not adhere to the legal principles specified by contract. See IDS Life Insurance Co. v. Royal
Alliance Associates, Inc., 266 F.3d 645 (7th Cir. 2001); George Watts & Son, Inc. v. Tiffany &
Co., 248 F. 3d 577, 580 (7" Cir. 2001). As the Seventh Circuit observed in George Watts:

After Eastern Associated Coal the ‘manifest disregard’ principle is limited to two

possibilities: an arbitral order requiring the parties to violate the law (as by

employing unlicensed truck drivers), and an arbitral order that does not adhere to

the legal principles specified by contract, and hence unenforceable under

§10(a)(4).

248 F.3d at 581.

In this case, AOT is unable to plead that the arbitration Award directs the parties to
violate the law. At the arbitration hearing, AOT challenged the procedure by which Merrill
Lynch executed a buy-in and the CBOE found that Merrill Lynch had acted properly. AOT does
not explain how the panel, by its ruling, either violated the law or directed Merrill Lynch to
violate the law.

Nor can AOT argue that the CBOE panel ignored the arbitration agreement or CBOE
arbitration rules - the contract governing the proceedings in this case. In fact, the Award
establishes that the CBOE panel considered, and rejected, AOT’s arguments with respect to the
buy-in and with respect to the provisions of NASD Code 11810(C)(1). See Complaint,
Exhibit 1. The Seventh Circuit has limited the consideration of arbitrators' rulings with respect
to contract interpretation:

Courts often say, with respect to arbitrators’ role in interpreting contracts, that

error is not a ground of judicial review. '[T]he question for decision by a federal

court asked to set aside an arbitration award ... is not whether the arbitrator or

arbitrators erred in interpreting the contract; it is not whether they clearly erred in

interpreting the contract; it is not whether they grossly erred in interpreting the
contract; it is whether they interpreted the contract.’ Hill v. Norfolk & Western


we *

that enforcement of the Award, would be contrary to the "explicit and well defined public policy
of the role that short sellers play" in the marketplace.

Indeed, there is no assertion that anyone, other than AOT, has been affected by the
Award. The public policy purportedly at issue - the ability of market makers to engage in short
selling of securities - was not directly or indirectly at issue in the arbitration proceedings. See
Complaint | 16(B) and Exhibit 1 thereto. Likewise, the Award, which denies relief to AOT, has
no direct or indirect effect on the right or ability of a market maker to conduct short sales, and
AOT does not allege facts suggesting that it does. In essence, AOT attempts to magnify its own
disappointment in the arbitrators’ decision into a matter affecting the public as a whole. Yet, the
Complaint and exhibits attached thereto make clear that this is merely a private grievance having
no real public policy implication. Accordingly, "violation of public policy” does not form a basis
for vacating the Award.

In sum, AOT has failed to plead a valid basis for vacating the arbitration Award under the
rationale enumerated in 9 U.S.C. sec. 10(a). Moreover, the reasons for vacating the Award
which AOT has plead in the Complaint~that it is contrary to public policy and in manifest

disregard of the law-do not, in this case, warrant relief.

CONCLUSION
For the foregoing reasons, we grant the motion of Defendant Merrill Lynch Professional

Clearing Corporation to dismiss Plaintiff's Complaint and, thus, we confirm the arbitration



he

other misbehavior by which the rights of any party
have been prejudiced.

(4) Where the arbitrators exceeded their 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). See also IDS Life Insurance Co. v. Royal Alliance Associates, Inc., 266 F.3d
645, 649-50 (7" Cir. 2001).
In this case, the Complaint does not allege any of the above-listed rationale as a basis for
vacating the Award. Rather, Paragraph 15 of the Complaint identifies the following grounds for

vacating the Award:

(a) To enforce said award would be contrary to the public
policy of the United States; and

(6) =‘ The award rendered by the arbitrators was in manifest
disregard of NASD rules,

The following discussion will show that neither of these grounds warrants vacation of the
Award in this case. See 9 U.S.C. §10(a); IDS Life Insurance Co., Inc., 266 F.3d at 649-50,

I. Manifest Disregard

As set forth above, the FAA limits the bases for overturning and vacating an arbitration
award, See 9 U.S.C. § 10. In addition to the rationale set forth in the Act however, the Supreme
Court, in dictum, has implied that an additional, limited rationale may occasionally warrant the
vacation of the an arbitration award, Wilko v. Swan, 346 U.S. 427, at 436-437 (1953) (dictum);
First Options v. Kaplan, 514 U.S. 938, 942 (1995) (dictum). The Seventh Circuit has narrowly
circumscribed the instances in which a party may invoke this non-statutory ground to situations

in which the arbitration award directs the parties to violate the law or when the arbitral order does


Ry., 814 F.2d 1192, 1194-95 (7th Cir. 1987); see, e.g., United Steelworkers v.
Enterprise Wheel & Car Corp., 363 U.S. 593, 599 (1960).

George Watts, 248 F.3d at 579. Here, the evidence shows that the CBOE panel fully followed

the parties' arbitration agreement and considered and rejected AOT's arguments.

By the same token, AOT's assertion in Paragraph 18 of the Complaint that the

"arbitrators ignored the NASD rule" is belied by AOT's own exhibits. In the Complaint, AOT

claims: “In allowing AOT USA to be bought in at $25.50, the arbitrators ignored the NASD rule

regarding buy-ins at the current market price evincing a manifest disregard of the law.”

In fact, the Award makes clear that the arbitration panel both considered and applied

NASD Rule 11810:

On January 16, 2001, AOT USA (‘Claimant’) filed a Statement of Claim against
Merrill Lynch Professional Clearing Corporation claiming that, on October 25,
2000, Respondent improperly effected a ‘buy-in’ (the ‘buy in’) in Terra Networks
S.A. Claimant asserts that the ‘buy-in’ was executed at a price without economic
justification and did not conform to the procedural rules contained in NASD
Regulation 11810 of the NASD's Uniform Practice Code. Claimant alleges that, as
a direct result of Respondent's failure to conform to NASD regulations in
executing the buy-in, Claimant suffered a loss of One Million Two Hundred
Eleven Thousand Four Hundred Ninety Four and 00/100 Dollars ($1,211,494.00).
In its answer, and at the hearing, Respondent refutes Claimant's allegations. . . .

After due deliberation and in consideration of the hearing testimony, documentary
evidence, and other submissions made by the parties, the undersigned arbitrators,
in full and final resolution of all issues in controversy, award as follows:

1. The panel denies Claimant’s request[s] . . .

January 30, 2003 Arbitration Award, attached to AOT’s Complaint as Exhibit 1.

Thus, it is clear that the arbitrators framed and addressed the appropriate issue, considered

all of the evidence, and rejected AOT’s position. Accordingly, AOT fails to sufficiently plead



nalts «

Award rendered on or about January 30, 2003 in this case. This is a final and appealable order.
All other pending motions are deemed moot by this order.

It is so ordered.

We CA

7 Wayne R. Andersen
Dated: Seatitsg dt 2004

United States District Judge


Minuls OrdelFormOsio7) «

Sh —oinites States District Court, Northern District of Iinois

nesor Mogiorte Judge Wayne R. Andersen “Than Assigned Judge
CASE NUMBER 3C 1513 DATE 1/27/2004
CASE AOT USA vs. Merrill Lynch
TITLE
[ln the following box (a) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.)
DOCKET ENTRY: |

(1) oO Filed motion of [ use listing in “Motion” box above.]

(2) a Brief in support of motion due___. Wy

@) Oo Answer brief to motion due__. Reply to answer briefdue__.

(4) o Ruling/Hearingon___—setfor__—_at

(5) Q Status hearing{held/continued to] {set for/re-set for]on__—_ssetfor__—_at

(6) Qa Pretrial conferenceheld/continued to] [set for/re-set for]on___—ssetfor__——sat_—S
() Oo Trial[set for/re-set for]on___——at

(8) QO (Bench/Jury trial] [Hearing] held/continuedto__at

(9) a This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

OFRCP4(m) O Local Rule 41.1 OFRCP41(a)\(1} O FRCP41(a)(2).

by this order.

(11) + [For further detail see order attached to the original minute order.]

ao {Other docket entry} Enter MEMORANDUM, OPINION AND ORDER: Motion to dismiss
[3-1] is granted. This is a final and appealable order. All other pending motions are deemed moot

No notices required, advised in open court.
No notices required. “number of notices
Notices mailed by judge's staff. RAN 28 2004
Notified counsel by telephone. dus dockgted
a7 | Docketing to mail notices.
| Mail AO 450 form. Lunoo sguzsia’sn
Copy to judge/magistrate judge. yagi
courtroom 2:9 WY SS IaT tw
TSA deputy's
initial sh
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facts alleging a valid manifest disregard of the law, and the Complaint must be dismissed on this
basis.

I. Public Policy

The Supreme Court has ruled that courts may not enforce collective bargaining
agreements that are contrary to public policy. See W.R. Grace & Co. v. Local Union 759, 461
U.S. 757, 766 (1983). These prohibitions extend to arbitration proceedings mandated by such
union contracts. Jd. In this circuit, however, it is questionable whether this "public policy"
justification for vacating an arbitration award would be extended beyond the limited exception of
collective bargaining contracts. See Moseley, Hallgarten, Estabrook & Weeden, Inc. v. Ellis, 849
F.2d 264, 267, n. 7, (7th Cir. 1988).

Even assuming that "violation of public policy" could form a basis for vacation of the
Award in the Seventh Circuit, AOT fails to plead an "explicit public policy" that has been
violated by the Award. In the limited cases in the collective bargaining context in which courts
have vacated arbitration awards for "violation of public policy,” the courts have emphasized that
the violation must be of "some explicit policy" that is "well defined and dominant and is to be
ascertained ‘by reference to the laws and legal precedents and not from general considerations of
supposed public interests." Jd. See also United Paperworkers International v. Misco, 441 U.S.
at 43; Muschany v. United States, 324 U.S. 49, 66 (1945).

By contrast, in this case, AOT cites no evidence of violation of public policy. First, the
Complaint does not clearly state what public policy the CBOE panel allegedly undercut in

rendering its arbitration Award. The Complaint asserts, without factual justification or support,



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

Delaware corporation,

Defendant.

EASTERN DIVISION _
ot v SETED
AOT USA, a California corporation ) JAN 2 § 2004
Plaintiff, )
)
v. ) No. 03 C 1513
dole ba
MERRILL LYNCH PROFESSIONAL ).¥ ayne R. Andersen
CLEARING CORPORATION, a ) District Judge
)
)
)

OPINION ORD)

This case is before the Court on the motion of the defendant, Merrill Lynch Professional
Clearing Corporation (“Merrill Lynch”) to dismiss plaintiff's complaint pursuant to Fed.R.Civ.P.
12(b)(6). For the following reasons, we grant the motion to dismiss plaintiff's complaint and
thereby confirm the arbitration award.

BACKGROUND

Plaintiff AOT USA’s (“AOT”) complaint seeks the vacation of an arbitration award
rendered by the Chicago Board Options Exchange, Inc. ("CBOE") on or about January 30, 2003
(the "Award"). In January 2001, Plaintiff AOT commenced an arbitration before the CBOE
against Defendant Merrill Lynch. The arbitration challenged Merrill Lynch’s October 2000
actions in “buying-in” a position in Terra Networks, S.A. (“Terra”).

During the course of the arbitration proceeding, AOT argued that Merrill Lynch executed

the buy-ins, which eventually were allocated to AOT’s account by AOT’s clearing firm, at a



commercially unreasonable price. Merrill Lynch countered that it had abided by Rule 11810 of
the Uniform Practice Code of the National Association of Securities Dealers, Inc. (“NASD”),
which governs the buying-in of undelivered securities. On or about January 30, 2003, the CBOE
arbitration panel issued its Award denying AOT any relief.
AOT now seeks to vacate the arbitration Award in this Court.
DISCUSSION
The Federal Arbitration Act, 9 U.S.C. § 1, et seq, “establishes ‘a federal policy favoring
arbitration.’ Shearson/American Express, Inc. v. McMahon, 482 U.S. 220 (1987) (quoting
Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1 (1983)). The
corollary to this federal bias in favor of arbitration is that “judicial review of an arbitration award
is extremely limited.” EJ. DuPont de Nemours v. Grasselli Employees Independent Ass'n, 709
F.2d 611, 614 (7" Cir.), cert. denied, 479 U.S. 853 (1986).
Section 10 of the Federal Arbitration Act ("FAA"), 9 U.S.C. §10, sets forth the bases by
which a District Court may vacate an arbitration award. These are:
a. In any of the following cases, the United States court in and
for the district wherein the award was made may make an
order vacating the award upon the application of any party

to the arbitration -

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

(2) Where there was evident partiality or corruption in
the arbitrators, or either of them.

(3) — Where the arbitrators were guilty of misconduct in
refusing to postpone the hearing, upon sufficient
cause shown, or in refusing to hear evidence
pertinent and material to the controversy; or of any