Opposition Brief — Duke v. Marshall & Co.

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No. 97-972 JAN 12 1993 |

Se CiaRK J

Supreme Court of the United States

--

October Term, 1997

PAUL A. DUKE, Individually and As Trustee for TERRI L.

STRICKLAND, JEAN F. DUKE, PAUL A. DUKE, JR., C.

HUNTER TISON, LAURA D. TISON, RUTH STRICKLAND,

HERB STRICKLAND, JON A. PIRTLE, RONALD G. GREEN

and MATTHEW H. PATTON,

Petitioners,

vs.

MARSHALL & CO., INC., KENTWOOD BRETT THACKSTON,

MARSHALL & CO. SECURITIES, INC. and MICHAEL P.

MARSHALL,

Respondents.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Eleventh Circuit

RESPONDENTS’ BRIEF IN OPPOSITION

PETER W. SCHNEIDER

Counsel of Record

LAURA H. ROBISON

ROGERS & HARDIN LLP

Attorneys for Respondents

2700 International Tower

Peachtree Center

229 Peachtree Street, N.E.

Atlanta, Georgia 30303

(404) 522-4700

ave

i

QUESTIONS PRESENTED

The Respondents do not agree that this case presents the

questions identified by the Petitioners. The case presents the

following questions:

1. Did the Court of Appeals and the District Court properly

conclude that the arbitrators did not exceed their powers,

pursuant to 9 U.S.C. § 10(a)(4), when they awarded Respondents

attorney’s fees as had been requested in the pleadings and

stipulated to the arbitration panel as an issue they should decide?

2. Did the Court of Appeals and the District Court properly

conclude that the arbitrators did not act arbitrarily or capriciously

in awarding the Respondents attorney’s fees based on an

extensive record which included briefs from all parties

specifically addressing the issue of attorney’s fees?

3. Did the Court of Appeals and the District Court properly

conclude that the arbitrators were not guilty of “misconduct”,

pursuant to 9 U.S.C. § 10(a)(3), when they denied the last of

Petitioners’ requests for adjournment of a scheduled session after

granting them numerous prior adjournments and giving them

alternative opportunities to submit additional evidence?

li

LIST OF PARTIES AND

CORPORATE DISCLOSURE STATEMENT

The Petitioner has correctly identified the parties before

the Eleventh Circuit. Pursuant to Rule 29.6 of the Rules of this

Court, the Respondents submit the following list of all parent

companies and nonwholly owned subsidiaries of the corporate

Respondents:

Respondent Marshall & Co., Inc.

Parent: None

Subsidiaries: None

Respondent Marshall & Co. Securities, Inc.

Parent: None

Subsidiaries: None

il

TABLE OF CONTENTS

Page

| ET TTT Ee TERT RET TTET eke i

List of Parties and Corporate Disclosure Statement ... ii

pn EN Perr oe eT eee TEEPE Teer Ee ili

A ee a iv

Statutes and Regulations Involved ................. l

| ETT TUES ETE LITRE l

A. Procedural History ............... errr rer l

A III, oS wa usu cccccsesccceces 2

1. Parties and Pre-Hearing Events ......... 2

i I ES A ow cc cca cccccesesss 3

3. Petitioners’ Adjournment History ....... 4

4. The April 14-16 Dates ................ 5

oe ENP Seana Sere 6

Reasons for Denying the Writ ..............-.44.. 7

I. The Court Of Appeals Applied The Clear And

Proper Standard In Reviewing The Arbitration

SED VOR ERE Cada s yc bekat er sti stun ces « 8

iv

Contents

Page

II. The Court Of Appeals Correctly Found That The

Arbitrators Had The Authority To Award

Respondents Attorney’s Fees. .............. 9

Ill. The Court Of Appeals Correctly Found That The

Award Of Attorney’s Fees Was Not Arbitrary And

RAY Ska cccnbsnsuseecousanndoetees 14

IV. The Court Of Appeals Correctly Found That The

Arbitrators Were Not Guilty Of Misconduct In

Failing To Grant Petitioners An Additional

FUNG: 656 5A. s 05 vb 560 b Ri ek os 17

RMI 5 5 sb ikotiseic ace 18

TABLE OF CITATIONS

Cases Cited:

Advest, Inc. v. McCarthy, 914 F.2d 6 (1st Cir. 1990) .. 8, 15

A.G. Edwards & Sons, Inc. v. McCullough, 764 F. Supp.

1365 (D. Ariz. 1991), reversed on other grounds, 967

WAM SURE NUMECGEE BOUT hci ks ok oN awed ce axis. 17

Ainsworth v. Skurnick, 909 F.2d 456 (11th Cir. 1990) . 15

Alyeska Pipeline Service Co. v. Wilderness Society, 421

SF ix GN GENTE ca sing: +4. thank Osea we 11

Brady v. Hartford Fire Ins. Co., 610 F. Supp. 735 (D. Md.

UNE. bindu e en Sud Sa chdedns cates eee 16

Contents

Page

Brown v. Rauscher Pierce Refsnes, Inc., 994 F.2d 775 (ilth

Che. 1993) .ccccccvccpesccssaccsdytvee sie.sevis ss l4

Concourse Beauty School, Inc. v. Polakov, 685 F. Supp.

1311 (S.D.N.Y. 1988) ...... 0. cece cece cece rere 17

Dean Witter Reynolds, Inc. v. Bork, No. 91-0392, 1991

U.S. Dist. LEXIS 11907 (E.D. Pa. Aug. 20, 1991) .. 11

First Interregional Equity Corp. v. Haughton, 842 F. Supp.

105 (S.D.N.Y. 1994) ....... eee eee cece eee eeeees 13

First Options of Chicago v. Kaplan, 514 U.S. 938 (1995)

Tee er re ON er eT Tr te er re eh 7,8

Flender Corp. v. Techna-Quip, Co., 953 F.2d 273 (7th Cir.

| ere rr eee. 14

Folkways Music Publishers, Inc. v. Weiss, 989 F.2d 108

(2d Cir, 1993) ....ccccvenvecccccvecccccceeens 10

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

EDDA) on icvnis Scpinivin Wein ow oGSie'e on Sense sin we do's 10, 12

lerna v. Arthur Murray Int'l, 833 F.2d 1472 (11th Cir.

SOOT) a ben cinta dds AGPOR Rs aR RAR ET 9 BS sees 13

International Longshoremen’s Ass'n, AF L-CIO v. Hanjin

Container Lines, Ltd., 727 F. Supp. 818 (S.D.N.Y. 1989)

he eee Te Pe ee! eee ET Ty te eee 12

vi

Contents

Page

J.A. Jones Construction Co. v. Flakt, Inc., 731 F. Supp.

RODE UI a: AOD aks hides s civ 1]

Kamakazi Music Corp. v. Robbins Music Corp., 684 F.2d

SOO CB Ee: BOOP ie ns kok Re eee 12

Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S.

oe UT ad ish tahini cE ee 13

Matter of Prudential-Bache Sec., Inc. and Depew, 814 F.

Supp. 1081 (M.D. Fla. 1993) ................... 13

Matter of U.S. Offshore, Inc. (Seabulk Offshore, Ltd.), 753

. Sepp. 66. S.DIL.Y. 1900) o.oo cccccccccecne., 11, 13

National Post Office v. United States Postal Service, 751

7 | en ae eee 17

National Wrecking Co. v. International Bhd. of Teamsters,

Local 731, 990 F.2d 957 (7th Cir. oe ae 9

O.R. Securities, Inc. v. Professional Planning Assoc., Inc.,

O57 Oe PAS CEN CH 1OBOD ions oii cdekcwdc ce. 14

PaineWebber, Inc. v. Bybyk, 81 F.3d 1193 (2d Cir. 1996)

Kew CRs Cade Ces Shia 46h be abs ss bee ee 13

Perichak v. International Union of Elec. Radio and Mach.

Workers, 715 F.2d 78 (3d Cir. 1983) ............. 14

Raiford v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,

903 F.2d 1410 (11th Cir. 1990) ................. 14

Contents

Page

Remmey v. PaineWebber, Inc., 32 F.3d 143 (4th Cir. 1994)

be GAR SLE CL OST OOOO ETT TOPE Oe Tee ee 9

Reyes Compania Naviera S. A. v. Manumante S. A., 649

F. Supp. 789 (S.D.N.Y. 1986) ....----+eeeeeeeees 12

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

on other grounds, First Options of Chicago, Inc. v.

Kaplan, 514 U.S. at 948 ....--eeeeeeeeeee 8, 9, 14, 16, 17

Safeway Stores v. American Bakery and Confectionery

Workers Int’l Union, Local 111, 390 F.2d 79 (Sth Cir.

SEE i en kn vin trea eae cod \euee ee gtarese tees 15

Schmidt v. Finberg, 942 F.2d 1571 (11th Cir. 1991) ... 17

Shearson/American Express, Inc. v. McMahon, 482 US.

220 (1987) ...cccccccccvccecccccnvccesssseees 8

Sidag Aktiengesellschaft v. Smoked Foods Prods. Co., 960

F.2d 564 (Sth Cir. 1992) ...... cee cece eeceeeeees 16

Teamsters Local Union No. 764 v. J. H. Merritt & Co.,

770 F.2d 40 (3d Cir. 1985) ....-. cece rere ee eees 13

United Steelworkers of America v. Warrior and Gulf

Navigation Co., 363 U.S. 574 | Sen 13

Willoughby Roofing and Supply Co. v. Kajima Int’l, Inc.,

776 F.2d 269 (11th Cir. 1985) ......- eee eee eee 10

viii

Contents

Page

Statutes Cited:

Fe ee ics st os ei cea l

PAPO feo Ok + iri rin bee bece eee l

PUSS 4 OO. ee SERRE i

PAE STO) 6 v's eds tars pain Seabee iO a oe i, 10, 11

1

STATUTES AND REGULATIONS INVOLVED

The Federal Arbitration Act, 9 U.S.C. § 1, et seq. is involved

in this case and in particular, 9 U.S.C. § 10, as cited by petitioners.

STATEMENT OF THE CASE

The Respondents do not agree that the Petitioners’ Statement

of Claim is sufficient to outline the questions presented for review.

The Respondents, therefore, provide the following statement:

A. Procedural History

This matter originates from a consolidated arbitration

proceeding before a three-member panel of arbitrators from the

National Association of Securities Dealers (“NASD”). The

arbitration began on February 13, 1992 and ended on December

23, 1994, with an award in favor of Respondents.

After 58 arbitration sessions Petitioners’ case was closed, and

the arbitration panel (“Panel”) granted Respondents’ motion to

dismiss the claims in an Interim Award dated August 9, 1994. At

the Panel’s direction, the parties then submitted briefs on the

question of attorney’s fees. On December 23, 1994, the arbitrators

issued a Final Award affirming their earlier decision to dismiss and

awarding Respondents attorney’s fees and costs. (Appendix to

Petition, p. 9a).

Shortly thereafter, Respondents filed a Petition to Confirm

Arbitration Award in United States District Court for the Northern

District of Georgia, and Petitioners answered and cross-moved to

vacate. On July 26, 1995, the district court granted Respondents’

petition to confirm and denied Petitioners’ motion to vacate. After

considering motions to alter or amend the judgment filed by both

parties (Respondents’ motion sought to add pre-judgment interest)

2

the court entered an amended judgment on April 1, 1996, including

the pre-judgment interest.

The Petitioners appealed to the Eleventh Circuit Court of

Appeals which affirmed the judgment of the District Court on June

10, 1997, and on September 11, 1997 denied the Petitioners’ request

for rehearing en banc.

B. Factual Background

1. Parties and Pre-Hearing Events

The Petitioners in this case include Paul A. Duke, Jean F. Duke.

Paul A. Duke, Jr.,C. Hunter Tison, Laura D. Tison, Ruth Strickland.

Herb Strickland, Jon A. Pirtle and Paul A. Duke, as Trustee for

consolidated the three arbitrations into a single proceeding. (R1-5,

R1i-1, Att. 3)."

i. Citations in the form “R-__” are to the record before the Eleventh

Circuit Court of Appeals.

3

The Respondents in the case include Marshall & Co. Securities,

Inc., where Petitioners held brokerage accounts and Marshall &

Co., Inc., a holding company. Brett Thackston served as Petitioners’

stockbroker at Marshall Securities for many years. Michael

P. Marshall was the President of Marshall Securities during the

relevant time period and was also one of the firm’s eleven managing

directors. (R1-5, Tr. at 5321, 5326; 123, 132-35).

The Panel consisted of two attorneys, A. Keith Logue, Esq.

(chairman) and James R. Giblin, Esq., and Mr. Ronald Lankford, a

securities professional (R1-5, Tr. 3), arbitrators who had presided

over at least 16 arbitrations. The arbitrators’ authority to hear the

case was based on Uniform Submission Agreements signed by

Petitioners. The NASD Code of Arbitration Procedure (“NASD

Code”) governed the proceeding as supplemented by a “Joint

Preliminary Statement and Scheduling Order” (“Joint Scheduling

Order’) submitted on consent by the parties. (R1-5).

2. Petitioners’ Claims

Petitioners pursued three basic claims, all involving their

investment in a Florida-based telecommunications company called

Central Corporation (“Central”). First, they alleged that

Mr. Marshall conspired with another Atlanta businessman to

engineer a “sham bankruptcy” of Central in November 1988 to the

detriment of hundreds of Marshall Securities’ customers holding

- Central stock, including Petitioners. Petitioners argued

Mr. Marshall’s alleged actions were motivated by a secret scheme

to transfer Petitioners’ equity interests to himself and his associates.

Second, Petitioners claimed Mr. Thackston charged them unlawful

prices for Central stock. Specifically, they asserted he marked-up

the price of the stock beyond the NASD’s guidelines. Third, they

claimed Mr. Thackston misled them about Central's financial

condition, prompting their repeated purchases of the stock from

1984-1989. Petitioners asserted that, without these alleged

4

misrepresentations, they would have sold their stock for a sizeable

profit prior to the October 1987 stock market crash. (R1-5 Tr. 35-

36, 40-41, 2449-50).

the Panel found that nothing supported these contentions. Mr.

Marshall acquired his interest in Central in a transaction approved

by the bankruptcy court. Central’s Board of Directors made the

decision to file bankruptcy, not Marshall Securities. Petitioners’

equity in the company was not transferred to Mr. Marshall, it went

to the company’s creditors and new owners pursuant to a court-

Petitioners received discounts on their commissions. Evidence

offered at the hearing showed that the NASD specifically had

reviewed Mr. Thackston’s trades and found them to be well within

acceptable markups. Finally, the evidence revealed Petitioners knew

about Central’s financial condition. Moreover, Mr. Thackston’s

statements about Central — many of which were recorded

surreptitiously by Mr. Patton (who secretly taped over 130 telephone

employees) were completely accurate, even when evaluated with

the glare of hindsight. (R1-5, Tr. 170, 649, 857, 4561, 4690, 5260

5317-5565, 5774).

3. Petitioners’ Adjournment History

During the course of the arbitration, Petitioners called a total

of 19 witnesses and submitted 26 volumes of exhibits.

Jr., Mr. Green and Mr. Patton all testified, often for multiple sessions.

From time to time, they also furnished the Panel with legal

memoranda or summaries of their position. Their case occupied

58 sessions over 31 days. From beginning to end, the arbitration

lasted five years. (R1-5).

5

The Panel bent over backwards to accommodate Petitioners’

schedules. In total, Petitioners requested that almost 22 days of

hearing be rescheduled and obtained 16% days worth of

adjournments as their case-in-chief stretched over a two-year period.

Petitioners offered a laundry list of reasons for cancelling a session,

including some as far-fetched as the “Blizzard of '93" (which

occurred over a weekend). (R2-6, chart, p. 18-19).

Tired of the delays, the NASD asked the parties for available

session dates in late 1993 and early 1994 to finish the arbitration.

In a January 27, 1994 letter, Petitioners informed the NASD that

they were “unfortunately” unavailable for the hearing during 115

of the 118 business days between January 27 and July 1994. Shortly

thereafter, they informed the NASD that they were no longer

available for the three days they previously had identified as open.

Respondents presented evidence to the Panel that Petitioners were

delaying the arbitration intentionally, as part of an overall plan to

force a favorable settlement by waging a war of attrition. (R2-6,

Vol. “Selected Correspondence”)

4. The April 14-16 Dates

Following a conference call on February 23, 1994, the Panel

scheduled a session for April 14-16, 1994, dates specially selected

by Petitioners. In that call, William Sumner, one of Petitioners’

counsel, agreed either to be present for these sessions or to have

another attorney from his office there to present evidence. In a

special Order dated March 23, 1994, the Chairman confirmed the

Panel's prior direction that Petitioners “will complete their case in

chief with their final witnesses whose names have been previously

provided to Respondents”. (R2-6).

By that time, Petitioners could identify only four more

witnesses whom they might call. Prior to the April 14 session,

Petitioners narrowed their witness list to just one “half-day” witness,

6

Stuart Lewis, a Texas resident. Petitioners failed, however, to secure

Mr. Lewis for this session. In fact, Respondents’ investigation

revealed that Petitioners had only contacted Mr. Lewis the week

before the session. /d.

Even though they appeared at the April sessions without a

witness, the Panel informed Petitioners they could supplement the

record, if they wished, with affidavits or deposition testimony from

Mr. Lewis. The Panel said they would meet on April 15 and 16 if

Petitioners desired to present a live witness. The Panel also set a

briefing schedule for Respondents’ motion to dismiss. Petitioners

never objected to this schedule nor did they file a protest with the

Panel — or with a court — concerning the denial of their

postponement request.

5. The Award

On May 2, 1994, after Petitioners’ case had ended, Respondents

filed a motion to dismiss, supporting it with a lengthy memorandum

of law. Petitioners responded to the motion with a 91-page brief of

their own, as well as host of exhibits. On August 22, 1994, the

Panel entered an “Interim Order,” which granted Respondents’

motion. In the Interim Award, the Panel stated it was considering

awarding attorney’s fees to Respondents. The Panel requested the

parties to “provide statutory authority and/or case law demonstrating

an arbitration panel’s authority to render attorney’s fees.” It also

asked Respondents to submit proof of their fees and expenses.

(R1-5).

In response, Respondents submitted numerous affidavits,

attesting to the amount and reasonableness of the fees sought. They

also submitted a memorandum and reply memorandum of law

discussing the Panel’s authority to award attorney’s fees and

expenses. Petitioners opposed the motion. They, too, filed a lengthy

brief, though they never submitted any affidavits or expert testimony

disputing the amount or reasonableness of the fees requested.

(R1-5).

7

On December 23, 1994, the Panel entered its Final Award. It

affirmed its earlier dismissal of Petitioners’ claims, and assessed

$634,017.27 in attorney’s fees and expenses and $64,000 in forum

charges against Petitioners and in favor of Respondents. The award

specifically recited the background facts and the Panel’s authority

to award attorneys fees and expenses. (Appendix to Petition,

pp. 25a-37a).

REASONS FOR DENYING THE WRIT

The Court should deny certiorari because Petitioners’ only real

ground is that they are unhappy with the Panel’s decision. They are

simply arguing that the Panel made erroneous factual findings and

misapplied the law — factors that do not justify the granting of

petition for certiorari. The Petitioners’ arguments to this Court are

the same as those raised in the lower courts. The Petitioners are

unhappy with the arbitrators’ decision and they want the Court to

substitute its judgment for that of the Panel. The courts below

correctly rejected Petitioners’ arguments, and instead applied settled

case law, including decisions of this Court, that set out the standard

for reviewing arbitration awards. In so doing, the District Court

and the Court of Appeals properly refused to second-guess the Panel

and confirmed the arbitration award.

In short, this case involves the routine review of an arbitration

award; there is no issue that warrants review by this Court. For

example, the Petitioners have not and cannot argue that there is a

split in authority regarding the issues in this case. The law governing

the review of arbitration awards is not in conflict and, in fact,

recently was addressed by this Court in First Options of Chicago v.

Kaplan, 514 U.S. 938 (1995). And this legal standard was applied

and followed by the lower courts in confirming the award.

The only ground put forth by Petitioners to support their

petition is that the arbitration process is somehow “unfair” because

the validity of the arbitration process for hearing claims such as

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

220, 232 (1987) (holding that the arbitrators are “capable” of

determining federal securities law claims and the “streamlined

procedures of arbitration do not entail any consequential restriction

on substantive rights”). And the arguments put forth by Petitioners

provide no ground for further elucidation of the Court’s earlier

ruling. Moreover, as the lower courts correctly found and as

discussed below, the arbitration process was fair to Petitioners and

the arbitrators’ actions were supported by the record and facts of

the case.

THE COURT OF APPEALS APPLIED THE CLEAR

AND PROPER STANDARD IN REVIEWING THE

ARBITRATION AWARD.

No conflict exists regarding the appropriate standard to apply

to the review of an arbitration award. As this Court recently noted,

a court should give “considerable leeway” to an arbitrator’s ruling,

setting aside his or her decision only in certain narrow

circumstances. First Options of Chicago, Inc. v. Kaplan, 5\4 U.S.

at 943. Thus, a court’s review of the arbitration process is “severely

limited” and “the Federal Arbitration Act presumes that reviewing

courts will confirm arbitration awards. ...” Robbins v. Day, 954

F.2d 679, 682 (11th Cir. 1992), overruled on other grounds, First

Options of Chicago, Inc. v. Kaplan, 514 U.S. at 948-949.

Courts hearing motions to vacate “do not sit to hear claims of

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

reviewing decisions of lower courts.” Advest, Inc. v. McCarthy, 914

F.2d 6, 8 (1st Cir. 1990) (citation omitted). Arbitration awardscannot

be overturned merely because the reviewing court may dsagree

9

with the arbitrator’s conclusion or may believe a different decision

is better. See Remmey v. PaineWebber, Inc., 32 F.3d 143, 146 (4th

Cir. 1994). Judicial intervention under the FAA is so narrow that,

[t]he statute does not allow an arbitration award to

be vacated solely on the basis of error of law or

interpretation but requires something more, such as

misconduct pertaining to the proceedings on the part

of the arbitrators or the parties.

Robbins v. Day, 954 F.2d at 683. Given this limited review, a

court must not second-guess a panel’s rulings. “Arbitrators do

not act as junior varsity trial courts where subsequent appellate

review is readily available to the losing party.” National Wrecking

Co. v. International Bhd. of Teamsters, Local 731, 990 F.2d 957,

960 (7th Cir. 1993). In reviewing arbitral awards, a court is

supposed to determine “whether the arbitrators did the job they

were told to do — not whether they did it well, or correctly, or

reasonably, but simply whether they did it.” Remmey v.

Paine Webber, Inc., 32 F.3d at 146 (citations omitted).

Both the District Court and the Court of Appeals followed

these standards in reviewing the arbitration award.

Il.

THE COURT OF APPEALS CORRECTLY FOUND

THAT THE ARBITRATORS HAD THE AUTHORITY TO

AWARD RESPONDENTS ATTORNEY’S FEES.

The Panel set forth three sources for its authority to award

attorney’s fees:

First the parties agreed to submit the issue of

attorneys’ fees and expenses to the panel so that an

10

enforceable “bilateral agreement” exists . . . Second,

the NASD rules and the Uniform Submission

Agreement executed by Claimants provide for

submission of all disputes by the parties to

arbitration. Third, every judicial and quasi-judicial

body has the right to award attorneys’ fees under the

common law bad faith exception to the “American

rule”.

(Appendix to Petition, p. 36a) (citations omitted).

While the Panel identified its authority to award attorney’s

fees, it chose not to discuss its rationale for the award. Arbitrators

are not required to do so. See, e.g., Folkways Music Publishers,

Inc. v. Weiss, 989 F.2d 108, 112 (2d Cir. 1993) (“Arbitrators need

not give reasons for their determinations.”)

A challenge to an arbitration award on the basis that an

arbitration panel has exceeded its authority turns on whether the

arbitrators had the power to decide an issue submitted to them. As

the Court of Appeals correctly stated, “[o]nly once source of

authority is necessary to affirm the decision.” (Appendix to Petition,

p. 4a). In reviewing an award pursuant to a Section 10(a)(4)

challenge, courts examine whether there was any basis whatsoever

for permitting the panel to rule, with all doubts concerning the

arbitrability of an issue resolved in favor of finding the authority.

Willoughby Roofing and Supply Co. v. Kajima Int'l, Inc., 776 F.2d

269 (11th Cir. 1985). Further, while arbitrators should not act in a

“wholesale departure from the law”, they are allowed to interpret

the law and the scope of their authority expansively. E.g., Gilmer v.

Interstate/Johnson Lane Corp., 500 U.S. 20, 32 (1991)

(“[A]rbitrators do have the power to fashion equitable relief”).

Significantly, although they are claiming the Panel lacked all

authority to award fees, Petitioners have undercut this argument

by acknowledging in their filings in the lower courts that the Panel

had at least one basis upon which fees could be awarded — a finding

11

of bad faith. One of the three grounds on which the Panel based its

attorney’s fees award was the “bad faith exception” to the American

Rule. In relying on that legal basis, the Panel cited specifically to

Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240

(1975) and Dean Witter Reynolds, Inc. v. Bork, No. 91-0392, 1991

U.S. Dist. LEXIS 11907 (E.D. Pa. Aug. 20, 1991). These two

decisions recognize that arbitrators have the power to award

attorney’s fees as a means to protect the integrity of the arbitration

process.

Petitioners do not dispute that the “bad faith exception” to the

American Rule is a proper source of authority for the arbitrators to

grant fees. (Petitioners’ Eleventh Circuit Br. at p. 24). They have

never argued, nor can they, that the Panel exceeded its powers by

relying on the bad faith exception. They simply disagree with the

Panel’s determination under that authority.

This concession ends the analysis. A panel either has the power

to make a ruling or it lacks the power. Where, as here, a party

concedes that the panel was executing authority it rightfully

possessed, there can be no claim for vacatur under Section 10(a)(4)

of the FAA. This is true even if the arbitrators improperly interpreted

or misapplied the law. J.A. Jones Construction Co. v. Flakt, Inc.,

731 F. Supp. 1061, 1064 (N.D. Ga. 1990) (arbitrators do not “exceed

their powers” by making a decision contrary to law, but rather only

if “they rule on matters outside of their proper consideration.”)

The Court of Appeals also correctly found that the parties

submitted the issue of attorney’s fees to the Panel by agreement.

(Appendix to Petition, p. 4a). Where the parties jointly submit the

issue of attorney’s fees and expenses for decision by an arbitration

panel, this submission constitutes an enforceable bilateral

agreement which allows the panel to award such fees. E.g., Matter

of U.S. Offshore, Inc. (Seabulk Offshore, Ltd.), 753 F. Supp. 86

(S.D.N.Y. 1990). An agreement to arbitrate “vests the arbitrators

12

with powers as broad as the agreement explicitly or implicitly

provides.” Reyes Compania Naviera S. A. v. Manumante S. A., 649

F. Supp. 789, 791 (S.D.N.Y. 1986); Gilmer v. Interstate/Johnson

Lane Corp., 500 U.S. 20 (1991) (arbitrators can decide age

discrimination claim).

Once the parties decide to arbitrate, they can submit any issue

they desire for a ruling. “[I]t is hornbook law that parties by their

conduct may agree to send issues outside an arbitration clause to

arbitration.” Kamakazi Music Corp. v. Robbins Music Corp., 684

F.2d 228, 231 (2d Cir. 1982). If a party voluntarily submits an issue

to arbitration, that party cannot later argue the arbitrator lacked

authority to resolve the dispute just because he is displeased with

the outcome. International Longshoremen’s Ass’n, AFL-CIO v.

Hanjin Container Lines, Ltd., 727 F. Supp. 818, 821 (S.D.N.Y.

1989).

Here, the parties in their individual pleadings and in a Joint

Scheduling Order expressly requested the Panel to award attorney’s

fees and expenses as part of its final judgment. (R1-5). Respondents’

counterclaim requested fees on the grounds that the “allegations

contained in the Statement of Claims are substantially without

justification, frivolous, lack a factual or legal basis and, on

information and belief, were asserted in bad faith.” Id. No objection

to the counterclaim was lodged. Shortly after the arbitration began,

Respondents filed an Amended Counterclaim pursuant to an Order

of the Panel. The Amended Counterclaim asserted a claim for

attorney's fees detailing in 10 pages the misconduct which justified

such an award. (R1-5). Moreover, at the time the Amended

Counterclaim was filed, the Chairman stated that the Panel would

hear it, adding, “Is that agreeable to all the parties?” Petitioners’

counsel, Mr. Sumner replied, “So stipulated.” (R1-5, Tr. at 380).

These various submissions reflect the parties’ intent to

authorize the Panel to award attorney’s fees and expenses. No party

13

objected to the Panel’s authority or jurisdiction to decide fee

requests. The case of Matter of U.S. Offshore, Inc. (Seabulk

Offshore, Ltd.), 753 F. Supp. 86 (S.D.N.Y. 1990) is on point. In

that case, the parties each had included a prayer for costs and

attorney’s fees in their pleadings. The Court of Appeals held that

these requests constituted a bilateral agreement to arbitrate the

attorney’s fee dispute and, therefore, upheld the grant of fees by

the Panel. Jd. at 92. Accord, First Interregional Equity Corp. v.

Haughton, 842 F. Supp. 105, 112 (S.D.N.Y. 1994); Teamsters Local

Union No. 764 v. J. H. Merritt & Co., 770 F.2d 40 (3d Cir. 1985)

(and other authorities cited to the Court of Appeals).

Further, although Petitioners argue that attorneys fees may be

awarded “only when the contract expressly includes an express

authorization,” citing Matter of Prudential-Bache Sec., Inc. and

Depew, 814 F. Supp. 1081, 1084 (M.D. Fla. 1993) (emphasis in

original), this position is plainly contradicted by decisions of this

and other courts. See Mastrobuono v. Shearson Lehman Hutton,

Inc., 514 U.S. 52 (1995) (holding that arbitrators may award punitive

damages under arbitration agreement providing simply that “any

controversy” is subject to arbitration); Jerna v. Arthur Murray Int'l,

833 F.2d 1472, 1476-77 (11th Cir. 1987) (upholding award of

attorney’s fees by arbitrators and noting “Courts are not to vacate

arbitral awards except in the rare instances when the arbitrators

... exceed a specific contractual limitation on the scope of their

authority”) (emphasis added); PaineWebber, Inc. v. Bybyk, 81 F.3d

_ 1193, 1202 (2d Cir. 1996). Further, this Court fas mandated that

any doubts about coverage of a particular dispute should be resolved

in favor of arbitration. United Steelworkers of America v. Warrior

and Gulf Navigation Co., 363 U.S. 574, 582-83 (1960). Thus, a

contract must contain an express limitation on an arbitrator’s

authority to award attorney’s fees before that power is taken from

them.

The Court of Appeals was correct in holding that the arbitrators

had the power to make the award of attorney’s fees.

14

Il.

THE COURT OF APPEALS CORRECTLY FOUND

THAT THE AWARD OF ATTORNEY’S FEES WAS NOT

ARBITRARY AND CAPRICIOUS.

The Panel entered a unanimous award of attorney’s fees and

expenses after hearing the evidence and considering hundreds of

pages of briefs from the parties. Petitioners challenge the award

claiming, under a narrow, judicially-created ground that, despite

the Panel’s careful consideration of the case, the award nevertheless

was “arbitrary and capricious.” Brown v. Rauscher Pierce Refsnes,

Inc., 994 F.2d 775, 781 (11th Cir. 1993) (recognizing arbitrary and

capricious standard but finding it was not satisfied even where court

knew that the panel misinterpreted a Florida statute). Unfortunately,

parties often use recognized grounds to vacate an arbitration award

“as a ruse to obtain judicial review on the merits of an arbitral

award.” Flender Corp. v. Techna-Quip, Co., 953 F.2d 273, 278 (7th

Cir. 1992).

An award may be found “arbitrary and capricious” only if “a

ground for the arbitrator’s decision can[not] be inferred from the

facts of the case.” Raiford v. Merrill Lynch, Pierce, Fenner & Smith,

Inc., 903 F.2d 1410, 1413 (11th Cir. 1990) (citations omitted); O.R.

Securities, Inc. v. Professional Planning Assoc., Inc., 857 F.2d 742,

746 (11th Cir. 1988) (award should be confirmed where any

colorable justification supports it). To establish that an award is

arbitrary and capricious, “[t]he onus . . . upon the party requesting

the vacatur to refute ... every rational basis upon which the

arbitrator could have relied.” Robbins v. Day, 954 F.2d at 684.

This is an extremely high standard. For example, an appeal

from a judicial finding of bad faith cannot be overturned unless

“clearly erroneous”. Perichak v. International Union of Elec. Radio

and Mach. Workers, 715 F.2d 78, 79 (3d Cir. 1983) (“finding of

15

‘bad faith’... in a particular case is a factual determination and

may be reversed only if it is clearly erroneous”). But an even higher

hurdle faces a party challenging an arbitral award of attorney’s

fees. Identification of facts that tend to undermine the ruling is

insufficient — a party challenging a panel’s conclusion bears the

burden of proving that the arbitrators’ reasoning was so “palpably

faulty that no judge, or group of judges, could ever conceivably

have made such a ruling.” Safeway Stores v. American Bakery and

Confectionery Workers Int’l Union, Local 111, 390 F.2d 79, 82

(Sth Cir. 1968); Advest, Inc. v. McCarthy, 914 F.2d at 8. Compare

Ainsworth v. Skurnick, 909 F.2d 456, 462 (11th Cir. 1990) (vacating

award where violation of Florida’s Blue Sky Law was the “only

reasonable conclusion to be drawn from the facts”.)

Petitioners failed to meet this burden. Although Petitioners

point to isolated instances which they claim support the Panel’s

belief in the merits of their claims, this fails to meet the test. It is

obvious from the Panel’s grant of Respondents’ Motion to Dismiss

that they believed Petitioners case had no merit. Further, the Panel

decided to award attorney’s fees based on their first-hand review

of the evidence submitted and their own observations of the

Petitioners’ conduct. In deciding to award fees, the Panel considered

this evidence as well as facts showing Petitioners knew their claims

lacked merit before they brought them. Indeed, the arbitration

record, fairly construed, revealed that Petitioners had filed an

opportunistic arbitration claim in bad faith, hoping to use the high

cost of defense as a weapon to extort from Respondents a favorable

and undeserved settlement. Both the District Court and the Court

of Appeals properly deferred to the arbitrator’s decision in this case,

relying upon the extensive record which supported the arbitrators’

finding. (Appendix to Petition, p. 4a).

Moreover, the lower courts correctly upheld the award of

attorney’s fees jointly and severally against Petitioners since

Petitioners made no effort to distinguish among themselves in their

16

claims and not one defendant stepped forward to disavow the tactics

being pursued in the arbitration. The lower courts found sufficient

support in the arbitration record for such a joint and several award,

as explained by the District Court:

The panel concluded that each and every defendant

had failed to adduce any evidence in support of any

of their claims. The panel appears to have concluded

as had been suggested to it by plaintiffs, that the

defendants were joint venturers in what the panel

concluded was frivolous, bad faith litigation that had

been pursued for an improper purpose from the start.

The Court will not now second-guess the judgment

of the panel under the guise of a determination that

the panel’s action was “arbitrary and capricious.”

(Appendix to Petition, p. 24a).

Further, courts have found no fault with such “lump sum”

awards. Sidag Aktiengesellschaft v. Smoked Foods Prods. Co., 960

F.2d 564, 567 (Sth Cir. 1992) (awarding lump sum attorney’s fees

against multiple plaintiffs); Brady v. Hartford Fire Ins. Co., 610 F.

Supp. 735 (D. Md. 1985) (assessing attorney’s fees jointly and

severally against parties); Robbins v. Day, 954 F.2d at 684 (“[A]n

arbitration award that only contains a lump sum award is presumed

to be correct’).

Accordingly, the Court of Appeals correctly found that the

Panel’s attorney’s fee award was not arbitrary and capricious.

ete hg ever eh er te eT

17

IV.

THE COURT OF APPEALS CORRECTLY FOUND

THAT THE ARBITRATORS WERE NOT GUILTY OF

MISCONDUCT IN FAILING TO GRANT PETITIONERS

AN ADDITIONAL ADJOURNMENT.

It is well-settled that arbitrators enjoy wide latitude in

conducting arbitration hearings and broad discretion in deciding

procedural questions such as whether to grant or deny requests for

a postponement. Schmidt v. Finberg, 942 F.2d 1571 (11th Cir. 1991);

Robbins v. Day, 954 F.2d at 685. Vacatur of an award for refusing

to hear evidence is rare. A.G. Edwards & Sons, Inc. v. McCullough,

764 F. Supp. 1365 (D. Ariz. 1991), reversed on other grounds, 967

F.2d 1401 (9th Cir. 1992). Before a challenge on that basis can be

sustained, a party must show that the arbitrators’ refusal to hear

evidence or postpone a hearing was without any reasonable basis

and it so affected the rights of the party as to deprive them of a fair

hearing. National Post Office v. United States Postal Service, 751

F.2d 834, 841 (6th Cir. 1985); Concourse Beauty School, Inc. v.

Polakov, 685 F. Supp. 1311, 1318 (S.D.N.Y. 1988).

It is beyond question that Petitioners had a full and fair

opportunity to present their arguments and evidence. The Panel

permitted Petitioners to present 19 witnesses over 58 hearing

sessions. Further, Petitioners fully briefed their claims on

Respondents’ motion to dismiss, without once contesting the Panel’s

denial of their adjournment request. Indeed, to this day they have

never made an offer of proof of the evidence they contend they

were denied from presenting.

Under these facts, it can hardly be argued that other claimants

would be discouraged from arbitrating because they believe they

would not be given adequate time or opportunity to present their

case, as Petitioners suggest.

18

CONCLUSION

For the reasons given above, certiorari should not be granted.

Respectfully submitted,

PETER W. SCHNEIDER

Counsel of Record

LAURA H. ROBISON

ROGERS & HARDIN LLP

Attorneys for Respondents

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