Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca1-09-01356/USCOURTS-ca1-09-01356-0/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 

---

United States Court of Appeals

For the First Circuit

No. 09-1356

KASHNER DAVIDSON SECURITIES CORP., VICTOR L. KASHNER,

MATTHEW MEISTER, TIMOTHY VARCHETTO,

Plaintiffs, Appellees,

v.

STEVEN MSCISZ, MARK MSCISZ, LYNDA MSCISZ,

Defendants, Appellants.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Mark L. Wolf, U.S. District Judge]

Before

Lipez, Stahl, and Howard, Circuit Judges.

John A. Stern, Greenberg Traurig LLP, with whom Jason C.

Moreau was on brief, for appellants.

Richard J. Babnick, Jr., Sichenzia Ross Friedman Ference LLP,

with whom Marc J. Ross was on brief, for appellees.

April 1, 2010

Case: 09-1356 Document: 00116042594 Page: 1 Date Filed: 04/01/2010 Entry ID: 5432516
-2-

LIPEZ, Circuit Judge. This matter is before us for the

second time. In Kashner Davidson Securities Corp. v. Mscisz, 531

F.3d 68, 79 (1st Cir. 2008), we held that the arbitration award at

issue in this case must be vacated because the arbitrators acted in

manifest disregard of the law. We did not specify what, if

anything, the district court should do after vacating the award.

On remand, the district court entered an order vacating the

arbitration award and remanding the matter to the arbitral body for

further proceedings. It then denied the appellants' motion under

Federal Rule of Civil Procedure 60(b) for relief from the remand

order. The appellants now challenge both the remand order and the

order denying their Rule 60(b) motion, arguing that both contravene

our mandate.

For the reasons that follow, we affirm the decision of

the district court to issue the remand order. However, we also

direct the district court to clarify its position on whether the

arbitration should proceed before the same panel of arbitrators or

a newly constituted panel.

I.

The background facts are recounted in detail in our

previous opinion. See Kashner Davidson, 531 F.3d at 71-74. In

2004, the underlying dispute between appellants Steven Mscisz, Mark

Mscisz, and Lynda Mscisz ("the Customers") and appellee Kashner

Davidson Securities Corp. ("Kashner Davidson") was submitted to

Case: 09-1356 Document: 00116042594 Page: 2 Date Filed: 04/01/2010 Entry ID: 5432516
Our judgment was phrased in materially identical 1

language. Kashner Davidson has suggested that our mandate left the

money damages portion of the arbitration award untouched. That is

not correct. We instructed the district court to vacate the entire

award, which it did.

-3-

arbitration before the National Association of Securities Dealers

("NASD"). A panel of three arbitrators found the Customers jointly

and severally liable to Kashner Davidson for $421,000 in

compensatory damages, attorneys' fees, and costs. The panel also

dismissed the Customers' counterclaims and third-party claims with

prejudice as a sanction for the Customers' failure to comply with

a discovery order.

The district court confirmed that award, and the

Customers appealed to this court. We held that the arbitration

panel improperly dismissed the Customers' counterclaims and

third-party claims as a sanction of first resort rather than a

sanction of last resort, noting that the NASD Code of Arbitration

Procedure provides for dismissal of a claim or defense as a

sanction only when "lesser sanctions have proven ineffective."

Kashner Davidson, 531 F.3d at 76. We concluded that the dismissal

reflected the arbitration panel's "intentional and willful

disregard of the clear and unequivocal language" of the NASD rules,

which under our circuit precedent was sufficient to justify vacatur

of the award. Id. at 79. Consequently, we "reverse[d] the

decision of the district court and remand[ed] the case for entry of

an order vacating the arbitration award." Id. 1

Case: 09-1356 Document: 00116042594 Page: 3 Date Filed: 04/01/2010 Entry ID: 5432516
The Customers styled their motion as a "Motion for 2

Reconsideration" under Federal Rule of Civil Procedure 7(b) and

District of Massachusetts Local Rule 7.1, which are general rules

governing motion practice. In its opposition, Kashner Davidson

construed the motion as one for relief from an order under Rule

60(b). The Customers adopted that characterization in their reply

brief. Nothing in this appeal turns on the precise grounding of

the motion in the rules; for clarity, we will refer to it as a Rule

60(b) motion.

-4-

After we filed our opinion, but before the mandate

issued, counsel for Kashner Davidson sent a letter to the district

court judge. Referring to the Financial Industry Regulatory

Authority ("FINRA"), the successor organization to the NASD,

counsel requested that "the Court remand the matter to FINRA and

direct FINRA to reconstitute the original Arbitration

Panel . . . for further proceedings consistent with the [Court of

Appeals'] decision." There is no indication in the record that the

district court took any immediate steps in response to the letter.

Once our mandate had issued, the district court entered an order

vacating the arbitration award and remanding the matter to FINRA

"for further proceedings consistent with the First Circuit's

opinion." The district court's remand order did not address

whether the original arbitration panel should be reconstituted.

The Customers then filed a brief motion in which they

argued that a remand to FINRA was inappropriate because the

judgment on appeal did not mention such a remand. Treating the

Customers' motion as one for relief from an order pursuant to Fed.

R. Civ. P. 60(b), Kashner Davidson argued that the Customers' 2

Case: 09-1356 Document: 00116042594 Page: 4 Date Filed: 04/01/2010 Entry ID: 5432516
-5-

perfunctory motion did not demonstrate an entitlement to relief

under the exacting requirements of that rule. It requested that

the district court "allow the parties to work towards reaching a

final resolution of this dispute before the original FINRA

arbitrators by allowing FINRA to hold further proceedings

consistent with the First Circuit's Decision." In a reply brief,

the Customers added that even if a remand to FINRA were

appropriate, "established case law mandates the composition of a

new panel when, as here, the initial panel manifestly disregarded

the law."

The district court denied the Customers' motion in a

brief electronic order: "Essentially for the reasons stated in

[Kashner Davidson's] Opposition, this motion is hereby DENIED."

The Customers then initiated the present appeal, which challenges

both the district court's remand order and its electronic order

denying the Customers' Rule 60(b) motion.

II.

We have jurisdiction to review the district court's

orders under section 16 of the Federal Arbitration Act. See 9

U.S.C. § 16(a)(1)(E); Bull HN Info. Sys. v. Hutson, 229 F.3d 321,

327-28 (1st Cir. 2000).

Before turning to the Customers' arguments, we address an

issue raised in the appellees' brief. Kashner Davidson argues that

a recent Supreme Court decision, Hall Street Assocs. v. Mattel,

Case: 09-1356 Document: 00116042594 Page: 5 Date Filed: 04/01/2010 Entry ID: 5432516
-6-

Inc., 552 U.S. 576 (2008), undermines our earlier mandate in this

case. In Hall Street, the Supreme Court held that the grounds for

prompt vacatur or modification of an arbitral award enumerated in

the Federal Arbitration Act, 9 U.S.C. §§ 10-11, are exclusive and

may not be supplemented by contract. 552 U.S. at 584. Kashner

Davidson contends that our holding in the first appeal -- that the

award must be vacated because the arbitrators manifestly

disregarded the law -- is in conflict with Hall Street because

manifest disregard of the law is not explicitly listed as a ground

for vacatur in section 10 of the FAA.

The continued vitality of the manifest disregard doctrine

in FAA proceedings is a difficult and important issue that the

courts have only begun to resolve. See, e.g., Citigroup Global

Mkts., Inc. v. Bacon, 562 F.3d 349, 358 (5th Cir. 2009) (manifest

disregard of the law is no longer an "independent, nonstatutory

ground" for setting aside an arbitration award); Comedy Club, Inc.

v. Improv West Assocs., 553 F.3d 1277, 1281 (9th Cir. 2009)

(manifest disregard of the law "remains a valid ground for vacatur

of an arbitration award under § 10(a)(4) of the Federal Arbitration

Act"); Stolt-Nielsen SA v. AnimalFeeds Int'l Corp., 548 F.3d 85,

94-96 (2d Cir. 2008) (manifest disregard doctrine is "a judicial

gloss on the specific grounds for vacatur enumerated in section 10

of the FAA"), cert. granted on other grounds, 129 S. Ct. 2793

(2009). We have referred to the issue in dicta, see Ramos-Santiago

Case: 09-1356 Document: 00116042594 Page: 6 Date Filed: 04/01/2010 Entry ID: 5432516
We note that the recall of a mandate is ordinarily 3

requested by motion. See 20A James Wm. Moore et al., Moore's

Federal Practice § 341.11 (3d ed. 2009). Contrary to the usual

practice, Kashner Davidson raised the issue for the first (and

only) time in its brief on appeal. We do not intend our discussion

to suggest approval of the manner in which the argument was raised.

Compare United States v. Fraser, 407 F.3d 9, 10-11 (1st 4

Cir. 2005) (per curiam) (declining to recall mandate); Conley v.

United States, 323 F.3d 7, 14 (1st Cir. 2003) (same); Boston &

Maine Corp. v. Town of Hampton, 7 F.3d 281, 283 (1st Cir. 1993)

(same); Powers v. Bethlehem Steel Corp., 483 F.2d 963, 964-65 (1st

Cir. 1973) (same); Legate v. Maloney, 348 F.2d 164, 166 (1st Cir.

1965) (same); Haverhill Gazette Co. v. Union Leader Corp., 333 F.2d

808, 809-10 (1st Cir. 1964) (same), with Alsamhouri v. Gonzales,

471 F.3d 209, 209-10 (1st Cir. 2006) (recalling mandate where an

asylum seeker subject to removal raised a "serious" jurisdictional

argument, and the Supreme Court had not yet acted on a pending

petition for writ of certiorari); In re: Unión Nacional de

Trabajadores, 527 F.2d 602, 604 (1st Cir. 1975) (per curiam)

(recalling writ of mandamus where the original decision requiring

the district court to hold an "unprecedented" jury trial was

"demonstrably wrong and created manifest injustice"). We have

occasionally recalled a mandate for the purpose of correcting a

clerical error or matter of form. See, e.g., Estate of Abraham v.

-7-

v. United Parcel Serv., 524 F.3d 120, 124 n.3 (1st Cir. 2008), but

have not squarely determined whether our manifest disregard case

law can be reconciled with Hall Street.

In an effort to have us decide that issue now, Kashner

Davidson has asked us to take the unusual step of recalling our

earlier mandate. We will not oblige. The power to recall a 3

mandate is "one of last resort, to be held in reserve against

grave, unforeseen contingencies." Calderon v. Thompson, 523 U.S.

538, 550 (1998). We have exercised that power sparingly over the

course of many years, recalling mandates in only the most

extraordinary circumstances.4

Case: 09-1356 Document: 00116042594 Page: 7 Date Filed: 04/01/2010 Entry ID: 5432516
Comm'r, 429 F.3d 294 (1st Cir. 2005). That is not the situation

presented here.

The Supreme Court decided Hall Street on March 25, 5

2008 -- after we heard oral argument in the first appeal but before

we issued our decision. Kashner Davidson could have submitted a

letter bringing Hall Street to our attention while the first appeal

was pending. See Fed. R. App. P. 28(j). Once the appeal was

decided, it could have requested panel rehearing and/or rehearing

en banc. See Fed. R. App. P. 35, 40. It could have petitioned the

Supreme Court for a writ of certiorari. See Sup. Ct. R. 12, 13.

On remand, it could have attempted to show that "exceptional

circumstances" justified deviation from our mandate. United States

v. Wallace, 573 F.3d 82, 89 (1st Cir. 2009).

-8-

Kashner Davidson's current predicament is hardly

extraordinary. The company failed to take advantage of numerous

earlier opportunities to raise the Hall Street argument through

ordinary procedures. Most immediately, it could have cross- 5

appealed in this proceeding from the district court's remand order

and urged us to revisit our previous decision under ordinary law of

the case principles. See Nkihtaqmikon Nkihtaqmikon v. Impson, 585

F.3d 495, 498 (1st Cir. 2009) ("We could revisit our own earlier

decision if [the appellant] could show that controlling legal

authority has changed dramatically; proffer significant new

evidence, not earlier obtainable in the exercise of due diligence;

or convince the court that a blatant error in the prior decision

will, if uncorrected, result in a serious injustice.") (internal

quotation marks and citations omitted). Kashner Davidson did not

do so, and now it is faced with the well-settled rule that an

appellee who fails to file a cross-appeal may "urge in support of

Case: 09-1356 Document: 00116042594 Page: 8 Date Filed: 04/01/2010 Entry ID: 5432516
We note that this is an odd position for the Customers to 6

take. They specifically asked for a remand in the district court

and in the first appeal.

-9-

a decree any matter appearing in the record" but may not "attack

the decree with a view either to enlarging his own rights

thereunder or of lessening the rights of his adversary." El Paso

Natural Gas Co. v. Neztsosie, 526 U.S. 473, 479 (1999) (quoting

United States v. Am. Ry. Express Co., 265 U.S. 425, 435 (1924));

see also Greenlaw v. United States, 128 S. Ct. 2559, 2564 (2008).

Considering the circumstances, we cannot say that we are

faced with the sort of "grave, unforeseen contingenc[y]" that would

justify the recall of a mandate. Thompson, 523 U.S. at 550. By

strategic choice or through lack of diligence, Kashner Davidson

waited until the last possible moment to raise its Hall Street

argument. It cannot now circumvent the cross-appeal rule by

invoking a remedy reserved for extraordinary situations. Kashner

Davidson's request is denied.

III.

The Customers advance two arguments on appeal. First,

they argue that the district court's remand order contravenes our

mandate because we did not direct the district court to remand the

matter to FINRA. Second, they argue that the district court 6

abused its discretion in denying the Rule 60(b) motion. Although

the second argument is primarily a reformulation of the first

argument, we address it separately because the parties have raised

Case: 09-1356 Document: 00116042594 Page: 9 Date Filed: 04/01/2010 Entry ID: 5432516
-10-

distinct concerns about the scope of the district court's Rule

60(b) order.

A. Remand Order

The applicable legal principles are straightforward.

Subject to a few narrow exceptions not implicated here, "[a]n

appellate court's mandate controls all issues that were actually

considered and decided by the appellate court, or as were

necessarily inferred from the disposition on appeal." NLRB v.

Goodless Bros. Elec. Co., 285 F.3d 102, 107 (1st Cir. 2002)

(internal quotation marks and citations omitted). At the same

time, "issues that were not decided by the appellate

court . . . are not affected by the mandate." De Jesús-Mangual v.

Rodríguez, 383 F.3d 1, 6 (1st Cir. 2004).

When we decided the first appeal, we instructed the

district court to enter an order vacating the arbitration award.

Kashner Davidson, 531 F.3d at 79. We did not say what, if

anything, the district court should do after that. Id. The

Customers seize on that silence, arguing that the district court

"impermissibly exceed[ed] the scope of [the] mandate" by issuing a

remand order "in the absence of any language . . . directing it to

do so." Their argument rests on a faulty premise, however. The

district court was not constrained to perform only those actions

that we specifically listed in the mandate. Although "the mandate

of an appellate court forecloses the lower court from reconsidering

Case: 09-1356 Document: 00116042594 Page: 10 Date Filed: 04/01/2010 Entry ID: 5432516
-11-

matters determined in the appellate court, it leaves to the [lower]

court any issue not expressly or impliedly disposed of on appeal."

Biggins v. Hazen Paper Co., 111 F.3d 205, 209 (1st Cir. 1997)

(internal quotation marks and citation omitted); see also Sprague

v. Ticonic Nat'l Bank, 307 U.S. 161, 168 (1939) ("While a mandate

is controlling as to matters within its compass, on the remand a

lower court is free as to other issues."). 

The dispositive question is thus whether we explicitly or

implicitly decided that a remand to FINRA was inappropriate. There

is no serious contention that we did so explicitly; our mandate

simply did not address the subject. Nor did we decide the issue by

necessary implication. As the Customers acknowledged below, the

FAA provides that a district court "may, in its discretion, direct

a rehearing by the arbitrators" after an award is vacated. 9

U.S.C. § 10(b). In the closely related context of labor

arbitration, the Supreme Court has indicated that remand will often

be "the appropriate remedy" following vacatur of an award. Major

League Baseball Players Ass'n v. Garvey, 532 U.S. 504, 511 (2001)

(per curiam) (emphasis added); see also United Paperworkers Int'l

Union v. Misco, Inc., 484 U.S. 29, 41 n.10 (1987). Nothing in our

mandate touched on these background rules, let alone abrogated

them.

The Customers contend that remand is incompatible with

our holding that the entire arbitration award must be vacated in

Case: 09-1356 Document: 00116042594 Page: 11 Date Filed: 04/01/2010 Entry ID: 5432516
-12-

light of the arbitrators' actions. On their view, fresh

arbitration proceedings must be initiated because a fair proceeding

before the same panel of arbitrators is not possible. As the

Customers conceded at oral argument, however, the question of

whether a new panel of arbitrators should be constituted on remand

is distinct from the question of whether a remand is appropriate at

all. We address the issue of panel composition below. There is no

suggestion that FINRA itself is biased or incapable of providing a

fair arbitration proceeding.

Because our mandate did not explicitly or implicitly

prohibit the district court from remanding this matter to FINRA for

further proceedings, we reject the Customers' argument that the

remand order contravened the mandate.

B. Rule 60(b) Order

The Customers' discussion of the Rule 60(b) order is, for

the most part, a reformulation of their argument regarding the

remand order. One ancillary issue deserves attention, however.

The district court denied the Customers' Rule 60(b) motion

"[e]ssentially for the reasons stated in [Kashner Davidson's]

Opposition." The Customers suggest that this language could be

read as "tacit approval" of Kashner Davidson's argument that the

district court intended to remand the matter to the original

arbitration panel. Kashner Davidson did take this position in its

opposition to the Customers' Rule 60(b) motion. Kashner Davidson

Case: 09-1356 Document: 00116042594 Page: 12 Date Filed: 04/01/2010 Entry ID: 5432516
-13-

goes further, flatly stating that the district court "remanded this

arbitration dispute back to FINRA's original arbitration panel for

further proceedings . . . ." FINRA was also confused by the

original remand order, stating in a letter that "counsel will need

to seek clarification from the district court on the remand issue

before FINRA will proceed with this case."

Although we have decided to affirm the remand order of

the district court, we are also going to remand this matter to the

district court so that it can consider the parties' arguments and

then specify whether (1) a new arbitration panel should be

constituted, (2) the original arbitration panel should be

reconstituted, or (3) FINRA should decide the issue in the first

instance according to its own practices and procedures. The

resolution of that issue lies within the sound discretion of the

district court. See Aircraft Braking Sys. Corp. v. Local 856,

United Auto., Aerospace & Agric. Implement Workers, 97 F.3d 155,

162 (6th Cir. 1996); 1 Martin Domke et al., Domke on Commercial

Arbitration § 40:6 (3d ed. & Supp. 2009); 4 Thomas H. Oehmke,

Commercial Arbitration § 155:4 (3d ed. & Supp. 2009).

IV.

This matter is REMANDED to the district court for the

limited purpose of clarifying the terms of its remand order, as

described in this opinion. In all other respects, the district

Case: 09-1356 Document: 00116042594 Page: 13 Date Filed: 04/01/2010 Entry ID: 5432516
-14-

court's remand order and order denying the Customers' Rule 60(b)

motion are AFFIRMED. Each party shall bear its own costs.

SO ORDERED.

Case: 09-1356 Document: 00116042594 Page: 14 Date Filed: 04/01/2010 Entry ID: 5432516