Court Opinion

ID: 165750
Source: CourtListenerOpinion
Date Created: 2010-08-14 08:59:06+00
Date Added: 2024-06-11T17:24:48.513143
License: Public Domain

F I L E D
                                                                    United States Court of Appeals
                                                                            Tenth Circuit
                      UNITED STATES COURT OF APPEALS
                                                                            APR 20 2005
                             FOR THE TENTH CIRCUIT
                                                                       PATRICK FISHER
                                                                                Clerk

    JOSEPH A. VENTO,

              Plaintiff-Appellant,

     v.                                                   No. 04-1413
                                                   (D.C. No. 04-F-290 (BNB))
    QUICK & REILLY, INC., a New York                       (D. Colo.)
    corporation,

              Defendant-Appellee.

                             ORDER AND JUDGMENT *

Before SEYMOUR, Circuit Judge, BARRETT, Senior Circuit Judge, and
McCONNELL, Circuit Judge.

          After examining the briefs and appellate record, this panel has determined

unanimously that oral argument would not materially assist the determination of

this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is

therefore ordered submitted without oral argument.

*
      This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
      Plaintiff Joseph A. Vento appeals from a district court order denying his

motion to vacate an unfavorable decision issued by an arbitration panel for the

National Association of Securities Dealers, Inc. (NASD). Although Mr. Vento

raised several subsections of the statute governing judicial review of arbitration,

see 9 U.S.C. § 10(a)(1)-(4), his objections related primarily to the arbitration

panel’s refusal to hold a hearing and dismissal of his action on the pleadings. The

district court granted summary judgment for Defendant Quick & Reilly, Inc.

(Q&R). We review the district court’s legal determination de novo, Bowen v.

Amoco Pipeline Co., 254 F.3d 925, 931 (10th Cir. 2001), and affirm.

      Mr. Vento had a securities account with Q&R that became the subject of

garnishment proceedings relating to a state court judgment obtained against him

in Colorado. Q&R responded to a writ of garnishment by affirming that it held

for Mr. Vento $108,074.42 in a money market fund and $1,300,000 in treasury

bills. R. doc. 9, tab 1, ex. 1, at 2. Thereafter, Q&R received an order directing it

to pay $93,847.25 to the court clerk, who was to turn the sum over to the party

collecting the judgment against Mr. Vento. Id., ex. 3. After Q&R complied, Mr.

Vento filed a claim with the NASD arbitration panel contending Q&R violated

various legal duties when it revealed his assets and turned them over to the state

court clerk.

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      Mr. Vento claimed that Q&R improperly complied with procedure

appropriate in cases where “the garnishee is indebted to the judgment debtor,”

Colo. R. Civ. P. 103, Sec. 2(g)(1), whereas the proper procedure, he asserted, was

for the court to “order the garnishee to deliver such property to the sheriff to be

sold as upon execution,” with the proceeds applied to the judgment debt and any

surplus returned to Mr Vento, because Q&R “possess[ed] or control[led]

intangible personal property or personal property capable of manual delivery

owned by the judgment debtor.” Id., Sec. 2(g)(3). Q&R moved to dismiss the

arbitration action, asserting that it had followed a facially valid order and that

“[i]f, in fact, there were procedural irregularities in the processing of the

garnishment, Mr. Vento should have brought them to the attention of the court.”

R. doc. 9, tab 6, at 2. In response, Mr. Vento reasserted his position that the

order Q&R followed was invalid under Rule 103, but did not claim Q&R had any

duty to challenge the garnishment on this basis on his behalf. Id., tab 7. He also

contended “[t]here is no provision in the Code of Arbitration Procedure for a

motion to dismiss comparable to the one filed by Q&R.” R. doc. 9, tab 7, at 2.

      After the motion to dismiss was set for hearing, Mr. Vento submitted an

“Advisement” stating he would not attend the hearing but would “continue[] to

advocate and rely upon” his previously filed response to the motion. Id., tab 8.

On the hearing date, the arbitration panel “f[ound] itself in need of additional

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information, and request[ed] an additional brief from each of the parties,” on such

matters as Q&R’s legal duty upon receipt of the garnishment order to investigate

its validity, and whether Mr. Vento did anything to challenge the garnishment

order himself. Id., tab 9, at 1. The panel noted Mr. Vento’s decision to forego

attendance at the hearing on the motion to dismiss and “strongly recommend[ed]

that [he] secure the advice and services of an attorney experienced in matters

involving NASD arbitration.” Id., tab 9, at 2. Mr. Vento filed a pro se brief in

response to the order.

      The arbitration panel saw the dispute framed by the parties as purely legal,

concerning the respective duties of a broker-dealer and its client when faced with

a garnishment order: “Q&R did not dispute the basic facts alleged by Vento and

offered no opinion as to whether the [garnishment] writ was valid or invalid,” but

defended solely on the ground “that it was Vento’s responsibility to dispute the

validity of any writ in the underlying court that issued it.” Appendix to the Briefs

(App.) at 18. The panel agreed with Q&R’s position:

             Vento should have disputed the writ by filing a motion to
      quash with the judge of the same District Court that had allowed its
      Court Clerks to issue writs of garnishment. If that motion was
      denied, he could and should have filed a writ of mandamus with the
      Appeals Court, and, eventually, brought the matter to the attention of
      the Colorado Supreme Court. . . . [I]t is the duty of the person
      garnished to file a motion to quash a writ issuing improperly out of a
      court, or one of its functionaries (ie: the Clerk), if that person feels
      that the writ or order was issued under improper circumstances.
      Accordingly we express no opinion as to whether the writ was

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      invalid, as alleged by Vento, leaving that determination to its proper
      place in the court system of the State of Colorado.

             The duty to timely file a motion to quash and subsequent
      appellate procedures, relating to an improper garnishment order,
      properly falls on the shoulders of the person garnished. . . . It
      appears, however, that Vento was essentially demanding that Q&R
      either willfully violate what appeared to be a valid garnishment by
      simply not complying, or to expend attorney’s fees and costs to
      oppose the garnishment by filing a motion on his behalf. That is not
      within the scope of a broker-dealer’s fiduciary duty to its customer.

Id. at 18-19. The panel held it was “compelled to find in favor of Q&R as a

matter of law,” id. at 19, and dismissed the case with prejudice pursuant to NASD

Code of Arbitration Rule 10305, 1 id. at 21-23.

      “[A] court may grant a motion to vacate an arbitration award only in the

limited circumstances provided in [9 U.S.C. § 10(a)(1)-(4)], or in accordance with

a few judicially created exceptions.” Bowen, 254 F.3d at 932. Mr. Vento invoked

1
      NASD Code of Arbitration Rule 10305 provides:

      (a) At any time during the course of an arbitration, the arbitrators
      may either upon their own initiative or at the request of a party,
      dismiss the proceeding and refer the parties to their judicial
      remedies, or to any dispute resolution forum agreed to by the parties,
      without prejudice to any claims or defenses available to any party.

      (b) The arbitrators may dismiss a claim, defense, or proceeding with
      prejudice as a sanction for willful and intentional material failure to
      comply with an order of the arbitrator(s) if lesser sanctions have
      proven ineffective.

      (c) The arbitrators shall at the joint request of all parties dismiss the
      proceedings.

                                         -5-
several grounds: the arbitration panel “w[as] guilty of misconduct,” § 10(a)(3),

and “exceeded [its] powers,” § 10(a)(4), in cancelling a final adjudicatory hearing

and dismissing his case with prejudice on the pleadings when such a disposition is

not authorized by Rule 10305; the panel exhibited “evident partiality” (against his

pro se status), § 10(a)(2), when it recommended that he consult an experienced

attorney; and the panel’s decision was in “manifest disregard of the law,” Bowen,

254 F.3d at 932. See R. doc. 1, at 2-5.

      As the district court explained, the circumstances presented here did not

warrant any interference with the arbitration panel’s decision under the “highly

deferential standard” that federal courts must employ in this area. Bowen, 254

F.3d at 932 (noting standard governing judicial review of arbitration decisions is

“among the narrowest known to law” (quotation omitted)). Mr. Vento’s primary

objection, regarding the lack of authorization for a dismissal on the pleadings

under Rule 10305, was explicitly rejected by this court in Sheldon v. Vermonty,

269 F.3d 1202, 1206 (10th Cir. 2001):

      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

                                          -6-
      based solely on the parties’ pleadings so long as the dismissal does
      not deny a party fundamental fairness.

Like the plaintiff in Sheldon, Mr. Vento “was provided with a fundamentally fair

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

and argue the motion[] to dismiss.” Id. at 1207. Given that his “claims [were]

facially deficient and [he] therefore ha[d] no relevant or material evidence to

present at an evidentiary hearing, the arbitration panel ha[d] full authority to

dismiss the claims without . . . holding an evidentiary hearing.” Id.

      Mr. Vento’s attempts to avoid the rule of Sheldon are plainly meritless. He

argues that Q&R’s motion to dismiss “was not based on the parties’ pleadings as

required by [Sheldon],” because it rested on the assertion “that Q&R followed an

order by a court clerk.” Aplt. Br. at 7, 8. But the latter point was not beyond the

scope of Mr. Vento’s arbitration claims; it was essential to them. The alleged

misconduct of Q&R consisted in its compliance with the garnishment writ and

ensuing order. See R. doc. 9, tab 1 & exs. 1, 3. When the arbitration panel

concluded that such compliance was proper as a matter of law, dismissal on the

pleadings was precisely the appropriate procedural disposition.

      Mr. Vento contends the panel’s decision was not on the pleadings as in

Sheldon because the panel’s rationale rested on a legal ground omitted from

Q&R’s motion to dismiss. See Aplt. Br. at 7-8. This argument is unavailing.

Although Mr. Vento acknowledges the motion asserted Q&R acted properly in

                                          -7-
complying with the garnishment order because Mr. Vento had not challenged it,

see also R. doc. 9, tab 6, at 2, he insists the panel’s rationale–that it was his, not

Q&R’s, duty to challenge the order–reflects a distinct legal proposition. But the

latter is obviously inherent in (if not a mere paraphrase of) the defense advanced

by Q&R in its motion and, in any event, the panel’s decision clearly encompassed

both: “The duty to timely file a motion to quash . . . an improper garnishment

order[] properly falls on the shoulders of the person garnished. . . . [E]xpending

attorney’s fees and costs to oppose the garnishment by filing a motion to quash on

his behalf . . . is not within the scope of a broker-dealer’s fiduciary duty to its

customer.” App. at 18-19. The whole point of holding that Q&R was not

duty-bound to oppose the garnishment order is to explain why it acted properly in

complying with it.

      Mr. Vento’s accusation of bias on the part of the arbitration panel is equally

meritless. The panel’s recommendation that Mr. Vento consult with an attorney

experienced in NASD arbitration was just prudent advice. There is nothing in the

record to suggest any basis for questioning the panel’s impartiality.

      Turning to the legal substance of the arbitration panel’s determination, the

general rule is that an arbitrator’s “erroneous interpretations or applications of

law are not reversible.” Bowen, 254 F.3d at 932 (quotation omitted). Federal

courts review arbitration decisions solely for a “manifest disregard of the law,”

                                           -8-
i.e., for a “willful inattentiveness to the governing law.” Id. (quotation omitted).

Thus, in order to justify judicial interference based on the merits of the arbitration

decision under review, “the record [must] show the arbitrators knew the law and

explicitly disregarded it.” Id. No showing of this kind is evident here.

      As for Mr. Vento’s challenge to the validity of the garnishment order under

specific provisions of state procedural law, the arbitration panel accepted that

premise for purposes of its analysis and therefore cannot be said to have

disregarded that law. As for the legal point that was ultimately dispositive of the

case, regarding a broker-dealer’s duty to challenge garnishment process on behalf

of a client, the panel asked Mr. Vento to cite the legal precedent supporting his

claim, see R. doc. 9, tab 9, at 1, to which he responded only that he “ha[d]

researched . . . whether the broker dealer is obligated to investigate the validity of

that court order or may it merely accept the order as written, and [had] found no

legal precedents about the matter,” id., tab 10, at 1. His appellate briefing is

likewise deficient.

      The only authority cited in connection with Mr. Vento’s manifest-

disregard-of-law argument are three cases offered for the general proposition that

a failure to follow prescribed procedures “is fatal” and invalidates the writ. Id.

Again, that relates only to the point accepted by the arbitration panel. Although

two of the cases reflect efforts by a garnishee opposing garnishment, in both cases

                                          -9-
garnishment was opposed on the ground that the garnishee owed nothing to the

judgment debtor. See Worchester v. State Farm Mut. Auto. Ins. Co., 473 P.2d

711, 712 (Colo. 1970) (insurance company answered garnishment by denying

coverage for judgment debtor’s obligation); State v. Elkins, 270 P. 875, 875-76

(Colo. 1928) (state employer answered garnishment by denying that any earnings

were owed to judgment debtor). That a garnishee may defend its own interests by

denying an obligation to the judgment debtor implies nothing about whether the

garnishee may, much less must, defend the interests of the debtor by challenging

the propriety of the garnishment itself. Nor is any such implication suggested by

Rule 103, which sets out procedures for the debtor to raise objections regarding

the garnishment, see Colo. R. Civ. P. 103, Sec. 2(f), & Sec. 6, but provides the

garnishee with procedures only to admit or deny an obligation to the debtor, see

Colo. R. Civ. P. Sec. 2(g)(1) & (3) and Sec. 7.

      Finally, Mr. Vento’s argument that the district court erred by proceeding

under Fed. R. Civ. P. 12 and 56 is specious. The civil rules apply in arbitration

cases “to the extent that matters of procedure are not provided for in [the federal

arbitration] statutes.” Fed. R. Civ. P. 81(a)(3). Because the arbitration statutes

do not provide procedures to displace Rules 12 and 56, and Mr. Vento offers no

“reason why normal procedures should be subverted,” the district court properly

adhered to these rules. Milwaukee Typographical Union No. 23 v. Newspapers,

                                         -10-
Inc., 639 F.2d 386, 390 (7th Cir. 1981); see Champion Boxed Beef Co. v. Local

No. 7 United Food & Commercial Workers Int’l Union, 24 F.3d 86, 87 (10th Cir.

1994) (noting “we review the grant of summary judgment” in arbitration cases

under traditional de novo standard).

                                       Sanctions

      Q&R has moved for sanctions against Mr. Vento. Upon consideration of

the motion and Mr. Vento’s response (Reply Br. at 1-2), we conclude an award of

reasonable attorney fees and costs is warranted under Fed. R. App. P. 38. We

agree with Q&R that this appeal is frivolous for the reasons we have discussed.

Because deciding on an appropriate amount of fees and costs requires assessment

of facts, we remand the matter to the district court for determination.

      The judgment of the district court is AFFIRMED. Q&R’s motion for

sanctions is GRANTED, and the matter is REMANDED for the determination of a

proper amount.

                                                    Entered for the Court

                                                    Stephanie K. Seymour
                                                    Circuit Judge

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