Court Opinion

ID: 4022056
Source: CourtListenerOpinion
Date Created: 2016-08-04 22:13:57.967513+00
Date Added: 2024-06-11T13:13:03.317195
License: Public Domain

J-S46043-16

NON-PRECEDENTIAL DECISION – SEE SUPERIOR COURT I.O.P 65.37

ANTHONY DIAZ,                              :     IN THE SUPERIOR COURT OF
                                           :           PENNSYLVANIA
                  Appellant                :
                                           :
                    v.                     :
                                           :
BRUCE J. KILBY AND GAIL M. KILBY,          :
                                           :
                  Appellees                :     No. 2077 EDA 2015

              Appeal from the Judgment Entered June 10, 2015
               in the Court of Common Pleas of Monroe County
                    Civil Division at No(s): 10195 Civil 2014

BEFORE:     BENDER, P.J.E., OTT, J., and STRASSBURGER,* J.

MEMORANDUM BY STRASSBURGER, J.:            FILED AUGUST 04, 2016

      Anthony Diaz appeals from the $219,936 judgment entered against

him and in favor of Bruce J. and Gail M. Kilby (the Kilbys, collectively)

following the trial court’s grant of the Kilbys’ petition to confirm arbitration

award. We affirm.

      The trial court summarized the background of this case as follows.

            Diaz is a financial advisor who maintains a business
      located in Monroe County, Pennsylvania. [The Kilbys] are clients
      of Diaz who purchased several investments on the
      recommendation of Diaz. [The Kilbys] met Diaz at a free dinner
      presentation in Mount Pocono, Monroe County, Pennsylvania in
      the fall of 2006. [The Kilbys] signed account opening documents
      in 2006, which [the Kilbys] claim Diaz changed the date to
      January 2006, many months before the parties met. [The
      Kilbys] also claim that they signed documents which were blank
      or partially completed and that Diaz made several
      misrepresentations to them. [The Kilbys] claimed that Diaz
      made unauthorized investments, failing to disclose substantial
      risks and inflating [the Kilbys’] net worth to demonstrate that
      [the Kilbys] were qualified [] for the risk. Additionally, [the

*Retired Senior Judge assigned to the Superior Court.
J-S46043-16

      Kilbys] claim that Diaz performed other fraudulent activities and
      Diaz made material misrepresentation[s] to their detriment. At
      some point, [the Kilbys] learned of some of Diaz’s improper
      actions and in 2010, they became dissatisfied with the
      investments and services of Diaz. On January 30, 2013, a
      Statement of Claim was filed with FINRA [(Financial Industry
      Regulatory Authority)] by [the Kilbys] alleging out-of-pocket
      losses of approximately $311,082.46, exclusive of the costs of
      the action.       [The Kilbys] asserted causes of action for
      negligence, gross negligence, misrepresentations, omissions,
      negligent supervision, and breach of fiduciary duty as well as
      other claims against Diaz. [The Kilbys] also filed claims against
      First Allied Securities, Inc. and SII Investments, Inc.1 After 13
      hearing sessions before a FINRA Panel, an Award was made in
      favor of [the Kilbys] and against Diaz. The Award included
      $99,936.80 in compensatory damages; $90,000 in punitive
      damages; $30,000 in attorney’s fees, as well as the assessment
      of hearing fees of $16,800 against Diaz.
            ______
            1
               At the time of the arbitration, [the Kilbys] indicated that
            they reached settlement with First Allied Securities, Inc.
            and SII Investments, Inc.

Trial Court Opinion (TCO), 6/4/2015, at 2-3.

      Diaz filed a petition to vacate the award, and the Kilbys responded

with a petition to confirm it. Following briefing and oral arguments, the trial

court granted the Kilbys’ petition and denied Diaz’s.           Judgment was

subsequently entered upon the Kilbys’ praecipe, and Diaz timely filed a

notice of appeal.

      Diaz offers eight claims of trial court error in denying his petition to

vacate the arbitration award: (1) averring generally that the arbitration

panel denied him a hearing and caused “an unjust, inequitable or

unconscionable award,” and specifically that the panel (2) failed to apply the

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statute of limitations, (3) failed to give Diaz credit for the settlement

amounts the Kilbys received from other defendants, (4) did not consider the

statement of the Kilbys’ counsel that he would deduct settlement amounts

from   the   panel’s   award,   (5)   awarded   damages   without   the   Kilbys’

establishing any losses, (6) “engaged in misconduct” by allowing certain

witnesses to testify, (7) awarded punitive damages without evidentiary

support, and (8) awarded counsel fees contrary to the FINRA guidelines.

Diaz’s Brief at 3-5.

       The trial court and parties agree that this case involves common law,

not statutory, arbitration. Thus, the following principles apply. “A trial court

order confirming a common law arbitration award will be reversed only for

an abuse of discretion or an error of law.” Toll Naval Associates v. Chun-

Fang Hsu, 85 A.3d 521, 525 (Pa. Super. 2014) (citation and quotation

marks omitted).

       “The arbitrators are the final judges of both law and fact, and an

arbitration award is not subject to reversal for a mistake of either.”       Id.

Rather, “mistakes of judgment and mistakes of either fact or law are among

the contingencies parties assume when they submit disputes to arbitrators.”

Allstate Ins. Co. v. Fioravanti, 299 A.2d 585, 589 (Pa. 1973). Therefore,

“[t]he award of an arbitrator … is binding and may not be vacated or

modified unless it is clearly shown that a party was denied a hearing or that

fraud, misconduct, corruption or other irregularity caused the rendition of an

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unjust, inequitable or unconscionable award.”       Toll Naval Associates, 85
A.3d at 525. “In this context, irregularity refers to the process employed in

reaching the result of the arbitration, not to the result itself.” McKenna v.

Sosso, 745 A.2d 1, 4 (Pa. Super. 1999) (internal quotation marks and

citation omitted). “[A]n irregularity will not be found simply upon a showing

that an incorrect result was reached.”        Duquesne Light Co. v. New

Warwick Min. Co., 660 A.2d 1341, 1347 (Pa. Super. 1995).

     For example, this Court has found irregularities rising to the level of

the denial of a fair hearing where the arbitrators: exceeded the scope of the

arbitration agreement, Ginther v. U.S. Fid. & Guar. Co., 632 A.2d 333,

335 (Pa. Super. 1993); made an award for claims that were never raised,

Mellon v. Travelers Ins. Co., 406 A.2d 759, 762 (1979), or for claims that

were not raised against the party against whom they were awarded, Alaia

v. Merrill Lynch, Pierce, Fenner & Smith Inc., 928 A.2d 273, 277 (Pa.

Super. 2007); and had an undisclosed, ongoing business relationship with

one of the parties, James D. Morrisey, Inc. v. Gross Const. Co., 443 A.2d
344, 349 (Pa. Super. 1982).

     However,    this   Court   has   held   that   no   irregularity   warranting

modification occurred where the allegations were that the arbitrators:

applied the wrong state’s law, Racicot v. Erie Ins. Exch., 837 A.2d 496,

500 (Pa. Super. 2003); failed to award fees as provided by a relevant

statute, F.J. Busse Co. v. Sheila Zipporah, L.P., 879 A.2d 809, 812 (Pa.

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Super. 2005); made an award contrary to a policy exclusion, Hain v.

Keystone Ins. Co., 326 A.2d 526, 528 (Pa. Super. 1974); and made an

incorrect determination whether a person was an insured under a contract.

Prudential Prop. & Cas. Ins. Co. v. Stein, 683 A.2d 683, 684 (Pa. Super.

1996).

      In sum, “only claims which assert some impropriety in the arbitration

process may be the subject to an appeal—to the exclusion of appeals which

seek review of the merits.”    Snyder v. Cress, 791 A.2d 1198, 1201 (Pa.

Super. 2002). “[N]either we nor the trial court may retry the issues

addressed in an arbitration proceeding or review the tribunal’s disposition of

the merits of the case.” F.J. Busse Co., 879 A.2d at 811.

      In the instant case, it is clear to this Court that Diaz faults not the

arbitration process, but the results reached by the arbitrators.1 We address

each of his issues seriatim to explain why no relief is due.

      With his first specific claim of error, Diaz asserts that the arbitrators

erred by failing to hold that the Kilbys’ claims are barred by the statute of

limitations. Diaz’s Brief at 12. The trial court offered the following analysis

of Diaz’s contention:

1
  In making his arguments, Diaz relies most heavily on decisions of federal
district and circuit courts, and goes so far as to claim that the trial court
erred in “ignoring” a memorandum decision of a federal district court. Diaz’s
Brief at 27. We remind Diaz that neither the trial court nor this Court is
bound by the decisions of the lower federal courts. In re Stevenson, 40
A.3d 1212, 1221 (Pa. 2012) (“[T]he lower federal courts have only
persuasive, not binding, effect on the courts of this Commonwealth.”).

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      Diaz argues that Mr. Kilby testified that he learned of the
      illiquidity of the subject investments in 2009 and that Mr. Kilby
      made a formal written complaint to securities regulators in June
      2010. Therefore, Diaz argues that Mr. Kilby had actual notice of
      the basis for their claims in no later than June 2010, and they
      were obligated to bring their claim no later than June 2012. We
      note that Diaz made the same argument before the Panel during
      the arbitration. Diaz claims that the arbitrators made a mistake
      in the law as applied to this case. However, the arbitrators are
      the final judges of both law and fact, and an arbitration award is
      not subject to reversal for a mistake of either. The arbitrators
      heard the facts and applied the law in this arbitration.

TCO, 6/4/2015, at 4-5 (citations omitted).

      Indeed, in his brief to this Court, Diaz acknowledges that he was given

the opportunity to present his statute-of-limitations defense, both in his

answer and in closing arguments at the hearing. Diaz’s Brief at 17. Thus,

Diaz merely challenges the result, not the process. The trial court is correct:

even if the arbitrators’ determination that the Kilbys’ claim could proceed

despite the statute of limitations was an error of fact or law, neither the trial

court nor this Court will disturb it. Toll Naval Associates, 85 A.3d at 525.

      Diaz next claims that he was “denied a hearing” on the issue of credit

for settlements the Kilbys reached with other parties, Diaz’s Brief at 18, and

that an irregularity was established by the arbitrators’ “failure to consider”

the statement by the Kilbys’ counsel that they would deduct the settlement

amounts from the panel’s award. Diaz’s Brief at 22.

      In pursuing this claim in the trial court, Diaz attached an excerpt from

the arbitration transcript in which the Kilbys’ counsel made the following

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statements to the arbitration panel, after informing the panel that he would

do his best “to have some case law on the issue”:

      I’ll do my best to get to that issue, and also I have, depending
      on how the Panel might rule, I, well, I’ll just, I know what the
      law says about it, but what I also would do, and I guess I’ll
      volunteer this--at the end of the day I don’t know if it’s fair or
      not, but I did definitely want to be fair--so whatever there was in
      the settlements with both cases I would deduct that from
      whatever the Panel might award. I’m saying might, just so
      we’re saying, I don’t want to overstate anything, is that, and
      maybe I’m giving too much away, but I don’t particularly believe
      that I, without the permission of the other SII who settled with
      us and First Allied who settled with us, to voluntarily discuss that
      amount, those settlements, I wouldn’t feel comfortable in doing
      that because I believe that it would be a breach of the
      agreement….

Diaz’s Supplemental Brief, 2/26/2015, at Exhibit A.

      Although Diaz failed to attach the preceding pages of the transcript, it

appears from this excerpt that the legal issue of whether an award against

Diaz should be reduced by the amount the Kilbys received from other

entities in fact was presented by Diaz to the arbitrators for their

consideration. The trial court offered the following additional analysis:

      The Panel heard these comments from [the Kilbys’] counsel and
      did not require the [Kilbys] to disclose the settlement amounts
      or give a credit for the settlement amounts. We do not believe
      that Diaz, who bears the burden of establishing any irregularity
      and inequity, has demonstrated, by clear and convincing
      evidence, of an irregularity which resulted in an indifference to
      justice. The Panel was made aware that [the Kilbys] reached
      settlement with First Allied Securities, Inc. and SII Investments,
      Inc. Since the Panel was made aware of the settlement, they
      could have made the disclosure part of its award. As the
      transcript demonstrates, [the Kilbys’] counsel indicated that he
      might give the credit but he did not want to overstate anything.

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      Since the Panel did not require disclosure, [the trial court] will
      not require [the Kilbys] to disclose the settlement amounts or
      require a credit of the settlements against the award.

TCO, 6/4/2015, at 5-6.

      Thus, it is clear that Diaz was not denied a hearing on this issue;

rather, he is unhappy with the arbitrators’ legal determinations regarding

double recovery and the relevance of evidence.         Diaz’s Brief at 18-21.

Further, the arbitrators did not fail to apply some sort of stipulation or the

like made by the Kilbys’ counsel: counsel indicated that he believed that the

law was on the Kilbys’ side, that he would not voluntarily disclose the

settlement amounts for fear of violating confidentiality requirements, but

that the Kilbys might voluntarily reduce their recovery depending on what

the panel awarded.2 Even if the panel’s legal determinations were wrong,

it is not the place of the trial court or this Court to correct the arbitrators’

errors of law. Snyder, 791 A.2d at 1201.

      The same is true of Diaz’s claims that the arbitrators awarded

compensatory and punitive damages without evidentiary support.          As the

trial court explained:

           Although Diaz claims that the Panel did not have any basis
      to award compensatory damages, we cannot agree. First, Diaz

2
  Because the Kilbys were awarded less than one third of the compensatory
damages they sought, it is not at all clear that the Kilbys were made more
than whole by the compensatory damage award. Compare Petition to
Vacate Arbitration Award, 12/4/2014, at Exhibit 1 (reflecting that the Kilbys
claimed out-of-pocket losses of over $300,000) with id. at 3 (noting that
the Kilbys were awarded less than $100,000 in compensatory damages).

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      has the burden of establishing both the underlying irregularity
      and the resulting inequity by clear, precise and indubitable
      evidence. Diaz attached to his Supplemental Brief excerpts
      allegedly from a transcript dated 8/23/2014 at pages 82-84.
      This excerpt does not allow this [c]ourt to determine what the
      [Kilbys] presented to the Panel in support of their request for
      compensatory damages.        There is no clear, precise and
      indubitable evidence that the award of compensatory damages
      was the result of fraud, misconduct, corruption or other
      irregularity. The Panel did not address the issue of applying a
      credit towards the future income received from the subject
      investments and we will not speculate as to how they reached
      their decision. …

                                     ***

            The assessment of punitive damages is proper when a
      person’s actions are of such an outrageous nature as to
      demonstrate intentional, willful, wanton or reckless conduct.
      Punitive damages are awarded to punish that person for such
      conduct. …

                                     ***

      … The record does not contain the entire transcript of the 13
      sessions which comprised the arbitration in this case. Diaz only
      filed excerpts of the transcript recording; therefore, we cannot
      surmise the content of other witnesses’ testimony.               A
      determination of whether a person’s actions arise to outrageous
      conduct lies within the sound discretion of the fact-finder and will
      not be disturbed by an appellate court so long as that discretion
      has not been abused. Diaz must establish by clear, precise and
      indubitable evidence the award of punitive damages was the
      result of fraud, misconduct, corruption or other irregularity. He
      has not done so. …

TCO, 6/4/2015, at 7-10 (citations and quotation marks omitted).

      Diaz’s next claimed irregularity involves the panel’s decision to allow

certain rebuttal witnesses. The trial court discussed the issue as follows.

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      Diaz argues that the Panel engaged in gross misconduct by
      allowing [the Kilbys] to call rebuttal witnesses to discuss their
      dealings with Diaz. Diaz claims that both witnesses were his
      former clients and they had no personal knowledge of the claims
      in this case. Diaz argues that their testimony was irrelevant and
      highly prejudicial to his case. He cites the case of In Re
      Catanella and E.F. Hutton and Co., Inc. Securities
      Litigation, 1988 WL 33440 (E.D. Pa. 1988), in support of his
      position. In Catanella, the plaintiff sued E. F. Hutton and
      Kenneth G. Catanella, the account representative, for allegedly
      “churning” the account which resulted in losses to plaintiff. The
      Catanella Court determined that the probative value of the
      testimony of other customers was negligible and that the jury
      would likely become bogged down in collateral issues and likely
      become confused about issues to be decided.

            Instantly, Diaz argues that these rebuttal witnesses should
      have been prohibited from testifying which unduly prejudiced his
      defense. However, we do not believe that the Panel would likely
      become bogged down in collateral issues or become confused
      about issues to be decided. The probative value of this evidence
      was for the Panel to decide and not this [c]ourt. …

TCO, 6/4/2015, at 6-7.

      We agree. Diaz is unhappy with an evidentiary ruling. That is a claim

of legal error, not a claim that Diaz “was denied a hearing or that fraud,

misconduct, corruption or other irregularity caused the rendition of an

unjust, inequitable or unconscionable award.”   Toll Naval Associates, 85
A.3d at 525.

      Finally, Diaz contends that the award should be vacated because the

arbitrators awarded counsel fees to the Kilbys “without any legal basis” and

in contravention of the FINRA Arbitrator’s Guide.   Diaz’s Brief at 29.   The

trial court disagreed:

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      [T]he Award states that the Panel is awarding punitive damages
      and attorneys’ fees because of the commission of fraudulent
      handling of documents by [] Diaz. Although Diaz claims that
      there is no basis in the record for the award of attorneys’ fees,
      we will not speculate about how the arbitrators reached their
      decision to award attorneys’ fees.[3] Moreover, we find that Diaz
      failed to meet his burden to establish both the underlying
      irregularity and the resulting inequity by clear, precise, and
      indubitable evidence.

TCO, 6/4/2015, at 11.

      Yet again, we are presented with an alleged error of law, not a

fundamental flaw in the process that deprived Diaz of a fair hearing. Diaz

merely is attempting to relitigate legal issues to show the wrong result was

reached. Such claims of arbitrators’ error warrant no relief from the courts

of this Commonwealth. F.J. Busse Co., 879 A.2d at 812 (holding no relief

was due upon claim that arbitrators incorrectly applied statute regarding

attorney fees).

      In sum, Diaz’s complaints amount to the contention that he would

have prevailed at the arbitration if the law had been applied the way he

thinks is correct.   Diaz had the opportunity to make his arguments to the

arbitrators, but he lost.   That is no reason for any court to disturb the

decision of the arbitration panel. See Gargano v. Terminix Int’l Co., L.P.,

784 A.2d 188, 195 (Pa. Super. 2001) (“The mere fact that the arbitrator

3
 Again, such speculation would be required because Diaz filed of record only
excerpts of the arbitration transcripts.

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found in favor of the Appellees does not demonstrate that an irregularity and

a resulting inequity occurred.”).

      Judgment affirmed.

Judgment Entered.

Joseph D. Seletyn, Esq.

Prothonotary

Date: 8/4/2016

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