## 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. 00-3337-2-

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 Plai ntiff-Appellant. Norman E. Siegel and Amy E. Bauman of Stueve HelderSiegel LLP, Kansas City, Missouri, for Defendants-Appellees Charles Schwab & Co., Inc. and Olde Discount Corporation. Miriam G. Bahcall and Tanya Biller of Ungaretti & H arris, 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 D iscount”), and Principal Financial (“Principal”), (collectively, the “broker -dealers”), and the district court’s judgment dismissing his claims against defe ndants. Resolution of the case requires us to resolve a matter of first impressionat the Circuit level: Does the1 The case is unanimously ordered submitted without o ral argument

pursuant to Fed. R. App. P. 34(a)(2) and 10th Cir. R. 34.1(G). -3- 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 seve ral individual defendants for alleged violations of federal and st ate securities laws, common law fraud, negligent misrepresentation, breach of fiduc iary duty, unjust enrichment, and civil conspiracy. The basis of Sheldon’s claim s was his allegation that the individual defendants promoted an allegedly worthle ss stock, Power Phone, which he purchased from third-party brokers and dealers b ased on false information that was allegedly provided and disseminated by the indi vidual defendants. Sheldon subsequently filed an amended complaint joi ning the brokerdealers as defendants. Sheldon alleged that he pur chased 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 cl aims against them to2 The district court subsequently dismissed Sheldon’s claims against

the individual defendants for failure to state a cl aim. 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 d octrine of offensive collateral estoppel, and the fact that he has asserted identic al causes of action against both the individual defendants and the broker-dealers, S heldon claims that the brokerdealers are collaterally estopped from challenging the propriety of the claims that have been remanded to the district court in the ind ividual 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 separ ate 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 c ollateral 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). -4- arbitration. 2 Thereafter, Sheldon submitted his claims to arbit ration before the National Association of Securities Dealers (“NASD”)

. In the statement of claim he filed in the arbitrati on, 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 o f selling shares of Power Phone. Sheldon also alleged liability under common -law theories of fraud, negligent misrepresentation, unjust enrichment, andbreach of fiduciary duty. In response, the broker-dealers filed separate motions to dismiss Sheldon’s claims for failure to state a claim. Sheldon filed opposi tions to the motions to dismiss, and he also filed a motion for summary judgment. A fter hearing argument on the3 Sheldon also argues that the arbitration panel erre d in failing to

consider his motion for summary judgment and in fai ling to hear argument on the motion at the telephonic hearing. Because we find that the arbitration panel (continued...) -5- broker-dealers’ motions to dismiss from counsel forthe parties during a telephonic hearing, the arbitration panel granted t he motions, and dismissed all of Sheldon’s claims with prejudice. Subsequently, the district court entered an order confirming the arbitration award, and it also enter ed a separate judgment dismissing Sheldon’s claims. Sheldon is now appeal ing the district court’s order and judgment.

II Sheldon argues that the arbitration panel was requi red by NASD’s Procedural Rules and Code of Arbitration Procedure, see NASD Manual, § 1000, et seq. , to permit discovery and hold an evidentiary heari ng before it could dismiss his claims. According to Sheldon, the arbi tration panel exceeded its authority in dismissing his claims with prejudice b ased solely on the allegations in his pleadings and the arguments of counsel at the t elephonic hearing. Alternatively, Sheldon argues that, even if the arb itration panel has the authority to grant a motion to dismiss based solely on the pl eadings, the arbitration panel erred in dismissing his claims because he adequatel y pled claims for relief against the broker-dealers under federal and Kansas law. 3 Because of these alleged errors3 (...continued)

properly granted the broker-dealers’ motions to dis miss, we agree with the conclusion of the district court that Sheldon’s mot ion for summary judgment was both irrelevant and implicitly denied. -6- of the arbitration panel, Sheldon claims he was den ied a fundamentally fair hearing and that the district court erred in refusi ng to vacate the arbitration panel’s dismissal of his claims under § 10 of the F ederal 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 det ermination 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 w as procured by corruption, fraud, or undue means; (2) there was evident partiality orcorruption in the arbitrators; (3) the arbitrators were guilty of misconduct in re fusing to postpone a hearing, in refusing to hear evidence, or in misbehaving in som e other way; or (4) the arbitrators exceeded their powers or imperfectly ex ecuted them. 9 U.S.C.-7-

§ 10(a)(1)-(4). We have also recognized “a handful of judicially created reasons” that a district may rely upon to vacate an arbitrat ion 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. A lthough NASD’s procedural rules do not specifically address whether an arbitr ation panel has the authority to dismiss facially deficient claims with prejudice ba sed solely on the pleadings, there is no express prohibition against such a proc edure. In addition, NASD’s procedural rules expressly provide that “[t]he arbi trator(s) shall be empowered to award any relief that would be available in a courtof law.” NASD Manual, § 10214. Logically, this broad grant of authority should include the authority to dismiss facially deficient claims with prejudice, a nd 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 con clusion reached by two district4 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 pane l to dismiss facially deficient claims, but, on the facts of the case, the court he ld that the plaintiff had stated a claim for relief and that the panel was therefore g uilty of misconduct in failing to hold an evidentiary hearing. Dalton , 929 F. Supp. at 1417-18. -8- 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 withthe opportunity to fully brief and argue the motions to dismiss, and there is no i ndication 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 add ed). In other words, if a party’s claims are facially deficient a nd the party therefore has no relevant or material evidence to present at an evid entiary hearing, the arbitration panel has full authority to dismiss the claims with out permitting discovery or holding an evidentiary hearing. Moreover, as is th e case with a dismissal under Fed. R. Civ. P. 12(b)(6) for failure to state a cla im, such a dismissal fully5 As a general matter, a party should be granted an o pportunity to

amend his claims prior to a dismissal with prejudic e. Although the arbitration panel did not provide Sheldon with such an opportun ity, he had previously filed amended pleadings in both the district court and th e arbitration proceeding, and none of his amended pleadings cured the deficiencie s 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 r easons 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 . . . de cision 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 quotat ions and citations omitted). -9- 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 Shel don 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]anife st disregard of the law clearly means more than error or misunderstanding with resp ect to the law,” and it requires a “willful inattentiveness to the governin g law”) (internal quotations omitted). To the contrary, the panel had ample gro unds for finding that Sheldon failed to state a viable claim for relief. The judgment of the United States District Court fo r the District of Kansas is AFFIRMED.