Case Title: Municipal Workers Compensation Fund, Inc. v. Morgan Keegan & Co.

Citation: 

Docket Number: 1120532

State: alabama

Court: Alabama Supreme Court

Date: 2015-04-03T00:00:00Z

Document:
REL:04/03/2015
Notice: This opinion is subject to formal revision before publication in the advance
sheets of Southern Reporter.  Readers are requested to notify the Reporter of Decisions,
Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334) 229-
0649), of any typographical or other errors, in order that corrections may be made before
the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
OCTOBER TERM, 2014-2015
____________________
1120532
____________________
Municipal Workers Compensation Fund, Inc.
v.
Morgan Keegan & Company, Inc., and Morgan Asset Management,
Inc.
Appeal from Jefferson Circuit Court
(CV-12-1124)
BOLIN, Justice.
Municipal Workers Compensation Fund, Inc. ("the Fund"),
appeals from the Jefferson Circuit Court's order denying the
1120532
Fund's motion to vacate a judgment entered on an arbitration
award.  We reverse and remand.
I. Facts and Procedural History
The Fund is a nonprofit corporation that administers a
self-insured group workers' compensation fund for the benefit
of 
its 
members, 
which 
comprise 
approximately 
624
municipalities 
and 
governmental 
organizations 
in 
Alabama. 
 
The
purpose of the Fund is to provide affordable workers'
compensation insurance to its members, who contribute to the
Fund by paying premiums.  The Fund entrusted the management
and investment of approximately $50 million in assets to
Morgan Asset Management, Inc. ("MAM"), and Morgan Keegan &
Company, Inc. ("Morgan Keegan").  MAM served as an investment
advisor for a managed account and certain mutual funds owned
by the Fund.  Morgan Keegan served as the broker-dealer for
the Fund's managed account and had the authority as the
broker-dealer to execute transactions in that account as
directed by the Fund.  A second account at Morgan Keegan held
the mutual funds that had been sold to the Fund through a
Morgan Keegan broker. 
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1120532
The Fund states that it directed MAM and Morgan Keegan to
invest its funds conservatively and that it relied on MAM and
Morgan Keegan for sound financial advice and management. 
However, according to the Fund, MAM and Morgan Keegan
disregarded this mandate by recommending that the Fund
purchase and hold what the Fund says were unsuitable
investments, by overconcentrating the Fund's assets in
investments that had undue exposure to the sub-prime mortgage
market and in other risky investments, and by misrepresenting
and failing to disclose material facts pertaining to the
investments.  The Fund claims that it sustained losses in
excess of $15 million in 2007 and 2008 as a result of the
actions of MAM and Morgan Keegan.
On May 28, 2009, the Fund initiated arbitration
proceedings against MAM and Morgan Keegan by filing a
statement of claim with the Financial Industry Regulatory
Authority ("FINRA") pursuant to the arbitration provision
contained in its contracts with MAM and Morgan Keegan.  The
Fund asserted claims of breach of fiduciary duty; breach of
contract; negligence; fraud; violations of NASD and NYSE
Rules; and violations of the Alabama Securities Act.
3
1120532
The arbitration provisions contained in the Fund's
contracts with MAM and Morgan Keegan provided 
that arbitration
was to be conducted before FINRA in accordance with that
organization's rules and procedures.  As part of the standard
FINRA arbitration proceedings, the parties were required to
submit "Uniform Submission Agreements," which provided that
the parties understood and agreed that the arbitration would
be conducted in accordance with the "FINRA By-Laws, Rules, and
Code of Arbitration Procedure."  
The FINRA Rules contain specific procedures regarding the
selection of an arbitrator.  Included within those procedures
are rules requiring disclosure by the arbitrator.  Rule 12405
provides:
"(a) Before appointing arbitrators to a panel,
the Director will notify the arbitrators of the
nature of the dispute and the identity of the
parties.  Each potential arbitrator must make a
reasonable effort to learn of, and must disclose to
the Director, any circumstances which might preclude
the arbitrator from rendering an objective and
impartial 
determination 
in 
the 
proceeding,
including:
"(1) Any direct or indirect financial
or personal interest in the outcome of the
arbitration;
"(2) Any existing or past financial,
business, professional, family, social, or
4
1120532
other relationships or circumstances with
any party, any party's representative, or
anyone who the arbitrator is told may be a
witness in the proceeding, that are likely
to affect impartiality or might reasonably
create an appearance of partiality or bias;
 
"(3) 
Any 
such 
relationship 
or
circumstances involving members of the
arbitrator's family or the arbitrator's
current employers, partners, or business
associates; 
"....
"(b) The obligation to disclose interests,
relationships, or circumstances that might preclude
an arbitrator from rendering an objective and
impartial determination described in paragraph (a)
is a continuing duty that requires an arbitrator who
accepts appointment to an arbitration proceeding to
disclose, at any stage of the proceeding, any such
interests, relationships, or circumstances that
arise, or are recalled or discovered."
Pursuant to FINRA's arbitrator-disclosure requirements,
arbitrators 
submit 
detailed 
biographical 
information 
when 
they
submit an application to join FINRA's roster of arbitrators. 
This biographical information is compiled to create an
arbitrator-disclosure 
report. 
 
During 
the 
arbitrator-selection
process, the parties are given the opportunity to review a
potential arbitrator's disclosure report. The parties depend
on the information contained in the arbitrator-disclosure
reports as part of the process of selecting a panel of
5
1120532
arbitrators.  In order to ensure that the arbitrator-
disclosure reports are accurate and current, FINRA provides
the arbitrators with their disclosure reports each time an
arbitrator is appointed to a case.  FINRA's Arbitrator Guide
provides, in part:
"It is extremely important that arbitrators
update their Disclosure Reports frequently ....
"Arbitrator disclosure is the cornerstone of
FINRA arbitration, and the arbitrator's duty to
disclose is continuous and imperative.  Disclosure
includes any relationship, experience and background
information that may affect –- or even appear to
affect –- the arbitrator's ability to be impartial
and the parties' belief that the arbitrator will be
able to render a fair decision.  When making
disclosures, arbitrators should consider all aspects
of their professional and personal lives and
disclose all ties between the arbitrator, the
parties and the matter in dispute, no matter how
remote they may seem.  If you need to think about
whether a disclosure is appropriate, then it is:
make the disclosure."
FINRA's arbitrator-disclosure requirements are designed to
provide the arbitrating parties with an honest, unbiased
adjudicatory 
process, 
and 
FINRA 
"strongly 
encourages
arbitrators to make a wide variety  of disclosures [and] ...
when in doubt, always err in favor of making a disclosure,"
because meeting the disclosure requirement is part of an
"arbitrator's overarching duty ... to preserve the integrity
6
1120532
and fairness of the arbitral process."  FINRA arbitrators also
receive a FINRA arbitrator's manual, which states that "[i]t
is extremely important that the [arbitrator-disclosure]
profile be completed accurately and updated periodically."
Once an arbitrator is selected to serve on a case, FINRA
forwards to the arbitrator information regarding the case,
including the names of the parties, the names of the parties'
representatives, and the nature of the case; the oath of
arbitrator, 
which 
includes 
the 
arbitrator-disclosure
checklist; and the case materials, which include the
pleadings, disclosures of the other arbitrators selected, and
the witness list.  The arbitrator is obligated to review these
materials and to perform a conflicts check.  Only after these
case materials have been reviewed, the disclosure checklist
completed, and a conflicts check performed should the
arbitrator sign the oath of arbitrator.
On November 16, 2009, FINRA provided the Fund, MAM, and
Morgan Keegan with a list of 30 proposed arbitrators for the
parties' pending arbitration from which they were to select a
panel of 3 arbitrators by using a systems of "ranks" and
"strikes" based on the arbitrator-disclosure reports, which
7
1120532
were also provided to the parties.  The final panel of
arbitrators 
appointed 
consisted 
of 
William 
Julavits
(chairperson), Patricia Dewitt (public panelist), and Eric
Kunis (non public/securities-industry panelist).  
On March 26, 2012, the parties received Julavits's
disclosure checklist.  Included in the checklist was question
11, which appeared within the checklist section entitled
"Subject Matter Disclosures."  Question 11(A) specifically
asked:
"Have you, your spouse, or an immediate family
member been involved in a dispute involving the same
or similar subject matter as the arbitration?"
Julavits answered "No."  Question 11(B) asked:
"Did the dispute assert any of the same
allegations as the assigned arbitration, even if the
dispute was not securities related?"
Julavits answered "NA," i.e., not applicable.  
According to the Fund, at the time Julavits answered
questions 11(A) and 11(B), he was the recent subject of five
lawsuits alleging tort claims, including breach of fiduciary
duty, misrepresentation, and negligence, which are the same
claims the Fund has asserted against MAM and Morgan Keegan. 
8
1120532
Four of the five lawsuits were still pending at the time the
Fund's case was set to be heard by the arbitration panel.
Kunis confirmed in his oath that he had reviewed the
arbitrator-disclosure checklist and that he had nothing to
disclose.  As mentioned above, Rule 12405(a)(2) and (3) of the
FINRA Rules requires disclosure of "[a]ny existing or past
financial, business, professional ... relationships or
circumstances with any party ...  that are likely to affect
impartiality or might reasonably create an appearance of
partiality 
or 
bias" 
and 
"any 
such 
relationship 
or
circumstances 
involving 
... 
the 
arbitrator's 
current
employers, 
partners, 
or 
business 
associates." 
 
The
"Conflicts/Disclosures" section of the arbitrator application
specifically asks: "In the last five years, has your
employer/firm had a business relationship with any brokerage
firms?"  
Additionally, included in the disclosure checklist under
the section "Personal Disclosures" were questions 1 and 2,
which specifically asked:
"1. Have you had any professional, social, or
other relationships or interactions with counsel for
any of the parties in this arbitration or their law
firms?
9
1120532
"2. Have you had any professional, social, or
other relationships or interactions with any of the
parties or their employers in the arbitration?"
Kunis has been since 2002 a vice president/partner in
Maxim Group, LLC, a financial-services firm.  According to the
Fund, Maxim Group had a close, ongoing, and material
relationship with Morgan Keegan and its counsel at the time of
the arbitration proceeding in this case, which Kunis failed to
reveal in the oath of arbitrator, the arbitrator application,
or the disclosure checklist.
The Fund's underlying action proceeded to an arbitration
hearing, and, on August 1, 2012, the three-person arbitration
panel issued its award, denying all of the Fund's claims in
their entirety.  On September 14, 2012, the trial court
entered a judgment based on the arbitration award.     
On September 21, 2012, the Fund moved the trial court to
vacate its judgment based on the arbitration award.  The Fund
alleged that, after the arbitration award was entered in this
case, it discovered that Julavits and Kunis had failed to
disclose material and relevant information during the
arbitrator-selection process.  The Fund stated that Julavits
failed to disclose at any time, and actively concealed, the
10
1120532
fact that he was a defendant in five lawsuits alleging against
him claims substantially similar to those asserted by the Fund
against MAM and Morgan Keegan.  The Fund explained that
Julavits had been named as a third-party defendant in five
separate actions filed in 2011 in Beaufort County, South
Carolina, seeking to recover damages for the devaluation and
decreased marketability of real property and equity interests
in club memberships associated with that real property.  The
Fund stated that the South Carolina claims sought damages from
Julavits in his capacity as a board member of the Callawassie
Island Members Club ("CIMC").  Certain members of CIMC alleged
that CIMC, through its board members, made false statements to
them concerning the value of their property at Callawassie
Island and the value of their equity interests in certain club
memberships. The CIMC members also alleged that the board
members owed certain fiduciary duties to them and that the
board members had breached those fiduciary duties.  The CIMC
members claimed that the alleged misrepresentations and
breaches of fiduciary duties by the board members caused the
value of their memberships to be greatly diminished.  The
South Carolina actions were dismissed in the summer of 2012. 
11
1120532
The Fund argued that the South Carolina claims against
Julavits were "strikingly" similar to the claims asserted by
it against MAM and Morgan Keegan in that it had alleged that
MAM and Morgan Keegan had made material 
misrepresentations and
had breached certain fiduciary duties owed it regarding the 
Fund's 
investment 
accounts 
and 
that 
those 
alleged
misrepresentations 
and 
breaches 
of 
fiduciary 
duties 
caused 
the
Fund to suffer substantial investment losses.  The Fund argued
that Julavits,  in "complete and utter disregard" for the
FINRA disclosure requirements, never disclosed to the parties
his involvement in the recent similar litigation and, when
specifically asked whether he had ever been involved in
litigation with "similar allegations ... even if not
securities related," affirmatively responded that he had not.
As for Kunis, the Fund claimed that he had failed to make
the required disclosure of his firm's relationship 
with Morgan
Keegan and its counsel.  The Fund alleged: (1) that Maxim
Group had been a co-underwriter with Morgan Keegan on
approximately 
36 
multi-million-dollar 
equity 
and 
debt
issuances, (2) that Maxim Group and Morgan Keegan had been co-
defendants in a number of lawsuits, including lawsuits filed
12
1120532
by investors to recover losses in securities underwritten by
Maxim Group and Morgan Keegan; (3) that Maxim Group had a past
and ongoing attorney-client relationship with Greenberg
Traurig, the law firm representing Morgan Keegan in the
arbitration proceeding; and (4) that Kunis failed to disclose
Maxim Group's involvement with the investment product 
at 
issue
in this case.  The Fund argued that the FINRA Rules placed a
duty on Kunis to make a reasonable effort to learn of and then
to disclose "any existing or past financial, business,
professional, 
... 
or 
other 
relationships 
or 
circumstances 
with
any party ... that are likely to affect impartiality or might
reasonably create an appearance of partiality or bias" and
"any 
such 
relationship 
or 
circumstance involving 
the
arbitrator's ... business associates."  The Fund contended
that Kunis had failed to disclose the existence of his firm's
relationship with Morgan Keegan in the oath of arbitrator, the
arbitrator application, and the disclosure checklist.    
The Fund argued in its motion to vacate the judgment
entered on the arbitration award that both Julavits and Kunis
had failed to fully disclose certain facts and relationships
as required by the FINRA Rules and that, because Julavits and
13
1120532
Kunis had failed to make full disclosures under the FINRA
Rules, it was entitled to have the arbitration award vacated
pursuant to 9 U.S.C. § 10(a)(1) through (4) and § 6-6-14, Ala.
Code 1975, a provision in the Alabama Arbitration Act.
Following a hearing on the Fund's motion to vacate, the
trial court, on December 18, 2012, entered an order denying
the Fund's motion. The trial court found that both Julavits
and Kunis had failed to make required disclosures and that the
failures to make the disclosures was "contrary to the spirit
of all of the FINRA Rules and guidelines." However, the trial
court further concluded that, although Julavits and Kunis had
failed to make the disclosures required by the FINRA Rules,
those failures to disclose did not amount to an "evident
partiality" on the part of the arbitrators, i.e., an
"impression of bias that is direct, definite, and capable of
demonstration," because to determine that the failures did
amount to bias, the trial court would have been  required to
speculate as to the existence of bias stemming from the
relationships between the arbitrators and the facts and
circumstances they failed to disclose to the Fund.  See
Waverlee Homes, Inc. v. McMichael, 855 So. 2d 493, 508 (Ala.
14
1120532
2003). Specifically, the trial court made the following
findings of fact and conclusions of law:
"Arbitrator disclosure is the 'cornerstone' of
FINRA arbitration.  The arbitrator's duty to
disclose is continuous and imperative, and it
includes 
any 
relationship, 
experience, 
and
background information that may affect -– or even
appear to affect -- the arbitrator's ability to be
impartial.  The FINRA Guide further instructs
potential 
arbitrators 
that, 
in 
making 
their
disclosures, 
'arbitrators 
should 
consider 
all
aspects of their professional and personal lives and
disclose all ties between the arbitrator, the
parties and the matter in dispute, no matter how
remote they may seem.  If you need to think about
whether a disclosure is appropriate, then it is:
make the disclosure.'  This principle is repeated on
the next page of the FINRA Guide: 'As a rule, when
in doubt, always err in favor of making a
disclosure.'
"Further, pursuant to FINRA Rule 12405, each
potential arbitrator 'must make a reasonable effort
to learn of, and must disclose ... (2) Any existing
or past financial, business, professional, family,
social, or other relationships or circumstances with
any party [or] party's representative ... that are
likely to affect impartiality or might reasonably
create an appearance of partiality or bias; (3)
[a]ny such relationship or circumstances involving
... the arbitrator's current employers, partners, or
business associates.'
"....
"On March 26, 2012, the parties received from
FINRA additional disclosures made by Julavits. 
Under the heading 'Subject Matter Disclosures,'
Question 11(A) of the Disclosure Checklist asked:
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1120532
"'Have you, your spouse, or an immediate
family member been involved in a dispute
involving the same or similar subject
matter as the arbitration?'
"Julavits answered 'No' to this question.  Question
11(B) then asked:
"'Did the dispute assert any of the same
allegations as the assigned arbitration,
even if the dispute was not securities
related?'
"Julavits answered this question by marking 'NA,' 
or 'not applicable.'
"It is undisputed that Julavits was named as a
third-party defendant in five related cases in South
Carolina ('South Carolina Litigation') involving a
dispute over the alleged disparate treatment of
certain members of an equity-membership golf and
social club located on Callawassie Island, South
Carolina, related to unpaid membership dues. [The
Fund] alleges that Julavits should have disclosed
his involvement in these suits, and that his failure
to do so constitutes evident partiality under 9
U.S.C. § 10(a)(2). [The Fund] further alleges that,
had it been aware of Julavits's involvement in these
suits, it would have exercised its rights to have
him removed from the arbitration panel.
"....
"As a threshold issue, this court finds that
Julavits should have disclosed his involvement in
the South Carolina Litigation in questions 11A and
11B of the Disclosure Checklist, or otherwise in his
disclosures.  This is the only reasonable and
logical finding considering FINRA's unwavering
emphasis on an arbitrator's disclosure of all
aspects of their professional and personal lives, no
matter how remote they may seem.  However, this
16
1120532
court is not persuaded by the [Fund's] argument that
an arbitrator's failure to disclose equates to a per
se showing of evident partiality under 9 U.S.C. §
10(a)(2).  Rather, this court has examined whether
Julavits's nondisclosure gives rise to an impression
of bias that is direct, definite, and capable of
demonstration, as distinct from a mere appearance of
bias that is remote, uncertain, and speculative. 
See Waverlee Homes, Inc. [v. McMichael], 855 So. 2d
[493] at 508 [(Ala. 2003)].
"The facts 
alleged 
in 
Waverlee 
clearly 
gave 
rise
to an impression of bias that is direct and
identifiable.  The facts in this case are not as
definitive.  The subject matter of the arbitration
involved the large-scale investment of funds into
alleged high-risk securities.  The lawsuits against
Julavits involved a dispute over country club dues
wherein some members received reimbursements while
others did not.  The gravamen of the South Carolina
litigation 
is 
different 
from 
that 
in 
the
arbitration.  However, some of the causes of action
alleged against Julavits in the South Carolina
Litigation are the same as alleged against [MAM and
Morgan Keegan] in the arbitration.
"Julavits should have disclosed the South
Carolina Litigation to allow the parties the
opportunity to consider its significance in making
their selection.  It is possible that Julavits's
defense of causes of action similar to those at
issue in the arbitration may have resulted in
commensurate favoritism toward the defendants in
this case.  However, it seems overreaching to find
that there exists an impression of bias that is
direct, definite, and capable of demonstration. 
Rather, any such finding would require this court to
speculate that there existed a definite impression
of bias because of Julavits's involvement in the
South Carolina lawsuits. For that reason, the court
finds no evident partiality on the part of Julavits. 
Likewise, the court finds that vacatur is not
17
1120532
warranted under any of the other prongs of 9 U.S.C.
§ 10(a), as a result of Julavits's failure to
disclose the South Carolina Litigation.   
"....
"Since 2002, Kunis has been a Vice President and
partner in the financial services firm Maxim Group,
LLC. There, Kunis is a broker and financial advisor. 
Other employees and partners at Maxim are involved
in securities underwriting.  Maxim is a relatively 
small investment firm with approximately three
hundred fifty (350) employees. Kunis served as the
non-public/securities industry arbitrator on the
panel.
"[The Fund] alleges that, 'at the time of the
arbitration hearing and undisclosed by Kunis at any
time, Kunis's firm had a close, on-going and
material relationship with [Morgan Keegan] and its
counsel which was required to be disclosed.'
Specifically, [the Fund] alleges that Kunis failed
to disclose (1) that Maxim and [Morgan Keegan] were
co-underwriters on 'no fewer than 36 issuances' of
securities; (2) that Maxim and [Morgan Keegan] were
co-defendants in two lawsuits filed by investors to
recover losses in securities underwritten by Maxim
and [Morgan Keegan]; (3) that [Morgan Keegan's]
counsel in the arbitration proceeding, Greenberg
Traurig, had represented Maxim in its capacity as
underwriter on at least eight securities issuances;
(4) that Maxim regularly underwrote, managed, or
distributed securities that were the same or
extremely similar to the unique securities at issue
in the arbitration; and (5) that some of the
securities underwritten, managed, or distributed by
Maxim were actually owned by [the Fund] by virtue of
its investments with [Morgan Keegan] and MAM.
"[The Fund] further alleges that, had [it] been
aware of these undisclosed relationships, '[the
Fund] would have exercised all of its rights to
18
1120532
prevent Kunis from serving on the panel.' [Morgan
Keegan] counters that there is no evidence that
Kunis knew of the undisclosed relationships between
Maxim and [Morgan Keegan], or Maxim and Greenberg
Traurig.  Further, [Morgan Keegan] argues that the
relationships 
are 
so 
distant, 
trivial, 
and
immaterial so as to fail to demonstrate evident
partiality.  
"The FINRA Arbitrator's Manual ('Manual')
instructs that:
"'An arbitrator is required to disclose ...
any existing or past financial, business,
[or] professional ... relationships that
are likely to affect impartiality.  Persons
requested to serve as arbitrators should
disclose any such relationships that they
have with any party or its counsel[;] ...
[t]hey should also disclose any such
relationship 
involving 
... 
their 
current 
or
former employers, partners, or business
associates.'
"The Manual further instructs the arbitrators
that, even '[i]f the arbitrator does not believe a
conflict exists, but rather some association with
the parties, counsel, and/or witnesses may be
questioned, 
the 
arbitrator 
must 
disclose 
the
association.  When in doubt, disclosure should be
the rule.'
"In addition to the emphasis it places on full
and candid disclosure, FINRA imposes on potential
arbitrators a duty to investigate the existence of
possible or potential conflicts.  FINRA Rule 12405
(stating that arbitrators 'must make a reasonable
effort 
to 
learn 
of' 
and 
must 
disclose 
any
circumstances which might create an appearance of
bias).  The 'Conflicts/Disclosures' section of the
FINRA Arbitrator Application specifically inquires,
'[i]n the last five years, has your employer/firm
19
1120532
had a business relationship with any brokerage
firms? Provide details.'
"Reading 
this 
question 
in 
conjunction 
with 
FINRA
Rule 12405, this court finds that Kunis was required
to make a reasonable effort to determine whether his
employer, 
Maxim, 
had 
any 
type 
of 
business
relationship with [Morgan Keegan] or MAM prior to
his acceptance of appointment to the arbitration
panel.
"Had Kunis known of these relationships, this
court finds that the information should have been
disclosed to the parties.  However, as discussed in
the findings related to Julavits's non-disclosure,
the failure to disclose is not, in and of itself, a
per se showing of evident partiality under 9 U.S.C.
§ 10(a)(2), and does not automatically warrant
dismissal under any of the other prongs of 9 U.S.C.
§ 10(a).  This court is not persuaded that
constructive notice, wherein Kunis 'should have
known' of Maxim's relationships with [Morgan Keegan]
and Greenberg Traurig, should be treated as actual
notice for purposes of imparting bias on Kunis.  It
does appear to this trial court that, had a basic
conflict check been conducted by Kunis, the
relationships between Maxim and [Morgan Keegan], and
possibly between Maxim and Greenberg Traurig, would
have been revealed.  The relationship would
presumably have then been disclosed, and considered
by all parties in making their selections.  However, 
there can be no reasonable impression of bias that
is definite, direct, and capable of demonstration
where, as here, there is no evidence that Kunis even
knew of the disclosed business relationship.
"There 
is 
no 
allegation 
that Maxim 
ever received
compensation from [Morgan Keegan]. In addition,
Kunis was the securities panelist.  His experience
in that industry is presumably what made him
qualified 
to 
serve 
in 
that 
capacity. 
 
The
undisclosed relationships are not so close and
20
1120532
influential as to create an impression of bias that
is direct, definite, and capable of demonstration. 
Again, any such finding would be premised on an
'appearance of bias,' and would require this court
to speculate as to the existence of bias stemming
from the relationships.  Likewise, this court does
not find sufficient grounds for vacatur under the
other prongs of 9 U.S.C. § 10(a), based on Kunis's
non-disclosure."
The Fund appeals.
II. Standard of Review
This Court has stated:
"In R.P. Industries, Inc. v. S & M Equipment
Co., 896 So. 2d 460 (2004), this Court reviewed the
trial court's order granting a motion to confirm an
arbitration award and denying the opposing party's
motion to vacate that award. We stated:
"'"Where parties, as in this case,
have agreed that disputes should go to
arbitration, the role of the courts in
reviewing 
the 
arbitration 
award 
is 
limited.
Transit 
Casualty 
Co. 
v. 
Trenwick
Reinsurance 
Co., 
659 
F. 
Supp. 
1346
(S.D.N.Y. 1987), affirmed, 841 F.2d 1117
(2d Cir. 1988); Saxis Steamship Co. v.
Multifacs International Traders, Inc., 375
F.2d 577 (2d Cir. 1967). On motions to
confirm or to vacate an award, it is not
the function of courts to agree or disagree
with the reasoning of the arbitrators.
Application of States Marine Corp. of
Delaware, 127 F. Supp. 943 (S.D.N.Y. 1954).
Courts are only to ascertain whether there
exists one of the specific grounds for
vacation of an award. Saxis Steamship Co.
A court cannot set aside the arbitration
award just because it disagrees with it; a
21
1120532
policy allowing it to do so would undermine
the federal policy of encouraging the
settlement of disputes by arbitration.
United 
Steelworkers 
of 
America 
v.
Enterprise Wheel & Car Corp., 363 U.S. 593,
80 S.Ct. 1358, 4 L.Ed.2d 1424 (1960);
Virgin 
Islands 
Nursing 
Association's
Bargaining Unit v. Schneider, 668 F.2d 221
(3d Cir. 1981). An award should be vacated
only where the party attacking the award
clearly establishes one of the grounds
specified [in 9 U.S.C. § 10]. Catz American
Co. v. Pearl Grange Fruit Exchange, Inc.,
292 F.Supp. 549 (S.D.N.Y. 1968)."'
"896 So. 2d at 464 (quoting Maxus, Inc. v. Sciacca,
598 So. 2d 1376, 1380–81 (Ala. 1992)). The standard
by which an appellate court reviews a trial court's
order confirming an arbitration award under the
Federal Arbitration Act is that questions of law are
reviewed de novo and findings of fact are reviewed
only for clear error. See Riccard v. Prudential Ins.
Co., 307 F.3d 1277, 1289 (11th Cir. 2002)."
Hereford v. D.R. Horton, Inc., 13 So. 3d 375, 378 (Ala. 2009).
III. Discussion
A. The Evidentiary Issues
The Fund argues on appeal that the judgment entered on
the arbitration award is due to be vacated because Julavits
and Kunis did not fully disclose the existence of certain
facts and relationships as required by the FINRA Rules. 
However, as a threshold matter, we must first address the
challenge by MAM and Morgan Keegan to the evidence presented
22
1120532
by the Fund in support of its motion to vacate the judgment
entered on the arbitration award. 
The Fund submitted a brief and a substantial amount of
evidentiary materials in support of its motion to vacate the
judgment. After MAM and Morgan Keegan filed responses in
opposition to its motion to vacate, the Fund filed a reply in
support of the motion to vacate, which was supported by 
additional exhibits. The Fund then supplemented its motion to
vacate the judgment with supplemental evidence in the form of
additional exhibits.
During the evidentiary hearing on the Fund's motion to
vacate the judgment, MAM and Morgan Keegan moved the trial
court to strike the documents presented by the Fund in support
of its motion to vacate.  Specifically, MAM and Morgan Keegan
objected to a majority of the documents on the ground that
they were not properly authenticated or certified.  MAM and
1
Morgan Keegan also  objected to a couple of the documents on
hearsay grounds. Although MAM and Morgan Keegan argued to the
trial court that many of the documents had been printed from
MAM and Morgan Keegan specifically excluded from their
1
objection the FINRA Rules, the FINRA arbitration guide, "and
things of that nature."
23
1120532
Internet Web sites, they have not disputed or challenged the
actual contents of those documents.  The Fund responded to the
2
motion to strike the documents in support of its motion to
vacate by contending that MAM and Morgan Keegan had waived the
right to object to the documents by waiting until the day of
the hearing on the motion to vacate, when they had had notice
of the documents for approximately 30 to 45 days before the
date of the hearing.  The Fund also argued that the documents
contained an indicia of authenticity and thus were self-
authenticating.  The Fund requested that the trial court give
it "an opportunity to respond" if the trial court found any of
the documents offered in support of its motion to vacate to be
"problematic."  
The trial court advised the parties that it would notify
them if it wanted any additional briefing on the issue of the
admissibility of the Fund's documents.  The trial court never
expressly ruled on MAM and Morgan Keegan's motion to strike
the documents presented by the Fund in support of its motion
to vacate.  However, it appears that the trial court
Although MAM and Morgan Keegan have not disputed the
2
contents of those documents, they have vigorously challenged
their evidentiary significance. 
24
1120532
implicitly denied the motion to strike because the trial court
relied on certain of the disputed documents in its order.  See
Moody v. Town of Weymouth, 805 F.2d 30, 31 (1st Cir.
1986)(holding that "[t]he district court did not expressly
rule on plaintiff's motion to strike, but implicitly denied
it, for the court, in its opinion granting defendants' motion
to dismiss, relied on defendants' materials"). 
MAM and Morgan Keegan argue on appeal that the denial of
the Fund's motion to vacate is due to be affirmed because,
they say, the Fund offered no admissible evidence in support
of its motion -- the documents it presented in support of the
motion, they argued, 
were either not properly authenticated or
contained hearsay. MAM and Morgan Keegan contend, as they did
in the trial court, that many of the documents offered in
support of the motion to vacate had simply been printed from
Internet Web sites.  Again, we note that MAM and Morgan Keegan
have not challenged the contents of the documents. 
The Fund initially argues that because MAM and Morgan
Keegan failed to timely cross-appeal challenging the trial
court's denial of their motion to strike the Fund's
evidentiary 
materials, 
those 
evidentiary 
issues 
are 
not 
before
this Court.  We disagree.  In McMillan, Ltd. v. Warrior
25
1120532
Drilling & Engineering Co., 512 So. 2d 14, 24 (Ala. 1986),
this Court stated: "In the absence of taking an appeal, an
appellee may not cross-assign as error any rulings of the
trial court adverse to appellee."  However, in an opinion on
rehearing, this Court rejected its prior holding that a cross-
appeal was required in order to challenge an adverse ruling
where the appellee was not seeking to enlarge his own rights
under the order.  This Court stated:
"Appellees on rehearing ask that we reexamine
the question of whether they were required to file
a cross-appeal in order to preserve for appellate
review the question of whether summary judgment was
properly granted on grounds other than those relied
upon by the trial court. Appellees' argument that no
cross-appeal was required is well taken.
"We find that the proper rule is set forth by
Professor Moore:
"'[A]n appellee, though he files no
cross-appeal or cross-petition, may offer
in support of his judgment any argument
that is supported by the record, whether it
was ignored by the court below or flatly
rejected. The classic statement of this
principle appears in the opinion of Mr.
Justice Brandeis, speaking for a unanimous
Court in United States v. American Railway
Express Co.[, 265 U.S. 425, at 435, 44
S.Ct. 560, at 564, 68 L.Ed. 1087] in 1924:
"'"[A] party who does not appeal
from a final decree of the trial
court 
cannot 
be 
heard 
in
opposition thereto when the case
26
1120532
is brought here by the appeal of
the 
adverse party. 
In 
other
words, the 
appellee may 
not
attack the decree with a view
either 
to 
enlarging 
his 
own
rights thereunder or of lessening
the rights of his adversary,
whether what he seeks is to
correct an error or to supplement
the decree with respect to a
matter not dealt with below. But
it is likewise settled that the
appellee may, without taking a
cross-appeal, urge in support of
a decree any matter appearing in
the record, although his argument
may involve an attack upon the
reasoning of the lower court or
an 
insistence 
upon 
matter
overlooked or ignored by it."
"'By 
1937, 
this 
formulation 
was
referred to by the Court as "inveterate and
certain," and it has been reiterated many
times since then.'
"9 J. Moore and B. Ward, Moore's Federal Practice ¶
204.11[2] (2d ed. 1985). None of the cases cited on
original deliverance for support of the opposite
rule deals with this precise issue. In all of those
cases, the appellee was attempting to argue for
alteration of the judgment to enlarge his rights.
Under such circumstances, those cases correctly held
that a cross-appeal must be filed. In this case,
appellees merely seek to argue grounds other than
those relied upon by the trial court that support
the summary judgment and in no way seek any more
than what they have already obtained."
McMillan, Ltd., 512 So. 2d at 25-26.  Here, MAM and Morgan
Keegan prevailed in the trial court and do not seek to have an
27
1120532
"alteration of the judgment to enlarge [their] rights."  Id. 
They simply argue for affirmance of the trial court's order on
an alternative ground that was presented to the trial court
but that was not relied upon by the trial court.  Accordingly,
MAM and Morgan Keegan were not required to file a cross-appeal
in this case in order to challenge the denial of their motion
to strike the Fund's evidentiary materials. 
MAM and Morgan Keegan have specifically challenged the
admissibility of various documents introduced by the Fund in
support of its motion to vacate the judgment entered on the
arbitration award.  This Court has stated:
"'"[T]he trial court has great discretion
in determining whether evidence ... is
relevant and whether it should be admitted
or excluded." Sweeney v. Purvis, 665 So. 2d
926, 930 (Ala. 1995). When evidentiary
rulings of the trial court are reviewed on
appeal, "rulings on the admissibility of
evidence are within the sound discretion of
the trial judge and will not be disturbed
on 
appeal 
absent 
an 
abuse 
of 
that
discretion." Bama's Best Party Sales, Inc.
v. Tupperware, U.S., Inc., 723 So. 2d 29,
32 (Ala. 1998), citing Preferred Risk Mut.
Ins. Co. v. Ryan, 589 So. 2d 165 (Ala.
1991).'
"Bowers v. Wal–Mart Stores, Inc., 827 So. 2d 63, 71
(Ala. 2001)."
28
1120532
Van Voorst v. Federal Express Corp., 16 So. 3d 86, 92  (Ala.
2008). We address the admissibility of the challenged
documents in turn. 
1. The "Declaration of Page A. Poerschke in Support of
Motion to Vacate"
In support of its motion to vacate the judgment entered
on the arbitration award, the Fund submitted the "Declaration
of Page A. Poerschke in Support of Motion to Vacate," which
was accompanied by 40 exhibits constituting over 3,000 pages.
Poerschke, a lawyer representing the Fund, stated in the
declaration that she was "competent to testify as to the truth
of the matters set forth [therein] and could and would
competently 
testify 
thereto 
from 
[her] 
own 
personal 
knowledge" 
and that the copies of the exhibits attached to the
declaration were "true and correct." Poerschke states in the
declaration that, "as one of the attorneys of record, I was
physically present during the entire [FINRA] arbitration
hearing."  MAM and Morgan Keegan objected to the Poerschke
declaration as an authenticating source for the exhibits
attached to it, stating that Poerschke did not have the
authority under the law to authenticate the exhibits offered
in support of the motion to vacate. 
29
1120532
"It is an established rule of evidence that, to admit any
document into evidence over objection, the party offering the
evidence must show that the document is genuine or authentic."
Hampton v. Bruno's, Inc., 646 So. 2d 597, 599 (Ala. 1994). 
Indeed, Rule 44, Ala. R. Civ. P., which addresses the form of
authentication required for the admission of documents and
records into evidence, does not provide a mechanism of
authentication whereby the attorney for the party seeking to
introduce the documents may authenticate the documents by his
or her declaration.  Poerschke has not made any foundational
averments in her declaration as to her status as the legal
custodian of the documents or that the documents were business
records kept in the regular course of the business. See Rule
44(a)(1) and (h).
We note that Rule 901(a), Ala. R. Evid., provides that
"[t]he requirement of authentication or identification as a
condition precedent to admissibility is satisfied by evidence
sufficient to support a finding that the matter in question is
what its 
proponent 
claims."  
Authentication may be established
by testimony from a witness with knowledge "that a matter is
what it is claimed to be." Rule 901(b)(1), Ala. R. Evid. An
attorney's 
declaration 
does 
not 
authenticate 
a 
document 
unless
30
1120532
the attorney had personal knowledge that the document is what
it is claimed to be. Orr v. Bank of America, 285 F.3d 764 (9th
Cir. 2002).   See Logan v. City of Pullman, 392 F. Supp. 2d
3
1246 (E.D. Wash. 2005); Clark v. County of Tulare, 755 F.
Supp. 2d 1075 (E.D. Cal. 2010).  "'A document can be
authenticated [under Rule 901(b)(1)] by a witness who wrote
it, signed it, used it, or saw others do so.'" Orr, 285 F.3d
at 774 n. 8 (quoting Wright & Gold, Federal Practice &
Procedure: Evidence § 7106, 43 (2000)).
Poerschke stated in her declaration that she was
"competent to testify as to the truth of the matters set forth
[therein] and 
could 
and would competently testify thereto from
[her] own personal knowledge" and that the copies of the
exhibits attached to the declaration were "true and correct."
Poerschke has failed to assert facts evidencing personal
knowledge as to the compilation and contents of these
exhibits.  To the extent that her statement that, "as one of
the attorneys of record, I was physically present during the
entire [FINRA] arbitration hearing" can be construed as
Federal cases construing the Federal Rules of Evidence
3
are considered persuasive authority for Alabama state courts
construing the Alabama Rules of Evidence.  See Williams v.
Harris, 80 So. 3d 273 (Ala. Civ. App. 2011).
31
1120532
averring personal knowledge of the exhibits, we note that the
Fund contends in its brief that the materials evidencing a
conflict on the part of Julavits and Kunis were not discovered
until after the arbitration proceeding had been concluded.
Thus, Poerschke could not have gained any personal knowledge
of the exhibits relative to the Fund's motion to vacate during
the arbitration proceeding.  Although Poerschke's declaration
purports to authenticate the documents printed from the
Internet, she in fact lacks the personal knowledge required to
set forth with any certainty that the documents obtained via
third-party Web sites are, in fact, what she proclaims them to
be. Accordingly, we conclude that the Poerschke declaration
alone was 
insufficient 
to authenticate the exhibits offered in
support of the motion to vacate. However, some of the
documents may still be properly admitted for other reasons. 
2. The Callawassie Papers
As discussed in detail above, the Fund offered into
evidence 
court 
documents, 
including 
pleadings 
and 
orders, 
from
five separate actions filed in 2011 in Beaufort County,  South
Carolina, in which Julavits was named as a third-party
defendant 
in 
actions 
asserting 
against 
him 
claims
substantially similar to those asserted by the Fund against
32
1120532
MAM and Morgan Keegan ("the Callawassie papers"). The Fund
argued that the claims asserted against Julavits in the South
Carolina litigation were "strikingly" similar to the claims
asserted by it against MAM and Morgan Keegan and that the
South Carolina litigation should have been disclosed pursuant
to the FINRA Rules. 
MAM and Morgan Keegan objected to the Callawassie papers
on the ground they were not properly authenticated pursuant to
Rule 44(a)(1), Ala. R. Civ. P., which governs the method for
authenticating an official record. As stated above, the
Poerschke declaration alone was insufficient to authenticate
the documents attached as exhibits to the motion to vacate. 
The Fund argues on appeal that the trial court was free
to take judicial notice of the pleadings filed in the South
Carolina litigation 
and 
was, therefore, free to consider those
pleadings in ruling on the motion to vacate. Generally, a
court may not take judicial notice of the records of another
court.  Garrett v. Hadden, 495 So. 2d 616 (Ala. 1986). 
Charles W. Gamble and Robert J. Goodwin, McElroy's Alabama
Evidence § 484.02(2) (6th ed. 2010), states: 
"The circuit court takes judicial notice of all
parts of its record of the case in hand. For a
proper purpose, the circuit court takes judicial
33
1120532
notice of its own record in another case if, but
only if, the pleadings in the case in hand refer to
the record in the other case. However, the circuit
court cannot take judicial notice of its record in
another case for the purpose of supplying evidence
in the case at hand, as the record in the other case
must be introduced in evidence if it is to be
considered as evidence.
"Circuit courts do not take judicial notice of
the records of another court."
However, a court may take judicial "'notice of another
court's order ... for the limited purpose of recognizing the
"judicial act" that the order represents or the subject matter
of the litigation and related filings.'" In re Delta Res.,
Inc., 54 F.3d 722, 725 (11th Cir. 1995) (quoting United States
v. Jones, 29 F.3d 1549, 1553-54 (11th. Cir. 1994)).   See also 
4
Liberty Mut. Ins. Co. v. Rotches Pork Packers, Inc., 969 F.2d
1384, 1388-89 (2d Cir. 1992) (stating that "[a] court may take
judicial notice of a document filed in another court '... to
establish the fact of such litigation and related filings'"). 
In Al Najjar v. Ashcroft 257 F.3d 1262 (11th. Cir. 2001), an
appeal from a deportation proceeding, the appellant argued on
appeal 
that 
his 
detainment 
by 
the 
Immigration 
and
Rule 201, Ala. R. Evid., was adopted verbatim from the
4
corresponding Federal Rule of Evidence dealing with judicial
notice of adjudicative facts.  Advisory Committee's Notes,
Rule 201, Ala. R. Civ. P.
34
1120532
Naturalization Service and subsequent custody proceedings
improperly affected his deportation case.  The appellant
requested that the court either supplement the record on
appeal or take judicial notice of a number of documents,
including newspaper articles describing his detainment and
custody proceedings.  In taking judicial notice of the custody
proceedings, the court stated:
"Although we are jurisdictionally precluded from
admitting 
the 
proffered 
newspaper 
articles
describing the custody proceedings, we may, and do,
take judicial notice of the fact that [appellant's]
custody proceeding occurred and the subject matter
thereof. See In re Delta Resources, Inc., 54 F.3d
722, 725 (11th Cir. 1995) ('[T]his Court may take
judicial "notice of another court's order ... for
the limited purpose of recognizing the 'judicial
act' that the order represents or the subject matter
of the litigation and related filings."'). We will
not take judicial notice of any factual findings,
legal conclusions, or arguments advanced in the
custody proceedings, and we will not consider these
proceedings as impacting any of the [appellant's]
claims on appeal. See 8 U.S.C. § 1105a(a)(4). In
sum, we take judicial notice of the fact that
[appellant's] custody proceedings occurred, and the
subject matter thereof, although we will not rely on
these proceedings in reviewing the [Board of
Immigration Appeals'] decisions."
257 F.3d at 1282-83.
It is not seriously disputed that Julavits was named a
third-party defendant in the South Carolina litigation.  In
fact, Morgan Keegan submitted the same court documents from
35
1120532
the South Carolina litigation that were submitted by the Fund, 
plus additional court documents from the South Carolina
litigation not submitted by the Fund, in support of its
response in opposition to the Fund's motion to vacate. The
trial court stated in its order denying the Fund's motion to
vacate that "[i]t is undisputed that Julavits was named as a
third-party defendant in five related cases in South
Carolina."  Accordingly, we conclude that the trial court
could have properly 
considered the Callawassie papers in order
to take judicial notice of the South Carolina litigation for
the limited 
purpose 
of concluding that the litigation occurred
and that Julavits was named as a third-party defendant in that
litigation.
3. The "Hagman Order" and "Antietam Motion"
The Fund submitted as an exhibit to its motion to vacate
the judgment entered on the arbitration award an order issued
by the Superior Court of Los Angeles County, California, in
Hagman v. CitiGroup Global Markets, Inc. (Super. Ct. no.
BS128800) (Feb. 9, 2011) ("the Hagman order"), in which that
court vacated an arbitration award based on California law as
a result of the arbitrator's failure to disclose his
involvement two years earlier in his own lawsuit involving the
36
1120532
same subject matter made the basis of the arbitration.  In its
reply in support of the motion to vacate the judgment entered
on the arbitration award, the Fund submitted a pleading filed
by Morgan Keegan in an action styled Antietam Industries, Inc.
v. Morgan Keegan & Company, Case no. 6:12-CV-1250 (M.D. Fla.,
August 13, 2012) ("the Antietam motion"), in which Morgan
Keegan moved the court to vacate an arbitration judgment,
arguing that the arbitrator had failed to disclose his
involvement in prior litigation involving the same subject
matter of the arbitration.  The Fund argues that the trial
court was free to take judicial notice of these exhibits. 
Both the Hagman order and the Antietam motion were
offered for more than just recognizing a judicial act or the
subject matter of the litigation. In re Delta Res., Inc., 54
F.3d at 725. The Hagman order was offered to show a legal
conclusion reached by another court.  The Antietam motion was
offered to show an argument and position taken by Morgan
Keegan in another case. Because these two documents were
offered for more than the limited purpose of recognizing a
judicial act or the subject matter of the litigation, the
trial court could not have properly taken judicial notice of
these documents and considered them in reaching its
37
1120532
determination in this matter.  Al Najjar, 257 F.3d at 1283
(noting that a court "will not take judicial notice of any
factual findings, legal conclusions, or arguments advanced in
the [other] proceedings").
4. Maxim Group and Morgan Keegan as Codefendants
The Fund submitted as an exhibit to the Poerschke
declaration the class-action complaint filed in Fire & Police
Pension Association of Colorado v. American International
Group, Inc., 
Case no. 08-CV-10586 (S.D.N.Y. December 4, 2008),
in 
which 
Maxim 
Group 
and 
Morgan 
Keegan 
were 
named
codefendants, along with numerous other defendants, in an
action brought by a pension fund seeking to recover losses on
securities underwritten by Maxim Group and Morgan Keegan.  The
Fund also submitted a docket sheet from an action styled In re
the Mills Corp. Securities Litigation, Case no. 1:06-CV-00077
(E.D. Va. January 20, 2006), in which both Maxim Group and
Morgan Keegan were named, among numerous others, as
codefendants and were represented by the same attorney. 
Although both Maxim Group and Morgan Keegan were represented
by the same attorney, that attorney was not an employee of
Greenberg Traurig.  Again, the Fund argues that the trial
court was free to take judicial notice of these exhibits. As
38
1120532
with the Callawassie papers, the trial court could have
properly considered the class-action complaint and the docket
sheet for the limited purpose of taking judicial notice of the
fact that Maxim Group and Morgan Keegan were named as
codefendants in litigation involving securities. In re Delta
Resources, supra.
5. Exhibit M -- Securities Issuances
In support of its argument that Kunis's firm -- Maxim
Group –- and Morgan Keegan had a close, ongoing relationship,
the Fund submitted documents indicating that Maxim Group and
Morgan Keegan had participated together as co-underwriters on
36 issuances of multi-million-dollar securities.  Those
documents were attached as Exhibit M to the Poerschke
declaration.  Initially, we note that MAM and Morgan Keegan do
not dispute that Morgan Keegan and Maxim Group participated
together, 
among 
others, 
as 
underwriters 
in 
the 
above-mentioned
36 securities issuances. Further, as mentioned above, MAM and
Morgan Keegan do not dispute the contents of Exhibit M.  In
fact, in its response in opposition to the motion to vacate
the judgment entered on the arbitration award, Morgan Keegan
submitted the affidavit of its expert in which the expert
based his opinion, in part, on Exhibit M.  Morgan Keegan also
39
1120532
presented in support of its response in opposition to the
motion to vacate an annotated version of Exhibit M upon which
its expert's opinion was based. 
Because Morgan Keegan relied on Exhibit M in its response
in opposition to the motion to vacate and has not challenged
the contents of Exhibit M,  we cannot say that the trial court
exceeded its 
considerable 
discretion by denying MAM and Morgan
Keegan's motion to strike Exhibit M and in subsequently
relying on the contents of Exhibit M.  Bowers v. Wal-Mart
Stores, Inc., 827 So. 2d 63 (Ala. 2001).  Consequently, this
Court may consider Exhibit M on appeal.
6. Additional Web Site Materials
The Fund presented additional materials printed from
various Web sites, which, it says, also evidence a close,
ongoing relationship between Maxim Group and Morgan Keegan. 
The materials are attached to the Poerschke declaration as
Exhibits Q1-Q8, R, T, U, V, W, X, AA, DD, and EE.  Exhibits
Q1-Q8 evidence securities issuances in which Greenberg
Traurig, 
Morgan 
Keegan's 
counsel, 
represented 
Maxim 
Group. 
The
remaining exhibits evidence Maxim Group's involvement in the
underwriting, management, and distribution of securities
similar to those at issue in the underlying arbitration and
40
1120532
the fact that some of the securities underwritten, managed,
and distributed by Maxim Group were actually owned by the
Fund.  Again, MAM and Morgan Keegan have not challenged or
disputed the contents of those exhibits and do not dispute
that Greenberg Traurig 
represented Maxim Group in the security
issuances 
or 
that 
Maxim 
Group 
was 
involved 
in 
the
underwriting, management, and distribution of securities
similar to those made the basis of the arbitration proceeding.
These 
materials 
consist 
of 
various 
offering 
prospectuses,
shareholder reports, and offering circulars.  These exhibits
were not relied on by MAM or Morgan Keegan in their response
in opposition to the motion to vacate as was Exhibit M.
However, the Fund, relying upon Perfect 10, Inc. v. Cybernet
Ventures, Inc., 213 F. Supp. 2d 1146 (C.D. Cal. 2002), argues
that 
the 
Poerschke 
declaration 
establishes 
the 
authenticity 
of
the documents printed from Web sites when the declaration is
viewed in 
combination 
with 
circumstantial indicia of
authenticity, such as the dates the documents were printed and
the Web addresses from which the documents were printed.  As
discussed above, the Poerschke declaration is insufficient as
an authenticating source because it lacks the requisite
personal knowledge.  Further, the exhibits do not contain the
41
1120532
Web addresses of the Web sites from which they were printed,
nor do they indicate the dates on which they were printed.
However, concerning authentication we note that the
exhibits do contain other "distinctive characteristics" that,
when considered in light of the circumstances, support a
finding that the exhibits are what the Fund claims they are. 
See Rule 901(b)(4), Ala. R. Evid., providing as "examples of
authentication 
or 
identification 
conforming 
with 
the
requirement 
of 
this 
rule" 
"Distinctive 
Characteristics 
and 
the
Like.  Appearance, contents, substance, internal patterns, or
other distinctive characteristics, taken in conjunction with
circumstances." (Emphasis added.)  "The evidence establishing
authenticity, however, 'does not have to be conclusive or
overwhelming; rather, it must be strong enough for the
question to go to the jury.'" Royal Ins. Co. of America v.
Crowne Invs., Inc., 903 So. 2d 802, 809 (Ala. 2004) (quoting
the Advisory Committee's Notes, Rule 901(a), Ala. R. Evid.). 
The "contents" of these exhibits primarily consist of
shareholder prospectuses and offering circulars that contain
highly technical and detailed financial analysis based on
current market information and recommendations to potential
42
1120532
investors based on that analysis.  One exhibit consists of an
in-depth shareholder 
financial report that had been filed with
the United 
States 
Securities and Exchange Commission.  Because
of the highly technical nature of the financial documents, we
cannot say that the trial court exceeded its wide discretion
in denying the motion to strike as to these documents.  This
conclusion is only bolstered when considered in light of the
circumstance, as Rule 901(b)(4) permits, that MAM and Morgan
Keegan have not challenged the contents of the documents.  See
Rule 901(b)(4)(noting that authentication as a condition
precedent is satisfied when contents and substance of
documents taken in conjunction with circumstances support a
finding that the matter in question is what its proponent
claims it is). 
7. The Hearsay Objections
The Fund also sought to admit as exhibits to the
Poerschke declaration a FINRA publication entitled "The
Neutral Corner" and a marketing piece published by Greenberg
Traurig ("the Greenberg booklet") touting the firm's and its
lawyers' accomplishments, areas of practice, experience, and
clients.  The Neutral Corner contained information indicating
that a prospective arbitrator should disclose the fact that he
43
1120532
or she had been sued for breach of a fiduciary duty if he or
she has been selected to serve in an arbitration proceeding in
which a breach of fiduciary duty has been alleged.  The
Greenberg booklet indicated that Greenberg Traurig, the law
firm that represented Morgan Keegan in the underlying
arbitration proceeding, had represented Maxim Group in a $60
million initial public offering, or IPO.  MAM and Morgan
Keegan objected to these exhibits on grounds of hearsay. 
"Hearsay" is defined by Rule 801(c), Ala. R. Evid., as "a
statement, other than one made by the declarant while
testifying at the trial or hearing, offered in evidence to
prove the truth of the matter asserted."  A hearsay statement
may be either oral or written.  Rule 801(a), Ala. R. Evid.
Here, the Fund offered The Neutral Corner to establish
that a prospective arbitrator should disclose litigation in
which he or she was a party that involved the same allegations
as those asserted in the arbitration proceeding.  The Fund
offered the Greenberg booklet to demonstrate that Maxim Group
had an ongoing attorney-client relationship with Greenberg
Traurig. As such, both documents constituted inadmissible
hearsay and cannot be considered by this Court on appeal.
8.  Summary of This Court's Holdings
44
1120532
In sum, the Court has determined that the Poerschke
declaration is an insufficient authenticating source for the
attached exhibits; that the trial court could have properly
taken judicial notice of the Callawassie papers but could not
have taken judicial notice of the Hagman order or the Antietam
motion; that the trial court could have taken judicial notice
of the class-action complaint and the docket sheet evidencing
that Morgan Keegan and Maxim Group had been named as
codefendants 
in 
securities 
litigation; 
that 
Exhibits 
M, 
Q1-Q8,
R, T, U, V, W, X, AA, DD, and EE were admissible; and that The
Neutral Corner and the Greenberg booklet were inadmissible. 
We now address the issue whether Julavits's and Kunis's
failure to disclose certain facts as argued by the Fund
created a reasonable impression of bias constituting an
evident partiality on the part of the arbitrators.
B. Arbitrators' Failure to Disclose
The Fund argues on appeal that the judgment entered on
the arbitration award is due to be vacated because Julavits
and Kunis did not provide full disclosure as was required by
the FINRA Rules.  As stated above, the trial court found that
both Julavits and Kunis failed to make disclosures required by
the FINRA Rules and that the failure to make those disclosures
45
1120532
was "contrary to the spirit of all of the FINRA Rules and
guidelines."  After carefully reviewing the admissible
evidence in this case, this Court agrees with the trial
court's 
finding 
that 
arbitrator 
disclosure 
is 
the
"cornerstone" of 
FINRA 
arbitration and that the arbitrator has
a 
continuous 
and 
imperative 
duty 
to 
disclose 
any
relationships, experiences, and background information "that
may affect -- or even appear to affect -- the arbitrator's
ability to be impartial."  We further agree with the trial
court's conclusion that Julavits and Kunis both failed to
disclose certain information, as discussed in detail above,
and that the failure to disclose this information was contrary
to the FINRA Rules relating to arbitrator disclosure.     
C. Vacatur of Judgment Entered on Arbitration Award
The Fund argues that it is entitled to have the judgment
entered on the arbitration award vacated pursuant to the
grounds provided in 9 U.S.C. § 10(a)(1) through (4), which
provide that an arbitration award may be vacated:
"(1) where the award was procured by corruption,
fraud, or undue means; 
"(2) 
where 
there 
was 
evident 
partiality 
or
corruption in the arbitrators, or either of them; 
46
1120532
"(3) where the arbitrators were guilty of misconduct
in refusing to postpone the hearing, upon sufficient
cause shown, or in refusing to hear evidence
pertinent and material to the controversy; or of any
other misbehavior by which the rights of any party
have been prejudiced; or 
"(4) where the arbitrators exceeded their powers, or
so imperfectly executed them that a mutual, final,
and definite award upon the subject matter submitted
was not made." 
Because we find dispositive the arguments as they relate
to "evident partiality," 9 U.S.C. § 10(a)(2), we will address
those arguments first. The Fund argues that the judgment
entered on the arbitration award is due to be vacated because
the failure by Julavits and Kunis to make the disclosures
discussed above created a reasonable impression of bias
constituting an "evident partiality" on the part of the
arbitrators under 9 U.S.C. § 10(a)(2).  After thoroughly
surveying caselaw from various federal courts, this Court, in
Waverlee Homes, Inc. v. McMichael, 855 So. 2d 493 (Ala. 2003),
adopted the "reasonable impression of partiality" as the
standard for determining whether evident partiality exists
under 9 U.S.C. § 10(a)(2).  Specifically, this Court stated:
"We conclude that the weight of authority
developed after Commonwealth Coatings [Corp. v.
Continental Casualty Co., 393 U.S. 145, 89 S. Ct.
337, 21 L. Ed. 2d 301 (1968),] requires a review of
the offered evidence pursuant to the 'reasonable
47
1120532
impression of partiality' standard, using the
criteria developed in the federal cases reviewed
above. The appropriate approach for the trial court
to take in assessing [a motion to vacate a judgment
entered 
on 
an 
arbitration 
award 
based 
on 
allegations of 'evident partiality'] is to consider
whether [the movant]  makes a showing through
admissible evidence that the court finds to be
credible, that gives rise to an impression of bias
that 
is 
direct, 
definite, 
and 
capable 
of
demonstration, as distinct from a 'mere appearance'
of bias that is remote, uncertain, and speculative."
Waverlee Homes, 855 So. 2d at 508.  Justice Murdock, writing
for the Court in Lexington Insurance Co. v. Southern Energy
Homes, Inc., 101 So. 3d 1190 (Ala. 2012), aptly explained this
Court's adoption in Waverlee Homes of the "reasonable-
impression-of-partiality" standard and what has become known
as "nondisclosure" cases versus "actual-bias" cases: 
"In Waverlee Homes, this Court surveyed federal
cases brought after the arbitrator had been named
and after the arbitrator had made an actual award.
855 So. 2d at 503–08. In most, if not all, of these
federal cases, the issue was whether the arbitrator
had failed to make a pre-selection disclosure of
facts that might have demonstrated bias or a
conflict of interest on his part and whether this
nondisclosure 
itself 
demonstrated 
an 
'evident
partiality' on the part of the arbitrator under 9
U.S.C. § 10(a)(2) so as to justify the vacatur of
the resulting arbitration award. The opinion in one
of these cases, Schmitz v. Zilveti, [20 F.3d 1043
(9th Cir. 1994)], provides a helpful explanation of
the distinction between what have become known as
'nondisclosure' cases and 'actual bias' cases:
48
1120532
"'Appellants argue that Commonwealth
Coatings Corp. v. Continental Cas. Co., 393
U.S. 145, 89 S.Ct. 337, 21 L.Ed.2d 301
(1968), requires us to reverse the district
court. 
In 
Commonwealth 
Coatings, 
one
arbitrator on a panel of three failed to
disclose that he had engaged in periodic
and 
significant 
business 
relations 
with 
one
of the parties to the arbitration over the
previous five or six years. Id. at 146, 89
S.Ct. at 338.... The party that lost the
arbitration then challenged the award,
asserting 
that 
the 
failure 
of 
this
arbitrator to disclose his significant
business relationship resulted in "evident
partiality" under 9 U.S.C. § 10[(a)(2)],
warranting vacatur of the award.
"'The district court held that "the
arbitrator ... was entirely fair and
impartial," id. at 151 n.*, 89 S.Ct. at 340
n.*, and refused to vacate the award.
Without disturbing the finding that the
arbitrator was not biased, id. at 147–50 &
151 n.*, 89 S.Ct. at 338–40 & 340 n.*, the
Supreme Court reversed and vacated the
award. The Court held that an arbitrator's
nondisclosure of facts showing a potential
conflict 
of 
interest 
creates 
evident
partiality warranting vacatur even when no
actual bias is present. The Court tried to
articulate 
a 
standard 
indicating 
what 
facts
show evident partiality when not disclosed
by an arbitrator. The Court described facts
that must be disclosed as those that "might
create an impression of possible bias," id.
at 149, 89 S.Ct. at 339, those that show
the "appearance of bias," id. at 150, 89 S.
Ct. at 340, and those that indicate that
arbitrators "might reasonably be thought 
biased against one litigant and favorable
to another," id.'
49
1120532
"20 F.3d at 1045 (emphasis added).
"After 
noting 
that two 
of 
its 
previous 
decisions
had 'involved allegations of actual bias rather than
a failure to disclose,' 20 F.3d at 1046, the Schmitz
court additionally explained:
"'How to apply Commonwealth Coatings in a
nondisclosure case is an issue of first
impression in the Ninth Circuit. Other
courts facing the same issue have held that
"evident 
partiality" 
is 
present 
when
undisclosed 
facts 
show 
"a 
reasonable
impression of partiality." [Middlesex Mut.
Ins. Co. v.] Levine, 675 F.2d [1197] at
1201 [(11th Cir. 1982)]; see Sanko S.S. Co.
v. Cook Indus., Inc., 495 F.2d 1260,
1263–64 (2d Cir. 1973).... Consistent with
Commonwealth Coatings, courts examining
nondisclosure 
cases 
have 
not 
required 
proof
of 
actual 
bias 
in 
showing 
"evident
partiality." See Levine, 675 F.2d at
1200–02; Sanko S.S. Co., 495 F.2d at
1263–64.
"'....
"'Though 
Toyota 
of 
Berkeley 
[v.
Automobile Salesman's Union, Local 1095,
834 F.2d 751 (9th Cir. 1987),] and [Sheet
Metal Workers International Ass'n v.]
Kinney Air[, 756 F.2d 742 (9th Cir. 1985),]
provide some support for the proposition
that Commonwealth Coatings establishes
"reasonable impression of partiality" as a
legal standard, both the facts and factual
analyses of those cases are inapposite to
the 
instant 
nondisclosure 
case. 
Both
involve allegations of actual bias rather
than evident partiality from failure to
disclose. Toyota of Berkeley, 834 F.2d at
756–57; Kinney Air, 756 F.2d at 746.
Moreover, both opinions distinguish their
50
1120532
facts from those of nondisclosure cases,
including Commonwealth Coatings. Toyota of
Berkeley, 834 F.2d at 756; Kinney Air, 756
F.2d at 746.
"'Notwithstanding 
the 
factual
dissimilarity of Toyota of Berkeley and
Kinney Air with nondisclosure cases, both
Toyota of Berkeley and Kinney Air employ
the "reasonable impression of partiality"
standard taken from Commonwealth Coatings,
a nondisclosure case. Toyota of Berkeley,
834 F.2d at 756–57; Kinney Air, 756 F.2d at
746; see also Employers Ins. [of Wausau v.
National 
Union 
Fire 
Ins. 
Co. 
of
Pittsburgh], 933 F.2d [1481,] at 1481 [(9th
Cir. 1991)]; [Sheet Metal Workers Int'l
Ass'n, Local No. 162 v.] Jason Mfg.[,
Inc.], 900 F.2d [1392] at 1392 [(9th Cir.
1990)]. That these actual bias cases apply
the Commonwealth Coatings standard to
allegations of actual bias is confusing. In
an actual bias case, a court must find
actual 
bias. 
Finding 
a 
"reasonable
impression" 
of 
partiality 
is 
not 
equivalent
to, nor does it imply, a finding of actual
bias. Otherwise, the Commonwealth Coatings
court could not have held that a reasonable
impression of partiality was present when
no actual bias was shown.
"'The policies of 9 U.S.C. § 10 also
support the notion that the standard for
nondisclosure 
cases 
should 
differ 
from 
that
used 
in 
actual 
bias 
cases. 
In 
a
nondisclosure case, the integrity of the
process by which arbitrators are chosen is
at issue. Showing a "reasonable impression
of 
partiality" 
is 
sufficient 
in 
a
nondisclosure case because the policy of
section 
10(a)(2) 
instructs 
that 
the 
parties
should 
choose 
their 
arbitrators
intelligently. Commonwealth Coatings, 393
51
1120532
U.S. at 151, 89 S.Ct. at 340 (White, J.,
concurring). The parties can choose their
arbitrators intelligently only when facts
showing 
potential 
partiality 
are 
disclosed.
Whether 
the 
arbitrators' 
decision 
itself 
is
faulty is not necessarily relevant. But in
an 
actual 
bias 
determination, 
the 
integrity
of the arbitrators' decision is directly at
issue. That a reasonable impression of
partiality is present does not mean the
arbitration award was the product of
impropriety.'
"20 F.3d at 1046–47 (emphasis added).
"It 
is 
not 
clear 
whether 
Waverlee 
Homes, 
itself,
was a 'nondisclosure' case or an 'actual bias' case.
Although the facts as described in the opinion
suggest an 'actual bias' case, the Court concluded
its opinion with an endorsement of the 'reasonable
impression' standard articulated in the federal
'nondisclosure' cases it had surveyed."
Lexington Ins., 101 So. 2d at 1205-07.  Thus, we apply the
"reasonable-impression-of-partiality" standard enunciated in
Waverlee to the facts of this "nondisclosure" case.
The Fund presented evidence indicating a business
relationship between Kunis's financial firm, Maxim Group;
Morgan Keegan; and Greenberg Traurig.  The Fund alleged: (1)
that Maxim Group had been a co-underwriter with Morgan Keegan
on at least 
36 multi-million-dollar equity 
and 
debt issuances,
(2) that Maxim Group and Morgan Keegan had been codefendants
in lawsuits, including lawsuits filed by investors to recover
52
1120532
losses in securities underwritten by Maxim Group and Morgan
Keegan; (3) that Maxim Group had an  attorney-client
relationship 
with 
Greenberg 
Traurig, 
the 
law 
firm 
representing
Morgan Keegan in the arbitration proceeding, and Greenberg
Traurig had represented Maxim Group in a number of
underwritings; and (4) that Kunis failed to disclose Maxim
Group's involvement with the investment products at issue in
this case.
The Fund argues that Kunis's failure to disclose the
significant business relationship between Maxim Group, Morgan
Keegan, and Greenberg Traurig created a reasonable impression
of impartiality constituting an evident partiality on Kunis's
part. MAM and Morgan Keegan argue that the Fund has failed to
establish that Kunis was even aware of the facts relating to
the existence of a business relationship and that Kunis's lack
of knowledge relative to the existence of a business
relationship precludes an finding of a reasonable impression
of impartiality constituting a finding of evident partiality. 
The Fund counters with the argument that, where an arbitrator
has a duty to investigate possible conflicts, the law will
impose constructive knowledge of any undiscovered conflict
upon the arbitrator where the arbitrator does nothing to
53
1120532
fulfill his or her duty to inform himself or herself of
possible conflicts.
MAM and Morgan Keegan rely on Gianelli Money Purchase
Plan & Trust v. ADM Investor Services, Inc., 146 F.3d 1309
(11th Cir. 1998), in support of its position that actual
knowledge of a potential conflict is necessary to establish a
"reasonable 
impression 
of 
impartiality" 
constituting 
a 
finding
of "evident partiality."  In Gianelli, ADM Investor Services,
Inc., a futures-commission merchant, and Basic Commodities,
Inc., entered into an agreement under which ADM executed
commodities trades for customers brought in by Basic. One of
the clients Basic brought to ADM was Gianelli Money Purchase
Plan and 
Trust. 
The Gianelli Trust lost approximately $100,000
in less than a year in the futures markets.  Gianelli Trust
claimed that Basic's  president, Kent C. Kelley, caused those
losses through mismanagement of its account. In an attempt to
recoup its losses, Gianelli Trust filed a claim against ADM
with the American Arbitration Association ("AAA"). It sought
to hold ADM liable on an agency theory, asserting that it was
liable for Kelley's wrongdoings and mismanagement. 
The parties jointly selected Keith Houck as the sole
arbitrator. Houck had served as office manager for the law
54
1120532
firm of Gray, Harris & Robinson ("Gray Harris") since 1990.
Before 
the 
arbitration 
proceeding, 
Gianelli 
Trust 
learned 
that
Gray Harris had represented Kelley in a 1992 securities case. 
When Gianelli Trust asked about this, Houck asserted that he
was unaware of the case, while Kelley falsely asserted that
Gray Harris's representation of him was an isolated incident.
Additionally, Houck signed an arbitrator's oath that stated
that he had nothing to disclose. After receiving those
assurances, Gianelli Trust accepted Houck as the sole
arbitrator. Houck conducted the arbitration hearings and
ultimately entered an award in favor of ADM, finding it not
liable to Gianelli Trust.  Gianelli, supra.
Gianelli Trust subsequently discovered that Kelley had
had frequent contact with Gray Harris. Specifically, Gray
Harris helped Kelley form three companies and represented two
others in which Kelley was involved in 1976; the firm also
represented Kelley as an individual from 1977 to 1986.
Gianelli Trust moved to vacate the arbitration award,
contending that Houck, as an employee of Gray Harris, had
displayed partiality to ADM. The district court granted the
motion and vacated the arbitration award. Gianelli, supra.
55
1120532
In reversing the district court's judgment, the United
States Court of Appeals for the Eleventh Circuit stated:
"In 
vacating 
the 
arbitration 
award 
in 
this case,
the district court relied heavily on Schmitz v.
Zilveti, 20 F. 3d 1043 (9th Cir. 1994).
 In that
[5]
case, the Ninth Circuit found evident partiality
where an arbitrator, who was also an attorney, did
not investigate potential conflicts or disclose that
his firm had performed legal work for one of the
parties' corporate parents. See id. at 1048. Schmitz
held that the arbitrator's failure to investigate
could create a reasonable perception of partiality.
See id. at 1048-49. 
"The district court found Schmitz to be closely
analogous to this case. In particular, the court
noted that, as in Schmitz, the arbitrator (Houck)
was employed by a law firm (Gray Harris) that had a
long-standing relationship with someone closely
connected to one of the arbitrating parties
(Kelley). Furthermore, the district court reasoned
that had Houck investigated possible conflicts of
interest as Schmitz requires, he would have
discovered the previous work that Gray Harris had
performed for Kelley, and disclosure of that
relationship would have afforded Gianelli a more
informed basis upon which to decide whether to
proceed with Houck as arbitrator. Therefore, the
district court, following Schmitz, concluded that it
should vacate the arbitration award.
"The problem with the district court's analysis
is that Schmitz conflicts with the law of this
The Schmitz decision will be discussed in detail, infra,
5
because the Fund relies on that decision in support of its
argument that the law will impose constructive knowledge of
any undiscovered conflict upon the arbitrator where the
arbitrator has a duty to discover possible conflicts and does
nothing to fulfill that duty. 
56
1120532
Circuit. In Lifecare Int'l, Inc. v. CD Medical,
Inc., 68 F.3d 429 (11th Cir. 1995), the arbitrator
accused of 'evident partiality' became 'of counsel'
to a law firm that had two contacts with CD Medical,
including one 'for the purpose of obtaining
representation in the instant dispute.' Id. at 434.
This Court noted that even the most routine
background check by the arbitrator would have
brought this information to light. However, we also
pointed out that there was no evidence that the
arbitrator was actually aware of these past
contacts. Because there was no evidence that the
arbitrator had actual knowledge of the past
contacts, we confirmed the arbitration award and
rejected the proposition that the arbitrator had a
duty to investigate the past contacts to avoid
evident partiality. In the present case it was error
for the district court to rely on Schmitz, because
its holding that an arbitrator's failure to
investigate past contacts with one of the parties
may constitute 'evident partiality' is squarely at
odds with the position we took in Lifecare.
"Instead of following Schmitz, the district
court should have applied the law of our Circuit,
which is that an arbitration award may be vacated
due to the 'evident partiality' of an arbitrator
only when either (1) an actual conflict exists, or
(2) the arbitrator knows of, but fails to disclose,
information which would lead a reasonable person to
believe that a potential conflict exists. See
Lifecare, 68 F.3d at 433; [Middlesex Mut. Ins. Co.
v.] Levine, 675 F.2d [1197] at 1202 [(11th Cir.
1982)] (party challenging arbitration award must
establish reasonable impression of partiality that
is 'direct, definite and capable of demonstration
rather than remote, uncertain and speculative.')
(internal quotes omitted). Whether these conditions
have been met ordinarily requires a fact-intensive
inquiry. See Lifecare, 68 F.3d at 435.
"Performance of that inquiry here leads us to
conclude that neither of the conditions for 'evident
57
1120532
partiality' exists in this case. The district court
made a factual finding, supported by the evidence in
the record, that Houck was not actually biased
against Gianelli. Therefore, the first condition
under which an award may be vacated for evident
partiality, the existence of an actual conflict, was
not present in this case.
"....
"It is not entirely clear from the district
court opinion whether it implicitly found that Houck
was aware of any relationship Kelley had with Gray
Harris other than the [prior securities case].
However, if the district court did make such an
implicit finding, that finding is clearly erroneous.
All of Kelley's contacts with Gray Harris, with the
exception of the [securities] case, pre-date Houck's
employment at the firm. There is nothing in the
record to indicate that Houck knew of any connection
between Kelley and Gray Harris prior to 1990, when
Houck joined the firm. Although given abundant
opportunity to do so, Gianelli, who has the burden
of persuasion, has not pointed to any evidence
suggesting that Houck was aware of any relationship
between Kelley and Gray Harris other than the
[securities] case. As a result, the only conclusion
that the record will support is that Houck was
unaware of any other relationship. Because Houck did
not have actual knowledge of the information upon
which the alleged 'conflict' was founded, the second
'evident partiality' condition is not present in
this case."
Gianelli, 146 F.3d 1312-13 (footnotes omitted). See also
University Commons-Urbana, Ltd. v. Universal Constructors
Inc., 304 F.3d 1331 (11th Cir. 2002).  It appears that the
Eleventh Circuit is the only court of appeals that has
"adopted a per se rule that a finding of evident partiality is
58
1120532
precluded by an arbitrator's lack of 'actual knowledge of the
information upon which [an] alleged "conflict" was founded.'" 
New Regency Prods., Inc. v. Nippon Herald Films, Inc., 501
F.3d 1101, 1109 (9th Cir. 2007)(quoting Gianelli, 13 F.3d at
1313).
In Schmitz v. Zilveti, 20 F. 3d 1043 (9th Cir. 1994), a
case surveyed by this Court and relied on in part in Waverlee
Homes, an NASD  arbitrator failed to disclose in his
6
arbitrator-disclosure forms that his law firm had represented
the parent company of the prevailing party in the arbitration
on at least 19 occasions during a 35-year period, with the
most recent representation occurring approximately 21 months
before the arbitration. The record revealed that the
arbitrator had run a "conflict check" for the subsidiary
company only, rather than for both the subsidiary company and
the parent company, even though the arbitrator had reviewed
documents that indicated that the entity participating in the
arbitration was a subsidiary of the parent company.  The NASD
rules in effect at the time Schmitz was decided are identical
The NASD was the predecessor to FINRA. 
6
59
1120532
to the FINRA Rules applicable in this case.  The NASD rules
were summarized by the appellate court as follows:
"[A]n arbitrator must disclose (1) '[a]ny direct or
indirect financial or personal interest in the
outcome'; 
(2) 
'any 
... 
financial, 
business,
professional, family, or social relationships that
are 
likely 
to 
affect 
impartiality 
or 
might
reasonably create an appearance of partiality or
bias'; and (3) any personal relationships with any
party, its counsel, or witnesses. [NASD Code §
23(a)]. These relationships must be disclosed
whether maintained, presently or previously, by the
arbitrators or 'members of their families or their
current 
employers, 
partners, 
or 
business
associates.' Id. The NASD Code also requires
arbitrators to make an investigation regarding
potential conflicts of interest. NASD Code section
23(b) provides: 'Persons who are requested to accept
appointment as arbitrators should make a reasonable
effort to inform themselves of any interests or
relationships described in Paragraph (a) above.'"
Schmitz, 20 F.3d at 1044.
The losing party to the arbitration sought to have the
arbitration vacated pursuant to 9 U.S.C. § 10(a)(2), arguing
that the arbitrator was "evidently partial." The federal
district court held that a party seeking to vacate an
arbitration award based on "evident partiality" must prove
facts establishing a reasonable impression of evident
partiality and that arbitrators are required to disclose only
those facts of which they are aware at the time of the
hearing.  The court then found that because the arbitrator was
60
1120532
unaware of his law firm's conflict at the time of the
arbitration hearing the movants had failed to meet their
burden of proof.  Thus, the district court held that no
"evident partiality" was present.  Schmitz, supra.
In reversing the judgment of the district court and
determining that the arbitration award was due to be vacated,
the United States Court of Appeals for the Ninth Circuit 
concluded that the arbitrator was "evidently partial" as a
result of his failure to disclose his law firm's prior
representations of the prevailing party's parent company.  In
reaching this conclusion, the court stated that "'evident
partiality' is present when undisclosed facts show a
'reasonable 
impression 
of 
partiality'" 
and 
that 
"nondisclosure
cases [do not] require[] proof of actual bias in showing
'evident partiality.'" Schmitz, 20 F.3d at 1046.
Additionally, the Schmitz court went further and
addressed the issue of the arbitrator's lack of actual
knowledge of the underlying undisclosed facts and concluded
that a "reasonable impression of partiality" may exist even
though an arbitrator lacks actual knowledge of underlying
undisclosed facts, if the arbitrator has constructive
61
1120532
knowledge of those facts.  Schmitz, 20 F.3d at 1049.  
Specifically, the court stated:
"Appellants claim that [the arbitrator] should
have 
disclosed 
his 
law 
firm's 
former 
legal
representation of [the parent company], the owner of
[subsidiary]. Appellants argue also that if [the
arbitrator] did not know that [the parent company] 
was 
a 
client 
of 
his 
firm, 
he 
should 
have
investigated.
"The district court rejected both contentions,
holding that [the arbitrator] was not aware of the
conflict and had no duty to investigate. Some courts
have considered an arbitrator's lack of knowledge as
a factor in determining whether evident partiality
was present. See, e.g., [Middlesex Mut. Ins. Co. v.]
Levine, 675 F.2d [1197] at 1201–02 [(11th Cir.
1982)]; Overseas Private Inv. Corp. v. Anaconda Co.,
418 F. Supp. 107, 109–12 (D.D.C. 1976). The district
court in this case made this factor decisive. The
district court's conclusion appears to be premised
on the idea that no person could reasonably conclude
that an arbitrator could act partially based on
facts of which he was unaware. Anaconda, 418 F.
Supp. at 112. This premise is Appellees' only
argument on appeal regarding the evident partiality
of [the arbitrator].
"Appellants have a better argument. Though lack
of knowledge may prohibit actual bias, it does not
always 
prohibit 
a 
reasonable 
impression 
of
partiality. As Appellants argue, an arbitrator may
have a duty to investigate independent of its
Commonwealth Coatings duty to disclose. A violation
of this independent duty to investigate may result
in a failure to disclose that creates a reasonable
impression 
of 
partiality 
under 
Commonwealth
Coatings. For instance, the parties can expect a
lawyer/arbitrator 
to 
investigate 
and 
disclose
conflicts he has with actual parties to the
arbitration. Close v. Motorists Mut. Ins. Co., 21
62
1120532
Ohio App. 3d 228, 486 N.E. 2d 1275 (1985) (holding
that the failure to do so created a reasonable
impression 
of 
partiality 
under 
Commonwealth
Coatings). The NASD Code required [the arbitrator],
a lawyer, to make such an investigation regarding
the actual parties to this arbitration. In the
typical lawyer/arbitrator's case, lack of knowledge
of a conflict may preclude a finding of actual bias.
However, a reasonable impression of partiality can
form when an actual conflict of interest exists and
the lawyer has constructive knowledge of it. 486
N.E.2d at 1278–79. That the lawyer forgot to run a
conflict check or had forgotten that he had
previously represented the party is not an excuse.
See In re Siegal, 153 N.Y.S.2d 673 (Sup.Ct. 1956).
Also, an arbitrator may not know facts of which he
may have been suspicious or of which he was on
notice which, if true, would create a reasonable
impression of partiality if not investigated and
disclosed.
"Requiring 
arbitrators 
to 
make 
investigations 
in
certain circumstances gives arbitrators an incentive
to be forthright with the parties, honestly
disclosing what arbitrators might otherwise have an
incentive to hide. Commonwealth Coatings establishes
that the parties rather than the arbitrators or the
courts should be the judges of the partiality of
arbitrators:
"'In many cases the arbitrator might
believe the business relationship to be so
insubstantial that to make a point of
revealing it would suggest he is indeed
easily swayed, and perhaps a partisan of
that party. But if the law requires the
disclosure, no such imputation can arise.
And it is far better that the relationship
be disclosed at the outset, when the
parties are free to reject the arbitrator
or accept him with knowledge of the
relationship and continuing faith in his
objectivity, than to have the relationship
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come to light after the arbitration, when
a suspicious or disgruntled party can seize
on it as a pretext for invalidating the
award. The judiciary should minimize its
role in arbitration as judge of the
arbitrator's impartiality. That role is
best consigned to the parties, who are the
architects 
of 
their 
own 
arbitration
process, and are far better informed of the
prevailing 
ethical 
standards 
and
reputations within their business.'
"393 U.S. at 151, 89 S.Ct. at 340 (White, J.,
concurring) (footnote omitted). If the parties are
to be judges of the arbitrators' partiality, duties
to investigate and disclose conflicts must be
enforced, even if later a court finds that no actual
bias was present. See Close, 486 N.E.2d at 1278–79.
We therefore decline to adopt a per se rule that no
reasonable impression of partiality can be found
absent a showing that the arbitrator knew the facts
on which it is based.
"In this case, [the arbitrator] had a duty to
investigate the conflict at issue. Section 23(a) &
(b) of the NASD Code requires arbitrators to 'make
a reasonable effort to inform themselves of any'
'existing 
or 
past 
financial, 
business, 
[or]
professional ... relationships [that they or their
employer, partners, or business associates may have]
that are likely to affect impartiality or might
reasonably create an appearance of partiality or
bias.' ...
"[The arbitrator] ... had a duty under the NASD
Code to make a reasonable effort to inform himself
of his firm's representation of [the parent
company]. [The arbitrator] did nothing to fulfill
that duty. Thus, though he lacked actual knowledge,
he had constructive knowledge of his firm's previous
representation of [the parent company]. Given [the
arbitrator's] 
constructive 
knowledge 
and 
the
presence 
of 
the 
conflict, 
[the 
arbitrator's] 
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failure to inform the parties to the arbitration
resulted in a reasonable impression of partiality
under Commonwealth Coatings. See Close, 486 N.E.2d
at 1278–79."
Schmitz, 20 F.3d at 1048-49.
The Schmitz decision espouses the majority view in the
federal courts in determining whether an "evident partiality"
exists under 9 U.S.C. § 10(a)(2) in the context of a failure-
to-investigate/failure-to-disclose case.  See generally New
Regency Productions, supra.  We believe the holding in Schmitz
is the better view and conclude that the "reasonable-
impression-of-partiality" standard constituting an "evident
partiality" under 9 U.S.C. § 10(a)(2) may be satisfied even
though an arbitrator lacks actual knowledge of the facts
giving rise to the conflict of interest when the arbitrator
was under a duty to investigate in order to discover possible
conflicts and failed to do so.  In such a situation the
arbitrator will be deemed to have constructive knowledge of
the conflict of interest, and the failure to disclose the
conflict 
may 
result 
in 
a 
"reasonable 
impression 
of
partiality."  Schmitz, 20 F.3d at  1048-49.  
The arbitration proceeding in this case was governed by
the FINRA Rules as agreed upon by the parties in their
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contracts.  Those agreed-upon rules deal with arbitration in
a highly specialized field of law and finance and impose upon
an arbitrator, both prospective and sitting, a stringent and
ongoing duty to disclose potential conflicts. The FINRA
arbitrator-disclosure requirements 
"strongly 
encourage[]
arbitrators to make a wide variety  of disclosures [and] ...
when in doubt, always err in favor of making a disclosure,"
because meeting the disclosure requirement is part of an
"arbitrator's overarching duty."  Thus, it is within the
context of the FINRA Rules that we must determine whether the
Fund has demonstrated an evident partiality on the part of
Kunis pursuant to 9 U.S.C. § 10(a)(2).   We note that the
FINRA Rules imposed upon Kunis the duty to "make a reasonable
effort to learn of and ... disclose ... any circumstances
which might preclude the arbitrator from rendering an
objective and impartial determination in the proceeding,
including" (1) "[a]ny existing or past financial, business,
professional, family, social, or other relationships or
circumstances with any party ... that are likely to affect
impartiality or might reasonably create an appearance of
partiality or bias"; and (2) "[a]ny such relationship or
circumstances 
involving 
... 
the 
arbitrator's 
current
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employers, partners, or 
business associates."  The trial court
found in its order that "had a basic conflict check been
conducted by 
Kunis, 
the relationships between [Maxim Group and
Morgan Keegan], and possibly between [Maxim Group] and
Greenberg Traurig, would have been revealed."  Indeed, since
2002, Kunis had been a vice president and partner in Maxim
Group, a relatively small investment firm.  As an officer and
partner in the firm, Kunis would have had a substantial
interest in the firm's business dealings, including any
litigation in which it was involved.  Finally, we note that
the evidence 
indicates that the  business relationship present
here between Maxim Group and Morgan Keegan was not fleeting
and that the two firms "did more than trivial business" with
each other.  See Olson v. Merrill Lynch, Pierce, Fenner &
Smith, Inc., 51 F.3d 157, 159 (8th Cir. 1995).  Thus, we
conclude, as did the trial court, that a cursory conflict
check by Kunis would have revealed the business relationships
between Maxim Group, Morgan Keegan, and Greenberg Traurig.  
The FINRA Rules imposed upon Kunis the duty to make a
reasonable effort to discover the business relationship
between Maxim 
Group, 
Morgan Keegan, and Greenberg Traurig, and
he did nothing to satisfy this duty.  Although Kunis may have
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lacked actual knowledge of the business relationship between
Maxim Group, Morgan Keegan, and Greenberg Traurig, he had
constructive knowledge of the business relationship between
those parties.  Schmitz, 20 F.3d at 1048-49.   Because Kunis
had constructive knowledge of the business relationship
between Maxim 
Group, 
Morgan Keegan, and Greenberg Traurig, and
because of the presence of the conflict itself, Kunis's
failure to 
disclose 
this relationship resulted in a reasonable
impression of partiality. Waverlee Homes, supra, Schmitz,
supra.  Additionally, given the nature and extent of the
business relationship between Maxim Group, Morgan Keegan, and
Greenberg Traurig, as discussed in detail above, we conclude
that the impression of bias arising from that relationship is 
direct, definite, and capable of demonstration.  Waverlee
Homes, supra. 
Accordingly, we conclude from the admissible evidence 
discussed above that the Fund has established an evident
partiality on the part of Kunis under 9 U.S.C. § 10(a)(2) and
that the Fund is entitled to have the judgment entered on the
arbitration award vacated. Because we have found an evident
partiality as to Kunis, we pretermit discussion as to whether
the Fund demonstrated an evident partiality as to Julavits.
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"A finding of evident partiality in one arbitrator
generally requires vacatur of the arbitration award.
As stated in Wheeler v. St. Joseph Hospital, 63
Cal.App.3d 345, 133 Cal.Rptr. 775 (1976): 'The
arbitrators are not isolated from each other; they
hear and decide the case as a panel after joint
discussion, debate and deliberation. Each panel
member has an opportunity to persuade the others.'
133 Cal.Rptr. at 793. Thus, notwithstanding a
majority of an arbitration panel is required to
enter any arbitration award, when one arbitrator is
evidently partial, the panel's award must generally
be suspect. This conclusion holds particularly when
the other panel members vote with the evidently
partial arbitrator, as will be the case in most
awards that are later challenged."
Schmitz, 20 F.3d at 1049.
Conclusion
We reverse the judgment of the trial court denying the
Fund's motion to vacate the judgment entered on the
arbitration award and remand the case for proceedings
consistent with this opinion.  Because we have found that
evident partiality exists as to Kunis under 9 U.S.C. §
10(a)(2), we pretermit discussion of the remaining issues
raised by the Fund.
REVERSED AND REMANDED.
Stuart, Parker, Shaw, Main, Wise, and Bryan, JJ., concur.
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Murdock, J., concurs specially.*
Moore, C.J., concurs in the result.
*Although Justice Murdock did not attend oral argument in
this case, he has viewed a video recording of that oral
argument.
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MURDOCK, Justice (concurring specially).
The main opinion notes that Morgan Keegan & Company,
Inc., and Morgan Asset Management, Inc. ("MAM"), argue for the
"affirmance of the trial court's order on an alternative
ground that was presented to the trial court but that was not
relied upon by the trial court." ___ So. 3d at ___. Quoting
McMillan, Ltd. v. Warrior Drilling & Engineering Co., 512 So.
2d 14, 24 (Ala. 1986), the main opinion explains that the
assertion of this "alternative ground" need not be by way of
a cross-appeal.  I agree.  I write separately to add that I
see nothing in McMillan, or the authorities cited therein,
that in any way suggests that this Court could affirm a
judgment on an alternative ground that is not, as we have so
often put it, a "valid legal ground."  See generally Pavilion
Dev., L.L.C. v. JBJ P'ship, 979 So. 2d 24, 42-43 (Ala. 2007)
(Murdock, J., concurring specially).  That is, as an appellate
court, we cannot affirm a judgment upon some alternative
ground presented to, but not decided by, the trial court,
unless it involves a pure question of law that we can decide
in favor of the party that prevailed in the trial court, or
some question of fact that we can decide in that party's favor
as a matter of law, without giving rise to due-process
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concerns.  See Hamm v. Norfolk Southern Ry., 52 So. 3d 484,
491 (Ala. 2010); Liberty Nat'l Life Ins. Co. v. University of
Alabama Health Servs. Found., 881 So. 2d 1013, 1020 (Ala.
2003); Gore v. White, 96 So. 3d 834, 844 (Ala. Civ. App.
2012); and Gartman v. Hill, 874 So. 2d 555, 559 (Ala. Civ.
App. 2003).
72