Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca4-09-01038/USCOURTS-ca4-09-01038-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

RAYMOND JAMES FINANCIAL 

SERVICES, INCORPORATED,

Plaintiff-Appellee,

v.  No. 09-1038

THOMAS W. BISHOP; STEVEN H.

HAMANT; TIMOTHY E. SCANLON,

Defendants-Appellants. 

Appeal from the United States District Court

for the Eastern District of Virginia, at Richmond.

Robert E. Payne, Senior District Judge.

(3:07-cv-00028-REP)

Argued: October 27, 2009

Decided: February 22, 2010

Before WILKINSON, DUNCAN, and DAVIS,

Circuit Judges.

Affirmed by published opinion. Judge Davis wrote the opinion, in which Judge Wilkinson and Judge Duncan joined. 

COUNSEL

ARGUED: Jay J. Levit, LAW OFFICE OF JAY J. LEVIT,

Glen Allen, Virginia; Scott Gregory Crowley, Sr., CROWAppeal: 09-1038 Doc: 49 Filed: 02/22/2010 Pg: 1 of 22
LEY & CROWLEY, Richmond, Virginia, for Appellants.

Stephen Grey Cochran, HAIGHT, TRAMONTE, SICILIANO, FLASK & YEONAS, PC, Vienna, Virginia, for Appellee. ON BRIEF: Victor M. Glasberg, VICTOR M.

GLASBERG & ASSOCIATES, Alexandria, Virginia, for

Appellee.

OPINION

DAVIS, Circuit Judge:

This is an appeal from an order of the district court vacating an award of compensatory damages rendered by an arbitration panel adjudicating claims pursuant to the rules of the

National Association of Securities Dealers ("NASD").1 The

award was in favor of three financial advisors, Appellants

Thomas W. Bishop ("Bishop"), Steven H. Hamant

("Hamant"), and Timothy E. Scanlon ("Scanlon") against the

Appellee, Raymond James Financial Services, Inc.

("Raymond James"), a broker/dealer member of NASD. The

Appellants contend that the district court erred in exceeding

the narrow scope of review prescribed by the Federal Arbitration Act. See 9 U.S.C. § 10(a). We are mindful that vacatur

of an arbitration award is, and must be, a rare occurrence

because a federal court employs a standard of review "among

the narrowest known at law." Apex Plumbing Supply, Inc. v.

U.S. Supply Co., Inc., 142 F.3d 188, 193 (4th Cir. 1998).

Nonetheless, we conclude, as did the district court, that this

case presents one of those rare instances. Accordingly, for the

reasons stated within, we affirm the judgment of the district

court.

1NASD has been succeeded by FINRA ("Financial Industry Regulatory

Association"), but the events material to this case occurred prior to the

reincorporation of NASD as FINRA. 

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I.

The Appellants are registered representatives working as

financial advisors in the securities industry in the Richmond,

Virginia, area. In early 2001, Bishop departed from his thenfirm and entered into a written "Independent Sales Associate

Agreement" with Appellee Raymond James Financial Services, Inc. ("Raymond James"), a registered broker/dealer.

Bishop became the branch manager at a Raymond James

Richmond office. At about the same time, apparently at Bishop’s urging, Hamant and Scanlon each entered into a separate

written "Financial Advisor Agreement" with Raymond James

and practiced their trade out of the Richmond office headed

by Bishop. 

Each of the three agreements described the individual

financial advisor as an "independent contractor." Moreover,

each of the three agreements contained the following "Termination of Agreement" provision permitting any party to terminate the agreement on five days notice:

Either party may terminate this Agreement by providing the other party no less than five (5) business

days prior written notice of intent to terminate this

Agreement. Given the unique transactional nature of

the securities business, there is no need for a liquidated damages provision should either party voluntarily terminate the Agreement before the end of its

term as neither party would be significantly damaged

by such termination.

J.A. 274, 282, 290-91. The agreements contained no general

arbitration provision;2 as a member of NASD, however, Ray2

Indeed, each of the agreements contained a forum selection clause

reciting that "all legal proceedings under this Agreement will be held in

Pinellas County, Florida." J.A. 278, 286, 297. The agreements also contained a provision for "Indemnification." The indemnification provision

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mond James was required to resolve certain disputes with its

registered representatives by arbitration.

During 2003, Raymond James received several serious

complaints of misconduct from competing financial advisors

with respect to the operation of the office headed by Bishop.3

As a result of the mounting complaints, on April 27, 2004,

Raymond James notified Bishop and his co-manager at the

Richmond branch, Michael Finnie, that the branch would be

closed and that their registrations with Raymond James were

being terminated in five days. Raymond James acted specifically pursuant to the "Termination of Agreement" provision

in its Independent Sales Associate Agreement. Raymond

James left open the possibility that the representatives in the

Richmond branch, including Appellants, could affiliate with

another Raymond James branch. Indeed, Bishop’s comanager, Finnie, promptly re-affiliated with another Raymond James branch. On June 25, 2004, however, after a twomonth extension of time by Raymond James in effecting the

branch closing, the Appellants voluntarily terminated their

respective agreements and they did not re-affiliate with Raymond James.4

provided, in part, that "[r]esponsibility under [the indemnification provision] shall, if not mutually agreed upon, be determined by arbitration

before the NASD." J.A. 278, 288, 295-96. There is no suggestion in the

record that any aspect of the award under review related in any manner to

a claim for indemnification. 

3On March 7, 2003, for example, Gary Stewart ("Stewart"), the branch

manager at a competing broker/dealer, wrote to Raymond James to complain that Bishop had disclosed confidential information about Stewart and

had otherwise engaged in unlawful and unethical behavior. (In 2004,

Stewart filed an arbitration claim against Bishop and Raymond James

alleging libel and tortuous interference.) Also, on May 28, 2003, Steve

Tanton, another Richmond-area investment professional, filed a NASD

arbitration claim against Raymond James, Scanlon, and Hamant for defamation, tortuous interference, conspiracy, and securities violations. 

4The Appellants contend that they were impeded by Raymond James

management officials in their efforts to re-affiliate with a different branch

office. 

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Meanwhile, prior to the Appellants’ resignations, a lawyer

from Raymond James’ legal department, Terrance Bostic,

Esq., had assumed representation of the Appellants (jointly

with his representation of Raymond James) in the NASD arbitration proceedings arising from some of the complaints

lodged against the Richmond office staff. Such representation

of the Appellants continued after the Richmond branch

closed. In due course, the arbitration proceedings against

Scanlon concluded in his favor while he was represented by

Bostic, whereas Hamant personally paid $10,000 in respect to

a NASD arbitration award against him. J.A. 262.5

The arbitration proceeding involving Bishop was ongoing

as of December 1, 2004. On that date, Bostic withdrew as

counsel for Bishop (while continuing as counsel to Raymond

James) based on an incipient conflict of interest. Specifically,

the conflict of interest arose when Raymond James discovered

that someone had obtained unauthorized access to its computer system; legal action against Bishop was contemplated in

connection with the incident.6 In any event, within just a few

days after Bostic withdrew from his representation of Bishop,

5The district court determined that the arbitration proceeding against

Hamant concluded "favorably to [Hamant] while [he] was represented by

the Raymond James in-house lawyer." J.A. 383. The Appellants have not

challenged that finding by the district court before us. Nevertheless, before

the arbitrators, Hamant had alleged that he personally paid a $10,000

award against him. It may well be that these two arbitration proceedings

were separate and distinct proceedings. 

6On November 30, 2004, Finnie, who had reaffiliated with another Raymond James office, received an automated email message that his password had been changed, although he had not changed his password. An

internal investigation by Raymond James revealed that the password

change originated from a computer in Bishop’s new office. Accordingly,

Raymond James concluded that Bishop or one of his colleagues had

accessed Raymond James’ computer system without authorization,

changed Finnie’s password, and gained access to customer records. Raymond James notified the Federal Bureau of Investigation about the incident. 

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the parties to the pending arbitration proceeding reached a

global settlement resulting in no liability to Bishop.

II.

In July 2005, the Appellants filed a consolidated arbitration

demand against Raymond James pursuant to NASD rules.

Specifically, the Appellants sought damages on the basis of

the following legal theories: (1) wrongful discharge; (2)

breach of contract; (3) tortious interference with contract; (4)

common law and statutory conspiracy; (5) violation of the

Virginia Retail Franchising Act; and (6) violation of "just and

equitable principles of trade." Thereafter, Raymond James

submitted its Answer, Affirmative Defenses, and Counterclaims, and a Motion to Dismiss, which the Appellants

opposed. 

On May 11, 2006, the arbitration panel denied Raymond

James’ Motion to Dismiss. Then, on December 12, 2006, following a hearing extending over several days, the arbitration

panel found Raymond James liable. In its award, the arbitration panel summarized the Appellants’ claims as follows: 

breach of fiduciary and legal duties; violation of just

and equitable legal principles of trade; breach of

promises and inducements; interference with, and

unlawful termination of [the Appellants’] prospective economic advantages; interference with the performance of contractual promises and inducements;

tortious and deceitful termination of [the Appellants’] legitimate and high business expectations;

violation of statutory Virginia public policy set forth

in Virginia code § 13.1-558; and common law and

statutory conspiracy. 

J.A. 353. The panel granted the following substantial compensatory damages to the Appellants: Bishop, $156,050; Hamant,

$74,050; and Scanlon, $72,050. J.A. 354. 

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By way of explanation for its award, the panel cited Raymond James’ "unauthorized practice of law [sic] by employing staff counsel to advise and represent [Appellants] in their

individual capacities" in NASD arbitrations. J.A. 354. The

panel also found that Raymond James failed to warn the

Appellants that they were subjected to heightened scrutiny

after Raymond James received complaints about them. Id.

The panel further found that Bostic’s withdrawal from Bishop’s representation in the arbitration prejudiced "some or all

[Appellants’] litigation interest and made their transfer to

other Raymond James Financial Services, Inc. branch offices

impossible as a practical matter." Id.

On January 12 and 18, 2007, Raymond James filed in the

United States District Court for the Eastern District of Virginia a timely Motion to Vacate the Award, and an Amended

Motion to Vacate, respectively. The Appellants filed timely

Motions to Confirm the Award.

On July 26, 2007, the district court held a hearing. The

court noted the lack of clarity in the arbitration panel’s explanation for its award, and in particular, among other things, the

peculiar manner in which the arbitration panel seemed to treat

the claims of all three of the Appellants identically, although

the factual circumstances and background as to Bishop, on the

one hand, and Hamant and Scanlon, on the other hand, were

quite different. When the district court asked counsel for the

latter two to identify Raymond James’ actionable conduct as

to his clients (Hamant and Scanlon), counsel indicated that the

actionable conduct was wrongful termination. When the court

asked counsel how any termination could be "wrongful" in

light of the "Termination of Agreement" provision included in

each written agreement, which on its face provided for termination at-will on five days notice, counsel argued that the law

in the NASD securities industry requires that, irrespective of

the parties’ agreement, termination of a registered representative could only be for cause. 

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Ultimately, despite its best efforts to discern some coherence in the award, the district court concluded that it could not

do so and remanded the matter to the arbitration panel.7

Appellants filed an interlocutory appeal to this court from the

district court’s remand order. On April 2, 2008, we dismissed

the appeal for lack of jurisdiction. 

On April 11, 2008, the arbitration panel issued a supplemental letter opinion in response to the district court’s remand

order. Therein, the arbitrators stated the following bases for

its award: 

(1) Raymond James provided legal representation

to the Appellants "in a matter involving a business

relationship between the employer and [the Appellants] that was also adversarial with a clear conflict

of interest;" (2) Raymond James’ "attorney favored

the interest of [Raymond James] to the disadvantage

of the [Appellants,] who were also his clients;" (3)

"if a corporation employs a lawyer to provide legal

services that corporation is then engaged in the practice of law. . . . As such, it is held to the same standard as a law firm and owes to its client the highest

degree of fiduciary duty. If it chooses to engage in

the business with such clients, it is obligated to place

the interest of those clients ahead of its own. [Ray7The court found it "dubious" that Raymond James engaged in the "unauthorized practice of law" simply by permitting in-house counsel to represent the Appellants in arbitrations initiated by third parties jointly

against Raymond James and its registered representatives. J.A. 394-400.

Furthermore, the court questioned the arbitration panel’s finding that Raymond James had assumed the role of legal counsel for Appellants and was

therefore "held to the highest [of] ethical obligations and fiduciary duties."

J.A. 116. The court reasoned that since Bostic, and not Raymond James,

represented the Appellants, any fiduciary duty owed to the Appellants was

owed only by him. In short, given the lack of clarity in the award, the

court found it impossible to conduct meaningful, even if limited, judicial

review. 

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mond James] failed in that obligation and the

[Appellants] suffered losses pertaining to the issues

for which [Raymond James] provided its lawyer." 

J.A. 362-63. 

On April 24, 2008, Raymond James filed a Renewed

Motion to Vacate in the district court. Then, in a June 4, 2008

letter, the arbitration panel supplemented its supplemental

opinion, stating that "[t]he unauthorized practice of law was

one among other factors considered by the panel and that considering the case as a whole [it] believes the liability decision

to be just and appropriate." J.A. 365. 

After further briefing by the parties, the district court issued

its Memorandum Opinion on December 18, 2008. The court

summarized its earlier reasoning that had prompted it to

remand the matter to the arbitration panel. J.A. 380-91. The

court went on to find that "[l]ike the original award, the letters

of clarification are not really very clear at all respecting the

legal basis for the finding of liability. Nor do they articulate

the causal link between the perceived liability and the monetary award." J.A. 391.

Noting that the arbitration panel had expressly stated that

"any and all claims [sic] relief not specifically addressed

herein, including Claimants’ requests for punitive damages,

are denied," J.A. 388 (quoting arbitration award, J.A. 354),

the district court concluded that the following legal theories

had been rejected by the arbitration panel: "breach of promises and inducements; interference with the performance of

contractual promises and inducements; violation of statutory

public policy set forth in Va. Code § 13.1-558; [and] common law and statutory conspiracy." J.A. 389. Consequently,

the court concluded, the award must have been based on one

or more of the following theories: "breach of fiduciary and

legal duty; violation of just and equitable principles of trade;

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and interference with, or unlawful termination of, [the Appellants’] respective economic advantage." Id.

The court identified the precedents from this court setting

forth the statutory and extra-statutory grounds on which an

arbitration award might be found infirm. Under the Federal

Arbitration Act, it noted, an award may be vacated where the

arbitrator "exceeded his powers, or so imperfectly executed

them, that a mutual, final, and definite award upon the subject

matter submitted was not made." See 9 U.S.C. § 10(a)(4).

Moreover, consistent with longstanding precedent in this circuit, the court observed that an award might be vacated on

extra-statutory grounds where an arbitrator displayed a "manifest disregard of the law" and where the award "failed to draw

its essence" from the parties’ agreement. J.A. 394-411.

Ultimately, the court concluded that the award here should

be vacated on all three grounds. First, the court concluded that

the arbitration panel exceeded its powers as proscribed by

§ 10(a)(4). This conclusion was grounded in the court’s determination that the arbitrators clearly based their award of compensatory damages to the Appellants on Raymond James’

alleged "breach of fiduciary and legal duties" surrounding the

termination of their affiliation with Raymond James. Consequently, the court analyzed the award under Zandford v.

Prudential-Bache Secs., Inc., 112 F.3d 723 (4th Cir. 1997),

and concluded the arbitrators clearly exceeded the authority

granted them by that case to adjudicate a dispute "arising out"

of the termination of a financial advisor in the securities

industry. The court found this alone to be reason enough to

vacate the award. 

Next, the court concluded that, even assuming a claim for

"breach of fiduciary duty" could be prosecuted separately

from the Appellants’ claim of "wrongful termination," the

panel demonstrated a "manifest disregard of the law." This

conclusion was based on the court’s finding that the arbitrators were aware of and understood the legal maxim that,

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under Florida law (which the parties agree governs the written

agreements at issue), in order for a claimant to recover on a

claim of breach of fiduciary duty, the claimant must have suffered damages.8

 J.A. 408 (citing Patten v. Winderman, 965

So. 2d 1222, 1224 (Fla. Dist. Ct. App. 2007)). Thus, the court

found that the arbitrators were aware of the law, understood

it correctly, and found it applicable to the case before them.

The court found that the arbitrators knowingly failed to apply

the law here, however, because the only evidence of damages

presented to the arbitration panel related to their alleged

"wrongful termination" by Raymond James and not to any

"breach of fiduciary duty."9

Finally, the court concluded that the award "failed to draw

its essence" from the written agreements between the parties

because the arbitrators either disregarded or modified unambiguous contract provisions or based the award on their own

personal notions of right and wrong. That is, the court concluded that the written agreements between the parties were

termination-at-will contracts. The arbitration panel’s award,

however, inappropriately seemed to compensate the Appellants for termination of their employment. Accordingly, the

court held that any damages award based on the termination

of the Appellants’ affiliation with Raymond James or their

8The court noted the following: (1) that Raymond James correctly

informed the panel of the controlling legal doctrine (in its Motion to Dismiss); (2) that the arbitrators are licensed attorneys and should know this

basic principle of law; and (3) that the arbitrators acknowledged the principles and necessity of demonstrating damages. J.A. 408. 

9Specifically, the court found that the Appellants suffered no injury or

damage as a consequence of their representation by in-house counsel:

Hamant and Scanlon’s arbitration proceedings were resolved in their

favor, and the arbitration was settled with no liability to Bishop. As to

whether Raymond James violated a "fiduciary duty" by failing to inform

the Appellants that they were placed under "heightened supervision" as a

result of the complaints about the Richmond branch, the court found that

no such duty was owed to Appellants and, implicitly, that the arbitration

panel exceeded its power to the extent it purported to identify any such

duty. 

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inability to transfer to another Raymond James branch would

have to be vacated. 

Ultimately, the court concluded that to the extent the

panel’s award was based on a breach of fiduciary duty, the

mere fact that Raymond James’ in-house counsel provided

representation to the Appellants in the third-party arbitration

proceedings did not transmute Raymond James "into a law

firm." J.A. 403. The district court recognized that the arbitration panel was not required to state the reasons for its award,

but that it had voluntarily done so. And, given that the panel’s

award had no basis in law, the court found that the panel’s

award merely reflected the panel’s personal views of right and

wrong. Even if there was a breach of some duty, the court

found no discernable damage caused by this breach.

Accordingly, Raymond James’ Renewed Motion to Vacate

was granted and the award was vacated. The Appellants have

timely appealed and we have jurisdiction pursuant to 28

U.S.C. § 1291. 

III.

We review the district court’s findings of fact for clear

error and its conclusions of law, including its decision to

vacate an arbitration award, de novo. Choice Hotels Int’l, Inc.

v. SM Prop. Mgmt., LLC, 519 F.3d 200, 207 (4th Cir. 2008)

(citation omitted). We review the court’s decision to remand

an award to an arbitrator for abuse of discretion. 

As we have made clear repeatedly:

Judicial review of an arbitration award in federal

court is "substantially circumscribed." Patten v.

Signator Ins. Agency, Inc., 441 F.3d 230, 234 (4th

Cir. 2006). In fact, the scope of judicial review for

an arbitrator’s decision "is among the narrowest

known at law because to allow full scrutiny of such

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awards would frustrate the purpose of having arbitration at all-the quick resolution of disputes and the

avoidance of the expense and delay associated with

litigation." Apex Plumbing Supply, Inc. v. U.S. Supply Co., Inc., 142 F.3d 188, 193 (4th Cir. 1998).

Indeed, as we have emphasized, in reviewing such

an award, "a district or appellate court is limited to

determine whether the arbitrators did the job they

were told to do-not whether they did it well, or correctly, or reasonably, but simply whether they did

it." Remmey v. PaineWebber, Inc., 32 F.3d 143, 146

(4th Cir. 1994) (internal quotation marks omitted). 

Three S Delaware, Inc. v. DataQuick Info. Sys., Inc., 492 F.3d

520, 527 (4th Cir. 2007). 

IV.

On appeal, the Appellants emphasize the highly circumscribed standard of federal courts’ review of arbitration

awards. They argue that, although no error by the arbitration

panel is shown in any event, at most what the record shows

are mere errors of fact and/or of law which provide no basis

for judicial intervention. They argue, further, that when the

parties submitted their dispute to the process of arbitration,

they agreed to accept the arbitration award as final, save

extraordinary circumstances. The Appellants argue that no

such extraordinary circumstances existed here. Raymond

James urges affirmance on any or all of the grounds identified

by the district court. We conclude that Raymond James has

the better of the argument and find that the award cannot

withstand the deferential review mandated by 9 U.S.C. §

10(a). 

A.

We conclude first that the district court did not abuse its

discretion in remanding the award to the arbitration panel for

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clarification of the bases of the award. Like the district court,

we believe the original award is sufficiently inscrutable that

it was reasonable to seek clarification of the basis for the

award from the arbitration panel. It is true, of course, that an

arbitrator need not explain her award. United Steelworkers of

Am. v. Enterprise Wheel & Car Corp., 363 U.S. 593, 597-98

(1960). Furthermore, we are mindful of a potential danger in

such remands: "courts must approach remand to the arbitrator

with care lest the arbitrator believe that a ‘remand’ is equivalent to ‘retrial’ with an expectation of an opposite result the

second time around." Randall, a Div. of Textron, Inc. v. Lodge

No. 1076, Int’l Ass’n of Machinists and Aerospace Workers,

648 F.2d 462, 468 (7th Cir. 1981). At the same time, however, as one court has noted, "[r]emand to an arbitrator for

clarification and interpretation is not unusual in judicial

enforcement proceedings." McClatchy Newspapers v. Central

Valley Typographical Union No. 46, 686 F.2d 731, 734 n.1

(9th Cir. 1982.).

Given the evident incoherence of the explanation that was

volunteered by the arbitration panel in this instance, we do not

fault the district court in its commendable efforts to seek guidance through a remand, guidance that would enable the court

to conduct the limited judicial review to which Raymond

James was entitled. 

[O]nce the reasons that are given [by an arbitrator]

strongly imply that the arbitrator may have exceeded

his or her authority under the submission and contract whether that implication appears in the form of

vague or inconsistent results or possible extensions

beyond the terms of the contract the device of

remand is appropriate to avoid having courts rather

than the arbitrator clarify the bases for the initial

determination. 

Randall, 648 F.2d at 468.

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B.

As described above, the Appellants crafted a veritable

smorgasbord of legal theories in support of their quest for

compensatory damages. This seems to have been a sound tactic. Nevertheless, the record is clear that the Appellants have

insisted throughout these proceedings that the gravamen of

their claims for damages was an alleged "wrongful termination" of their affiliations with Raymond James. To be sure, on

the face of the record, it is exceedingly obscure, to say the

least, as to how a wrongful termination might arise (1) inasmuch as their respective agreements with Raymond James

were independent contractor agreements containing the "Termination of Agreement" provision quoted above in Part I of

this opinion, and under circumstances in which (2) the Appellants voluntarily terminated the agreements themselves. 

Notwithstanding that the Appellants’ fundamental claim

was one for wrongful termination, we agree with the district

court that the award in this case cannot be understood as

based on anything other than the arbitrators’ finding that Raymond James committed a breach of "fiduciary and legal

duties" when its in-house lawyer, Bostic, provided legal representation to the Appellants in third-party arbitration proceedings. J.A. 389. In so concluding, the arbitration panel

clearly "exceeded [its] power" within the contemplation of 9

U.S.C. § 10(a)(4).10

10The Federal Arbitration Act provides that a federal court may vacate

an arbitration award on the following grounds: 

(1) the award was procured by corruption, fraud, or undue means;

(2) partiality or corruption in the arbitrators; (3) the arbitrator was

guilty of misconduct or misbehavior in conducting the hearing in

a manner which prejudiced a party’s rights; or (4) the arbitrator

exceeded his powers, or so imperfectly executed them, that a

mutual, final, and definite award upon the subject matter submitted was not made. 

9 U.S.C. § 10(a). 

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The Appellants correctly contend that, although the parties’

agreements allowed Raymond James to terminate each agreement without cause and at will, all of the parties here were

covered by former NASD Rule 10101.11 Rule 10101 provides

a measure of protection for registered representatives affiliated with broker/dealers such as Raymond James. It was on

the authority of the expansive language of Rule 10101 that the

Appellants asserted their claims against Raymond James.

In Zandford v. Prudential-Bache Securities, Inc., we examined the scope of claims asserted under New York Stock

Exchange Rule 347 ("NYSE Rule 347"), which, in language

identical to that in Rule 10101, provided for arbitration of

"[a]ny controversy . . . arising out of the employment or termination of employment" of registered representatives. 112

F.3d 723 (4th Cir. 1997).

Prudential terminated Zandford, one of its registered representatives, and commenced an arbitration against Zandford to

recover payment of an outstanding loan. Id. at 725. Zandford

counterclaimed. Id. The parties reached a settlement agreement. Thereafter, alleging that Prudential had breached the

settlement agreement, Zandford brought an action in federal

court, alleging contract and tort claims against Prudential. Id.

at 726. The federal district court ordered arbitration of Zandford’s claims, and an arbitration award favored Prudential.

Zandford returned to court seeking to vacate the award;

instead, the district court confirmed the award. Id.

Upon Zandford’s appeal to this court from the confirmation

of the award, we affirmed and held that all of Zandford’s tort

11The current version of former NASD Rule 10101 is now a part of the

Financial Industry Regulatory Authority, Inc.’s "Code of Arbitration Procedure." The operative language is unchanged; it provides, in relevant

part: "for the arbitration of any dispute, claim, or controversy . . .arising

out of the employment or termination of employment of associated person(s) with any member . . . (b) between or among members and associated persons." 

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and contract claims were covered by the NYSE Rule 347 arbitration clause because they arose out of Zandford’s employment with Prudential. Id. at 729-30.12

We adopted a test fashioned by the Eighth Circuit and

embraced by many courts to hold that arbitration of a dispute

is required — i.e., that a dispute "arises out of employment or

termination of employment," where the claims "involve significant aspects of the employment relationship, including but

not limited to explicit contractual terms." Id. at 728-29 (quoting Morgan v. Smith Barney, Harris Upham & Co., 729 F.2d

1163, 1167 (8th Cir. 1984)). Under Morgan’s "significant

aspects" test, the source from which arbitrable disputes arise

is not "the employment (or termination of the employment)

contract" but "simply employment or termination of employment." Id. at 729 (citing Morgan, 729 F.2d at 1167). We reasoned that "the proper question is whether resolution of the

claim depends upon evaluation of a party’s performance

either as a broker or as an employer of brokers during the time

of the contractual relationship." Id. at 729 (citing Aspero v.

Shearson American Express, Inc., 768 F.2d 106, 109 (6th Cir.

1985); Fleck v. E.F. Hutton Group, Inc., 891 F.2d 1047, 1053

(2d Cir. 1989)). 

In the case before us, the district court applied Zandford

and concluded that issues surrounding Raymond James’

alleged "practice of law" and the resulting alleged breach of

"fiduciary and legal duties" did not fit within the framework

of arbitrable claims under the Rule 10101 analogue to NYSE

Rule 347. Thus, it determined that the arbitrators lacked the

12Although, unlike the facts here, Zandford’s agreement with Prudential

contained an arbitration clause, the releases exchanged in connection with

the settlement agreement had extinguished the parties’ rights and duties

under the employment agreement. See 112 F.3d at 727 ("[I]t is clear and

indeed not disputed that Zandford cannot be called upon to arbitrate any

matter on the authority of the arbitration clause included in the employment agreement."). Thus, the NYSE rule was the sole source of any duty

to arbitrate and of the power of the arbitrators to adjudicate claims. 

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authority to address this "cause of action," the very claim on

which the panel premised the award of compensatory damages to the Appellants.

We agree with the district court. As we have noted, here the

arbitrators based their award on Raymond James’ alleged

breach of "fiduciary and legal duties" in connection with their

joint representation with Raymond James by Bostic, the inhouse lawyer. Under the Zandford "significant aspects" test,

the appropriate question here "is whether resolution of the

claim depends upon evaluation of a party’s performance

either as a broker or as an employer of brokers during the time

of the contractual relationship." 112 F.3d at 729 (citations

omitted). The panel’s assertion that Raymond James acted

improperly as a "lawyer" is inconsistent with the notion that

Raymond James was acting as an "employer of brokers during

the time of the contractual relationship." There is nothing

whatsoever in the serial explanations provided by the arbitration panel to support the conclusion that the legal theory the

panel found sustained required an evaluation of any party’s

"performance." Even after the district court ordered a remand

to the panel, the panel simply reiterated what seemed inescapable from the original award: that the panel had adjudicated

a tort claim that fell outside of the expansive interpretation of

"arising out of employment" we adopted in Zandford.

Thus, the arbitration panel committed no mere error of law.

Rather, by rendering an award whose underlying legal basis

exceeded the bounds of arbitrable employment-related disputes cognizable under NASD Rule 10101 as interpreted (by

analogy) in Zandford, the panel "exceeded [its] powers" under

9 U.S.C. § 10(a)(4).13

13The Supreme Court’s decision in Hall Street Associates, L.L.C. v.

Mattel, Inc., 552 U.S. 576 (2008), has generated considerable uncertainty

among the lower federal courts as to the continuing viability of extrastatutory grounds for vacating arbitration awards. See Andorra Svcs. Inc.,

v. Venfleet, Ltd., No 08- 4902, 2009 WL4691635, at *4 n.5 (3d Cir. Dec.

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C.

The Appellants seek to avoid this result with two arguments, each of which we find unpersuasive. First, they seem

to contend that once the arbitration panel’s "jurisdiction" was

established pursuant to Rule 10101, the panel was entitled

under the expansive rubric of "just and equitable principles of

trade" to interpret the propriety of Raymond James’ overall

conduct towards the Appellants.14 Thus, according to the

Appellants, the acts and omissions of Raymond James’ inhouse lawyer in undertaking joint representation of the Appellants in the NASD arbitration proceedings was a fair ground

10, 2009) ("Our sister circuits have expressed varying views on the impact

of Hall Street. Compare Telenor Mobile Commc’ns AS v. Storm LLC, 584

F.3d 396, 407 n.6 (2d Cir. 2009) ("[W]e [previously] read Hall St. to hold

that the FAA set forth the ‘exclusive’ grounds for vacating an arbitration

award, and that the term ‘manifest disregard’ was merely a ‘judicial gloss’

on some of those grounds."), with Citigroup Global Mkts., Inc. v. Bacon,

562 F.3d 349, 355 (5th Cir. 2009) ("[T]o the extent that manifest disregard

of the law constitutes a nonstatutory ground for vacatur, it is no longer a

basis for vacating awards under the FAA.")). In view of our conclusion

that the district court’s order vacating the award in this case should be

affirmed under 9 U.S.C. § 10(a)(4), we find it unnecessary to consider the

effect of Hall Street. 

14Congress imposed a "just and equitable principles of trade" requirement in the Exchange Act of 1934. See 15 U.S.C. § 78f(b). As the socalled "J & E" rule, NASD codified the principle in its Rule 2110: "A

member, in the conduct of its business, shall observe high standards of

commercial honor and just and equitable principles of trade." The J & E

Rule is a mainstay in private and governmental enforcement efforts in the

policing of securities markets, and is universally regarded as imposing

high ethical standards on commercial actors in the market. See, e.g., In the

Matter of the Application of Timothy L. Burkes, 51 S.E.C. 356, 1993 WL

119769, at *3 (Apr. 14, 1993) ("As the Commission has stated previously,

disciplinary hearings to require compliance with ‘high standards of commercial honor and just and equitable principles of trade’ are ethical proceedings; hence the concern is with ethical implications of the Applicant’s

conduct."). Contrary to the Appellants’ suggestion, the J & E principle did

not expand the powers of the arbitration panel in this case beyond the

boundaries set by Zandford. 

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for decision and for an award of compensatory damages,

regardless of how attenuated such acts and omissions might

be from any party’s "performance either as a broker or as an

employer of brokers during the time of the contractual relationship."15 We reject this contention as flatly inconsistent with

our holding in Zandford.

Second, the Appellants contend that, under the reasoning in

two cases from the Seventh and Eighth Circuits, because Raymond James was required under Rule 10101 to arbitrate

claims "arising out of" the termination of Appellants’ affiliation, it simply lacked the authority to terminate their affiliations without cause. See Shearson Hayden Stone, Inc. v.

Liang, 653 F.2d 310, 313 (7th Cir. 1981) ("It has been held

repeatedly that an agreement to arbitrate disputes about

employee discharges implies a requirement that discharges be

only for ‘just cause.’"); PaineWebber, Inc. v. Agron, 49 F.3d

347, 352 (8th Cir. 1995) (stating that "[NASD arbitration]

necessarily alters the employment relationship from at-will to

something else-some standard of discernable cause is inherently required in this context where an arbitration panel is called on to interpret the employment relationship"). 

The genesis of the principle applied in those cases was in

the context of arbitration provisions contained in collective

bargaining agreements. See Liang, 653 F.2d at 312-13 (citing

Int’l Ass’n of Machinists v. Campbell Soup Co., 406 F.2d

1223, 1226-27 (7th Cir.), cert. denied, 396 U.S. 820 (1969);

Amoco Oil Co. v. Oil, Chemical & Atomic Workers Int’l

Union, 548 F.2d 1288, 1294 (7th Cir.), cert. denied, 431 U.S.

905 (1977)). As to such disputes, as often as not, the issue

before the arbitrator is whether a discharged employee should

be reinstated, and if so, on what conditions. See, e.g., Lynchburg Foundry Co. v. United Steelworkers of Am., 404 F.2d

259, 261 (4th Cir. 1968) ("When an arbitrator is commis15At oral argument, counsel for the Appellants described the practice-oflaw issue as a "stepping stone." 

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sioned to interpret and apply the collective bargaining agreement, he is to bring his informed judgment to bear in order to

reach a fair solution of a problem. This is especially true when

it comes to formulating remedies."). The propriety of applying the principle in the judicial review of arbitration awards

under Rule 10101 is less than clear. In any event, in neither

of the cases relied on by the Appellants was the court faced

with an express agreement providing for termination at will.16

Accordingly, whether or not we believe those cases

announced a rule of general application, we decline to follow

them under the circumstances of this case.

V.

As we acknowledged at the outset of this opinion, vacatur

of an arbitration award by a federal court is rare, as it should

be. We are satisfied that the district court did not err in concluding that this case presents such a rare occasion. Accordingly, the judgment of the district court is 

16Indeed, the Eighth Circuit’s Agron opinion demonstrates that the case

is easily distinguishable from the case before us: 

If Agron’s employment was purely at-will, the arbitration procedure designed to interpret that employment relationship would

serve no identifiable purpose. Accordingly, the arbitration panel

had the power to determine whether the firing was justified.

PaineWebber has not shown that the arbitrators’ power was

expressly limited to application of the Kansas at-will doctrine by

the terms of the employment agreement, promissory note, or any

other factor. Rather, PaineWebber merely contends that the

panel’s disposition improperly disregarded Kansas law. Accordingly, we are powerless to upset the award. 

49 F.3d at 352 (emphasis added). In contrast, the agreements at issue in

this case expressly provide for termination at will, i.e., on five days notice.

Furthermore, in light of the availability of numerous federal and state statutory claims available even to at-will employees, see, e.g., Title VII of the

Civil Rights Act of 1964, 42 U.S.C. §§ 2000e, et seq., and to independent

contractors, see 42 U.S.C. § 1981, it simply is not the case that "an arbitration procedure designed to interpret [such an] employment relationship

would serve no identifiable purpose." 

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AFFIRMED.

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