Petition for Writ of Certiorari — Piper Jaffray, Inc. v. Halligan

Supreme Court, ue

No.

981172 Jan 2119

OFFICE OF THE CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1998

PIPER JAFFRAY, INC. and MARVIN GEISNESS,

Petitioners,

VS.

IRENE HALLIGAN, as Executrix of the Estate of

THEODORE H. HALLIGAN,

Respondent.

ON PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

PETITION FOR WRIT OF CERTIORARI

JILL L. ROSENBERG

Counsel of Record

ROBERT S. WHITMAN

ORRICK, HERRINGTON

& SUTCLIFFE LLP

Attorneys for Petitioners

666 Fifth Avenue

New York, New York 10103

(212) 506-5000

i

QUESTION PRESENTED

Whether judicial review of arbitration awards under a

standard allowing vacatur based on arbitrators’ “manifest

disregard of the law or the evidence or both” is consistent with

the strong federal policy favoring arbitration, as embodied in

the Federal Arbitration Act, 9 U.S.C. §§ 1, ef seg.

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CORPORATE DISCLOSURE STATEMENT

Pursuant to Supreme Court Rule 29.6, Petitioner Piper

Jaffray, Inc. (which is now known as U.S. Bancorp Piper Jaffray

Inc.) hereby discloses that its corporate parent is U.S. Bancorp,

which is a publicly traded corporation. Petitioner has no

nonwholly owned subsidiaries.

TABLE OF CONTENTS

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Corporate Disclosure Statement ..............

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Reasons for Granting the Wnt .................-..

I. The Court Of Appeals Announced A New

Standard Of Judicial Review Of Arbitral Awards

That Conflicts With The Decisions Of Every

SE GS GPE PROUD 2 oo cence necess

A. The “Manifest Disregard of the Law”

reel C tL oun 6 x's 6.2 6:9

B. The Court of Appeals Departed From the

Unanimous View of Other Courts and

Created a Split in the Circuits ..........

II. The Issues Presented By This Case Are Of Great

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TABLE OF CITED AUTHORITIES

Page

Cases:

Anderson v. Bessemer City, 470 U.S. 564 (1985) ..... 7, 15,17

Baravati v. Josephthal, Lyon & Ross, Inc., 28 F.3d 704

eas SEE ca Ge aes cuss brea es atic se heed 5

Barnes v. Logan, 122 F.3d 820 (9th Cir. 1997), cert.

denied, 118 S. Ct. 1385 (1998) ................. 5

Bernhardt v. Polygraphic Co. of Am., 350 U.S. 198

| GRNETTR alain hn ER ate CT RNS tate ONDA BoD tee 8 6, 17

Burchell v. Marsh, 58 U.S. (17 How.) 344 (1855) .... 6

Cole v. Burns Int'l] Sec. Servs., 105 F.3d 1465 (D.C. Cir.

Pe ova cee e beds haa kee ie 5,8

Denver & Rio Grande W. R.R. v. Union Pac. R.R., 119

Fae ee Cs SOSTE ee bic Sv ons kes koe x

First Options v. Kaplan, 514 U.S. 938 (1995) ....... 4

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

ee a eer rer ee ee 13

Gallus Invs., L.P. v. Pudgie’s Famous Chicken, Ltd., 134

Fe SO Os WE nwo cw ccccccvcxccvesens 5

Gianelli Money Purchase Plan and Trust v. ADM Investor

Servs., Inc., 146 F.3d 1309 (11th Cir.), cert. denied,

Cae ey Ra I 6 bon. ka dee ney ee oes cen 5

iat AE Rm AO oe oe SOR

Cited Authorities

Page

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

PROP ED cc nncdcctoevecsvevesecnstevereew evita 6, 15

Glennon v. Dean Witter Reynolds, Inc., 83 F.3d 132 (6th

Ca GD ca vucauwaendeewessece us suarnneeee 5

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

See Fe Teme Ue, BOE vis ccsintvedees dicks 4

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,

i, GES UL Os be eek eevvacueerees 6

Moses H. Cone Mem’! Hosp. v. Mercury Constr. Corp.,

og 8 SG ery reer reer 12

National Wrecking Co. v. International Bhd. of

Teamsters, Local 73], 990 F.2d 957

(7th Cir. 1993) ...... were Cre T err ere 8

Prudential-Bache Secs. v. Tanner, 72 F.3d 234 ((st Cir.

i, POPE EPTPT TOT Tee erro ee 5

Pullman-Standard Div. of Pullman, Inc. v. Swint, 456 U.S.

Tio CRORE? inns vcceud eee idee tee 7

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

1994), cert. denied, 513 U.S. 1112 (1995) ........ 8

Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974) ... 13

Schwapp v. Town of Avon, 118 F.3d 106

CB6 CA. TORTD eavicnceteveces ¥a8s pes trae 7

Cited Authorities

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

8 Pe Oe re re ere are, b

Siegel v. Titan Indus. Corp., 779 F.2d 891

CO Ge OUD Scere d vues sckenhbaeeeones ceees

Sobel v. Hertz, Warner & Co., 469 F.2d 1211 (2d Cir.

SOU vib ues c4aa bude caches baled

Southland Corp. v. Keating, 465 U.S. 1 (1984) ......

Tennant v. Peoria & Pekin Union Ry. Co., 321 U.S. 29

CRUE 66-44 6%4s Ue eek es ee Lee

Trans Chem. Ltd. v. China Nat'l Mach. Import and Export

Corp., 161 F.3d 314 (Sth Cir. 1998) .............

UHC Mgmt. Co. v. Computer Sciences Corp., 148 F.3d

ae Cee, TREE 6.0 46s bee eee

United Paperworkers Int'l Union v. Misco, Inc., 484 U.S.

BOOTED 46 xstnuse ceaacceeeceane eee

United Steelworkers of Am. v. Enterprise Wheel and Car

Conn, S6b US. S55 CUR chines eanvece eases

United Transp. Union Local 1589 v. Suburban Transit

Carp., 51 F.36 S76 GO CH. TOGSD oo cn cvteasscses

U.S. Energy Corp. v. Nukem, Inc., Nos. 96-1532, 97-1332,

1998 WL 738336 (10th Cir. Oct. 22, 1998) .......

Page

11,

16

12

17

12

13

vil

Cited Authorities

Page

Wilko v. Swan, 346 U.S. 427 (1953), overruled on other

grounds, Rodriguez de Quijas v. Shearson/American

Express, Inc., 490 U.S. 477 1. eA eer 4,6, 13

Willemijn Houdstermaatschappij, BV v. Standard

Microsys. Corp., 103 F.3d 9 (2d Cir. 1997) ....... 15, 16

Wright v. Universal Maritime Service Corp., 119 S. Ct.

kt, | PrP errr errr rrr rr re et 17

Statutes:

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if Take De > eae ee ge arr ere l

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Cited Authorities

Page

Other Authorities:

Civil Rights Act of 1991, Pub. L. No. 102-166, § 118,

Pe BF 8 CROED Sie cas red weseee ova Sieuss 17

H.R. Rep. No. 96, 68th Cong., Ist Sess., 1 (1924) .... 13

Note, Judicial Review of Arbitration Awards on the

Merits, 63 HARVARD L. Rev. 681 (1950) .......... 13

Jose A. Cabranes, Arbitration and U.S. Courts: Balancing

Their Strengths, 70 N.Y. St. Bar J. 22 (Mar./Apr.

Sas Soe a rk caste eee kes daa e ee 14

Sele en ews 4

APPENDIX

Page

Appendix A — Opinion Of The United States Court Of

Appeals For The Second Circuit Dated And Decided

RG FD SOO 5 546 Fe eA e eR ee ee la

Appendix B — Opinion And Order Of The United States

District Court For The Southern District Of New York

ee Se Be Be os ino oo oe boot bed ook hen 18a

Appendix C — Opinion And Order Of The United States

District Court For The Southern District Of New York

es SE ee PE or as eee a a oe eer cet 2la

Appendix D — Opinion And Order Of The United States

District Court For The Southern District Of New

Fe Se Fe Be SOE 8h ros 88ers 27a

Appendix E — Order Of The United States Court Of

Appeals For The Second Circuit Denying Petition For

Rehearing Dated And Filed October 23, 1998 ..... 4la

Appendix F — Relevant Statutes .................. 43a

l

Piper Jaffray, Inc. and Marvin Geisness respectfully

petition for a writ of certiorari to review the judgment of the

United States Court of Appeals for the Second Circuit in this

Case.

OPINIONS BELOW

The opinion of the court of appeals is reported at 148 F.3d

197 (2d Cir. 1998), and is reprinted at la-7a. The district court’s

opinions of April 14, June 10, and June 16, 1997 — respectively,

denying Respondent’s petition to vacate the arbitral award,

granting Petitioners’ cross-petition to confirm the award, and

dismissing Respondent’s Complaint on grounds of res judicata

~ are not reported and are set forth at !8a-40a.

STATEMENT OF JURISDICTION

The judgment of the court of appeals was issued on July 9,

1998. The court denied Petitioners’ petition for rehearing or

suggestion for rehearing in banc by order dated October 23,

1998. See 41a. This petition is being timely filed within 90

days of that order. The jurisdiction of this Court is invoked

under 28 U.S.C. § 1254(1). Respondent first invoked federal

court jurisdiction in the case under 28 U.S.C. §§ 1331 (because

the case involved an alleged violation of a federal Statute) and

1332 (because Respondent is a citizen of the State of New York,

Petitioner Piper Jaffray, Inc. is a citizen of the States of

Minnesota and Delaware, and Petitioner Marvin Geisness is a

citizen of the State of Minnesota).

STATUTE INVOLVED

The Federal Arbitration Act, 9 U.S.C. §§ 1, et seg. That

Statute is reprinted in its entirety at 43a-54a.

2

STATEMENT OF THE CASE

This case arises out of an arbitration proceeding brought

by Theodore Halligan (“Mr. Halligan”), a former salesperson

of Petitioner Piper Jaffray, Inc., against Piper Jaffray and one

of its employees, Petitioner Marvin Geisness (referred to

collectively hereinafter as “Piper Jaffray” or “Petitioners”). In

1993, Mr. Halligan filed an arbitration claim with the National

Association of Securities Dealers alleging, inter alia, that he

was terminated because of his age in violation of the Age

Discrimination in Employment Act (“ADEA”), 29 U.S.C.

§§ 621, et seg. The arbitration lasted more than two years and

was hotly contested. The hearings themselves, before a panel

of three experienced attorney-arbitrators, lasted 26 days, during

which 25 witnesses were examined and cross-examined (18 for

Mr. Halligan, 9 for Piper Jaffray) and more than 240 exhibits

were introduced. The parties presented opening and closing

arguments and submitted post-hearing briefs. See 29a.

On October 9, 1995, during the pendency of the arbitration

hearings, Mr. Halligan died. His widow and executrix, Irene

Halligan (“Mrs. Halligan” or “Respondent’), continued the

arbitration on the estate’s behalf. On March 19, 1996, the

arbitrators issued a written award denying all of Mr. Halligan’s

claims. Mrs. Halligan filed a petition to vacate the award on

grounds, inter alia, that the arbitrators engaged in “manifest

disregard of the law” in rejecting her husband’s claims. Piper

Jaffray both opposed the petition and cross-moved to confirm.

Mrs. Halligan also commenced a federal court action solely

against Piper Jaffray, alleging a violation of the ADEA based

on her husband’s alleged discharge. Piper Jaffray moved to

dismiss the complaint.

In three separate written opinions issued in April and June

1997, the district court denied Mrs. Halligan’s petition to vacate,

3

granted Piper Jaffray’s motion to confirm, and, having issued

those two decisions, dismissed Mrs. Halligan’s ADEA

complaint, which raised the identical claims that had been

advanced in the arbitration, on grounds of res judicata. On July

9, 1998, a panel of the Second Circuit reversed all three of the

district court’s decisions. The basis of its holding was the court’s

conclusion that the arbitrators, who had ruled in favor of Piper

Jaffray but without issuing a written explanation, had

“manifestly disregarded the law or the evidence or both.” See

16a. The court specifically noted that the arbitrators had been

properly instructed as to the applicable standards of law

governing Mr. Halligan’s age discrimination claim. See 15a.

The court of appeals denied Piper Jaffray’s petition for

rehearing or suggestion for rehearing in banc on October 23,

1998.

REASONS FOR GRANTING THE WRIT

The standard of judicial review announced by the court of

appeals — allowing vacatur of arbitral awards based on the

arbitrators’ “manifest disregard of the law or the evidence or

both” — is unprecedented in the scores of reported federal

appellate decisions reviewing arbitral awards under the FAA,

and creates a regime of judicial review highly destabilizing to

the arbitration process. The court’s approach expands the focus

of the “manifest disregard” standard beyond arbitrators’

conclusions of law and into their findings of fact, albeit without

the deference that characterizes appellate review of fact-finding

by a court or jury. This case presents this Court with the

opportunity to decide whether so intrusive a standard of review

is consistent with the strong national policy favoring arbitration,

as reflected in the FAA, and with the interests of efficiency

and finality that arbitration promotes.

4

THE COURT OF APPEALS ANNOUNCED A NEW

STANDARD OF JUDICIAL REVIEW OF ARBITRAL

AWARDS THAT CONFLICTS WITH THE DECISIONS

OF EVERY OTHER COURT OF APPEALS

A. The “Manifest Disregard of the Law” Standard

In asking the district court to vacate the arbitrators’ award

in this case, Respondent argued, inter alia, that the arbitrators

engaged in “manifest disregard of the law” when they rejected

her husband’s claims. The “manifest disregard of the law”

standard, while not an explicit basis for judicial review under

the FAA, is a clearly recognized ground for vacatur of

arbitrators’ decisions, pre-dating the enactment of the FAA and

consistently adhered to ever since. See First Options v. Kaplan,

514 U.S. 938, 942 (1995) (noting that parties are “bound by

[an] arbitrator’s decision not in ‘manifest disregard’ of the law’’)

(citing Wilko v. Swan, 346 U.S. 427, 436-37 (1953), overruled

on other grounds, Rodriguez de Quijas v. Shearson/American

Express, Inc., 490 U.S. 477 (1989)); Wilko, 346 U.S. at 436-37

(“the interpretations of the law by the arbitrators[,] in contrast

to manifest disregard[,] are not subject, in the federal courts,

to judicial review for error in interpretation’).

Under this common law standard, judicial vacatur of awards

is permitted only where the arbitrators consciously disregarded

an applicable rule of /aw, in that they were made aware of the

rule but chose not to apply it. The Second Circuit’s prior

articulation of the standard is both typical and widely followed:

“The error must have been obvious and capable of being readily

and instantly perceived by the average person qualified to serve

as an arbitrator.” Merrill Lynch, Pierce, Fenner & Smith, Inc.

v. Bobker, 808 F.2d 930, 933 (2d Cir. 1986). Every other court

5

of appeals has adopted the same or a substantially similar

approach. See, e.g., Prudential-Bache Secs. v. Tanner, 72 F.3d

234, 237-38 (1st Cir. 1995); United Transp. Union Local 1589

v. Suburban Transit Corp., 51 F.3d 376, 379 (3d Cir. 1995);

Gallus Invs., L.P. v. Pudgie’s Famous Chicken, Ltd., 134 F.3d

231, 233-34 (4th Cir. 1998); Trans Chem. Ltd. v. China Nat'l

Mach. Import and Export Corp., 161 F.3d 314, 314 (Sth Cir.

1998); Glennon v. Dean Witter Reynolds, Inc., 83 F.3d 132,

135-36 (6th Cir. 1996); Baravati v. Josephthal, Lyon & Ross,

Inc., 28 F.3d 704, 706 (7th Cir. 1994); UHC Mgmt. Co. v.

Computer Sciences Corp., 148 F.3d 992, 998 (8th Cir. 1998);

Barnes v. Logan, 122 F.3d 820, 821-22 (9th Cir. 1997), cert.

denied, 118 S. Ct. 1385 (1998); U.S. Energy Corp. v. Nukem,

Inc., Nos. 96-1532, 97-1332, 1998 WL 738336, *2-3 (10th Cir.

Oct. 22, 1998); Gianelli Money Purchase Plan and Trust v.

ADM Investor Servs., Inc., 146 F.3d 1309, 1312 (11th Cir.),

cert. denied, 119 S. Ct. 540 (1998); Cole v. Burns Int'l Sec.

Servs., 105 F.3d 1465, 1487 (D.C. Cir. 1997).

The rationale behind this deferential approach lies in the

judicial, and ultimately legislative, encouragement of

arbitration as an alternative to litigation. As this Court declared

in 1855:

Arbitrators are judges chosen by the parties to decide

the matters submitted to them, finally and without

appeal.... If the award is within the submission,

and contains the honest decision of the arbitrators,

after a full and fair hearing of the parties, a court of

equity will not set it aside for error, either in law or

fact. A contrary course would be a substitution of

the judgment of the chancellor in place of the judges

chosen by the parties, and would make an award

the commencement, not the end, of litigation.

6

Burchell v. Marsh, 58 U.S. (17 How.) 344, 349 (1855). This

Court, accordingly, has long made clear that courts reviewing

arbitral awards “are not authorized to reconsider the merits of

an award even though the parties may allege that the award

rests on errors of fact,” nor do they “sit to hear claims of factual

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

reviewing decisions of lower courts.” United Paperworkers Int'l

Union v. Misco, Inc., 484 U.S. 29, 36, 38 (1987); see also Gilmer

v. Interstate/Johnson Lane Corp., 500 U.S. 20, 32 n.4 (1991)

(“judicial scrutiny of arbitration awards necessarily is limited”)

(quoting Shearson, 482 U.S. at 232); Bernhardt v. Polygraphic

Co. of Am., 350 U.S. 198, 203 (1956) (“judicial review of an

[arbitration] award is more limited than judicial review of a

trial”’).'

An essential aspect of this approach to judicial review has

been that the courts consider only whether there has been

manifest disregard “of the law” and not “of the evidence.”

Because arbitration shifts only the forum for the resolution of

a dispute, not the substantive law, see, e.g., Mitsubishi Motors

Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628

(1985) (“By agreeing to arbitrate a statutory claim, a party does

not forgo the substantive rights afforded by the statute; it only

1. The “manifest disregard” standard thus mirrors the extremely

narrow Statutory bases for judicial review contained in the FAA. Under

section 10 of the statute, an award may be vacated only if it was “procured

by corruption, fraud, or undue means”; if there was bias on the part of

the arbitrators; if the arbitrators engaged in misconduct that prejudiced

the rights of the parties, such as refusing to postpone the hearing for

good cause; or if the arbitrators exceeded their powers. See 9 U.S.C.

§ 10(a). Under section 11, the court may modify an award if it reflects a

material miscalculation of figures or a material mistake in its description

of any person, thing or property; if the award is based on a matter not

submitted to the arbitrators or “not affecting the merits of the decision”;

or if it is “imperfect in matter of form not affecting the merits of the

controversy.” /d. § 11.

7

submits to their resolution in an arbitral, rather than a judicial,

forum.”), the very legitimacy of arbitration would be

undermined if arbitrators were allowed to create their own law

or to decline to apply law of which they were made aware.

The “manifest disregard” standard ensures that courts serve as

a watchdog over the arbitrators’ legal conclusions (even though

subject to a great degree of deference).

There is no corresponding rationale for judicial patrolling

of arbitrators’ factual findings. Reviewing courts have no

special competence in that area; if anything, the opposite is

true, since it is the arbitrators, as triers of fact, who see and

hear the witnesses and have the unique ability to make the

credibility judgments so essential to informed fact-finding. See

generally Anderson v. Bessemer City, 470 U.S. 564, 575 (1985)

(“only the [factfinder] can be aware of the variations in

demeanor and tone of voice that bear so heavily on the listener’s

understanding of and belief in what is said”).

This rationale has particular force in employment

discrimination actions such as this case. As noted above, Mr.

Halligan alleged that his employment with Piper Jaffray was

terminated because of his age, in violation of the ADEA. While

it is a relatively straightforward task to state the principles of

law governing ADEA claims (and the court of appeals noted

that the arbitrators had been properly instructed as to those

principles here), it is quite another thing to apply them to

specific factual circumstances and decide whether a given

claimant has proven intentional discrimination by a

preponderance of the evidence. That exercise is the unique

province of fact-finders, who see and listen to the witnesses.

See generally Pullman-Standard Div. of Pullman, Inc. v. Swint,

456 U.S. 273, 289 (1982) (“discriminatory intent is a finding

of fact to be made by the trial court”); Schwapp v. Town of

Avon, 118 F.3d 106, 110 (2d Cir. 1997) (summary disposition

8

disfavored in employment discrimination cases because “the

employer’s intent is in question”). As the D.C. Circuit has

observed, the vast majority of employment discrimination

claims “are entirely factual in nature and involve well-settled

legal principles,” a state of affairs that creates “no adverse

impact on the arbitration process” precisely because judicial

review of awards is limited to correcting errors of law and not

fact. See Cole v. Burns Int'l Sec. Servs., 105 F.3d 1465, 1487

(D.C. Cir. 1997).

B. The Court of Appeals Departed From the Unanimous

View of Other Courts and Created a Split in the Circuits

The federal courts of appeals until now have been

unanimous in following an approach that confines review under

the “manifest disregard” standard to errors of Jaw. They have

thus held that, while courts can and must pay close attention to

the /ega/ underpinnings of arbitral awards, they do not sit to

review the wisdom or accuracy of arbitrators’ factual findings.

See, e.g., Cole, 105 F.3d at 1487; Remmey v. PaineWebber,

Inc., 32 F.3d 143, 150 (4th Cir. 1994) (no manifest disregard

where “the arbitrators had substantial conflicting testimony

which could support a decision for either of the parties . .

[and] the arbitrators may well have chosen to credit evidence

presented by defendants”), cert. denied, 513 U.S. 1112 (1995);

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

Local 731, 990 F.2d 957, 961 (7th Cir. 1993) (courts must

enforce awards “even in the face of erroneous findings of fact

or misinterpretations of law”) (citation omitted); Denver & Rio

Grande W. R.R. v. Union Pac. R.R., 119 F.3d 847, 849 (10th

Cir. 1997) (“Errors in .. . the arbitrator’s factual findings...

do not justify review or reversal on the merits of the

controversy.”). The Second Circuit had previously adhered to

this position as well. See Siegel v. Titan Indus. Corp., 779 F.2d

891, 892-93 (2d Cir. 1985) (“the fact that an arbitrator

9

erroneously decided the facts” is “not a ground for vacating an

arbitrator’s award”) (citation omitted).

In this case, however, the Second Circuit conspicuously

departed from that unanimity (and from its own prior rule). It

altered the existing standard of judicial review to allow

consideration of not only whether the arbitrators engaged in

manifest disregard of the Jaw, but whether they disregarded

the law “or the evidence or both.” In explaining its decision to

vacate the arbitrators’ award, the court said, in pertinent part,

“we are inclined to hold that [the arbitrators] ignored the law

or the evidence or both,” 16a, later adding, “we are left with

the firm belief that the arbitrators here manifestly disregarded

the law or the evidence or both,” 17a.

This new approach — of reaching beyond the arbitrators’

conclusions to examine the relative strengths of each party’s

position on the facts — is apparent not only in the words the

court chose to explain its conclusions, but also in the analysis

it used to reach that result. The court’s opinion demonstrates

inescapably that its decision was based entirely on its

disagreement with the arbitrators’ weighing of the evidence,

not on any perceived refusal by the arbitrators to apply the law.

Thus, the court justified its decision with repeated references

to what it perceived as the strength of Respondent’s case on

the facts and the concomitant weaknesses in Petitioners’. It said,

for example:

¢ “During the arbitration hearings, Halligan

presented the arbitrators with very strong

evidence of age-based discrimination.”

4a (emphasis added).

Ale Saver

=

10

* “Quite simply, Halligan presented

overwhelming evidence that Piper’s conduct

after Tad Piper became CEO was motivated by

age discrimination.”

15a (emphasis added).

* “Halligan presented powerful evidence of his

performance, in the form of quantitative sales

rankings and relevant witness testimony.”

15a (emphasis added).

* “[T]he circumstantial evidence surrounding his

departure .. . is consistent only with a finding

that Halligan was pushed out of his job.”

15a (emphasis added). In addition, the court presented the facts

in a manner that frequently overlooked Petitioners’ version of

events. On the few occasions when it did acknowledge the

facts supporting the award, its statements were dismissive and

laced with qualifications or disclaimers. See, e.g., 5a (“All Piper

personnel denied having made such [age-based] statements,

although their testimony was occasionally inconsistent or

ambiguous.”); 6a (twice describing Piper Jaffray as merely

“discount({ing]” Mr. Halligan’s evidence rather than as

presenting evidence of its own).

Moreover, the court of appeals specifically acknowledged

that the arbitrators had been properly advised as to the /egal

standards applicable to Respondent’s claim of age

discrimination. See 15a. The only possible reading of the

court’s opinion, therefore, is that it created and applied a

standard of heightened inquiry into the factual! underpinnings

of arbitral awards. Indeed, despite the parties’ straightforward

11

legal contentions before the arbitrators, there was intense factual

disagreement on virtually every material point, including

matters as rudimentary as whether Mr. Halligan was fired or

voluntarily retired. See 15a. Because of this conflicting

testimony, the arbitrators were left to decide matters that turned

on their assessment of the witnesses’ credibility.

Yet the Second Circuit, believing that the arbitrators

resolved those factual issues incorrectly, used that disagreement

as the basis for vacatur under a “manifest disregard” analysis,

thereby assuming for itself a task of fact-finding that has

heretofcre been the exclusive province of the arbitrators. Its

approach was not even as deferential as a court’s review of

jury verdicts, in that it resolved every material factual dispute

in a manner opposed to, rather than in favor of, the arbitrators’

award. Cf. Tennant v. Peoria & Pekin Union Ry. Co., 321 U.S.

29, 35 (1944) (reviewing court must defer to jury’s verdict and

resolve all factual inferences in favor of it). In so expanding

the “manifest disregard” standard, the court placed itself at odds

with every other court of appeals that has applied that standard

to date.

THE ISSUES PRESENTED BY THIS CASE ARE OF

GREAT IMPORTANCE

By articulating a new “manifest disregard of the evidence”

standard, the court of appeals called into question the entire,

previously well settled area of judicial review of arbitration

awards. The decision’s effects will ripple throughout a//

arbitrations — not only in employment cases, not only in cases

raising statutory claims for relief, and not only in the securities

industry. This case is thus of national significance and warrants

issuance of a writ of certiorari.

12

In the collective bargaining arena, review of arbitration

awards is severely limited in order to foster the national policy

favoring “private settlement of labor disputes without the

intervention of government.” United Paperworkers Int'l Union

v. Misco, Inc., 484 U.S. 29, 37 (1987). As this Court has

explained:

Because the parties have contracted to have disputes

settled by an arbitrator chosen by them rather than

by a judge, it is the arbitrator’s view of the facts

and of the meaning of the contract that they have

agreed to accept. Courts thus 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.

Id. at 37-38. This is especially true with respect to arbitral fact-

finding, which is almost entirely insulated from judicial second-

guessing. See id. at 39 (“improvident, even silly, factfinding”

is “hardly a sufficient basis for disregarding what the agent

appointed by the parties determined to be the historical facts’).

Until now, the same approach has applied outside collective

bargaining, where the rationale for limited judicial review is

not the goal of labor peace but the strong national policy

favoring arbitration, as embodied in the FAA.’ This Court has

repeatedly observed that the FAA “establishes a ‘federal policy

favoring arbitration.’ ” Shearson/American Express, Inc. v.

McMahon, 482 U.S. 220, 226 (1987) (quoting Moses H. Cone

Mem '| Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983));

see also Southland Corp. v. Keating, 465 U.S. 1, 10 (1984) (in

enacting the FAA, “Congress declared a national policy

2. This Court in Misco noted the similarity between judicial review

under the FAA and judicial review in the collective-bargaining arena.

See 484 U.S. at 40-41.

——

13

favoring arbitration”); Scherk v. Alberto-Culver Co., 417 U.S.

506, 510-11 (1974) (FAA was enacted in part “to allow parties

to avoid ‘the costliness and delays of litigation’) (quoting

H.R. Rep. No. 96, 68th Cong., Ist Sess., 1, 2 (1924)).

Just as permissive judicial review of collective-bargaining

arbitration awards would be inconsistent with the national

policy favoring arbitration as a means of promoting industrial

harmony, so too is judicial review under a “manifest disregard

of the evidence” standard sharply at odds with the pro-

arbitration objective of the FAA. Rather than signaling the end

of a dispute, an arbitral award that is subject to virtually de

novo scrutiny for factual errors will in reality be just the

beginning. “[P]lenary review by a court of the merits [of an

arbitration award] would make meaningless the provisions that

the arbitrator’s decision is final, for in reality it would almost

never be final.” United Steelworkers of Am. v. Enterprise Wheel

and Car Corp., 363 U.S. 593, 599 (1960). An article cited by

this Court in Wilko — the case in which this Court first explicitly

acknowledged the “manifest disregard of the law” standard and

which involved a statutory claim for relief — made the point

this way:

A practice of liberal review thus tends to increase

the workload of the courts; not only will cases be

transferred from arbitral to judicial tribunals, but

also the parties will tend to resort to the courts

originally because they will wish to avoid the extra

step of an arbitration proceeding.

Note, Judicial Review of Arbitration Awards on the Merits, 63

HARVARD L. Rev. 681, 681-82 (1950) (cited in Wilko, 346 US.

at 437 n.24); see also Folkways Music Publishers, Inc. v. Weiss,

989 F.2d 108, 111 (2d Cir. 1993) (narrow judicial review

preserves the “twin goals of arbitration”: “settling disputes

14

efficiently and avoiding long and expensive litigation.”); Jose

A. Cabranes, Arbitration and U.S. Courts: Balancing Their

Strengths, 70 N.Y. St. Bar J. 22, 23 (Mar./Apr. 1998)

(“Everyone understands that the many advantages of arbitration

would quickly evaporate if arbitration proceedings were treated

as mere pre-trial hearings-warm-ups for the parties’ day in

court.”).

The facts of this case perhaps best illustrate the deleterious

effects of the Second Circuit’s ruling. All of arbitration’s

supposed advantages over litigation — expedition, efficiency,

informality — appear hollow in light of this decision. After 26

hearing days, dozens of witnesses and hundreds of exhibits,

the court of appeals has effectively ordered the parties to start

over and try this case anew. Indeed, the parties are now back

before the district court, preparing to begin discovery with

respect to the follow-up complaint brought by Respondent’s

estate through his widow-executrix.’

Moreover, the factual errors identified by the court of

appeals were not on matters that were uncontested at the

arbitration or otherwise “provable” one way or the other. Here,

the errors related to the ultimate factual issue: whether

Petitioners intentionally discriminated against Mr. Halligan.

While there was evidence on this record that, if believed, could

have led a reasonable factfinder to conclude that Petitioners

had done so, there was also abundant evidence in this vigorously

contested arbitration that both contradicted Respondent's

position on every point and that affirmatively supported

Petitioners. Against this background, the court’s application

3. The follow-up complaint asserts the identical claims as were

asserted in the arbitration proceedings, albeit against Petitioner Piper

Jaffray only. On December 24, 1998, Piper Jaffray served a motion to

dismiss the complaint on various grounds or alternatively to compel

arbitration. That motion has not yet been decided.

7 a Ui th near et oD Bice As 2 eis naan DF ek

15

of the new “manifest disregard of the evidence” standard leads

to a patently absurd result — suggesting as it does that the

evidence in this case was susceptible of only one interpretation,

and that the three experienced attorney-arbitrators who actually

saw and heard the witnesses somehow erred grievously in

coming out the other way. Cf. Anderson v. Bessemer City, 470

U.S. 564, 573-74 (1985) (“If the district court’s account of the

evidence is plausible in light of the record viewed in its entirety,

the court of appeals may not reverse it even though convinced

that had it been sitting as the trier of fact, it would have weighed

the evidence differently.”).

More broadly, the court’s decision leaves parties,

arbitrators, and district judges uncertain about the extent to

which arbitral factfinding will be insulated from judicial

se _nd-guessing. The “manifest disregard of the evidence”

standard will become an invitation for every losing party in

every arbitration to seek judicial review, in the hope that the

reviewing court will conduct its own assessment of the relative

strengths of each party’s factual presentation. So long as the

party seeking vacatur can convince that court that it presented

“powerful” evidence or made “a very strong showing” (the

characterizations used by the Second Circuit here), the finality

of the arbitral award will be lost, and with it the purported

savings in time and resources that are widely viewed as the

advantages of arbitration over litigation. See Gilmer, 500 U.S.

at 26, 31 (by agreeing to arbitrate, the parties “trade[ ] the

procedures and opportunity for review of the courtroom for

the simplicity, informality, and expedition of arbitration”)

(emphasis added).

Additionally, the court’s decision markedly departs

from the well established judicial reluctance to require that

arbitrators prepare written decisions. See, e.g., Willemijn

Houdstermaatschappij, BV v. Standard Microsys. Corp., 103

I

16

F.3d 9, 13 (2d Cir. 1997) (in the absence of a written opinion,

“we must confirm the arbitrators’ decision ‘if a ground for [it]

can be inferred from the facts of case,’ ” even if that ground is

“based on an error of fact or an error of law’’) (citation omitted);

Sobel v. Hertz, Warner & Co., 469 F.2d 1211, 1215 (2d Cir.

1972) (“forcing arbitrators to explain their award even when

grounds for it can be gleaned from the record will unjustifiably

diminish whatever efficiency the process now achieves’).

While the Second Circuit in this case did not hold that the lack

of a written opinion is a per se basis for vacatur, the logic of its

decision virtually compels that conclusion. It stated:

At least in the circumstances here, we believe that

when a reviewing court is inclined to hold that an

arbitration panel manifestly disregarded the law, the

failure of the arbitrators to explain the award can

be taken into account. Having done so, we are left

with the firm belief that the arbitrators here

manifestly disregarded the law or the evidence or

both.

16a-17a; see also 17a (“the absence of explanation may

reinforce the reviewing court’s confidence that the arbitrators

engaged in manifest disregard”).

Other than the rare case where the evidence can be

realistically interpreted in only one way, an arbitrator’s failure

to issue a written decision can, on the authority of the Second

Circuit’s decision, be cited as a factor warranting vacatur, at

least where the court is otherwise “inclined” to vacate. Thus,

despite its assurances to the contrary, see 17a, the court of

appeals made clear, in implication if not in words, that

arbitrators who decline to issue opinions, especially in closely

contested arbitrations, do so at their peril.

17

In a further weakening of arbitration’s structural

advantages, the court’s decision creates a regime of judicial

review for arbitration that is more searching and intrusive than

appellate review of factfinding by a jury or trial judge. In the

context of jury verdicts, for example, courts must accord great

deference to the verdict and resolve all factual inferences in

favor of the verdict. See, e.g., Tennant v. Peoria & Pekin Union

Ry. Co., 321 U.S. 29, 35 (1944). The same deferential approach

is true of appellate court review of a district court’s factual

findings. See Anderson, 470 U.S. at 573. Yet despite the rule

that “judicial review of an [arbitration] award is more limited

than judicial review of a trial,” Bernhardt v. Polygraphic Co.

of Am., 350 U.S. 198, 203 (1956), the court of appeals’s decision

harbingers precisely the opposite result. With the license of

the “manifest disregard of the evidence” standard, a reviewing

court could give arbitral awards virtually no deference at all,

choosing instead to vacate for no reason other than that it would

have resolved the facts differently.

The decision thus turns on its head the federal policy

favoring arbitration, which this Court reaffirmed earlier this

Term. See Wright v. Universal Maritime Service Corp., 119 S.

Ct. 391, 394-95 (1998). Notwithstanding both the FAA and

more recent congressional proclamations of support for and

encouragement of arbitration as an alternative to litigation, see

Civil Rights Act of 1991, Pub. L. No. 102-166, § 118, 105 Stat.

1071 (1991) (“Where appropriate and to the extent authorized

by law, the use of alternative dispute resolution including . . .

arbitration is encouraged to resolve disputes arising under the

Acts or provisions of Federal law amended by this title,”

including the ADEA), the Second Circuit’s decision leads courts

in the opposite direction.

These effects will be felt regardless of the context in which

the arbitration occurs. While this case involves a plaintiff who

18

submitted his claim to arbitration in the first instance, nothing

in either the language or the reasoning of the Second Circuit’s

decision limits its newly announced rule to those

circumstances.‘ Absent a decision from this Court, the Second

Circuit’s approach threatens the finality of arbitration awards

in all contexts — in employment cases and non-employment

cases; in cases raising statutory claims and those raising

common law claims; in cases with pre-dispute arbitration

agreements or post-dispute agreements; and perhaps even in

the context of awards rendered pursuant to collective bargaining

agreements.

Such a transformation of settled law, if it is to occur at all,

should be announced by Congress or this Court. This case

accordingly warrants issuance of a writ of certiorari.

4. The Second Circuit spent a great deal of its opinion addressing

issues pertaining to mandatory pre-dispute arbitration agreements, such

as the form U-4 Mr. Halligan executed in this case. See 9a-14a. It

ultimately concluded, however, that Mr. Halligan’s claim would have

been subject to a valid motion to compel arbitration had he attempted to

litigate it. See 9a, n.2. Because Mr. Halligan did not in fact seek to

litigate his claim, but rather proceeded directly to arbitration, the court’s

lengthy discussion of this issue is dicta, and there is nothing in the opinion

to suggest that its holding as to the applicable standard of review is

limited to the context of mandatory pre-dispute agreements.

: |

19

CONCLUSION

For the foregoing reasons, the petition for a writ of

certiorari should be granted.

Respectfully submitted,

JILL L. ROSENBERG

Counsel of Record

ROBERT S. WHITMAN

ORRICK, HERRINGTON

& SUTCLIFFE LLP

Attorneys for Petitioners

666 Fifth Avenue

New York, New York 10103

(212) 506-5000