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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1995
- **Citation:** 516 U.S. 867

## Text

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

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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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386012_2404%3A1. Public record. Not legal advice.