Court Opinion

ID: 182858
Source: CourtListenerOpinion
Date Created: 2011-01-15 01:03:46+00
Date Added: 2024-06-11T17:26:01.504629
License: Public Domain

FILED
                           NOT FOR PUBLICATION                              JAN 14 2011

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

                            FOR THE NINTH CIRCUIT

SEE MORE LIGHT INVESTMENTS,                      No. 09-16953

              Plaintiff - Appellee,              D.C. No. 2:08-cv-00580-MHM

  v.
                                                 MEMORANDUM *
MORGAN STANLEY DW INC.,

              Defendant - Appellant.

                    Appeal from the United States District Court
                             for the District of Arizona
                    Mary H. Murguia, District Judge, Presiding

                     Argued and Submitted November 4, 2010
                            San Francisco, California

Before: GOULD and CALLAHAN, Circuit Judges, and KORMAN, Senior District
Judge.**

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
       **
             The Honorable Edward R. Korman, Senior United States District
Judge for the Eastern District of New York, sitting by designation.
      Morgan Stanley DW, Inc. (“MSDW”), appeals the district court’s vacation

of an arbitration award against See More Light Investments (“SMLI”).1 Because

we find that the Cuban Assets Control Regulations, 31 C.F.R. §§ 515.101 et seq.

(2009) (“CACR”), are not “well defined, explicit, and clearly applicable” to the

bond transaction at issue here and because it is not clear that the arbitrators

exercised a manifest disregard for the law, we reverse.

      First, we deny MSDW’s motion to strike Exhibits 7-23 from SMLI’s

supplemental excerpts of record. Although SMLI did not follow the proper

procedure to supplement the record, we exercise our authority to consider these

documents as this is the extraordinary case in which the documents are helpful to

the court and are not prejudicial to either party. See United States v. W.R. Grace,

504 F.3d 745, 766 (9th Cir. 2007).

      Next, we reverse the district court’s determination that the arbitrators acted

in manifest disregard of the law by finding in favor of MSDW. We review a

decision to vacate or confirm an arbitration award de novo. Lagstein v. Certain

Underwriters at Lloyd’s, London, 607 F.3d 634, 640 (9th Cir. 2010). The burden

of establishing grounds for vacating an arbitration award is on the party seeking it.

      1
             The parties are familiar with the facts and we repeat them here only as
necessary to explain our decision.

                                           2
U.S. Life Ins. Co. v. Superior Nat’l Ins. Co., 591 F.3d 1167, 1173 (9th Cir. 2010).

Review of the award is “both limited and highly deferential” because arbitration is

a favored form of dispute resolution. PowerAgent Inc. v. Elec. Data Sys. Corp.,

358 F.3d 1187, 1193 (9th Cir. 2004) (internal quotation marks and citation

omitted).

      The Federal Arbitration Act (“FAA”) limits the circumstances in which a

federal court may vacate an arbitration panel’s award. See 9 U.S.C. §§ 9-10.

Specifically, 9 U.S.C. § 10 provides, in part, that a court may vacate an arbitration

award “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.” Id. at § 10(a)(4).

      Where, as was the case here, the claim is that the arbitrators exceeded their

powers the Ninth Circuit has imposed a high standard. “[A]rbitrators exceed their

powers . . . not when they merely interpret or apply the governing law incorrectly,

but when the award is completely irrational, or exhibits a manifest disregard of

law.” Kyocera Corp. v. Prudential-Bache T. Servs., Inc., 341 F.3d 987, 997 (9th

Cir. 2003) (internal quotation marks and citations omitted). “‘Manifest disregard

of the law’ means something more than just an error in the law or a failure on the

part of the arbitrators to understand or apply the law.” Mich. Mut. Ins. Co. v.

                                          3
Unigard Sec. Ins. Co., 44 F.3d 826, 832 (9th Cir. 1995). “It must be clear from the

record that the arbitrators recognized the applicable law and then ignored it.” Id.

“‘As such, mere allegations of error are insufficient.’” Collins v. D.R. Horton,

Inc., 505 F.3d 874, 879 (9th Cir. 2007) (quoting Carter v. Health Net of Cal., Inc.,

374 F.3d 830, 838 (9th Cir. 2004)).

      The district court held that the arbitrators manifestly disregarded the law

when they recognized that the CACR applied to bond transaction between MSDW

and SMLI but failed to find that the CACR prohibited the transaction. The district

court’s decision rests on its interpretation of the text of the CACR.2 The district

court held that, under the CACR, “the sale of Cuban bonds unquestionably

constitutes a transaction as defined by the Regulations, [so] there is no doubt that

the transaction between Plaintiff and Defendant is prohibited and null and void.

The Regulations are well defined, explicit, and clearly applicable, in accord with

the Ninth Circuit’s requirement in Carter, 374 F.3d at 838.”

      We disagree. We do not find that the CACR are as “well defined, explicit,

and clearly applicable” as did the district court. For example, the district court

does not discuss the provision set forth at 31 C.F.R. § 515.203(d) that provides an

      2
            SMLI did not submit any excerpts or exhibits from the arbitration
proceeding in support of its motion to vacate the arbitration award.

                                           4
exception for certain otherwise void transactions under the CACR. Specifically, it

provides that transactions that are otherwise null and void, and therefore

unenforceable under the CACR, are not void if the transfer was not a “willful

violation” and the actor did not have “reasonable cause” to know of the violation,

and upon discovery of the possible violation the actor “[p]romptly” reported the

transaction to the U.S. Treasury. Id.

      Here, it is undisputed that the arbitrators considered the CACR.

Accordingly the arbitrators may have concluded that the exception described in §

515.203(d) applied to the bond transaction at issue here. SMLI, which carried the

burden of proof, did not address whether MSDW fell within this exception, and the

district court did not address this exception. Moreover, the arbitrators may have

considered some other provision of the CACR, or interpreted the CACR

differently, then the district court did. Absent a showing that the arbitrators

manifestly disregarded the CACR, we are compelled to confirm the award under

our deferential standard of review. Mich. Mut. Ins. Co., 44 F.3d at 832. We

therefore REVERSE the district court’s order vacating the arbitrators’ award.

                                           5