NONPRECEDENTIAL DISPOSITION

To be cited only in accordance with

Fed. R. App. P. 32.1



# United States Court of Appeals

For the Seventh Circuit

Chicago, Illinois 60604

Submitted October 27, 2014 *

Decided October 28, 2014

Before

WILLIAM J. BAUER, Circuit Judge

FRANK H. EASTERBROOK, Circuit Judge

DIANE S. SYKES, Circuit Judge

No. 14

‐ 1705

STANLEY J. MICAL and

LUTGARDA C. MICAL,

Plaintiffs

‐ Appellants

,

v.

PHILIP J. GLICK, et al.,

Defendants

‐ Appellees

. Appeal from the

United States District Court for the

Northern District of Illinois,

Eastern Division.

No. 13 C 6508

Charles P. Kocoras,

Judge

.

O R D E R

Stanley and Lutgarda Mical opened a securities account with E*Trade Securities

in January 2008 and began trading on margin, borrowing money from E*Trade to

purchase additional securities. By July 1 their portfolio was highly leveraged, so

E*Trade issued a margin call requiring that the Micals deposit $35,000 to shore up their

* After examining the briefs and record, we have concluded that oral argument is

unnecessary. Thus, the appeal is submitted on the briefs and record. See F ED

. R. A PP

.

P. 34(a)(2).No. 14

‐ 1705 Page 2

account. On July 7, the day the margin call was due, Stanley Mical spoke with

Stuart Novoselsky, a customer service representative at E*Trade, about meeting the call.

The Micals paid nothing after that conversation, and E*Trade liquidated the account.

Three years later the Micals initiated arbitration proceedings in accordance with

their customer agreement, alleging that E*Trade had negligently liquidated their

holdings. The Micals principally asserted that they had intended to meet the $35,000

margin call by the close of business on July 7 but did not because Novoselsky wrongly

said during the phone conversation that the account was in negative equity and thus

demanded that they meet the maintenance requirement, which at the time was around

$111,000. The Micals could have paid $35,000 immediately but not $111,000, so

according to their version of events, Novoselsky informed the margin department that

they had no liquid assets available and E*Trade consequently liquidated the account.

E*Trade countered that the July 7 phone conversation had concerned only the

margin call, which Stanley said the Micals could not meet, and thus E*Trade was

justified in liquidating the account.

The arbitration was conducted by three arbitrators from the Financial Industry

Regulatory Authority (as specified in the customer agreement) over five sessions in

June 2013. Audio recordings of the sessions were made in compliance with the

Authority’s rules. Afterward the arbitrators issued a decision rejecting the Micals’ claim.

The arbitrators denied the Micals’ request for a reasoned decision, noting only that the

recorded (and transcribed) July 7 phone conversation supported E*Trade’s version.

The Micals then asked the district court to vacate or modify the arbitration award

under the Federal Arbitration Act, see 9 U.S.C. §§ 10–11, naming as defendants E*Trade

and the three arbitrators. The Micals contended that the arbitrators had committed

misconduct by listening to the July 7 phone call only once, by receiving into evidence a

transcript of that conversation commissioned by E*Trade but not the copy they

annotated with proposed corrections and commentary, and by recessing the

proceedings to duck their arguments about the phone conversation. The Micals further

contended that the arbitrators were biased and had erroneously accepted E*Trade’s

purported assertions that their account had negative equity and zero collateral on

July 7. The Micals’ submissions consisted primarily of citations to self

‐ transcribed

excerpts from the arbitration hearing tapes, which they also proffered. E*Trade in turn

moved to confirm the arbitration award. See id. § 9.No. 14

‐ 1705 Page 3

The district court declined to consider the audio recordings of the arbitration

proceedings and confirmed the arbitrators’ decision. The district court also concluded

that the arbitrators themselves were immune from suit. On appeal the Micals do not

contest the court’s immunity analysis, and so we say no more about the arbitrators as

defendants. (The court, following E*Trade’s mistaken lead, analyzed the Micals’ filing

under Federal Rule of Civil Procedure 12(b)(6), which does not apply to the Federal

Arbitration Act. See 9 U.S.C. § 6; F ED

. R. C IV

. P. 81(a)(6)(B); Webster v. A.T. Kearney, Inc.

,

507 F.3d 568, 570–71 (7th Cir. 2007); Health Servs. Mgmt. Corp. v. Hughes

, 975 F.2d 1253,

1257–58 (7th Cir. 1992). The court’s procedural miscue was inconsequential since our

review is de novo. See Webster

, 507 F.3d at 571.)

On appeal the Micals argue that the district court erred by not listening to the

audio recordings of the arbitration proceedings. The Micals principally rely on

9 U.S.C. § 10(a)(3), which permits a court to vacate an arbitration award “where the

arbitrators were guilty of misconduct

... in refusing to hear evidence pertinent and

material to the controversy.”

Although in some instances a district court may need to review relevant portions

of an arbitration record to evaluate an allegation of arbitrator misconduct or bias,

see Harter v. Iowa Grain Co.

, 220 F.3d 544, 557 (7th Cir. 2000); Health Servs. Mgmt.

,

975 F.2d at 1258–59, that step wasn’t necessary to evaluate the Micals’ claim of

misconduct. An arbitrator’s refusal to receive relevant evidence, standing alone, does

not warrant vacating an arbitration award; rather, the arbitrators’ failure to consider

pertinent evidence must have deprived the Micals of a fundamentally fair hearing.

See Flender Corp. v. Techna

‐ Quip Co.

, 953 F.2d 273, 280 (7th Cir. 1992) ; Lessin v. Merrill

Lynch, Pierce, Fenner & Smith, Inc.

, 481 F.3d 813, 816–17 (D.C. Cir. 2007); Three S Del., Inc.

v. DataQuick Info. Sys., Inc.

, 492 F.3d 520, 531 (4th Cir. 2007). This standard typically is

met only when an arbitrator wrongly excludes the sole evidence on a pivotal issue.

See Tempo Shain Corp. v. Bertek, Inc.

, 120 F.3d 16, 20 (2nd Cir. 1997) (vacating award

where arbitrators terminated proceedings without hearing from key participant to

contract negotiations, relying on mistaken belief that documents created after contract

was executed would speak to missing witness’s allegations of fraudulent inducement);

Gulf Coast Indus. Workers Union v. Exxon Co., USA

, 70 F.3d 847, 848–50 (5th Cir. 1995)

(vacating arbitrator’s ruling that employer lacked basis to fire employee for refusing

drug test since arbitrator had misled employer into believing that further evidence of

testing of substance found in employee’s car was unnecessary in light of undisputed

testimony that substance had tested positive for marijuana); Hoteles Condado Beach,

La Concha & Convention Ctr. v. Union de Tronquistas Local 901

, 763 F.2d 34, 40 (1st Cir.No. 14

‐ 1705 Page 4

1985) (vacating award where arbitrator gave no weight to transcript of criminal

proceedings concerning conduct that led to employee’s discharge, effectively denying

employer opportunity to present any evidence because live testimony was unavailable).

Here, even assuming the accuracy of the transcribed excerpts of the arbitration

proceedings that appear in the Micals’ submissions, the unfair

‐ hearing standard has not

been met. The Micals’ primary complaints are that the arbitrators rejected their request

to replay the recording of the July 7 phone conversation, twice recessed the proceedings

in the midst of discussions about the content of the phone call, and accepted E*Trade’s

transcript of the conversation but refused to consider their annotated version. Yet the

Micals’ scattered excerpts of the arbitration show that the arbitrators listened to the

recorded telephone call, read a transcript provided by E*Trade, heard the testimony

from both Stanley Mical and Novoselsky, and engaged in a lengthy inquiry regarding

whether the conversation was about the $111,000 maintenance requirement or the

$35,000 margin call. Thus, the arbitrators’ actions suggest only an effort to control the

quantity and type of evidence before them, not a refusal to hear pertinent evidence.

The Micals also contend that the district court should have engaged in

independent fact

‐ finding. In their view the district judge should have decided if

Novoselsky had demanded the $111,000 maintenance figure rather than the $35,000

margin call. The judge also should have determined, the Micals say, whether they had

funds available to meet the margin call and the value of their account at the beginning

of July 2008. But the Federal Arbitration Act does not allow courts to make findings of

fact or even to review an arbitrator’s factual findings. See Johnson Controls, Inc. v. Edman

Controls, Inc.

, 712 F.3d 1021, 1025–26 (7th Cir. 2013); Wise v. Wachovia Sec., LLC

, 450 F.3d

265, 269 (7th Cir. 2006); Flexible Mfg. Sys. Pty. Ltd. v. Super Prods. Corp.

, 86 F.3d 96,

99–100 (7th Cir. 1996).

The Micals’ remaining arguments also lack merit. To justify vacating an award

based on arbitrator bias, a party must identify “evident partiality,” 9 U.S.C. § 10(a)(2),

which is “direct, definite and capable of demonstration rather than remote, uncertain, or

speculative,” Harter

, 220 F.3d at 553 (internal quotation marks and citation omitted). The

Micals cite no examples, however; instead they accuse the arbitrators of bias simply

because the panel made factual findings contrary to their own positions and ultimately

ruled against them. Nor have the Micals identified an “evident material mistake”

appearing “on the face of the arbitration award” that could justify modifying it.

See 9 U.S.C. § 11(a); Apex Plumbing Supply, Inc. v. U.S. Supply Co.

, 142 F.3d 188, 194 (4th

Cir. 1998).No. 14

‐ 1705 Page 5

Finally, because the Micals established no basis for vacating or modifying the

arbitration award, the district court was correct to confirm it. See 9 U.S.C. § 9; IDS Life

Ins. Co. v. Royal Alliance Assocs., Inc.

, 266 F.3d 645, 650 (7th Cir. 2001).

AFFIRMED.