# Opposition Brief — Duke v. Marshall & Co.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1998
- **Citation:** 522 U.S. 1112

## Text

fia Uv
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.

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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
2700 International Tower
Peachtree Center

229 Peachtree Street, N.E. |
Atlanta, Georgia 30303 |
(404) 522-4700

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386013_1884%3A2. Public record. Not legal advice.