F I L E D

United States Court of Appeals

Tenth Circuit

OCT 31 2001

PATRICK FISHER

Clerk

PUBLISH

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

DAVE SHELDON,

Plaintiff-Appellant,

v.

JAY VERMONTY; CARMEN

VERMONTY; POWER PHONE,

INC., including all directors and

officers; NOAH STEINBERG;

GERSHON TANNENBAUM;

DR. ENRIQUE R. CARRION; TMC

AGROWORLD, INC., including all

directors and officers;

MONTECRISTI GROUP, including

all directors and officers;

MANHATTAN TRANSFER

REGISTRAR COMPANY, including

all directors and officers; HECTOR

CRUZ; JACK SAVAGE, individually

and as director and officer and all

directors and officers individually,

aka J. Wesley Savage; PRINCETON

RESEARCH,

Defendants,

and

CHARLES SCHWAB & CO., INC.;

OLDE DISCOUNT CORPORATION;

PRINCIPAL FINANCIAL,

Defendants-Appellees.

No. 00-3337
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APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF KANSAS

(D.C. No. 98-CV-2277-JWL)

Submitted on the briefs:

Darren K. Kearns of Overland Park, Kansas, for Plaintiff-Appellant.

Norman E. Siegel and Amy E. Bauman of Stueve Helder Siegel LLP, Kansas City,

Missouri, for Defendants-Appellees Charles Schwab & Co., Inc. and Olde

Discount Corporation.

Miriam G. Bahcall and Tanya Biller of Ungaretti & Harris, Chicago, Illinois, for

Defendant-Appellee Principal Financial.

Before EBEL , KELLY , and LUCERO , Circuit Judges.

LUCERO , Circuit Judge.

Plaintiff Dave Sheldon (“Sheldon”) appeals the district court’s order

confirming an arbitration award in favor of defendants Charles Schwab & Co.,

Inc. (“Schwab”), Olde Discount Corporation (“Olde Discount”), and Principal

Financial (“Principal”), (collectively, the “broker-dealers”), and the district

court’s judgment dismissing his claims against defendants. Resolution of the case

requires us to resolve a matter of first impression at the Circuit level: Does the
1 The case is unanimously ordered submitted without oral argument

pursuant to Fed. R. App. P. 34(a)(2) and 10th Cir. R. 34.1(G). 

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Code of Arbitration Procedure allow an arbitration panel to dismiss a claim with

prejudice? Our jurisdiction arises under 9 U.S.C. § 16 and 28 U.S.C. § 1291. We

affirm. 1

I

Sheldon filed a complaint seeking damages from several individual

defendants for alleged violations of federal and state securities laws, common law

fraud, negligent misrepresentation, breach of fiduciary duty, unjust enrichment,

and civil conspiracy. The basis of Sheldon’s claims was his allegation that the

individual defendants promoted an allegedly worthless stock, Power Phone, which

he purchased from third-party brokers and dealers based on false information that

was allegedly provided and disseminated by the individual defendants.

Sheldon subsequently filed an amended complaint joining the brokerdealers as defendants. Sheldon alleged that he purchased the Power Phone stock

from the broker-dealers, and he sought to recover the damages he allegedly

incurred as a result of the stock’s subsequent loss in value. In response to a joint

motion filed by the parties, the district court stayed all proceedings against the

broker-dealers and ordered Sheldon to submit his claims against them to
2 The district court subsequently dismissed Sheldon’s claims against

the individual defendants for failure to state a claim. On appeal, this court

reversed the district court’s dismissal of certain of Sheldon’s claims against the

individual defendants and remanded them to the district court for further

proceedings. See Sheldon v. Vermonty , Nos. 99-3202, 99-3389, 2000 WL

1774038 (10th Cir. Dec. 4, 2000). Relying on the doctrine of offensive collateral

estoppel, and the fact that he has asserted identical causes of action against both

the individual defendants and the broker-dealers, Sheldon claims that the brokerdealers are collaterally estopped from challenging the propriety of the claims that

have been remanded to the district court in the individual defendants’ case. We

disagree. As Sheldon himself admitted in pleadings he filed in the district court,

while the claims are similar, this case involves a “separate and distinct forum for

separate respondents, with separate facts and separate ways in which they have

[allegedly] violated the law.” (Aplee. Supp. App. at 164.) As a result, there is no

identity of issues, and the doctrine of offensive collateral estoppel is inapplicable. 

See Dodge v. Cotter Corp. , 203 F.3d 1190, 1198-99 (10th Cir.) (holding that

offensive collateral estoppel is inapplicable where there is no identity of issues),

cert. denied , 531 U.S. 825 (2000).

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arbitration. 2 Thereafter, Sheldon submitted his claims to arbitration before the

National Association of Securities Dealers (“NASD”). 

In the statement of claim he filed in the arbitration, Sheldon alleged that the

broker-dealers violated the Securities Act of 1933, the Securities Exchange Act of

1934, and the Kansas Securities Act in the course of selling shares of Power

Phone. Sheldon also alleged liability under common-law theories of fraud,

negligent misrepresentation, unjust enrichment, and breach of fiduciary duty. In

response, the broker-dealers filed separate motions to dismiss Sheldon’s claims

for failure to state a claim. Sheldon filed oppositions to the motions to dismiss,

and he also filed a motion for summary judgment. After hearing argument on the
3 Sheldon also argues that the arbitration panel erred in failing to

consider his motion for summary judgment and in failing to hear argument on the

motion at the telephonic hearing. Because we find that the arbitration panel

(continued...)

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broker-dealers’ motions to dismiss from counsel for the parties during a

telephonic hearing, the arbitration panel granted the motions, and dismissed all of

Sheldon’s claims with prejudice. Subsequently, the district court entered an order

confirming the arbitration award, and it also entered a separate judgment

dismissing Sheldon’s claims. Sheldon is now appealing the district court’s order

and judgment. 

II

Sheldon argues that the arbitration panel was required by NASD’s

Procedural Rules and Code of Arbitration Procedure, see NASD Manual, § 1000,

et seq. , to permit discovery and hold an evidentiary hearing before it could

dismiss his claims. According to Sheldon, the arbitration panel exceeded its

authority in dismissing his claims with prejudice based solely on the allegations in

his pleadings and the arguments of counsel at the telephonic hearing. 

Alternatively, Sheldon argues that, even if the arbitration panel has the authority

to grant a motion to dismiss based solely on the pleadings, the arbitration panel

erred in dismissing his claims because he adequately pled claims for relief against

the broker-dealers under federal and Kansas law. 3

 Because of these alleged errors
3

(...continued)

properly granted the broker-dealers’ motions to dismiss, we agree with the

conclusion of the district court that Sheldon’s motion for summary judgment was

both irrelevant and implicitly denied. 

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of the arbitration panel, Sheldon claims he was denied a fundamentally fair

hearing and that the district court erred in refusing to vacate the arbitration

panel’s dismissal of his claims under § 10 of the Federal Arbitration Act

(“FAA”), 9 U.S.C. § 10.

In reviewing the district court’s confirmation of the arbitration award, we

review its factual findings for clear error and questions of law de novo. Denver &

Rio Grande W. R.R. v. Union Pac. R.R. , 119 F.3d 847, 849 (10th Cir. 1997). 

However, “we must give extreme deference to the determination of the arbitration

panel for the standard of review of arbitral awards is among the narrowest known

to law.” Brown v. Coleman Co. , 220 F.3d 1180, 1182 (10th Cir. 2000) (internal

quotation omitted), cert. denied , 121 S. Ct. 1191 (2001). 

Under § 10 of the FAA, a district court is only permitted to vacate an

arbitration award if it finds that: (1) the award was procured by corruption, fraud,

or undue means; (2) there was evident partiality or corruption in the arbitrators;

(3) the arbitrators were guilty of misconduct in refusing to postpone a hearing, in

refusing to hear evidence, or in misbehaving in some other way; or (4) the

arbitrators exceeded their powers or imperfectly executed them. 9 U.S.C.
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§ 10(a)(1)-(4). We have also recognized “a handful of judicially created reasons”

that a district may rely upon to vacate an arbitration award, and these include

violations of public policy, manifest disregard of the law, and denial of a

fundamentally fair hearing. Denver & Rio Grande , 119 F.3d at 849 (citations

omitted). “Outside of these limited circumstances, an arbitration award must be

confirmed,” and “[e]rrors in either the arbitrator’s factual findings or his

interpretation[s] of the law . . . do not justify review or reversal. . . .” Id.

(citations omitted).

None of the errors alleged by Sheldon are sufficient to require a reversal of

the arbitration panel’s dismissal of his claims. Although NASD’s procedural

rules do not specifically address whether an arbitration panel has the authority to

dismiss facially deficient claims with prejudice based solely on the pleadings,

there is no express prohibition against such a procedure. In addition, NASD’s

procedural rules expressly provide that “[t]he arbitrator(s) shall be empowered to

award any relief that would be available in a court of law.” NASD Manual,

§ 10214. Logically, this broad grant of authority should include the authority to

dismiss facially deficient claims with prejudice, and we hold that a NASD

arbitration panel has full authority to grant a pre-hearing motion to dismiss with

prejudice based solely on the parties’ pleadings so long as the dismissal does not

deny a party fundamental fairness. This is the conclusion reached by two district
4

In Warren , the district court affirmed an arbitration panel’s dismissal

with prejudice. Warren , 114 F. Supp. 2d at 603. In Dalton , the district court

recognized the authority of a NASD arbitration panel to dismiss facially deficient

claims, but, on the facts of the case, the court held that the plaintiff had stated a

claim for relief and that the panel was therefore guilty of misconduct in failing to

hold an evidentiary hearing. Dalton , 929 F. Supp. at 1417-18.

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courts that have addressed this issue, and we agree with their analysis. See

Prudential Sec., Inc. v. Dalton , 929 F. Supp. 1411, 1417 (N.D. Okla. 1996);

Warren v. Tacher , 114 F. Supp. 2d 600, 602-03 (W.D. Ky. 2000). 4

 

We also find that Sheldon was provided with a fundamentally fair

arbitration proceeding in that he was provided with the opportunity to fully brief

and argue the motions to dismiss, and there is no indication that the arbitration

panel engaged in any misconduct in conducting the arbitration proceeding. As we

have previously recognized, “a fundamentally fair [arbitration] hearing requires

only notice, opportunity to be heard and to present relevant and material evidence

and argument before the decision makers. . . .” Bowles Fin. Group, Inc. v. Stifel,

Nicolaus & Co. , 22 F.3d 1010, 1013 (10th Cir. 1994) (emphasis added). In other

words, if a party’s claims are facially deficient and the party therefore has no

relevant or material evidence to present at an evidentiary hearing, the arbitration

panel has full authority to dismiss the claims without permitting discovery or

holding an evidentiary hearing. Moreover, as is the case with a dismissal under

Fed. R. Civ. P. 12(b)(6) for failure to state a claim, such a dismissal fully
5 As a general matter, a party should be granted an opportunity to

amend his claims prior to a dismissal with prejudice. Although the arbitration

panel did not provide Sheldon with such an opportunity, he had previously filed

amended pleadings in both the district court and the arbitration proceeding, and

none of his amended pleadings cured the deficiencies in his claims. Sheldon has

made no showing, beyond his conclusory allegations, that he could have stated

viable causes of action against the broker-dealers if he had been granted yet

another opportunity to amend his claims. 

6 While the arbitration panel did not set forth the reasons for its

dismissal of Sheldon’s claims, it was not required to do so, and “we must confirm

the [panel’s] decision if a ground for the . . . decision can be inferred from the

facts of the case.” Willemijn Houdstermaatschappij, BV v. Standard

Microsystems Corp. , 103 F.3d 9, 12-13 (2d Cir. 1997) (internal quotations and

citations omitted). 

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disposes of the case, and it must therefore be with prejudice. See Sherman v. Am.

Fed’n of Musicians , 588 F.2d 1313, 1314 (10th Cir. 1978) (citation omitted). 5

Finally, the arbitration panel’s decision that Sheldon failed to state a claim

against the broker-dealers under federal or Kansas law was not based on a

manifest disregard of the law. 6 See ARW Exploration Corp. v. Aguirre , 45 F.3d

1455, 1463 (10th Cir. 1995) (holding that “[m]anifest disregard of the law clearly

means more than error or misunderstanding with respect to the law,” and it

requires a “willful inattentiveness to the governing law”) (internal quotations

omitted). To the contrary, the panel had ample grounds for finding that Sheldon

failed to state a viable claim for relief. 

The judgment of the United States District Court for the District of Kansas

is AFFIRMED.