* This order and judgment is not binding precedent, except under the

doctrines of law of the case, res judicata, and col lateral estoppel. The court generally disfavors the citation of orders and judg ments; nevertheless, an order and judgment may be cited under the terms and condi tions of 10th Cir. R. 36.3. 

## F I L E D United States Court of Appeals Tenth Circuit 

### JUN 10 1998 

### PATRICK FISHER Clerk UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

COHIG & ASSOCIATES, INC.,

Petitioner - Appellant, No. 97-1119

v. (D.C. No. 95-D-2083) NORMAN STAMM, (D. Colo.)

Respondent - Appellee.

ORDER AND JUDGMENT *

Before TACHA , McKAY , and EBEL , Circuit Judges.

Appellant Cohig & Associates, Inc. [Cohig], a secur ities broker-dealer, seeks vacation of an award entered against it in an arbitration proceeding conducted by the National Association of Securities Dealers, Inc. [NASD]. Cohig appeals the district court’s confirmation of the aw ard in favor of Appellee1 Kober Financial is a subsidiary of Kober Corporati on. Cohig’s parent

company is Cherry Creek Investments [CCI]. Mr. Stamm’s claim against Cohig implicates the brokerage actions of Kober Financial

. -2- Mr. Norman Stamm. Mr. Stamm filed a pro se claim with the NASD alleging that he suffered losses as a customer of Kober Financial Corp. [Kobe r Financial], 1 another securities broker-dealer, resulting from its materi al misrepresentations regarding the stock of Brush Creek Mining and Development [Brush Creek]. Mr. Stamm transferred his IRA and securities account to KoberFinancial when his son, Neil Stamm, entered its brokerage training program. Mr. Stamm purchased shares of Brush Creek after Kober Financial allegedly represe nted to his son that Brush Creek was in strong financial condition and would i ncrease in value quickly. According to a Brush Creek internal audit, however, its financial viability was in “substantial doubt.” R., Vol. I at 17. After Neil Stamm left Kober Financial, Mr. Stamm’s accounts were transferred to another account representative. This representative, who allegedly considered Brush Cree k a weak and speculative stock, also eventually left Kober Financial and man aged Mr. Stamm’s accounts from another brokerage service. Mr. Stamm claimed that his Brush Creek shares were reversely split which reduced their total value from $22,961 to $2,220. Id. at 14-15, 168. He alleged that Cohig was liable for those losses because Cohi g took over the assets of2 Because both parties agreed to submit the matter t o arbitration under the

NASD’s Simplified Rules, the arbitrator based his d ecision “solely upon the pleadings and evidence filed by the parties” withou t a hearing. R., Vol. I at 181 (NASD C ODE OF A RBITRATION P ROCEDURE § 10302(f) (1996)). -3- Kober Financial. Cohig moved to dismiss contending that an asset purchaser cannot be held liable for the misconduct of the ass et seller under these facts. Cohig submitted evidence to the arbitrator concerni ng the general rule of and the exceptions to successor liability. After considering the “proof of the [p]arties,” id. at 169, the arbitrator awarded Mr. Stamm $20,741, plus interest. 2 Cohig filed a motion to vacate the award in the district court on the basis that the award was arbitrary and capricious and in manifest disregard of the law. The districtcourt confirmed the award holding that, even if the arbitrator’s factual conc lusions were erroneous and his application of the law to those facts was erroneous , the “award is not open to review on the merits.” Id. at 229 (citing Checkrite of San Jose, Inc. v. Chec krite, Ltd. , 640 F. Supp. 234, 237 (D. Colo. 1986)). The court also held that the theory of de facto merger supported the award. See id. at 229-30. The court found that “[t]here has been nothing presented here that even suggests that the arbitrator’s decision was not the result of careful consideratio n of Cohig’s arguments.” Id. at 229. Cohig asserts that the district court erred i n failing to vacate the award for three reasons. We address each argument in turn.-4-

In reviewing a district court’s confirmation or vac ation of an arbitration award, we review its factual findings for clear err or and questions of law de novo

. See First Options of Chicago, Inc. v. Kaplan , 514 U.S. 938, 947-48 (1995); Denver & Rio Grande W. R.R. Co. v. Union Pac. R.R. Co. , 119 F.3d 847, 849 (10th Cir. 1997). Our review, however, is restrict ed by the finality that courts should afford the arbitration process. “Because a primary purpose behind arbitration agreements is to avoid the expense and delay of court proceedings, it is well settled that judicial review of an arbitration award is very narrowly limited.” Foster v. Turley , 808 F.2d 38, 42 (10th Cir. 1986); see Denver & Rio Grande W.
R.R. Co. , 119 F.3d at 849; Litvak Packing Co. v. United Foo d & Commercial Workers , 886 F.2d 275, 276 (10th Cir. 1989) (“Our review o f arbitration awards is among the narrowest known to the law.”). “We mu st consider . . . that [the district court] will set aside the arbitrator’s dec ision ‘only in very unusual circumstances’ such as fraud, corruption, or a deci sion in manifest disregard of the law.” Kelley v. Michaels , 59 F.3d 1050, 1053 (10th Cir. 1995) (quoting Firs t Options , 514 U.S. at 942). Cohig argues that the district court erroneously co nfirmed the award on the basis of a legal theory of successor liability, de facto merger, which was not presented to the arbitrator by Mr. Stamm. Cohig co ntends that because Mr. Stamm raised the de facto merger theory for the first time at the district co urt-5-

hearing, the arbitrator could not have relied on th is theory in entering the award. Mr. Stamm asserts that Cohig itself presented the v arious legal theories, including de facto merger, on which the arbitrator could have based h is decision. He argues that because the law on de facto merger was submitted to the arbitrator, even though it was submitted by Cohig, the arbitrator co uld have properly relied on it in determining an award. An arbitration award may be based only upon those theories or matters which may “fairly be read” as included in the arbit ration submissions. Kelley , 59 F.3d at 1054. The NASD Code of Arbitration Procedu re, which guided this arbitration, states that “the arbitrator shall deci de the dispute, claim or controversy solely upon the pleadings and evidence filed by the parties.” R., Vol. I at 181 (NASD C ODE § 10302(f)). The NASD Code does not dictate that when an arbitrator makes an award he may consider only t he pleadings and legal authority submitted by the party in whose favor he awards. Cohig has presented no law, and we can find none, that requires an arbi trator to base an award only on the prevailing party’s submissions without examinin g the submissions of the other party. If, during an arbitrator’s examination of t he law, he finds that the law, when applied to the pertinent facts, demands a cert ain result, he need not refrain from imposing that result merely because it disfavo rs the party who presented the law. Further, Cohig has presented no authority to support its contention that the-6-

district court’s confirmation erroneously relied ona legal theory not presented by Mr. Stamm to the arbitrator. This argument is cont rary to principles of law requiring a court to review all the evidence before rendering a decision. Mr. Stamm succinctly stated at oral argument a realisti c yet ironic truth about the practice of law: Occasionally, the opposing party proves your case for you or you inadvertently prove your opponent’s case. This mayoccur in litigation or arbitration and likely occurred here, especially co nsidering Mr. Stamm’s pro se
status. We construe Mr. Stamm’s pro se pleadings liberally. See Haines v. Kerner , 404 U.S. 519, 520 (1972); Riddle v. Mondragon , 83 F.3d 1197, 1202 (10th Cir. 1996). His initial claim against Cohig states thatCohig has “taken over the assets of Kober Financial.” R., Vol. I at 11. Although n ot responding to a precise statement of the law supporting the relief requeste d by Mr. Stamm, Cohig submitted to the arbitrator the law on successor li ability, which included the theory of de facto merger. Cohig’s assertion that no successor liabi lity exists demonstrates at least that it understood from Mr. S tamm’s plainly worded complaint that he believed Cohig was liable as the successor to Kober Financial. The arbitrator is entitled to make the same reasona ble inference. We conclude that the de facto merger theory of successor liability was properly b efore the arbitrator because it was part of the material subm itted by one of the parties.-7-

Although the claimant did not use the magic words o r himself present the law of de facto merger, the district court did not erroneously con firm the award. Cohig also argues that the district court’s confirm ation of the award was erroneous because the arbitrator acted in manifest disregard of the law. We have previously characterized the “manifest disregard” s tandard as “willful inattentiveness to the governing law.” Jenkins v. Prudential-Bache Sec., Inc. , 847 F.2d 631, 634 (10th Cir. 1988). To find manifest d isregard, “there must be some showing in the record, other than the result obtain ed, that the arbitrator[] knew the law and expressly disregarded it.” Prudential- Bache Sec., Inc. v. Tanner , 72 F.3d 234, 240 (1st Cir. 1995) (internal quotation m arks and citation omitted). “An arbitrator’s erroneous interpretations or appli cations of law are not reversible.” ARW Exploration Corp. v. Aguirre , 45 F.3d 1455, 1463 (10th Cir. 1995); see Wilko v. Swan , 346 U.S. 427, 436-37 (1953), overruled on other grounds byRodriguez de Quijas v. Shearson/American Express, Inc. , 490 U.S. 477 (1989); see also Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bob ker , 808 F.2d 930, 933 (2d Cir. 1986) (stating that manifestdisregard “clearly means more than error or misunderstanding with respect to the law”). Cohig asserts two bases for its manifest disregard claim. Cohig first argues that the arbitrator displayed ma nifest disregard for the law of successor liability in entering an award aga inst Cohig because the facts in-8-

the record do not support a finding of de facto merger. Cohig contends that the facts were not disputed and, therefore, the arbitrator must have acted in manifest disregard of the law because he did not properly ap ply the law to those facts. Generally, a company that acquires all, or substant ially all, of the assets of another company is not liable for the debts and lia bilities of that seller unless (1) there is an express or implied agreement to assume such debts; (2) the transaction amounts to a merger or a consolidation; (3) the pur chasing corporation is a mere continuation of the selling company; or (4) the “tr ansaction is entered fraudulently in order to escape liability for such debts.” Florom v. Elliot Mfg. , 867 F.2d 570, 575 n.2 (10th Cir. 1989); see Alcan Aluminum Corp., Metal Goods Div. v. Electronic Metal Prods., Inc. , 837 P.2d 282, 283 (Colo. App. 1992); Ruiz v. ExCello Corp. , 653 P.2d 415, 416 (Colo. App. 1982). Under Color ado law, a de facto merger may exist if there is evidence suggesting ( 1) continuity of management, personnel, physical location, assets, a nd business operations; (2) continuity of shareholders; (3) cessation of the se ller’s business and liquidation of its assets; (4) assumption by the purchaser of thos e liabilities of the seller necessary to continue uninterrupted the seller’s fo rmer business operations. See Johnston v. Amsted Indus., Inc. , 830 P.2d 1141, 1146-47 (Colo. App. 1992); cf. Ekotek Site PRP Comm. v. Self , 948 F. Supp. 994, 1002 (D. Utah 1996); V.C. Video, Inc. v. National Video, Inc. , 755 F. Supp. 962, 969 (D. Kan. 1990). The3 What Cohig has characterized in its brief as the e lements of a de facto

merger, see Appellant’s Opening Br. at 18, actually describes an expanded de facto merger theory, “continuity of the enterprise,” and does not include the requisite continuity of shareholders. See Johnston , 830 P.2d at 1146. Assuming that Cohig unintentionally misrepresented this law to the arbitrator, the facts in the record also could support successor liability o n a “continuity of the enterprise” theory. Even though this form of succe ssor liability is not legitimate in Colorado, see id. at 1147, the arbitrator’s possible erroneous appli cation of the law is not reversible. See ARW Exploration Corp. , 45 F.3d at 1463. -9- absorbing corporation receives the added capital an d franchise of the merged corporation and holds itself out to the world as co ntinuing the business of the seller. Although the arbitrator in this case did not make e xplicit factual findings and did not explain his reasons for the award, the Supreme Court has held that an “award may be made without explanation of [the arbi trator’s] reasons and without a complete record of [the] proceedings.” Wilko , 346 U.S. at 436. If the court can find any “argument that is legally plausible and supports the award,” then it must confirm the award. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Jaros , 70 F.3d 418, 421 (6th Cir. 1995). Our review of the recordindicates that the facts are not as undisputed as Cohig contends; certain facts in t he record could support a de facto merger between Cohig and Kober Financial. 3 Mr. Stamm submitted a form letter he received from Kober Financial stating that securities accounts at Kober Financial would be transferred to Cohig along with the account executives. The sale-purchase agreement states that Kober Financial affirmatively covenants that-10-

it will transfer all existing customer accounts and account representatives to Cohig. Mr. Stamm presented to the arbitrator a Coh ig Account Statement showing that his Kober Financial account was in fac t transferred. The record shows that Cohig assumed leases for or sublet KoberFinancial’s offices, furniture, and equipment. The arbitrator could hav e concluded that these facts satisfied the de facto merger theory’s requirement of continuation of bus iness operations, personnel, management, location, and as sets. The record reveals some dispute about the extent to which Kober Financial’s assets were purchased by Cohig. Mr. St amm presents this factual question by asserting that Cohig “[took] over the a ssets of Kober Financial.” R., Vol. I at 11. Cohig acquired assets from Kober Fin ancial valued at $350,000 in cash and $188,000 in furniture and equipment. See id. at 41, 46, 55. Cohig, however, argues that the record shows that Kober’s total assets were valued at $6 million and that it only purchased $188,000 worth o f Kober’s assets. To emphasize the cloudy nature of the record concernin g “assets,” we point out Cohig’s interchangeable use of the name “Kober” forboth Kober Financial and its parent company, Kober Corp., which are two separate corporate entities. It is possible that the arbitrator found, perhaps mistake nly, that the $6 million in assets were attributable to Kober Corp., not to Kober Fina ncial. The arbitrator could have found that Cohig totally assumed the assets an d liabilities of Kober Financial-11-

while Kober Corp. continued its various operations and retained $6 million in

assets. The arbitrator could have found that the continuity of shareholders requirement was satisfied when Kober Corp. and Kobe r Financial became shareholders of Cohig. See id. at 41. Cohig’s parent company, CCI, on behalf of Cohig, transferred to Kober Financial and Kober Corp. approximately fifteen percent of CCI’s preferred stock and a stock optionto purchase up to forty percent of its common stock. See id. 41, 56. Cohig’s own statements and submissions to the arbitrator also could support a de facto merger theory of liability. A vice president of C ohig stated in his affidavit that Kober Corp. “decided to disconti nue its securities brokerage operation (Kober Financial).” Id. at 46. Cohig represented that “Kober [Financial] was not in a position to continue in th e business of securities brokerage,” Appellant’s Opening Br. at 21, and thatKober Financial “intended to cease its brokerage business.” R., Vol. I at 41. Cohig also stated that it performed a service to the Kober Financial customerby servicing the Kober Financial accounts because the brokerage firm was “ go[ing] out of business.” Id. at 221. According to Cohig, a salutary function of its asset purchase of Kober Financial was that the seller’s clients had the opp ortunity to move their accounts to a functioning brokerage where they could continu e to trade and access their4 Our review of the record reveals that the arbitrat or, whether correctly or

erroneously, also could have interpreted the discla imer paragraph, in conjunction with the evidence of Kober Financial’s regulatory a nd disciplinary problems, see R., Vol. I at 52-54, as an attempt to fraudulently avoid liability. See Florom , 867 F.2d at 575 n.2 (listing fraudulent transfer as a t heory of successor liability). -12- securities. From these statements, the arbitrator could have found that Cohig assumed the liabilities of Kober Financial necessary to continue uninterrupted the business operations formerly performed by Kober Fin ancial. The statements also support a possible finding that Kober Financial cea sed operations and terminated or liquidated its brokerage business. There is no evidence in the record that Kober Financial continued other businesses after th e transaction with Cohig. Cohig also contends that the arbitrator could not h ave found a de facto merger because of the inclusion of a paragraph in t he sale agreement between Cohig and Kober Financial disclaiming successor liability. See id. at 55-56, 217- 19. Notwithstanding this expression of Cohig’s int ent not to assume liability, the arbitrator could have found a de facto merger if he believed the facts supported the requirements of such a merger. 4 Thus, the district court did not creatively invent the de facto merger theory to support the arbitrator’s award. Instead, the court merely found that a plausible argument existe d which could support the award. See Jaros , 70 F.3d at 421. Because an arbitrator has the di scretion to view evidence and determine credibility, the distri ct court correctly stated that “[i]t could well be that the arbitrator looked at [ Cohig’s] Motion to-13-

Dismiss, . . . [and] at the other evidence and some how concluded that despite th[e] provision in the contract [disclaiming liabil ity] there had been in effect a de facto merger, so liability was actually being assum ed.” R., Vol. I at 219-20. Cohig’s second manifest disregard argument claims that, because the facts in the record do not support any successor liability, the arbitrator must have disregarded the law in accordance with Mr. Stamm’s express request for the arbitrator to do so. In his response to Cohig’s am ended answer, Mr. Stamm stated that arbitration is not a legal action and requeste d that the arbitrator’s decision “assure[s] the full responsibility towards the publ ic and the good will and moral result.” Id. at 167. Cohig has mischaracterized this statement . Mr. Stamm, a pro

se complainant, did not “expressly argue[] that an ar bitrator is free to dispense his or her own personal brand of justice, without regar d for the law.” Appellant’s Reply Br. at 8. Mr. Stamm was merely urging the ar bitrator to consider the policy supporting his claim. It is also likely that Mr. S tamm, a 78-year-old retiree representing himself, was not aware of the legal implications of an arbitration. We are confident that he is now fully cognizant of those implications. Contrary to Cohig’s assertion, the Eleventh Circuit ’s reversal of an arbitration award where a party “flagrantly and blatantly urged” the panel of arbitrators to expressly disregard the law is not p ertinent to the facts in this case. Montes v. Shearson Lehman Bros., Inc. , 128 F.3d 1456, 1461 (11th Cir. 1997).-14-

The court in Montes limited its holding to situations where (1) the re cord does not clearly support the award; (2) the record and award show the arbitrators understood that a party expressly urged disregard f or the law; and (3) neither the record nor the award refuted the suggestion that th e law was disregarded. See id. at 1462-64. In this case, neither the record nor t he award indicates that the arbitrator viewed Mr. Stamm’s innocuous statement a s urging disregard of the law. Mr. Stamm’s statement, viewed in the context of his status as an elderly pro

se individual, differs markedly from the more explici t assertions of Shearson Lehman Bros., a sophisticated business entity undou btedly represented by counsel. More importantly, as we explained above, the record in this case could support an award and thereby refute an inference fr om Mr. Stamm’s statement that the arbitrator disregarded the law. See id. at 1461-62 & n.8. Cohig cannot claim that Mr. Stamm simultaneously failed to prese nt any law on successor liability and urged the arbitrator to disregard that precise law. The district court correctly determined that nothing in the record sho ws that the arbitrator expressly or manifestly disregarded the law. Finally, Cohig argues that the district court’s con firmation of the arbitration award was erroneous because the award controverts the public policy of arbitration and the public policy encouraging assetpurchases in the securities industry. Cohig’s public policy arguments, however , merely rehash its other-15-

substantive efforts to persuade us that the award s hould be vacated and that the arbitrator acted in manifest disregard of the law. Because we hold that (1) the de facto merger theory was properly presented to the arbitr ator, (2) the facts in the record could reasonably be construed by the arbitrator to support a possible finding of de facto merger, and (3) the record does not show a manifes t disregard of the law by the arbitrator, we conclude that the general public policy of encouraging arbitration is not hindered by this award. We need not determine whether the policy behind encouraging arbitration awards is preempted by an alleged public policy encouraging asset purchases i n the securities industry. See Denver & Rio Grande W. R.R. Co. , 119 F.3d at 850.
AFFIRMED. Entered for the Court

Monroe G. McKay Circuit Judge