Dawahare v. Spencer ( 2000 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
ELECTRONIC CITATION: 2000 FED App. 0150P (6th Cir.)
File Name: 00a0150p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
;

WOODROW W. DAWAHARE,

Plaintiff-Appellant,


No. 98-6356
v.

>
ADAM A. SPENCER; DEAN 


WITTER REYNOLDS, INC.;
Defendants-Appellees. 
SMITH BARNEY, INC.,

1
Appeal from the United States District Court
for the Eastern District of Kentucky at Lexington.
No. 98-00027—Karl S. Forester, District Judge.
Argued: September 14, 1999
Decided and Filed: April 27, 2000
Before: SUHRHEINRICH, COLE, and GIBSON,* Circuit
Judges.
*
The Honorable John R. Gibson, Circuit Judge of the United States
Court of Appeals for the Eighth Circuit, sitting by designation.
1
2 Dawahare v. Spencer, et al. No. 98-6356
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COUNSEL
ARGUED: J. Robert Lyons, Jr., WOODWARD, HOBSON
& FULTON, Lexington, Kentucky, for Appellant. William
E. Johnson, JOHNSON, JUDY, TRUE & GUARNIERI,
Frankfort, Kentucky, Nancy H. Baughan, PARKER,
HUDSON, RAINER & DOBBS, Atlanta, Georgia, for
Appellees. ON BRIEF: J. Robert Lyons, Jr., Glen S. Bagby,
WOODWARD, HOBSON & FULTON, Lexington,
Kentucky, for Appellant. William E. Johnson, JOHNSON,
JUDY, TRUE & GUARNIERI, Frankfort, Kentucky, Nancy
H. Baughan, David G. Russell, PARKER, HUDSON,
RAINER & DOBBS, Atlanta, Georgia, Theodore E. Cowen,
GRASCH, WALTERS & COWEN, Lexington, Kentucky, for
Appellees.
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OPINION
_________________
JOHN R. GIBSON, Circuit Judge. Woodrow Dawahare
appeals from the district court's denial of his motion to vacate
the arbitration award he obtained against Adam Spencer and
Dean Witter Reynolds, Inc. Dawahare argues that because the
damages awarded were grossly inadequate and bore no
relationship to the evidence submitted, the award itself shows
evident partiality. Further, he argues that the arbitrators
manifestly disregarded the law of damages. We affirm the
district court's confirmation of the award.
In view of the limited issues presented, many of the factual
details are irrelevant to our discussion. Dawahare established
a brokerage account at Shearson Lehman Brothers, Inc. after
receiving a "cold call" from Spencer. Smith Barney, Inc.
acquired Shearson Lehman sometime after Dawahare opened
his account. In August 1994, Spencer informed Dawahare
that he planned to leave Smith Barney and go to Dean Witter,
and Dawahare agreed to transfer his account. Both before and
No. 98-6356 Dawahare v. Spencer, et al. 3
after the transfer, Spencer engaged in short trading with the
Dawahare account. As a result of the price increase of stocks
in which Dawahare held short positions, the account declined
in value by $495,322 during the last two months of 1994.
After Dean Witter learned that Dawahare's son had
complaints about the handling of his father's account, Spencer
was fired.
Pursuant to pre-dispute arbitration agreements between the
parties, Dawahare submitted the controversy to a National
Association of Securities Dealers, Inc. arbitration panel in
1996. Dawahare claimed that Spencer had engaged in
unsuitable and excessive trading, causing him damages in
excess of $600,000. The NASD panel denied Dawahare's
claims against Smith Barney, but found in his favor against
Dean Witter, awarding $25,000 in compensatory damages and
$24,000 in punitive damages. The arbitrators also found
Spencer liable to Dawahare for $1000. In the district court,
Dawahare moved to vacate the award; the court denied his
motion and granted cross motions to confirm the award.
The district court had before it the transcript of the
arbitration hearing. At the hearing, Dawahare presented
evidence that his health was failing and that he was unable to
understand the significance of the short trading strategy
pursued by Spencer because of progressive dementia. His
wife testified that she thought Dawahare was in over his head.
The brokerage firms maintained that Dawahare was an
experienced investor, that he was happy with Spencer and
with his handling of the account while it was profitable, and
that they were unaware of any health or memory problems
Dawahare may have had.
Smith Barney's expert witness testified that Dawahare's
account increased in value while it was at Smith Barney.
Dawahare's expert witness testified that a conservative
investment strategy, assuming a reasonable return of six
percent, would have resulted in an account value of
$776,603.28 in contrast to the $258,731.97 the Dean Witter
account was worth at the end of January 1995. Dawahare's
4 Dawahare v. Spencer, et al. No. 98-6356 No. 98-6356 Dawahare v. Spencer, et al. 9
expert then added interest to the difference between these two would be to disregard the fact finder's responsibility to
figures, arriving at a total of $604,463.06 in damages. Dean evaluate testimony.
Witter argued that Dawahare had authorized the activity in his
account. Neither Dawahare nor Spencer testified at the We decline to adopt Dawahare's suggestion that we engage
arbitration hearing. in a more extensive review of arbitration awards. To do so
would undermine the goal of the arbitration process: to
The district court rejected Dawahare's argument that the resolve disputes efficiently while avoiding extended litigation.
arbitration award should be vacated because of evident See, e.g., Willemijn Houdstermaatschappij, BV v. Standard
partiality or manifest disregard of the law and confirmed the Microsystems Corp., 103 F.3d 9, 12 (2d Cir. 1997); Island
award. We review the confirmation of an arbitration award Creek Coal Sales Co. v. City of Gainesville, 764 F.2d 437,
for clear error on findings of fact and de novo on questions of 441 (6th Cir. 1985).
law. See Glennon v. Dean Witter Reynolds, Inc., 83 F.3d 132,
135 (6th Cir. 1996); Merrill Lynch, Pierce, Fenner & Smith, Smith Barney requests attorneys' fees and double the costs
Inc. v. Jaros, 70 F.3d 418, 420 (6th Cir. 1995). incurred in this appeal, arguing that Dawahare's appeal is
frivolous. We deny Smith Barney's motion for sanctions. For
"It is well established that courts should play only a limited the foregoing reasons, the judgment of the district court is
role in reviewing the decisions of arbitrators." Shelby County affirmed.
Health Care Corp. v. A.F.S.C.M.E., Local 1733, 967 F.2d
1091, 1094 (6th Cir. 1992). The Federal Arbitration Act
presumes that arbitration awards will be confirmed. See 9
U.S.C. § 9 (1994); Andersons, Inc. v. Horton Farms, Inc., 166
F.3d 308, 328 (6th Cir. 1998). A court may vacate an
arbitration award in the following situations: (1) where the
award was procured by fraud, (2) where the arbitrators were
evidently partial or corrupt, (3) where the arbitrators
misbehaved so that a party's rights were prejudiced, or (4)
where the arbitrators exceeded their powers or executed them
so that a final, definite award was not made. See 9 U.S.C.
§ 10(a) (1994). In addition, a reviewing court may vacate an
award where the arbitrators have manifestly disregarded the
law. See Glennon, 83 F.3d at 136.
Dawahare first argues that the award should be vacated
under 9 U.S.C. § 10(a) because the discrepancy between the
damages awarded and the damages alleged shows evident
partiality. We see no basis to sustain this argument. Only if
a reasonable person would have to conclude that the
arbitration panel was partial to a party will we find evident
partiality. See Andersons, Inc., 166 F.3d at 328. "The alleged
partiality must be direct, definite, and capable of
8 Dawahare v. Spencer, et al. No. 98-6356 No. 98-6356 Dawahare v. Spencer, et al. 5
simply no evidence that the arbitrators were aware of some demonstration, and 'the party asserting [it] . . . must establish
relevant law on damages that they chose to ignore, and we specific facts that indicate improper motives on the part of the
question whether the damages evidence presented by arbitrator.'" Id. at 329 (quoting Consolidation Coal Co. v.
Dawahare required any particular outcome. Local 1643, United Mine Workers of Am., 48 F.3d 125, 129
(4th Cir. 1995)). Because Dawahare points to nothing but the
During closing argument at the arbitration hearing, amount of the award to establish evident partiality, there is no
Dawahare's attorney characterized the damages as two types: basis to vacate the award on this ground.
excessive commissions paid while Spencer churned the
account at Smith Barney and the loss in value that occurred at Dawahare also argues that the substantial disparity between
Dean Witter due to the short positions in the account. His the damages awarded and the damages evidence presented
expert, however, concluded that Dawahare should recover the establishes a manifest disregard of the law of damages. He
amount of money that his account would have earned had it asserts that the common law entitles him to recover all losses
been invested conservatively and earned 6%. Dawahare's proximately caused by the wrongful acts of the liable parties.
attorney stated: "So, I would like to give you a nice clean Our review for manifest disregard of the law does not open
theory for allocating this award among these respondents, and the door to extensive review of arbitral awards. See Jaros, 70
I'm afraid I can't do that. I'm going to have to leave it to your F.3d at 421 ("This court has emphasized that manifest
wisdom." Dawahare cannot rely upon the wisdom of the disregard of the law is a very narrow standard of review.").
decision makers without citing any rule of law to support his
damages claim and then later argue that the arbitrators An arbitration decision "must fly in the face of established
disregarded the law. legal precedent" for us to find manifest disregard of the law.
Id. An arbitration panel acts with manifest disregard if
Dawahare's argument on manifest disregard of the law is "(1) the applicable legal principle is clearly defined and not
premised on the fact that the only damages evidence was his subject to reasonable debate; and (2) the arbitrators refused to
expert's opinion that he had sustained damages in excess of heed that legal principle." Id. Thus, to find manifest
$600,000. In essence, he argues that the arbitrators were disregard a court must find two things: the relevant law must
compelled to accept this testimony and award that amount. be clearly defined and the arbitrator must have consciously
We agree with the district court's observation that "[e]xpert chosen not to apply it. See M & C Corp. v. Erwin Behr
testimony, even if uncontradicted, may be believed in its GmbH & Co., 87 F.3d 844, 851 n.3 (6th Cir. 1996) (noting
entirety, in part, or not at all." See also Quinones-Pacheco v. that if its review of an arbitral award were based on FAA
American Airlines, Inc., 979 F.2d 1, 5 (1st Cir. 1992) (fact standards, there was no manifest disregard since any mistake
finder not ordinarily bound by uncontradicted expert opinion in applying the law was inadvertent and not based on a
testimony, particularly where testimony "lacks great conscious decision to ignore the law). Arbitrators are not
convictive force" in context of evidence as a whole); Gregg required to explain their decisions. If they choose not to do
v. U. S. Indus., Inc., 887 F.2d 1462, 1469-70 (11th Cir. 1989) so, it is all but impossible to determine whether they acted
(expert testimony is not conclusive and need not be accepted). with manifest disregard for the law. See Jaros, 70 F.3d at
The court also pointed out that the expert's opinion had been 421.
impeached on cross-examination and that there was evidence
that Dawahare maintained substantial control over his Chief Judge Martin, concurring in Federated Department
investments. For us to hold that the arbitration panel was Stores, Inc. v. J.V.B. Industries, Inc., 894 F.2d 862 (6th Cir.
compelled to accept Dawahare's expert's damages evidence 1990), recognized the problems inherent in reviewing an
6 Dawahare v. Spencer, et al. No. 98-6356 No. 98-6356 Dawahare v. Spencer, et al. 7
arbitration award for manifest disregard of the law where the 70 F.3d at 421 (stating that an arbitrator must refuse to heed
arbitrators fail to state a reason for their decision. He stated a clearly defined legal principle in order to manifestly
that courts are forced to participate in a "judicial snipe hunt" disregard the law). Here, Dawahare points to nothing in the
with the parties arguing about law that may or may not have record that indicates the arbitration panel was aware of the
been disregarded by the arbitrators. See id. at 871. He would law he alleges it ignored. Also, the Halligan court
allow reversal when there are no reasons given for an particularly emphasized the importance of assuring plaintiffs
arbitration decision and the record is insufficient to show that with employment discrimination claims a forum in which to
the arbitrators did not manifestly disregard the law. See id. effectively vindicate their statutory rights. See 148 F.3d at
No panel of this court has adopted this reasoning. 201-03.
The arbitrators' decision in this case outlined the parties' In Montes v. Shearson Lehman Brothers, Inc., 128 F.3d
contentions and discussed the claims and evidence in some 1456 (11th Cir. 1997), the Eleventh Circuit reversed the
detail for some three-and-a-half, single-spaced pages. The district court's confirmation of an arbitration award because
monetary award simply designated the amount of damages the arbitration panel acted in manifest disregard of the law.
without detailed explanation. It is difficult to say that the An employee sued her former employer for overtime pay
arbitrators refused to heed a clearly defined legal principle. pursuant to the Fair Labor Standards Act, and the dispute
Dawahare points to nothing in the record that shows the went to arbitration. See id. at 1458. The employer's attorney
arbitrators' awareness of the common law that he alleges to be repeatedly urged the arbitration panel to disregard the FLSA
applicable. This is not a case where one of the parties clearly when making its decision and the panel denied the employee's
stated the law and the arbitrators expressly chose not to claim. See id. at 1458-59. Because there was no evidence the
follow it. arbitrators rejected the urging and because there was a lack of
factual support for the ruling, the court remanded with
Since Supreme Court dictum established the manifest instructions to refer the case to a new arbitration panel. See
disregard of the law standard forty-seven years ago, see Wilko id. at 1464. The concurrence emphasized that the decision
v. Swan, 346 U.S. 427, 436 (1953), overruled on other was narrowly limited to the unusual facts of the case. See id.
grounds, Rodriguez de Quijas v. Shearson/American Express, Here, there is no evidence that Spencer, Smith Barney, or
Inc., 490 U.S. 477 (1989), only two federal courts of appeals Dean Witter urged the arbitrators to disregard the applicable
have used it to vacate arbitration decisions. Dawahare law.
understandably cites to these cases, but to no avail, as both
cases are easily distinguished from the case before us. Dawahare's vague assertion that the arbitrators manifestly
disregarded the common law of damages falls far short of the
The Second Circuit held that an arbitration panel that necessary showing of the law that clearly applied in the case
denied relief on an ADEA claim showed manifest disregard and of conscious disregard of that law by the arbitrators. It is
by ignoring "the law or the evidence or both" where the possible to argue that the arbitrators misapplied the law of
plaintiff presented strong evidence that he was fired because damages, that is, punitive damages would only be warranted
of his age. Halligan v. Piper Jaffray, Inc., 148 F.3d 197, 204 for egregious conduct by Dean Witter and, in that case, a
(2d Cir. 1998), cert. denied, 119 S. Ct. 1286 (1999). The court compensatory award of less than 5% of the damages alleged
pointed out that the parties explained the applicable law to the is likely too low. To show manifest disregard, however, a
arbitrators. See id. at 204. This is important because manifest party must show more than "[a] mere error in interpretation or
disregard requires awareness of the relevant law. See Jaros, application of the law." Jaros, 70 F.3d at 421. There is