Court Opinion

ID: 2778279
Source: CourtListenerOpinion
Date Created: 2015-02-10 20:01:34.066956+00
Date Added: 2024-06-11T11:35:13.802931
License: Public Domain

Case: 14-11203          Date Filed: 02/10/2015   Page: 1 of 17

                                                                                    [PUBLISH]

                      IN THE UNITED STATES COURT OF APPEALS

                                   FOR THE ELEVENTH CIRCUIT
                                     ________________________

                                            No. 14-11203
                                      ________________________

                            D.C. Docket No. 8:10-cv-00181-EAK-MAP

BURTON W. WIAND,
lllllllllllllllllllllllllllllllllllllll   Plaintiff - Appellant,

versus

ROBERTA SCHNEIDERMAN,
ROBERT ZIMELIS,
llllllllllllllllllllllllllllllllllllllll Defendants - Appellees.
                                       ________________________

                            Appeal from the United States District Court
                                for the Middle District of Florida
                                  ________________________

                                           (February 10, 2015)

Before ED CARNES, Chief Judge, DUBINA and GILMAN, ∗ Circuit Judges.

∗
    Honorable Ronald Lee Gilman, United States Circuit Judge for the Sixth Circuit, sitting by
    designation.
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GILMAN, Circuit Judge:

      In January 2009, Burton Wiand was appointed the receiver of six hedge

funds that were part of a Ponzi scheme orchestrated by Arthur Nadel. Since that

time, Wiand has been aggressively pursuing investors who made money in

connection with Nadel’s fraudulent scheme.         His purpose is to recover these

alleged “false profits” so that the excess proceeds can be redistributed to the

investors who lost money. Herbert Schneiderman (now deceased) was among the

investors who made money, and thus became subject to one of Wiand’s

“clawback” lawsuits.

      The executors of Schneiderman’s estate moved to compel arbitration based

on arbitration clauses in the Limited Partnership Agreement and the Subscription

Agreement that governed Schneiderman’s investment in one of the six hedge funds

in question. After the district court granted the motion and Wiand’s attempt to

pursue an interlocutory appeal failed, the parties proceeded to arbitration.

      The arbitrator granted summary judgment to the estate and denied Wiand’s

motion for reconsideration. Wiand then filed a motion in federal district court to

vacate the arbitrator’s decision, which was denied. He now appeals both the

district court’s decision compelling arbitration and its denial of his motion to

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vacate the arbitration award. For the reasons set forth below, we AFFIRM the

judgment of the district court.

                                  I.      BACKGROUND

      Nadel, through his control of two investment-management companies,

managed six hedge funds for approximately ten years, beginning around 1999. As

determined by the district court, all of the hedge funds were undercapitalized

because, “[l]ike every Ponzi schemer, Nadel robbed Peter to pay Paul.” In re

Wiand, No. 8:10-cv-71-T-17MAP, 2011 WL 4530203, at *3 (M.D. Fla. Sept. 29,

2011). The funds’ cumulative net worth in 2009 was closer to $500,000 than to

their reported value of hundreds of millions. Instead of earning profits as the

investor account statements in 2008 and 2009 repeatedly stated, the hedge funds

lost money.

      The Securities and Exchange Commission (SEC) brought an emergency

enforcement action in January 2009 against Nadel, his investment-management

companies, and the six hedge funds connected with his scheme, contending that the

defendants had violated Section 17(a) of the Securities Act of 1933, Section 10(b)

of the Securities Exchange Act of 1934, and SEC Rule 10b-5. In addition to

seeking declaratory and injunctive relief, an asset freeze, disgorgement, and civil

money penalties, the SEC moved for the appointment of a receiver to manage and

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preserve all assets. The district court appointed Wiand as the receiver for the hedge

funds.

         Wiand has been charged with rounding up recoverable assets and

redistributing them to those who came up short. Since his appointment, he has

filed more than 150 “clawback” lawsuits to recover false profits from hedge-fund

investors. All of these cases lay out a similar scenario: The investor received

payouts from his or her investment that exceeded the amount of the intial

investment (hence the claim of a “false profit”). These investors, Wiand contends,

are to be distinguished from the larger group of investors who suffered net losses.

To allow the winners to retain their false profits at the expense of the losers is

claimed to be inequitable and unjust.

         This case originated as one such “clawback” action.      In January 2010,

Wiand—on behalf of the six hedge funds—filed suit against the estate of Herbert

Schneiderman, who had invested $100,000 with Victory Fund, Ltd. (one of the six

funds involved in Nadel’s scheme). Schneiderman eventually received payouts

from the fund totaling $263,660.48, and Wiand sought to recover the $163,660.48

that Schneiderman earned as “profit.” The estate moved to compel arbitration

based on the Subscription Agreement and Limited Partnership Agreement

(collectively, “the contract”) that Schneiderman had executed with Victory. In

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relevant part, the contract provides that any disputes or controversies that arise

from the agreements must be submitted to arbitration.

      After the district court granted the motion to compel arbitration, the parties

proceeded to arbitrate before the American Arbitration Association’s Commercial

Arbitration Tribunal. Arbitrator Steven M. Platau granted the estate’s motion for

summary judgment and entered a Final Order and Award (the Award) dismissing

Wiand’s claims as barred by the Florida probate statutes. In the Award, he also

denied Wiand’s motion for a declaratory judgment that the agreements containing

the arbitration clauses are void.

      Wiand then filed a motion seeking to vacate the Award. The assigned

magistrate judge recommended denying the motion to vacate, and the district court

adopted his recommendation in full. Wiand subsequently filed this timely appeal

of both the district court’s decision to compel arbitration and its decision denying

the motion to vacate.

                                     II. ANALYSIS

      We review de novo the district court’s decision to compel arbitration. See

Dale v. Comcast Corp., 498 F.3d 1216, 1219 (11th Cir. 2007). The district court’s

findings of fact with respect to the denial of Wiand’s motion to vacate the

arbitrator’s Award are reviewed under the clear-error standard, and its legal

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conclusions are reviewed de novo. See Frazier v. CitiFinancial Corp., LLC, 604

F.3d 1313, 1321 (11th Cir. 2010).

      Wiand presents a four-pronged attack on the district court’s decision to send

this case to arbitration and then to not set aside the resulting Award. First, he

argues that the receivership statutes creating his position preclude the use of

arbitration in clawback actions. Second, Wiand argues that even if clawback

actions are subject to arbitration as a general matter, the contract containing the

arbitration clauses at issue here is void—and thus unenforceable—from its

inception. His third argument is that even if his claims are subject to arbitration

and the contract is not void, the district court erred in sending all of his claims to

arbitration, including those brought by entities with which Schneiderman had no

agreement whatsoever. Finally, Wiand argues that even if each of the preceding

arguments fails and the claims were properly subject to arbitration, the arbitrator so

exceeded or imperfectly executed his powers that the district court erred in

refusing to vacate the Award.

A.    Clawback actions are not categorically exempt from the Federal
      Arbitration Act

      The Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., mandates that

agreements to arbitrate be enforced unless “overridden by a contrary congressional

command.” Shearson/Am. Exp., Inc. v. McMahon, 482 U.S. 220, 226 (1987).

There is a “liberal federal policy favoring arbitration agreements,” such that “any
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doubts concerning the scope of arbitrable issues should be resolved in favor of

arbitration.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1,

24-25 (1983).    A party seeking to avoid arbitration thus bears the burden of

demonstrating a contrary congressional command using a statute’s text, its

legislative history, or identifying an “inherent conflict between arbitration and the

statute’s underlying purposes.” Shearson, 482 U.S. at 227.

      Wiand argues that there is an inherent conflict between arbitration and the

underlying purpose of 28 U.S.C. § 754. Section 754 vests a court-appointed

receiver with “complete jurisdiction and control” of property that is contested in a

civil case, including “the right to take possession thereof.” 28 U.S.C. § 754.

Wiand contends in his brief that Congress enacted this statute to “promote judicial

efficiency by permitting courts to manage claims regarding receivership property

in a single forum,” which he says is the federal district court in which the

receivership is based. He argues that this purpose is reinforced by the legislative

history of § 754.    The section was enacted (under a different code number)

specifically to ease a then-existing restriction on receivers.     Under the prior

statutory scheme, a receiver appointed by a federal district court could bring claims

related only to property that was physically located within that district, which made

it difficult to resolve cases involving property in many different locations. See

Link v. Powell, 57 F.2d 591, 593 (W.D.S.C. 1932).

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      Section 754 changed that by allowing receivers to take charge of all of the

relevant property in a case, regardless of where it was located. Id. If Congress’s

intent was to consolidate all claims related to a particular set of property, Wiand

contends, then that intention is inherently in conflict with an arbitration clause that

can specify any forum agreed to by the parties. He thus argues that clawback

actions pursued by a receiver should be exempted from the general obligation to

arbitrate per the parties’ contract.

      In support of this argument, Wiand points out that courts have found

inherent conflicts between arbitration and other statutory schemes designed to

streamline the distribution of assets. When considering the use of arbitration in a

bankruptcy case, for example, the Fourth Circuit concluded that Congress intended

to centralize disputes about a debtor’s assets and legal obligations in the

bankruptcy courts, and that “[a]rbitration is inconsistent with centralized

decision-making.” In re White Mountain Mining Co., LLC., 403 F.3d 164, 169

(4th Cir. 2005). Wiand also notes that at least one court has declined to send a

claim arising under the Federal Credit Union Act (FCUA)—which was designed to

“centraliz[e] the claims process and preserv[e] the limited assets of [a] defunct

credit union”—to arbitration because it would place the rights of creditors with

agreements containing arbitration clauses on a “different footing” than those who

did not have such clauses. Nat’l Credit Union Admin. Bd. v. Lorment Comm. Fed.

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Credit Union, 2010 WL 4806794, at *4 (N.D. Ohio Nov. 18, 2010) (unpublished).

Because clawback actions by court-appointed receivers, like bankruptcy cases and

actions under the FCUA, are designed to facilitate the equitable distribution of

assets, Wiand argues that clawback actions also inherently conflict with the

enforcement of arbitration clauses.

      But Wiand’s argument is fundamentally flawed because he mischaracterizes

the statute on which he relies. Section 754 does not designate district courts as

having complete jurisdiction and control of receivership properties as Wiand

claims. It instead grants that control to a receiver who is appointed by the court.

See 28 U.S.C. § 754 (“A receiver appointed in any civil action or proceeding

involving property, real, personal or mixed, situated in different districts shall,

upon giving bond as required by the court, be vested with complete jurisdiction and

control of all such property with the right to take possession thereof.”) (emphases

added). The jurisdiction mentioned in the statute, therefore, does not refer to the

district court’s authority to decide all disputes relating to the contested property,

but rather to the receiver’s right to take charge of all contested property regardless

of its physical location. A receiver is granted this jurisdiction and control so that

he can manage the full scope of the assets with legally binding authority.

      Furthermore, neither the bankruptcy cases nor the FCUA cases indicate that

there is any inherent conflict between arbitration and the receivership statutes.

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Both the use of the bankruptcy courts and the administrative-claims process set up

in the FCUA are methods by which one entity’s assets may be distributed to a

myriad of creditors who have a legitimate claim to them. A receiver, on the other

hand, is the individual (or entity) responsible for the collection and management of

those assets until they can be distributed; this role is analogous to a trustee in a

bankruptcy case rather than to the bankruptcy-court system itself.

      When a statute provides a special method for the resolution of a particular

type of dispute, resolving that type of dispute elsewhere would indeed be contrary

to the statute. See, e.g., In re White Mountain Mining Co., LLC., 403 F.3d at 169.

In the case of receiverships, however, Congress has simply provided for a

particular person or entity to manage the collection and distribution of the assets

without establishing a special method by which that person or entity is to do so.

This distinction eliminates from the instant case the inherent conflict that has been

recognized by other courts between arbitration proceedings and the congressionally

established methods for resolving specific disputes.

      Finally, other courts that have dealt with receivers in securities litigation

have referred the disputes to arbitration. See, e.g., Javitch v. First Union Sec., Inc.,

315 F.3d 619, 627 (6th Cir. 2003) (holding that the receiver of two business

entities could be compelled to arbitrate claims against brokerage firms that had

invested the entities’ money); U.S. Small Business Admin. v. Coqui Capital Mgmt.,

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LLC, 2008 WL 4735234, at *2 (S.D.N.Y. Oct. 27, 2008) (unpublished) (holding

that the receiver of a business entity could be compelled to arbitrate claims against

each of the entity’s limited partners because the receiver was bound by the same

arbitration clauses that would have bound the receivership entity). In light of this

precedent, the “liberal federal policy” in favor of arbitration, and the distinctions

noted above, we find that there is no inherent conflict between arbitration and the

underlying purpose of court-appointed receivers pursuing clawback claims.

B.    The district court did not err in determining that the parties formed a
      contract and that questions as to its validity were for the arbitrator to
      decide
      Wiand next argues that the arbitration clauses in question cannot be enforced

because the contract of which they are a part never came into being and, if it did

come into being, it is invalid as a matter of public policy. The courts recognize

three distinct types of challenges to a contract containing an arbitration clause:

(1) a challenge to the validity of the arbitration clause standing alone, (2) a

challenge to the validity of the contract as a whole, and (3) a challenge to the very

existence of the contract. Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440,

444-45 n.1 (2006) (citing Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388

U.S. 395, 403-04 (1967)). Challenges to the validity of the contract as a whole are

for the arbitrator to decide, whereas challenges to the validity of the arbitration

clause in particular or to the very existence of the contract must be resolved by the

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court before deciding a motion to compel arbitration. Id. Here, Wiand presents

arguments challenging both the existence and the validity of the contract as a

whole, but not the validity of the arbitration clause standing alone.

      A party may challenge the existence of a contract by alleging that at least

one party never agreed to its terms, that a signatory lacked the authority to commit

his principal, or that the signor lacked the mental capacity to assent. Buckeye,

546 U.S. at 444 n.1.     Wiand presents arguments under each of the first two

theories. He contends that Victory’s assent was demonstrated neither by a written

signature on the contract nor by any act or performance consistent with the

contract’s terms. Wiand alternatively argues that because Victory’s agents were

part of a Ponzi scheme, they were acting adversely to the interests of their

principal—the hedge fund itself—and therefore lacked the authority to bind

Victory to the contract in question.

      Schneiderman’s compelling counterargument is that Victory acted in

conformance with the terms of the contract, thereby binding itself to its terms.

Wiand does not dispute that Schneiderman’s initial investment was credited to his

account, that his account reflected gains and losses, and that he received account

statements and tax forms, just as the contract at issue indicated that he whould.

Nor does Wiand dispute that a party may be bound by a contract where both parties

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performed under its terms. See Integrated Health Servs. of Green Briar, Inc. v.

Lopez-Silvero, 827 So. 2d 338, 339 (Fla. Dist. Ct. App. 2002).

      Wiand instead argues that Victory’s actions did not constitute performance

under the contract because the profits reflected in the documents that

Schneiderman received did not come from the sources claimed. But such an

argument speaks to the manner of the contract’s performance, not to its formation.

See, e.g., Advanced Surgical Technologies, Inc. v. Automated Instruments, Inc.,

777 F.2d 1504, 1505-06 (11th Cir. 1985) (treating a payment made in compliance

with a contract but from the wrong source as a breach of contract). Disputes

regarding whether a contract was performed in accordance with its terms, like

disputes about the validity of the contract as a whole, go to the arbitrator. See Sims

v. Clarendon Nat’l. Ins. Co., 336 F. Supp. 2d 1311, 1320 (S.D. Fla. 2004) (“Issues

relating to the making and performance of a contract as a whole, not specific to the

arbitration clause, are subject to arbitration.”).

      Wiand’s remaining attacks on the contract—that it is ultra vires, that it

violates public policy, that it was fraudulently procured, etc.—address the

contract’s validity and should also go to the arbitrator.   See Jenkins v. First Am.

Cash Advance of Ga., LLC, 400 F.3d 868, 881-82 (11th Cir. 2005) (dismissing a

party’s arguments that a contract containing an arbitration clause was illegal and

void ab initio because such questions are for the arbitrator, not the court, to

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decide).   In sum, the uncontested performance by both parties confirms the

existence of a contract. Having correctly determined that a contract had been

formed, the district court did not err in sending the remaining questions, including

those aimed at the contract’s validity, to the arbitrator.

C.    The district court did not err in sending all claims to arbitration
      Wiand next argues that even if there is a valid and enforceable arbitration

clause, it is binding only on Victory and not on the other five funds for which he

servers as receiver. Because the other funds did not enter into contracts agreeing to

arbitrate with Schneiderman in this case, Wiand asserts that these other hedge

funds cannot be forced into arbitration. The flaw in Wiand’s argument is the very

fact that these other hedge funds have no relationship at all with Schneiderman.

Only Victory made a transfer of funds to Schneiderman.               Under the Florida

Statutes that Wiand cites in his complaint, the other funds’ right to any part of

Schneiderman’s false profits is therefore completely derivative from whatever right

Victory might have to recover from the estate. Wiand cites no decisions that

would provide these other hedge funds with standing to bring their own, stand-

alone claims. We therefore join the district court in concluding that this argument

is without merit.

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D.    The arbitrator did not so exceed or imperfectly use his powers that the
      district court erred in declining to vacate the Award
      As a last resort, Wiand argues that even if all his claims were properly sent

to arbitration, the district court erred in refusing to vacate the arbitrator’s Award.

Wiand bears the heavy burden of demonstrating that vacatur is appropriate, see

Brown v. ITT Consumer Fin. Corp., 211 F.3d 1217, 1223 (11th Cir. 2000), by

proving the existence of one or more of four statutorily enumerated causes for

reversal set forth in 9 U.S.C. § 10(a)(1)-(4). The first three factors concern the

presence of corruption, bias, fraud, or misconduct, none of which is at issue here.

Wiand relies solely on the fourth factor, which permits reversal “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)(4).

      “There is a presumption under the FAA that arbitration awards will be

confirmed, and federal courts should defer to an arbitrator’s decision whenever

possible.” Frazier v. CitiFinancial Corp., LLC, 604 F.3d 1313, 1321 (11th Cir.

2010) (internal quotation marks omitted). As set forth in Oxford Health Plans LLC

v. Sutter, 133 S. Ct. 2064, 2068 (2013),

      [i]t is not enough to show that the arbitrator committed an error—or
      even a serious error. . . . Only if the arbitrator acts outside the scope
      of his contractually delegated authority—issuing an award that simply
      reflects his own notions of economic justice rather than drawing its
      essence from the contract—may a court overturn his determination.
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Id.at 2068 (internal quotation marks, citations, and alterations omitted).

      In this case, Wiand argues for vacatur based on the arbitrator exceeding his

authority or so imperfectly executing his authority that a mutual, final, and definite

award was not made. See 9 U.S.C. § 10(a)(4). He contends that the arbitrator’s

Award was not “reasoned,” and that the arbitrator’s summary-judgment decision

was “based on no evidence.” He urges us to reverse the arbitrator’s Award just as

we would reverse an erroneous summary-judgment order by a district court.

      The applicable standards of review, however, could not be more different.

Summary-judgment orders from a district court are subject to de novo review.

Chapman v. AI Transp., 229 F.3d 1012, 1023 (11th Cir. 2000). When reviewing

an arbitration award, on the other hand, we may revisit neither the legal merits of

the award nor the factual determinations upon which it relies.               See United

Paperworkers Int’l Union, AFL-CIO v. Misco, Inc., 484 U.S. 29, 39 (1987)

(prohibiting judicial review despite the arbitrator having made “improvident, even

silly” decisions); Scott v. Prudential Sec., Inc., 141 F.3d 1007, 1017 (11th Cir.

1998) (holding that a court will not reverse an arbitrator’s award unless a plausible

ground for the arbitrator’s decision cannot be inferred from the facts of the case).

      Wiand’s entire argument for vacatur is based on the weight of the evidence

presented, and that is simply beyond this court’s—or the district court’s—power to

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review.     The district court thus did not err in allowing the arbitrator’s Award to

stand.

                                III.   CONCLUSION

         For all of the reasons set forth above, we AFFIRM the judgment of the

district court.

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