis

added).

15

The Atlantic decision, as it relates to 9 U.S.C. §16, conflicts

with the Texas Court of Appeals decision in Balton v. Green, 801

S.W.2d 923 (Tex. App. 1990) and the Maine Supreme Court’s

decision in Xaphes v. Mowry, 478 A.2d 1299 (Me. 1984).

Notwithstanding the language in Southland that the substantive

law contained in the FAA applies in both state and federal court,

appellate courts in Maine, Texas, and, now, Minnesota have held

that 9 U.S.C. §16(a) is merely procedural. See Xaphes, 478 A.2d

at 301; Balton, 801 S.W.2d at 930. But see A.G. Edwards &

Sons, Inc. v. Clark, 558 So.2d 358 (Als. 1990) (holding that

FAA, 9 U.S.C. §16, applied to an order denying a stay of

litigation and refusing to compel arbitration and that such an order

was appealable).’? Thus, not only is there an explicit conflict

between the FAA and the UAA as enacted in over two-thirds of

the states, but there is a conflict between federal and state courts

as to the applicability of 9 U.S.C. §16(a) in state court.

The interpretation of 9 U.S.C. §16 has also given rise to a

conflict between the Second, Third and Fifth Circuits. In Landy

Michael Realty Corp. v. Local 32B - 37J, 954 F.2d 794 (2nd Cir.

1992), the vacatur and remand of the damages portion of an

arbitration award was held to be nonappealable regardless of the

unqualified language contained in 9 U.S.C. §16(a). 945 F.2d at

797.” But see Virgin Islands Housing Authority v. Coastal Gen.

Const., 27 F.3d 911, 914 (3rd Cir. 1994) (following Fifth

Circuit’s decisions in Atlantic and Forsythe)

'9 Alabama is not a UAA jurisdiction.

a Landy relied in part, on Shearson Loeb Rhoades, Inc. v. Much,

754 F.2d 773 (7th Cir. 1985). 954 F.2d at 797. But Much was decided

before 9 U.S.C. §16 was enacted and therefore has no precedential value.

Moreover, Much suggested in dicta that, as in this case, vacatur and

remand on the basis of partiality was final, not interlocutory, and

therefore appealable. 754 F.2d at 778 n.4.

16

NCLUSION

The standards by which arbitration awards are measured, as

well as the timing of that judicial measurement, directly affects the

integrity of the arbitral process. Having fully embraced arbitration

as an effective and efficient means of resolving disputes, after

years of skepticism, this Court must define and clarify the rights

related to judicial enforcement of and appellate review of

arbitration awards.

The notion that vacatur and remand of an arbitral award

without further appellate review fosters and encourages the use of

arbitration as a dispute resolution tool is superficially appealing

but logically nonsensical. Obviously, it is not favorable to

arbitration of disputes arising in interstate commerce if the means

of judicial review and enforcement of such awards is dependant

upon the procedural vagaries of a particular jurisdiction.

Characterizing 9 U.S.C. §16(a) as procedural, when this Court

has previously held that the FAA is a body of substantive law,

imposes the problems resolved in Erie v. Tompkins, 304 U.S. 64

(1938) upon the arbitral process. In sum, this case gives this court

an opportunity to provide guidance to state and federal courts and

to reconcile and harmonize this Court’s holdings in Volt and

Southland.

17

Based on the foregoing, Steichen respectfully requests this Court

to issue a Writ of Certiorari to the Minnesota Supreme Court.

Dated: July 24, 1995

Steven E. Rau

701 Fourth Avenue South

Suite 500

Minneapolis, Minnesota 55415

COUNSEL FOR PETITIONERS

R.J. STEICHEN & COMPANY

AND JOHN E. FELTL

18

_ APPENDIX TABLE OF CONTENTS

NASD Arbitration Award in

Honn v. RJ. Steichen and John E. Feltl................cc0.--... A-1

(Served September 2, 1994)

(Exhibit A)

Order and Memorandum for

Hennepin County District Court ..00...0.......cecccccccsceesseeeoececcce.... A-7

(Filed January 20, 1995)

(Exhibit B)

Order of Minnesota Court of

Appeals (February 8, 1995) oo... ..ccccccccecccsscsceceecoseeseesceccc., A-15

(Exhibit C)

Order of Minnesota Supreme

EE Lae A-2]

(Exhibit E)

EXHIBIT A

N.A.S.D. AWARD

NATIONAL ASSOCIATION OF SECURITIES DEALERS,

INC.

In the Matter of the Arbitration Between

Name of Claimant

Bnian L. Honn

93-02443

and

Name of Respondents

R.J. Steichen and Company and John E. Feitl

P TION OF

Claimant, Brian Honn ("Honn") was represented at the hearing

by Rebecca E. Bender, Esq. of Rebecca E. Bender &

Associates P.A., Minneapolis, Minnesota.

Respondents, R.J. Steichen and Company ("Steichen") and

John E. Feltl ("Feltl") were represented at the hearing by

Steven E. Rau, Esq. of Maun & Simon, Minneapolis,

Minnesota.

PUBLISHER'S NOTE:

ORIGINAL PAGINATION IS NOT CONTINUOUS.

Honn also alleged that Steichen and Feltl committed the

following violations: violation of Min. Stat. Section 181.145;

breach of contract, misrepresentation; promissory estoppel;

defamation; interference with business; and civil

conversion/violation of NASD Rules of Fair Practice.

Respondents Steichen and Feltl generally denied the

allegations set forth in the Statement of Claim. Steichen and

Feltl stated that they did not make any misrepresentations and

did not unlawfully withhold any money or securities from

Honn. Steichen and Felt! also stated that training was offered

to Honn, but was not mandatory. Steichen and Felt! stated

that the U-5 was not defamatory.

RELIEF REQUESTED

Claimant Honn requested the following: commission amounts,

damages due to Respondents breach of contract, damages plus

penalties pursuant to Minn. Stat. Sec. 181.145, damages

caused by the negligent and/or fraudulent misrepresentations

of Respondents, damages based on defamation, damages on a

promissory estoppel theory of liability, damages due to

Respondents civil conversion in violation of the NASD Rules

of Fair Practice, damages due to Respondent's interference

with his business; punitive damages, attorney's fees, pre-

judgment interest, post-judgment interest, costs, filing and

hearing fees and other disbursements, and other further or

different relief as the panel deems just and equitable.

Respondents Steichen and Felt! requested that the Statement

of Claim be dismissed with prejudice, and that they be

awarded their costs and expenses, including attorney's fees and

such other further relief as the panel may deem just and

equitable.

A-3

4. Respondent R.J. Steichen shall be and hereby is liable

for, and shall pay to the Claimant, damages for penalties

in the amount of Two Thousand, Four Hundred Thirty

Seven Dollars and Fifty Cents ($2,437.50) for violation of

Minn. Stat. Sec. 181.145 as set forth in claimant's

requested relief;

5. Respondent R.J. Steichen shall be and hereby is liable

for, and shall pay to the Claimant, attorney's fees in the

amount of Two Thousand, Four Hundred Thirty Seven

Dollars and Fifty Cents ($2,437.50). The panel awarded

attorney's fees under the authority of Minn. Stat. Sec.

181.145;

6. Respondent R.J. Steichen shall, in addition to the

above, promptly cause to be prepared and filed with the

N.A.S.D., CRD amendments to Claimant's form U-5 in

accordance with the Rules of Fair Practice and consistent

with factual information known by Respondent R_J.

Steichen;

7. All other requests not specifically provided for herein

are denied by the panel;

8. Each of the parties shall bear their own costs and

expenses, other than those specifically enumerated for

herein.

FORUM FEES

Pursuant to §43(c) of the N.AS.D. Code of Arbitration

Procedure, the National Association of Securities Dealers, Inc.

("N.A.S.D.") shall retain the non-refundable filing fee in the

amount of $500.00 and shall retain as forum fees the hearing

session deposit in the amount of $750.00 previously deposited

with the N.A.S.D. by the Claimant.

A-5

EXHIBIT B :

STATE OF MINNESOTA DISTRICT COURT

COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT

Brian L. Honn,

Plaintiff, ORDER AND MEMORANDUM

File No. CT 94-15904

V.

R.J. Steichen and Company

and John E. Feltl,

Defendants.

The above-entitled matter came on for hearing before the

Honorable Delila F. Pierce, one of the judges of the above-

named court, on the 15th of December, 1994, on Plaintiff's

motion to vacate arbitrators, award and Defendants’ motion to

confirm arbitration award at the Hennepin County

Government Center, Minneapolis, Minnesota.

Rebecca E. Bender, Esq. appeared for and on behalf of

Plaintiff; Steven E. Rau, Esq. appeared for and on behalf of

Defendants.

Now, therefore, based on the files, records and

proceedings and the arguments of counsel:

A-7

MEMORANDUM

Facts

This matter comes before the Court on Plaintiff's motion

to vacate the arbitrators’ decision in the National Association

of Securities Dealers, Inc. (NASD) arbitration captioned Bran

L. Honn v. RJ. Steichen and company and John E. Feiltl,

NASD Case No. 9302443, and on Defendants’ motion to

confirm same.

Plaintiff, a securities broker, brought an action against his

former employer, R.J. Steichen and Company (R.J. Steichen),

a brokerage firm, and its president/owner John E. Feltl, for

defamation, breach of contract and misrepresentation, after

Plaintiff had voluntarily left the employment of R.J. Steichen.

Brokers are required, under the Rules of the NASD, to

have their claims decided by an NASD arbitration panel.

Therefore, the case was heard by a panel of arbitrators

appointed by the NASD. The NASD panel awarded Plaintiff

$7312.50 together with pre-judgment interest against

Defendants.

Defendants allege that Plaintiff's discontent with the

award is the underlying reason for his motion to vacate the

Piamtiff availed himself of all of the advantages of arbitration

until Plaintiff received an award with which he was

dissatisfied. Defendants also claim that at the end of the

arbitration, all parties agreed that they had received a fair and

impartial hearing on the issues. Defendants contend that

because Plaintiff has received a fair hearing, this Court should

confirm the NASD arbitrators’ award.

Plaintiff, however, argues that the arbitration proceeding

was unfair. Plaintiff contends that the arbitrators’ award was

procured by corruption, fraud or other undue means. In

addition, Plaintiff claims that there was evident partiality and

A-9

Minn. Stat. §572.19.

The Minnesota statutory section is modeled after 9 U.S.C.

§10 of the Federal Arbitration Act. 9 U.S.C. §10 provides in

relevant part:

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

any misbehavior by which the rights of any party have

been prejudiced; or

4. Where the arbitrators exceeded their powers.

9 U.S.C. §10. Any one of these individual findings is

sufficient, in and of itself, to vacate the arbitrators’ award.

The standard of judicial review of arbitration procedures

is whether a party to an arbitration has been denied a

fundamentally fair hearing. See Baar v, Tigerman, 140 Cal

App. 3rd 979 (Cal. 1983).

The test to be applied is that of a reasonable person.

More i » an arbitration award must be vacated upon a

received an official response regarding the validity of this

testimony from Schief. In that letter, Schief stated that "[t}he

NASD has a long-standing policy not to provide staff persons

as so-called expert or technical witnesses in private litigation

or in arbitration proceedings."

This letter makes clear that the NASD does not approve

of its employees testifying in arbitration matters. In this case,

the NASD overstepped their own policies and rules. The

court therefore finds that allowing an NASD official to testify

in the arbitration proceeding was unfair and therefore

prejudiced the Plaintiff.

Plaintiffs also contend that the proceeding was ccrrupted

by the NASD coordinator requesting a job from the securities

industry panelist, James Kaiser, a former Paine-Webber

manager.

The arbitration proceeding at issue concerned

misrepresentation, defamation and breach of contract and thus

in accordance with the NASD Rules, two persons not

affiliated with the securities industry and one person

designated as an affiliate of the securities industry, were

chosen to decide the dispute between the parties.

Apparently, during a break in the arbitration hearing,

Sharon Kranz, the Chicago NASD Case Administrator was

talking to James Kaiser, the securities industry arbitrator on

the panel. Kranz, a representative of the impartial sponsoring

entity, was discussing with Kaiser whether Kaiser knew of any

jobs for her in the securities industry.

It is the duty of the NASD Case Administrator (Kranz) to

see that the hearings are conducted in an impartial manner. It

therefore follows that she must be an impartial source of

information owing nothing to the industry. Clearly, there is

too close of a professional connection between the NASD

Case Administrator and the arbitration panel deciding a

dispute for favors to be requested of a panel member.

A-13

EXHIBIT C

STATE OF MINNESOTA

IN COURT OF APPEALS

Brian L. Honn,

Respondent, ORDER

Vs. #CS 95-256

R.J. Steichen and Company,

Appellant.

BASED UPON THE FILE, RECORD AND

PROCEEDINGS, AND BECAUSE THERE IS A

QUESTION WHETHER THIS COURT HAS

JURISDICTION:

1. This appeal was filed February 2, 1995.

2. Appellant seeks review of a January 20, 1995 order

granting respondent's motion to vacate the arbitrator's award

and remanding the matter for rehearing by new arbitrators.

3. Appealable orders in arbitration proceedings are

listed in Minn. Stat. § 572. Mivoi

i 293 Minn. 376, 378, 196

N.W.2d 309, 310 (1972). The statute provides that an appeal

may be taken from an order "vacating an award without

directing a rehearing” Minn. Stat. § 572.26, subd. 1(5)

A-15

jurisdictional i issue raised, the failure to dismiss the appeal may

result in the imposition of sanctions against counsel. See

Radloff v. First Am. Nat'l Bank of St. Cloud, 470 N.W.2d 154

(Minn. App. 1991); Swenson v. City of Fifty Lakes, 439

N.W.2d 758 (Minn. App. 1989); Lund v. Corporate Air, Inc.,

438 N.W.2d 458 (Minn. App. 1989), rev'd in part (Minn. June

21, 1989).

5. This order does not stay or extend briefing deadlines

or other procedural requirements under the rules.

Dated: February 8, 1995

BY THE COURT

s/Anne V, Simonett __

Chief Judge

AW/bim

A-17

(1994); Metropolitan Airports Comm'n _v. Metropolitan

Airports Police Federation, 443 N.W.2d 519, 523 (Minn.

1989). We decline to construe Minn. Stat. § 572.26, subd.

1(3) as allowing an appeal from any order denying

confirmation of an award because it appears the legislature

intended to limit appeals from orders vacating awards to

situations where no rehearing is directed. See Minn. Stat. §

645.17(2) (1994) (presumption that the legislature intends the

entire statute to be effective and certain).

Appellants argue that Minn. Stat. § 572.26, subd. 1(5) is

preempted by the Federal Arbitration Act (FAA) because the

FAA allows an appeal from an order vacating an award,

regardless of whether a rehearing is directed. See 9 U.S.C.A.

§ 16(a)(1)(E) (West Supp. 1994). We hold that the FAA does

not control the process by which substantive rights pertaining

to arbitration are reviewed in state court. See Xaphes_ v.

Mowry, 478 A.2d 299, 301 (Me. 1984); Batton v. Green, 801

S.W.2d. 923, 930 (Tex. App. 1990).

Appellants have not established a compelling reason for

review of the January 20 order. See Mivoi_v. Gold Bond

i 293 Minn. 376, 378,

196 N.W.2d 309, 310 (1972) (declining to grant discretionary

review where nonappealable arbitration order did not expose

the aggrieved party to irreparable damage).

IT IS HEREBY ORDERED:

1. The direct appeal (C5-95-256) is dismissed.

2. The petition for discretionary review (C2-95-392) is

denied.

3. The Clerk of the Appellate Courts shall provide

vopies of this order to the Honorable Delila F. Pierce, counsel

of record, and the court administrator.

A-19

EXHIBIT E

STATE OF MINNESOTA

IN SUPREME COURT

C5-95-256

Brian L. Honn,

Respondent,

vs.

R.J. Steichen & Company, et al.,

Appellants.

ORDER

Based upon all the files, records and proceedings herein,

IT IS HEREBY ORDERED that the petition of RJ.

Steichen & Company, et al. for further review be, and the

same is, denied.

Dated: April 27, 1995

BY THE COURT:

s/ AM. Keith

Chief Justice

ANDERSON, J. took no part in the consideration or decision

of this case.

A-21