Downer v. Siegel ( 2007 )

REVISED August 13, 2007
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 06-30159 F I L E D
June 13, 2007
LINDA L DOWNER; HUNT B DOWNER Charles R. Fulbruge III
Clerk
Plaintiffs - Appellees
v.
FRED SIEGEL, Etc; ET AL
Defendants
FRED SIEGEL, also known as Michael Siegel, also known
as Michael Fred Siegel
Defendant - Appellant
-------------------------
PATRICK B LANDRY; DOROTHY A LANDRY; LINDA L DOWNER;
HUNT B DOWNER
Plaintiffs - Appellees
v.
MICHAEL F SIEGEL, Etc; ET AL
Defendants
MICHAEL F SIEGEL, also known as Fred Siegel
Defendant - Appellant
--------------------
Appeal from the United States District Court
for the Eastern District of Louisiana
--------------------
Before KING, WIENER, and OWEN, Circuit Judges.
KING, Circuit Judge:
Defendant-appellant Michael F. Siegel appeals the district
court’s order vacating an arbitration award in his favor. We
No. 06-30159
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REVERSE and REMAND for further proceedings.
I. FACTUAL AND PROCEDURAL BACKGROUND
Dain Rauscher, Inc. (“DR”) employed defendant-appellant
Michael F. Siegel (also known as Fred Siegel) as a stock broker.
In 1997, plaintiffs-appellees Linda and Hunt Downer (together,
“the Downers”) opened a brokerage account with DR and executed an
asset management agreement, which stated “[t]he client
understands, acknowledges and agrees that”:
(a) ALL CONTROVERSIES WHICH MAY ARISE BETWEEN
THE CLIENT AND [RAUSCHER PIERCE REFSNES
(“RPR”)],[1] ITS OFFICERS, DIRECTORS,
AGENTS, REPRESENTATIVES OR EMPLOYEES,
PRESENT OR FORMER, CONCERNING ANY ACCOUNT
MAINTAINED BY THE CLIENT WITH RPR, ANY
TRANSACTION INVOLVING RPR AND THE CLIENT,
REGARDLESS OF WHETHER SUCH TRANSACTION
OCCURRED IN THE CHOICE ACCOUNT OR ANOTHER
ACCOUNT, OR THE CONSTRUCTION, PERFORMANCE
OR BREACH OF THIS OR ANY OTHER AGREEMENT
BETWEEN THE CLIENT AND RPR, WHETHER
ENTERED INTO PRIOR, ON, OR SUBSEQUENT TO
THE DATE HEREOF, SHALL BE DETERMINED BY
ARBITRATION TO THE FULL EXTENT PROVIDED
BY LAW. ACCORDINGLY, BOTH RPR AND THE
CLIENT ARE WAIVING THEIR RESPECTIVE
RIGHTS TO SEEK REMEDIES IN COURT,
INCLUDING, AMONG OTHER THINGS, THE RIGHT
TO A JURY TRIAL.
Plaintiffs-appellees Patrick and Dorothy Landry
(collectively, “the Landrys”) signed an asset management
agreement with an identical arbitration clause when they opened a
brokerage account with DR in early 1998. Siegel, as an agent of
DR, served as a stock broker for the Landrys and the Downers
(collectively “the plaintiffs”).
In November 1997, the Downers transferred $300,000 from
1
DR is the successor-in-interest to RPR.
No. 06-30159
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their DR account directly to an account of World Environmental
Technologie (“WET”), allegedly at Siegel’s suggestion. The
Landrys also allege that they were persuaded by Siegel to invest
$100,000 from their DR account in WET.
In 2002, unhappy with the failure of their WET investments,
the Landrys and the Downers filed separate actions in Louisiana
state court against multiple defendants including Siegel2
alleging, among other things, fraud in the inducement of both the
investments and account agreements and violations of the
Securities Exchange Act of 1934 and NASDAQ rules of conduct. The
defendants removed the actions to federal court. These cases
were later consolidated. The plaintiffs filed additional related
suits in state court, which were removed and consolidated with
the lead case.
The defendants moved to stay the actions pending
arbitration, but the Downers contested the arbitrability of the
dispute. The district court stayed the actions pending
arbitration and denied the Downers’ motion concerning
arbitrability. Throughout the next two years, the plaintiffs
attempted numerous times, albeit unsuccessfully, to have the
arbitration panel dismiss the arbitration proceeding and to
otherwise have the district court lift its stay and return the
case to the active docket.
Siegel initiated an arbitration, seeking a declaratory
judgment that he was not liable to the plaintiffs. The
plaintiffs filed a counterclaim against Siegel in the
2
Siegel is the only defendant involved in this appeal.
No. 06-30159
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arbitration, alleging the same misconduct and requesting the same
relief as they had in the district court action. The arbitration
panel ultimately dismissed the plaintiffs’ claims based on
prescription.
On the plaintiffs’ motion, the district court vacated the
arbitration award, holding that (1) because the investments in
WET were private investments between Siegel and the plaintiffs,
they were not subject to the arbitration agreement and (2) given
the repeated challenges to the arbitrability of the disputes at
issue, the plaintiffs had not waived their right to challenge the
arbitration. Siegel, who filed a motion to confirm the
arbitration award, now appeals.
II. DISCUSSION
We review the district court’s decision to vacate an
arbitration award under a de novo standard, deferring greatly to
the arbitration panel’s decision. Kergosien v. Ocean Energy,
Inc., 390 F.3d 346, 352 (5th Cir. 2004). Pursuant to the Federal
Arbitration Act (“FAA”), a district court’s ability to set aside
an arbitration award is limited to four grounds. 9 U.S.C.
§ 10(a). Only one of those grounds is applicable in this case,
that is, whether 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.
§ 10(a)(4).
“‘[A] district court’s review of an arbitration award is
extraordinarily narrow.’” Kergosien, 390 F.3d at 352 (quoting
Prestige Ford v. Ford Dealer Computer Servs., Inc., 324 F.3d 391,
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393 (5th Cir. 2003)) (brackets in original). A presumption of
arbitrability exists which requires the court to decide in favor
of arbitration when “the scope of an arbitration clause is fairly
debatable or reasonably in doubt.” Mar-Len of La., Inc. v.
Parsons-Gilbane, 773 F.2d 633, 635 (5th Cir. 1985). “The weight
of this presumption is heavy: arbitration should not be denied
‘unless it can be said with positive assurance that an
arbitration clause is not susceptible of an interpretation that
could cover the dispute at issue.’” Id. at 636 (quoting Wick v.
Atl. Marine, Inc., 605 F.2d 166, 168 (5th Cir. 1979)).
A reasonable interpretation of the arbitration clause in the
instant case supports a conclusion that the clause covers the
dispute. Although the district court held that the plaintiffs’
dispute is with Siegel in his individual capacity and is not
subject to the arbitration clause in the agreement between the
plaintiffs and DR, “[w]hether a claim is subject to arbitration
depends on the contractual language.” Deputy v. Lehman Bros.,
Inc., 345 F.3d 494, 513 (7th Cir. 2003). The text of the clause
in the instant case does not limit the circumstances to which it
applies to those that fall within the scope of the employee’s
employment. Rather, the arbitration clause provides:
ALL CONTROVERSIES WHICH MAY ARISE BETWEEN THE
CLIENT AND RPR, ITS OFFICERS, DIRECTORS,
AGENTS, REPRESENTATIVES OR EMPLOYEES, PRESENT
OR FORMER, CONCERNING ANY ACCOUNT MAINTAINED
BY THE CLIENT WITH RPR . . . SHALL BE
DETERMINED BY ARBITRATION.
The broad language of this clause covers all controversies
between the plaintiffs and former or current employees of DR
concerning any account the plaintiffs maintained at DR. Here,
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because the WET investments were made from funds deposited in the
plaintiffs’ DR accounts, one reasonable interpretation of the
clause is that these claims concerned the Downers’ and the
Landrys’ accounts. The plaintiffs cannot maintain their
underlying action without discussing the asset management
agreement and why Siegel was in charge of their money. The
presumption of arbitrability dictates that the court find in
favor of arbitration because there is an interpretation of the
clause which covers the claims in this case. That there are
other interpretations which could lead to a conclusion that the
claims involve a private investment outside the scope of the
arbitration clause does not require vacation of the arbitration
award. “[I]f there is ambiguity as to whether an arbitrator is
acting within the scope of his authority, that ambiguity must be
resolved in favor of the arbitrator.” Am. Eagle Airlines, Inc.
v. Airline Pilots Ass’n, 343 F.3d 401, 405 (5th Cir. 2003).
Accordingly, the arbitration panel did not exceed its powers, and
the district court improperly vacated the arbitration award.
Our conclusion is consistent with decisions of other
circuits that have found other fraud claims to be arbitrable
under similar arbitration agreements. For example, in Fazio v.
Lehman Brothers, Inc., the plaintiffs’ broker had misappropriated
at least $54 million of his clients’ money. 340 F.3d 386, 391
(6th Cir. 2003). The plaintiffs sued the brokerage firms for
which their broker had worked over the course of his career, and
the defendants moved to stay the proceedings and compel
arbitration based on an arbitration clause materially similar to
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the one involved here.3 Id. at 391-92. The Sixth Circuit,
disagreeing with the district court’s determination that the
claims were outside the scope of the arbitration agreements, held
that the claims concerning the broker’s fraudulent conduct were
within the scope of the arbitration agreement because “[t]he
lawsuit by necessity must describe why [the broker] was in
control of the plaintiffs’ money . . . . The plaintiffs
therefore cannot maintain their action without reference to the
account agreements, and accordingly, this action is covered by
the arbitration clauses.” Id. at 395. On another claim for
fraudulent acts by the same broker involving the same arbitration
provision as in Fazio, the Seventh Circuit agreed that the
“claims clearly fell within the scope of this arbitration clause
because they all related to [the plaintiff’s] ‘accounts,
transactions or agreements.’” Deputy, 345 F.3d at 513.
The plaintiffs assert that the contract should be
invalidated because of the alleged fraudulent inducement, in
essence arguing that there was never a binding contract because
they would not have entered into the transaction if they had not
been misled by Siegel. This argument is beside the point. Even
if this contract had been induced by fraud, the arbitration
clause is enforceable unless the plaintiffs were fraudulently
3
The arbitration clause at issue in Fazio, provided that
“[a]ny controversy arising out of or relating to any of my
accounts, to transactions with you for me, or to this or any
other agreement or the construction, performance or breach
thereof, shall be settled by arbitration.” 340 F.3d at 392.
No. 06-30159
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induced into agreeing to the arbitration clause itself.4 Prima
Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04
(1967). The district court cannot consider general claims of
fraud in the inducement of the contract. Id. The plaintiffs’
fraud argument focuses on the nature of the WET investment. At
no point do the plaintiffs’ fraudulent inducement claims focus on
the arbitration clause itself. Accordingly, the plaintiffs’
argument that the contract should be vitiated on fraudulent
inducement grounds also fails.5
III. CONCLUSION
For the foregoing reasons, the judgment of the district
court is REVERSED, and this case is REMANDED for confirmation of
the arbitration award.
4
In Prima Paint Corp. v. Flood & Conklin Mfg. Co., the
Supreme Court stated that:
[I]f the claim is fraud in the inducement of
the arbitration clause itself——an issue which
goes to the ‘making’ of the agreement to
arbitrate——the federal court may proceed to
adjudicate it. But the [Federal Arbitration
Act’s] statutory language does not permit the
federal court to consider claims of fraud in
the inducement of the contract generally.
388 U.S. 395, 403-04 (1967).
5
Siegel also argues that the plaintiffs waived their right
to contest the arbitrability of the claims. We decline to reach
the waiver issue because even if, as the plaintiffs argue, they
did not waive that objection, the claims are subject to the
arbitration clause.