Court Opinion

ID: 810878
Source: CourtListenerOpinion
Date Created: 2012-10-25 20:18:26+00
Date Added: 2024-06-11T18:00:39.444151
License: Public Domain

FILED
                            NOT FOR PUBLICATION                             OCT 25 2012

                                                                        MOLLY C. DWYER, CLERK
                     UNITED STATES COURT OF APPEALS                      U .S. C O U R T OF APPE ALS

                            FOR THE NINTH CIRCUIT

MORGAN KEEGAN & CO., INC.,                       No. 10-56166

               Petitioner - Appellant,           D.C. No. 2:09-cv-07369-SJO-FFM

  v.
                                                 MEMORANDUM *
HORACE GRANT,

               Respondent - Appellee.

                    Appeal from the United States District Court
                        for the Central District of California
                     S. James Otero, District Judge, Presiding

                      Argued and Submitted October 10, 2012
                               Pasadena, California

Before:        PREGERSON and W. FLETCHER, Circuit Judges, and BENNETT,
               District Judge.**

       Petitioner Morgan Keegan appeals from the district court’s denial of its

motion to vacate an arbitration award. Respondent Horace Grant won a $1.45

          *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
          **
            The Honorable Mark W. Bennett, United States District Judge for the
Northern District of Iowa, sitting by designation.
million arbitration award against Morgan Keegan, his former broker, for losses

Grant suffered in Morgan Keegan investments. Morgan Keegan sought to vacate

the award in the district court, arguing that (1) Arbitrator Schwartz failed to

disclose facts that would create an impression of bias; (2) the arbitrators prejudged

the outcome of the case and denied Morgan Keegan a fundamentally fair hearing;

and (3) the arbitrators exceeded their powers in setting the size of the award. The

district court denied the motion and confirmed the award. We have jurisdiction

under 28 U.S.C. § 1291, and we affirm.

      The district court’s “decision to vacate or confirm an arbitration award” is

reviewed de novo. New Regency Prods., Inc. v. Nippon Herald Films, Inc., 501

F.3d 1101, 1105 (9th Cir. 2007) (citations and quotations omitted). Its findings of

fact are reviewed for clear error. Id.

      First, Morgan Keegan has not demonstrated Arbitrator Schwartz’s “evident

partiality” under the Federal Arbitration Act, 9 U.S.C. § 10(a)(2), because it has

not shown that Schwartz failed to disclose any information that would create an

“impression of possible bias.” New Regency, 501 F.3d at 1106 (quotations

omitted). Morgan Keegan argues that Schwartz was biased in favor of investors

because he sometimes represented investors against their brokers. However,

Schwartz disclosed this practice in his initial disclosure report, and there is no

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evidence that these disclosures were inaccurate. Morgan Keegan also points to a

section of Schwartz’s website that advertised his knowledge of the securities at

issue in the case — collateralized debt obligations (“CDOs”) — and solicited

investors to sue over CDO losses. But the CDO section only appeared on

Schwartz’s website months after the hearing and it did not specify how long he had

been practicing in the area. Therefore, there is no evidence that Schwartz knew

anything about CDOs before the arbitration.

      Second, the arbitrators’ inadvertently recorded conversation during the

hearing — in which they refer to the securities at issue in the case as “crap” and a

“sucker play” — is not grounds for vacating the award for “other misbehavior”

under 9 U.S.C. § 10(a)(3). The conversation suggests that the arbitrators had

begun to form some opinions based on the evidence presented so far, but it does

not prove that they had so made up their minds that they were unwilling to

consider Morgan Keegan’s evidence. As the district court noted, the facts here are

clearly distinguishable from cases where the arbitrators literally refused to hear a

party’s evidence. See, e.g., Gulf Coast Indus. Workers Union v. Exxon Co., USA,

70 F.3d 847, 850 (5th Cir. 1995). Additionally, the recorded conversation does not

demonstrate the arbitrators’ “evident partiality.” The fact that the arbitrators

reacted negatively to evidence of wrongdoing primarily suggests that they had

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evaluated the evidence and found it to be unfavorable to Morgan Keegan. This

case is also distinguishable from Reyes-Melendez v. INS, 342 F.3d 1001, 1007 (9th

Cir. 2003), because the arbitrators here did not make judgmental comments

throughout the hearing or include snide remarks in their decision. The district

court was correct that the parties received a “fundamentally fair hearing.” See

Sunshine Min. Co. v. United Steelworkers of Am., AFL-CIO, 823 F.2d 1289, 1295

(9th Cir. 1987).

      Third, the arbitrators did not “exceed[] their powers” by awarding $1.45

million without an offset for the $1.1 million of income payments Grant had

received. See 9 U.S.C. § 10(a)(4). The $1.45 million award was authorized under

a benefit-of-the-bargain damages theory for fraud committed by one owing

fiduciary duties. See Ambassador Hotel Co. v. Wei-Chuan Inv., 189 F.3d 1017,

1031–32 (9th Cir. 1999). Grant claims that he was promised an investment with

both stable principal and income payments. Such a promise entitled him to

damages for his principal losses without an offset for the income received. Morgan

Keegan has also failed to show that the award was in “manifest disregard of law”

as required under section 10(a)(4), because there is no evidence that the arbitrators

purposefully ignored the law in calculating the award. See Comedy Club, Inc. v.

Improv West Assoc., 553 F.3d 1277, 1288–90 (9th Cir. 2009).

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      Finally, Morgan Keegan argues on appeal that the cumulative effect of the

arbitrators’ actions amounted to misbehavior that warrants vacating the award.

Vacation is not warranted under our “limited and highly deferential” review.

Coutee v. Barington Capital Group, 336 F.3d 1128, 1132 (9th Cir. 2003) (internal

quotation marks omitted).

      AFFIRMED.

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