United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 98-1649

No. 98-1741

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PaineWebber Group, Inc.; *

PaineWebber, Inc.; Mitchell *

Hutchins Asset Management, Inc.; *

William J. Reik, Jr.; *

William D. Witter, Inc., * Appeals from the United States

* District Court for the Eastern

Plaintiffs - Appellants, * District of Missouri.

*

v. *

*

Zinsmeyer Trusts Partnership, *

*

Defendant - Appellee. *

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Submitted: January 14, 1999

Filed: August 16, 1999

___________

Before LOKEN, HANSEN, and MORRIS SHEPPARD ARNOLD, Circuit Judges.

___________

LOKEN, Circuit Judge.

Zinsmeyer Trusts Partnership (“Zinsmeyer”) submitted claims of securities fraud

and market manipulation to an arbitration panel of the National Association of

Securities Dealers (“NASD”). After a lengthy hearing, the arbitrators dismissed all of
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Zinsmeyer’s claims. The appellants in this court -- PaineWebber Group, Inc.;

PaineWebber, Inc.; Mitchell Hutchins Asset Management, Inc; William D. Witter, Inc.;

and William J. Reik, Jr. -- commenced this action by filing motions to confirm the

arbitration award. Zinsmeyer responded by moving to vacate the award. The district

court vacated the award in favor of appellants on the ground that it was procured by

undue means within the meaning of the Federal Arbitration Act, 9 U.S.C. § 10(a)(1),

because PaineWebber withheld four allegedly privileged documents from discovery

during the arbitration. Appellants challenge that ruling on appeal. We reverse.

I.

Zinsmeyer is a family partnership that invests the assets of various trusts. In

1986, Zinsmeyer entered into an investment advisory agreement with Mitchell Hutchins

Asset Management, Inc. (“Mitchell Hutchins”), giving William J. Reik, Jr., a Mitchell

Hutchins managing director, discretion to invest a portion of Zinsmeyer’s total assets.

Mitchell Hutchins is a subsidiary of PaineWebber, Inc., which in turn is a subsidiary

of PaineWebber Group, Inc. We will refer to the three companies collectively as

“PaineWebber.” In February 1991, after Reik resigned from Mitchell Hutchins and

took a position with William D. Witter, Inc. (“Witter”), Zinsmeyer retained Witter as

investment advisor for the assets previously managed by Mitchell Hutchins.

Dissatisfied with his performance, Zinsmeyer fired Reik in August 1993.

In February 1994, Zinsmeyer filed an arbitration claim with the NASD against

PaineWebber, Witter, Reik, and others, alleging federal securities law violations,

common law fraud, breach of fiduciary duty, breach of contract, and negligence. A

panel of three arbitrators held thirty-eight sessions between March and November

1995, hearing evidence regarding Zinsmeyer’s claims that Reik engaged in illegal

market manipulation and other wrongdoing that caused large losses in Zinsmeyer’s

accounts controlled by Reik. The panel entered a final order dismissing all of

Zinsmeyer’s claims on November 30, 1995.
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The arbitration proceedings included a major document discovery dispute over

PaineWebber’s claims of attorney/client and work product privilege. In 1990, a senior

PaineWebber compliance officer had conducted an internal investigation of Reik’s

trading activities at the direction of in-house PaineWebber attorneys. In response to

Zinsmeyer’s document production requests in the arbitration, PaineWebber produced

thousands of documents but objected that documents generated during its internal

investigation of Reik were privileged. PaineWebber provided Zinsmeyer a log

describing each allegedly privileged document and identifying its unique “Bates stamp

number.” The 347-page privilege log contained nearly 2000 entries. 

In December 1994, Zinsmeyer filed a motion challenging PaineWebber’s

assertions of privilege with respect to each document listed in the privilege log. The

arbitrators initially ordered production of all the documents for in camera review, but

when Zinsmeyer identified seventy that it wanted reviewed, the panel ordered those

seventy produced, and they were reviewed in camera. After the arbitrators ruled that

all but a few were privileged, PaineWebber produced those ruled not to be privileged.

In March 1995, PaineWebber produced an additional file created by the

compliance officer during his internal investigation of Reik’s trading activities.

PaineWebber removed documents considered privileged and replaced each with a blue

sheet containing the document’s Bates stamp number. In May 1995, Zinsmeyer filed

a motion to compel PaineWebber to produce all documents in this file that had been

withheld as privileged, about seventy of which were not previously listed on the

privilege log. Zinsmeyer later limited this request to twelve documents. The panel

ordered those twelve produced for in camera review.

After the arbitration, Zinsmeyer’s attorneys obtained many of the documents

withheld as privileged when the district court rejected PaineWebber’s claims of

privilege in unrelated investor litigation. Zinsmeyer then argued that the arbitrators’

award should be vacated because PaineWebber hid relevant documents through its
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claims of privilege. The district court agreed. Without addressing the underlying issues

of privilege, the court concluded that the arbitration award was “procured by . . . undue

means” within the meaning of 9 U.S.C. § 10(a)(1) because PaineWebber hid four

documents from discovery by not fully or accurately describing them in its privilege

log. The court further concluded that the documents were relevant to Zinsmeyer’s

claims and “their absence could certainly have impacted the decision making process

of the arbitrators.” Finally, the court vacated the award as to Witter, as well as

PaineWebber and Reik, because “the integrity of the judicial process will not permit

Witter to benefit from these actions of PaineWebber.” These appeals followed. 

II. 

Judicial review of arbitration decisions is limited. For the most part, courts may

vacate an arbitration award only for the reasons set forth in the Arbitration Act. See

First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942 (1995). The statute

provides that a reviewing court may vacate an award that was “procured by corruption,

fraud, or undue means.” 9 U.S.C. § 10(a)(1). There was no corruption or fraud in this

case. The issue is whether PaineWebber procured the favorable arbitration award by

“undue means” given the manner in which it claimed that certain documents were

privileged from discovery in the arbitration proceedings. 

A. The term “undue means” must be read in conjunction with the words “fraud”

and “corruption” that precede it in the statute. See Drayer v. Krasner, 572 F.2d 348,

352 (2d Cir.), cert. denied, 436 U.S. 948 (1978). Consistent with the plain meaning of

fraud and corruption, and with the limited scope of judicial review of arbitration

awards, other circuits have uniformly construed the term undue means as requiring

proof of intentional misconduct. See American Postal Workers Union, AFL-CIO v.

United States Postal Serv., 52 F.3d 359, 362 (D.C. Cir. 1995) (undue means limited to

conduct “equivalent in gravity to corruption or fraud, such as a physical threat to an

arbitrator”); A.G. Edwards & Sons, Inc. v. McCollough, 967 F.2d 1401, 1403 (9th Cir.
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1992) (undue means “connotes behavior that is immoral if not illegal”), cert. denied,

506 U.S. 1050 (1993); Shearson Hayden Stone, Inc. v. Liang, 493 F. Supp. 104, 108

(N.D. Ill. 1980) (“‘undue means’ requires some type of bad faith in the procurement

of the award”), aff’d, 653 F.2d 310 (7th Cir. 1981). Undue means does not include

“sloppy or overzealous lawyering.” Edwards, 967 F.2d at 1403. In an unreported

case, the Sixth Circuit applied this strict standard in rejecting a claim that a party used

undue means to prevail in a discovery dispute before the arbitrators. See Pontiac Trail

Medical Clinic, P.C. v. PaineWebber, Inc., 1 F.3d 1241, 1993 WL 288301 at *5 (6th

Cir. July 29, 1993). We agree with those decisions. 

B. To put the issue of undue means in this case in proper perspective, we must

consider the nature of a discovery dispute over allegedly privileged documents. The

attorney/client privilege is based upon the principle “that sound legal advice or

advocacy . . . depends upon the lawyer’s being fully informed by the client.” Upjohn

Co. v. United States, 449 U.S. 383, 389 (1981). Upjohn involved a corporate

counsel’s internal investigation of possible illegal payments to foreign government

officials. The Supreme Court confirmed that the privilege applies broadly to

communications made by corporate employees to counsel to secure legal advice from

counsel. Id. at 394. We have likewise applied the privilege to communications to and

from corporate attorneys investigating their client’s possible violations of federal

securities law. See Diversified Indus., Inc. v. Meredith, 572 F.2d 596, 600-01 (8th Cir.

1977), followed in In re Bieter Co., 16 F.3d 929, 935-36 (8th Cir. 1994). These cases

confirm that PaineWebber had a reasonable basis for asserting that the attorney/client

privilege, and perhaps the work product doctrine, protected from discovery in the

arbitration at least some internal communications to and from the PaineWebber

attorneys who conducted the investigation of Reik’s trading activities.

The attorney/client privilege is waived by the voluntary disclosure of privileged

communications, and courts typically apply such a waiver to all communications on the

same subject matter. See United States v. Workman, 138 F.3d 1261, 1263 (8th Cir.
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1998). Thus, a party wishing to invoke the privilege in responding to document

discovery must assert it as to all documents to which it may apply. Whether a

document is in fact privileged can be a difficult question, and if the parties engaging in

discovery cannot resolve the issue informally, it must be decided by the tribunal

conducting the proceeding in which the privilege has been asserted. The party seeking

discovery cannot see the allegedly privileged documents -- that might waive the

privilege -- so the dispute is usually resolved by submitting them to the tribunal in

camera. This is an awkward, time-consuming process. To make the process work,

and to encourage parties to minimize the number of documents that must be reviewed

in camera, most tribunals require the party asserting the privilege to provide the party

seeking discovery with a list or log that describes the document without disclosing the

allegedly privileged communications it contains. This practice is now codified in the

Federal Rules of Civil Procedure, see Rule 26(b)(5) (1993), and it was used by the

panel of arbitrators in this case.

Certain inherent aspects of this privileged document process are relevant to the

“undue means” issue before us. When a party claims that certain documents are

privileged and provides a list or log of those documents, the other party, the one

seeking discovery, must take the initiative, for if the party seeking discovery does not

press for in camera review of a particular document, the process ends with the claim

of privilege de facto upheld. Because privilege disputes can only be resolved by in

camera review of a document, formal resolution of such disputes is tedious and

difficult. When many documents are at issue, the tribunal will of course want the party

seeking discovery to limit the number it challenges. The tribunal ultimately decides

what information must be disclosed on a privileged document log. Because that log is

the basis upon which the party seeking discovery decides whether to request in camera

review of a particular document, when the disclosure is inadequate -- for example,

PaineWebber’s use of blue sheets to replace allegedly privileged documents in the

compliance officer’s file -- the party seeking discovery must either demand in camera

review of all documents, or ask the tribunal to require greater disclosure on the log.
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While this awkward process may seem to present the opportunity for a party to “hide”

damaging documents by providing a deceptive or inaccurate privileged document log,

inadequacies in the log will become apparent to the tribunal if the party seeking

discovery demands in camera review of some documents, and stiff sanctions may be

imposed on a party whose log is found to be inaccurate or dishonest.

C. Given the importance of the attorney/client privilege and the work product

doctrine, and the realities of a discovery dispute over allegedly privileged documents,

we disagree with the district court’s decision to vacate the arbitration award for three

distinct reasons.

First, we conclude that PaineWebber did not employ “undue means” in asserting

that some of its documents were privileged. In response to Zinsmeyer’s discovery

requests, PaineWebber individually identified each allegedly privileged document,

listing the vast majority of them in its 347-page log, and showing with a blue sheet

where others appeared in the compliance officer’s file. This gave Zinsmeyer a basis

for determining whether to request that some or all of these documents be submitted

for in camera review of the asserted privilege. 

The district court nonetheless concluded that PaineWebber’s handling of four

documents constituted undue means:

• The first document was a memorandum to Mitchell Hutchins’s general counsel

from a staff attorney recommending that restrictions be imposed on Reik’s management

of a closed-end mutual fund (not the Zinsmeyer account). Both this final document and

an earlier draft were listed on PaineWebber’s privilege log, described as documents

regarding “Reik Compliance Issues.” The draft was submitted for in camera review,

and the arbitrators upheld PaineWebber’s claim of privilege. Zinsmeyer did not request

in camera review of the final memorandum. The district court concluded that
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PaineWebber’s failure to disclose the relationship between the two documents

constituted undue means.

• The second document contained handwritten notes of a meeting between the

compliance officer and three Mitchell Hutchins attorneys. PaineWebber listed this

document on the log, attributing the notes to the attorneys, whose names appeared on

the document. In fact, the notes were taken by the compliance officer, whose name did

not appear on the document. Zinsmeyer did not request in camera review of this

document. The court concluded this inaccuracy constituted undue means. 

• The third document was a file memorandum by PaineWebber, Inc.’s general

counsel describing a telephone conversation in which he told a Witter executive there

was “reason to believe Reik was primarily responsible” for “millions of dollars of

potential losses” to PaineWebber customers. This document was in the compliance

officer’s file. It was not listed on the privilege log, but a second file memorandum

prepared by the same attorney on the same day regarding a conversation with the same

person was listed on the log. The court concluded that not listing the document in the

log was undue means. 

• The fourth document was a memorandum from PaineWebber’s director of

compliance and Mitchell Hutchins’s general counsel to PaineWebber, Inc.’s general

counsel. The document was listed and correctly described on the privilege log;

Zinsmeyer did not request in camera review. Two earlier drafts of the memorandum

were produced by PaineWebber. During the arbitration hearing, while questioning the

author of the drafts, counsel for Zinsmeyer asked opposing counsel whether a complete

version of the draft existed. PaineWebber’s counsel responded, “[t]hat is the only

document that exists in the files . . . you have everything that exists in our client’s file.”

The district court concluded this response was undue means. 
1Three of the documents were listed on PaineWebber’s privilege log, and the

fourth was replaced in the compliance officer’s file with a blue sheet bearing its Bates

stamp number. If Zinsmeyer believed that the descriptions on the privilege log were

inadequate, or that documents replaced with a blue sheet should be described, it could

have asked the panel to order PaineWebber to supplement its log and pressed for a

ruling on that request. Compare Gingiss Int’l, Inc. v. Bormet, 58 F.3d 328, 333 (7th

Cir. 1995).

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On their face, these mistakes do not reflect the intentional misconduct that

constitutes “undue means” under 9 U.S.C. § 10(a)(1). They are the kinds of errors and

oversights that are apt to attend the process of claiming privilege for a large group of

corporate documents. PaineWebber has offered innocent explanations for its handling

of each document. It is improper to infer nefarious intent or bad faith from what appear

to be ordinary discovery errors. The district court held no evidentiary hearing, and thus

there is no proof that PaineWebber’s attorneys intentionally abused the process for

asserting claims of privilege. Zinsmeyer was not particularly diligent or aggressive in

challenging PaineWebber’s claims of privilege to the arbitrators.1 In these

circumstances, the court’s undue means conclusions cannot be upheld.

Second, an arbitration award may be vacated if it was “procured by” undue

means. In other words, there must be some causal relation between the undue means

and the arbitration award. See Edwards, 967 F.2d at 1403 (“the statute requires a

showing that the undue means caused the award to be given”); Forsythe Int’l, S.A. v.

Gibbs Oil Co. of Texas, 915 F.2d 1017, 1022 (5th Cir. 1990) (there must be a “nexus”

between the misconduct and the arbitrator’s decision); Bonar v. Dean Witter Reynolds,

Inc., 835 F.2d 1378, 1383 (11th Cir. 1988) (fraud must “materially relate[] to an issue

in the arbitration”); see also BLACK’S LAW
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U.S. 427, 436 (1953), overruled on other grounds, Rodriguez De Quijas v.

Shearson/American Express, Inc., 490 U.S. 477 (1989). Thus, eliminating the need to

prove a causal connection whenever an award is unexplained would effectively read

the “procured by” requirement out of the statute, and would be inconsistent with the

limited nature of judicial review of arbitration awards. See Edwards, 967 F.2d at 1403.

 

Zinsmeyer further argues that there is proof of the requisite causal connection

because PaineWebber hid relevant evidence by undue means, namely, the manner in

which PaineWebber disclosed the existence of four allegedly privileged documents.

Assuming for the sake of argument that PaineWebber’s errors constituted undue means,

we will further assume that, absent those errors, Zinsmeyer would have included the

four documents in the group submitted to the arbitration panel for in camera review.

But the documents would not have been produced, and therefore would not have been

available as evidence, unless the arbitrators overruled PaineWebber’s claims of

privilege. Thus, a fatal flaw in Zinsmeyer’s argument, and the district court’s decision,

is the complete failure to address the merits of the privilege issues. The arbitrators

upheld PaineWebber’s claims of privilege on most documents submitted for in camera

review, and Zinsmeyer has not challenged those rulings. On this record, to give the

arbitration award the deference it is due, we must assume that claims of privilege not

submitted to the panel for in camera review would also have been upheld. Therefore,

Zinsmeyer has failed to prove that PaineWebber’s errors in the privileged document

process, even if intentional and therefore a form of undue means, “procured” the

arbitration award.

Third, a related but distinct flaw in Zinsmeyer’s argument is its failure to explain

how PaineWebber’s alleged undue means affected the arbitration hearing record.

Assuming now that the arbitrators would have overruled PaineWebber’s claims of

privilege had the four documents been submitted for in camera review, that does not

mean that new material evidence would have found its way into the hearing record.

“The privilege only protects disclosure of communications; it does not protect
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disclosure of the underlying facts by those who communicated with the attorney.”

Upjohn, 449 U.S. at 395. The documents appear to add little to the evidence presented

during the thirty-eight-day hearing regarding Reik’s trading activities and

PaineWebber’s investigation of those activities. 

For example, one of the four documents consisted of notes by a PaineWebber

attorney of his phone conversation with a Witter executive. Zinsmeyer argues that it

would have called the Witter executive as an adverse witness if the document had been

produced. But the phone conversation, which involved employees of two independent

investment firms, was not privileged (though the attorney’s file notes might have been

properly listed as privileged if they included work product). PaineWebber disclosed

the fact of the conversation on its privilege log. Thus, it was not PaineWebber’s

alleged undue means that kept the substance of the conversation out of evidence, it was

Zinsmeyer’s lack of interest in obtaining and presenting that evidence. 

Zinsmeyer’s brief effectively demonstrates that its attorneys in the arbitration

would have found the four documents very interesting. But Zinsmeyer fails to show

how production of those four documents would have resulted in additional facts being

presented to the arbitration panel. For this reason, too, Zinsmeyer failed to prove that

the alleged undue means procured the arbitrators’ award.

For each of the foregoing reasons, the district court erred in vacating the

arbitration award in favor of the PaineWebber companies, Witter, and Reik on the

ground that the award was procured by undue means. 

III. 

Zinsmeyer argues that even if the arbitration award was not procured by undue

means, it must be vacated because of the arbitrators’ “bias and misconduct.”

Zinsmeyer points to comments by the arbitrators that the hearing was taking too long,
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that it was interfering with their practices, and that they were relatively underpaid for

this work. Zinsmeyer argues that this attitude caused the arbitrators to deny

Zinsmeyer’s motions for continuances to pursue discovery issues, thereby playing into

PaineWebber’s strategy to stonewall discovery and to rush the proceedings to judgment

before its bad documents came to light. Zinsmeyer does not challenge the merits of the

arbitrators’ procedural rulings. Rather, it argues the award should be vacated because

of “evident partiality or corruption in the arbitrators.” 9 U.S.C. § 10(a)(2). Zinsmeyer

waived this contention by failing to raise it to the arbitrators. See Kiernan v. Piper

Jaffray Companies, Inc., 137 F.3d 588, 593 (8th Cir. 1998); Fort Hill Builders, Inc. v.

Nat’l Grange Mut. Ins. Co., 866 F.2d 11, 13 (1st Cir. 1989). 

In addition, when viewed in the light of our limited power to review arbitration

awards, the argument borders on the frivolous. Challenges to arbitration awards based

on partiality generally involve claims that the arbitrators failed to disclose relationships

that “create an impression of possible bias.” Olson v. Merrill Lynch, Pierce, Fenner

& Smith, Inc., 51 F.3d 157, 159 (8th Cir. 1995), citing Commonwealth Coatings Corp.

v. Continental Cas. Co., 393 U.S. 145, 149 (1968). Here, no such relationship is

alleged, and there is no evidence the arbitrators had any financial or personal interest

in the outcome of the arbitration. Moreover, nothing in the arbitrators’ comments

evidences partiality to one side or the other. Read in context, the comments reflect an

understandable desire to move the arbitration along, which, far from demonstrating

bias, is consistent with the general policies underlying arbitration. See Ballantine

Books, Inc. v. Capital Distrib. Co., 302 F.2d 17, 21 (2d Cir. 1962) (“an arbitrator

should . . . expedite the proceedings . . . since among the virtues of arbitration . . . are

speed and informality”). 

 
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The judgment of the district court is reversed and the case is remanded with

directions to grant appellants’ motions to confirm the award.

 

A true copy.

Attest:

CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.