Maury Bronstein, IRA v. Morgan Keegan & Company, Inc. ( 2014 )

IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
January 23, 2014 Session
MAURY BRONSTEIN, IRA v. MORGAN KEEGAN & COMPANY, INC.
Direct Appeal from the Chancery Court for Shelby County
No. CH-10-1547-1 Walter L. Evans, Judge
No. W2011-01391-COA-R3-CV - Filed April 1, 2014
The trial court vacated an arbitration award in favor of Respondent Morgan Keegan on the
ground of evident partiality. Finding Petitioner failed to introduce evidence to support
allegations of evident partiality, we reverse and remand to the trial court for confirmation of
the arbitration award.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Reversed
and Remanded
D AVID R. F ARMER, J., delivered the opinion of the Court, in which D. M ICHAEL S WINEY, J.,
and J. S TEVEN S TAFFORD, J., joined.
John S. Golwen, Christopher G. Lazarini and Ryan Robert Baker, Memphis, Tennessee, for
the appellant, Morgan Keegan & Company, Inc.
Christopher S. Campbell, Laura S. Martin and Margaret R. Johnson, Memphis, Tennessee,
and Dale Ledbetter, Fort Lauderdale, Florida for the appellee, Maury Bronstein, IRA.
OPINION
This appeal arises from the trial court’s judgment vacating a Financial Industry
Regulatory Authority (“FINRA”) arbitration award in favor of Respondent/Appellant
Morgan Keegan & Company, Inc. (“Morgan Keegan”) on the ground of “evident partiality”
pursuant to 9 U.S.C. § 10(a)(2) and Tennessee Code Annotated § 29-5-313(a)(1)(B). This
dispute commenced in March 2009, when Petitioner/Appellee Maury Bronstein, IRA (“Mr.
Bronstein”) initiated an arbitration claim against Morgan Keegan with respect to losses that
he incurred on investment in the RMK Advantage Income Fund, Inc., and the RMK Select
Intermediate Bond Fund (collectively, “the RMK Funds”) sold by Morgan Keegan. Mr.
Bronstein asserted causes of action for 1) misrepresentation and omissions; 2) breach of
fiduciary duty; 3) unsuitable investments; 4) negligence; 5) failure of supervision; 6) breach
of contract; 7) vicarious liability; 8) violation of FINRA rules; and 9) violation of the
Securities and Exchange Act. The matter was heard by a three-member FINRA arbitration
panel comprised of Mary E. Woytek (Ms. Woytek), public arbitrator and chairperson, Dineo
Coleman Gary (Mr. Gary), public arbitrator, and James A. Blalock, III (Mr. Blalock), non-
public arbitrator. The panel found Morgan Keegan not liable and denied Mr. Bronstein’s
claim in its entirety.
In August 2010, Mr. Bronstein filed a petition in the Chancery Court for Shelby
County to vacate the arbitration award and remand the matter for a new hearing before a
different arbitration panel. Mr. Bronstein asserted “corruption, fraud and undue means” by
Morgan Keegan in the discovery process and bias and “evident partiality” on the part of Mr.
Blalock as grounds to vacate the award. Morgan Keegan answered in September 2010,
denying Mr. Bronstein’s allegations and asserting that the arbitration hearing was “full and
fair.” Morgan Keegan also asserted the affirmative defenses of failure to state a claim;
estoppel, waiver and laches; and the failure of Mr. Bronstein and his counsel to exercise due
diligence during the course of the arbitration proceeding.
In April 2011, Morgan Keegan filed a cross motion to confirm the arbitration award.
Morgan Keegan also filed a memorandum in opposition to Mr. Bronstein’s petition to vacate
in April 2011. In its memorandum, Morgan Keegan asserted that the arbitrator disclosure
report completed by Mr. Blalock and attached to Morgan Keegan’s memorandum put Mr.
Bronstein on notice of any potential bias. Morgan Keegan asserted that Mr. Bronstein
waived any objection to perceived bias based on Mr. Blalock’s background or statements
allegedly made during the course of the proceedings where Mr. Bronstein failed to object
during the course of the arbitration process. Morgan Keegan asserted that Mr. Bronstein had
not introduced any evidence of bias or lack of preparation, and that his assertions were
speculative and conclusory.
Following a hearing on April 27, 2011, the trial court determined that “a reasonable
person would have to conclude” that Mr. Blalock was evidently partial against Mr.
Bronstein.1 The trial court vacated the arbitration award in favor of Morgan Keegan and
1
The portion of the transcript of the April 2011 hearing attached by the trial court to its May 2011
judgment reflects that the trial court found no corruption, fraud or undue means in the discovery process.
It vacated the arbitration award and ordered the parties to re-arbitrate the matter before a different panel. As
discussed herein, the supreme court has determined that we have jurisdiction to adjudicate this appeal under
Tennessee Code Annotated § 29-5-319(a)(3). (Although the trial court in this case found Morgan Keegan’s
cross-motion to confirm the arbitration award to be “moot” where it vacated the award, and did not
specifically deny it, under the supreme court’s reasoning in Morgan Keegan & Co, Inc. v. Smythe, 401
(continued...)
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ordered the parties to participate in a new FINRA arbitration before a different and impartial
panel. The trial court concluded that Morgan Keegan’s motion to confirm the arbitration
award accordingly was “moot.” The trial court entered final judgment in the matter on May
6, 2011, and Morgan Keegan filed a notice of appeal to this Court on June 6, 2011.
On August 12, 2011, we entered an order directing Morgan Keegan to show cause
why this matter should not be dismissed for failure to appeal a final judgment where the trial
court’s order did not appear to be final and where it did not appear to be within the scope of
Tennessee Code Annotated § 29-5-319(a)(5), which permits appeal of “[a]n order vacating
an award without directing a re-hearing[.]” By order entered July 30, 2012, we ordered the
matter held in abeyance pending disposition of similar jurisdictional issues by the Tennessee
Supreme Court in Morgan Keegan and Company, Inc. v. William Hamilton Smythe, III, et
al, W2010-01339-SC-R11-CV. In Smythe, the supreme court determined that a trial court’s
order vacating an arbitration award and directing a re-hearing necessarily results in an
implicit denial of confirmation of an award, notwithstanding the absence of a motion to
confirm the award. Morgan Keegan & Co., Inc. v. Smythe, 401 S.W.3d 595, 608 (Tenn.
2013). Accordingly, although we do not have jurisdiction to adjudicate this appeal under
section 29-5-319(a)(5), pursuant to Smythe, we have jurisdiction to adjudicate this appeal
pursuant to 29-5-319(a)(3).2 Oral argument was heard in this matter in January 2014.
Issues Presented
Morgan Keegan presents the following issues for our review, as presented by Morgan
Keegan:
(1) Whether the Chancery Court improperly found that an arbitrator was
biased, when the challenge to that arbitrator had been waived by the
claimant, Maury Bronstein[.]
1
(...continued)
S.W.3d 595 (Tenn. 2013), we perceive the trial court’s judgment to result in a implicit denial of Morgan
Keegan’s motion. We accordingly assume jurisdiction under section 29-5-319(a)(3).)
2
We observe that the trial court in this case determined that Morgan Keegan’s motion to confirm the
arbitration award was moot. In light of the reasoning of the supreme court in Smythe that “[a]n order that
vacates an arbitration award and orders a second arbitration is an order ‘denying confirmation of an award’
for the purposes of Tenn. Code Ann. § 29-5-301(a)(3), regardless of whether the party opposing the petition
to vacate the award filed a separate cross-petition for confirmation under Tenn. Code Ann. § 29-5-312 or
whether the trial court has expressly denied confirmation in its written order[,]” we are satisfied that we have
jurisdiction over this appeal notwithstanding the trial court’s disinclination to specifically deny Morgan
Keegan’s cross-motion to confirm the arbitration award.
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(2) Whether the Chancery Court’s decision to vacate the arbitration award
was improper because Bronstein failed to present any evidence in
support of his request for vacatur[.]
(3) Whether the Chancery Court, in vacating a FINRA arbitration award,
improperly applied the standard of review for vacatur in incorrectly
determining that one [of] the FINRA arbitrators was evidently partial[.]
Standard of Review
It is well-settled that “courts should play only a limited role in reviewing the decisions
of arbitrators.” Arnold v. Morgan Keegan & Co., 914 S.W.2d 445, 448 (Tenn. 1996) (citing
United Paperworkers Int’l Union, AFL-CIA v. Misco, Inc., 484 U.S. 29, 36, 108 S. Ct. 364,
369 (1987)). Accordingly, courts will set-aside arbitrators’ determinations “‘only in very
unusual circumstances.’” Id. (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S.
938, 942, 115 S. Ct. 1920, 1923 (1995)). “‘[T]he standard for judicial review of arbitration
procedures is merely whether a party to arbitration has been denied a fundamentally fair
hearing.’” Nationwide Mut. Ins. Co. v. Home Ins. Co., 278 F.3d 621, 625 (6th Cir 2002)
(quoting National Post Office v. U.S. Postal Serv., 751 F.2d 834, 841 (6th Cir. 1985)). The
courts have long noted that judicial review of an arbitration decision is “‘one of the narrowest
standards of judicial review in all of American jurisprudence.’” Uhl v. Komatsu Forklift Co.,
Ltd., 512 F.3d 294, 305 (6th Cir. 2008) (quoting Nationwide Mut. Ins. Co. v. Home Ins. Co.,
429 F.3d 640, 643 (6th Cir. 2005) (quoting Lattimer–Stevens Co. v. United Steelworkers, 913
F.2d 1166, 1169 (6th Cir.1990))). Accordingly, we review a trial court’s findings of fact in
an arbitration case under a “clearly erroneous standard.” Williams Holding Co. v. Willis, 166
S.W.3d 707, 710 (Tenn. 2005). We review questions of law de novo, however, with no
presumption of correctness. Pugh’s Lawn Landscape Co, Inc. v. Jaycon Dev. Corp., 320
S.W.3d 252, 258 n.4 (Tenn. 2010).3
Discussion
We begin our discussion with Morgan Keegan’s assertion in its brief that the trial
court erred in vacating the arbitration award in this case “because Mr. Bronstein failed to
present any evidence in support of his request for vacatur.” Morgan Keegan asserts that Mr.
Bronstein introduced no evidence in the trial court, and that the hearing of this matter
consisted entirely of statements by counsel. Morgan Keegan further asserts that Mr.
3
Clarifying previous Opinions stating that questions of law in arbitration cases should be reviewed
“with the utmost caution, and in a manner designed to minimize interference with an efficient and
economical system of alternative dispute resolution.”
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Bronstein did not file the FINRA arbitration record in the trial court until June 24, 2011,
more than one month after the trial court entered its order vacating the arbitrators’ decision
on May 6, 2011, and that the parties did not stipulate to the facts or to trying the matter on
statements of counsel. Morgan Keegan asserts that Mr. Bronstein failed to carry his burden
of proof to demonstrate grounds for vacatur where he failed to introduce either the official
audio recording of the arbitration proceedings or a transcript thereof until after the matter was
adjudicated by the trial court.
Both the Federal Arbitration Act (“FAA”) and the Tennessee Uniform Arbitration Act
(“TUAA”) permit the courts to vacate an arbitration decision on the basis of evident partiality
or corruption in any of the arbitrators. 9 U.S.C. § 10(a)(2); Tenn. Code Ann. § 29-5-
313(a)(1)(B)(2012).4 When considering assertions of evident partiality for the purposes of
the FAA, the Sixth Circuit has held that the party challenging the arbitrators’ decision “‘must
show that ‘a reasonable person would have to conclude that an arbitrator was partial’ to the
other party to the arbitration.’” Uhl, 512 F.3d at 306 (quoting Apperson v. Fleet Carrier
Corp., 879 F.2d 1344, 1358 (6th Cir.1989) (quoting Morelite Constr. Corp. v. New York City
Dist. Council Carpenters Benefit Funds, 748 F.2d 79, 84 (2d Cir.1984)), cert. denied, 495
U.S. 947, 110 S. Ct. 2206, 109 L. Ed. 2d 533 (1990); see also Nationwide IV, 429 F.3d at 645;
Nationwide Mut. Ins. Co. v. Home Ins. Co., 278 F.3d 621, 626 (6th Cir.2002) (“Nationwide
II”)). The challenging party carries the burden to ““establish specific facts that indicate
improper motives on the part of the arbitrator.”” Id. (quoting Andersons, Inc. v. Horton
Farms, Inc., 166 F.3d 308, 329 (6th Cir. 1998) (internal quotation marks omitted) (quoting
Consolidated Coal Co. v. Local 1643, United Mine Workers, 48 F.3d 125, 129 (4th
Cir.1995))). “‘The alleged partiality must be direct, definite, and capable of demonstration,’”
Nationwide v. Home, 278 F.3d at 626 (quoting Andersons, 166 F.3d at 329), and “‘an
amorphous institutional predisposition toward the other side’” is not sufficient “‘because that
would simply be the appearance-of-bias standard that [the Sixth Circuit] [has] previously
rejected.’” Uhl, 512 F.3d at 307 (quoting Consolidated Coal, 48 F.3d at 129). As in Uhl,
the question before this Court is whether the party challenging the arbitrators’ decision has
carried its heavy burden to establish “‘specific facts that indicate improper motives on the
part of the arbitrator.’” Id. (quoting id.)
In the Statement of Facts section of his brief, Mr. Bronstein cites to his complaint, to
the transcript of the April 2011 hearing before the trial court, and to two volumes of the
transcript of the 2010 arbitration proceedings. As Morgan Keegan asserts, however, we
observe that the hearing before the trial court consisted entirely of argument of counsel.
4
Unlike the permissive provision of the FAA, the TUAA provides that the reviewing court “shall”
vacate an arbitration award where there was evident partiality by an arbitrator. Tenn. Code Ann. § 29-5-313;
Pugh’s Lawn Landscape Co., Inc. v. Jaycon Dev. Corp., 320 S.W.3d 252, 259 (Tenn. 2010).
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Although the trial court specifically asked whether it was “to make its decision . . . based on
Counsel’s statements or [whether there was] going to be some evidence or some testimony
or some exhibits or something introduced[,]” we find nothing in the record to demonstrate
that the parties stipulated that the matter was to be tried on statements of counsel.
The trial court entered final judgment in the matter on May 6, 2011. In its May order,
the trial court stated that its judgment in favor of Mr. Bronstein was based “upon statements
of counsels in open court, the briefs of the parties and upon the entire record herein[.]” The
trial court “attached,” but did not formally incorporate by reference, a portion of the
transcript of the April 2011 hearing wherein the trial court stated:
[I]t does appear that considering the record as a whole and the comments that
were made by Mr. Blaylock [sic] during the proceedings and where Morgan
Keegan in other cases have expressed concern about the neutrality of
arbitrators and the need for an absence of partiality or bias being displayed, it
does appear comments made by Mr. Blaylock [sic] could have been interpreted
as being based upon evidence and information which was not presented before
him during the hearing.
The trial court continued:
And since it’s necessary that these awards be the result of an unbiased
and neutral decision-maker, the [c]ourt is going to reverse the award and
remand if for a new arbitration hearing based on existence of what could be
reasonably interpreted as impartiality or partiality displayed by the Arbitrator
Blaylock [sic].
The trial court made no specific findings with respect to statements it determined
demonstrated evident partiality on the part of Mr. Blalock, however. Additionally, as
Morgan Keegan asserts, the record transmitted to this Court indicates that Mr. Bronstein did
not file the transcript of the arbitration proceedings or relevant depositions or excerpts of
testimony in the trial court until June 24, 2011, more than one month after the trial court
entered final judgment.
In his brief to this Court, Mr. Bronstein asserts that the trial court “did not base its
ruling on ‘no evidence[,]” and that the ruling “is supported by the record [that was] before
it[.]” Mr. Bronstein does not address Morgan Keegan’s assertion that the trial court entered
judgment in the matter before the transcript of the arbitration proceedings was filed,
however, or its assertion that Mr. Bronstein relied only on allegations asserted in the
pleadings and statements of counsel.
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It is well-settled that “mere statements of counsel are not evidence or a substitute for
testimony.” Metropolitan Gov’t of Nashville and Davidson County v. Shacklett, 554 S.W.2d
601, 605 (Tenn. 1977). Neither the allegations contained in pleadings nor the recitations of
facts contained in a party’s briefs nor statements of counsel constitute evidence. Greer v.
City of Memphis, 356 S.W.3d 917, 923 (Tenn. Ct. App. 2010). Upon review of the record,
it appears that the trial court based its judgment merely upon the pleadings and arguments
of counsel.5 It further appears that Mr. Bronstein filed the arbitration transcript after Morgan
Keegan perfected its notice of appeal on June 6, 2011. Generally, a properly perfected notice
of appeal removes jurisdiction from the trial court and vests jurisdiction in the appellate
court.6 Accordingly, Mr. Bronstein failed to carry his high burden of proof to introduce
evidence establishing specific facts indicating improper motives and evident partiality that
is “direct, definite and capable of demonstration” where he introduced nothing other than
allegations asserted in pleadings and statements of counsel while this matter was pending
before the trial court.
Holding
In light of the foregoing, the trial court’s judgment vacating the arbitration award and
ordering the parties to re-arbitrate this matter before a different FINRA panel is reversed.
We accordingly reverse the trial court’s judgment finding Morgan Keegan’s motion to
confirm the arbitration award to be moot. We find it unnecessary to address Morgan
Keegan’s assertion that the trial court failed to apply the appropriate standard of review of
the arbitration award in light of this holding.
With respect to Morgan Keegan’s assertion that Mr. Bronstein waived objections
based on evident partiality where he failed to raise the matter before the FINRA director, we
note that neither this defense nor other affirmative defenses asserted by Morgan Keegan were
adjudicated by the trial court. Further, we observe that no evidence of waiver was introduced
in the trial court where neither party filed the transcript of the arbitration proceeding. As
noted above, the trial court appears to have based its judgment entirely on the pleadings and
arguments of counsel. We decline to address the issue of waiver where 1) it was not
5
The record does not contain a stipulation of facts or, as noted, an agreement to try the matter on the
pleadings and argument of counsel.
6
A trial court retains jurisdiction to hear motions specified by Tennessee Rule of Civil Procedure
59.01 and motions for discretionary costs as provided by Tennessee Rule of Civil Procedure 54.04. A
prematurely filed notice of appeal, moreover, does not divest the trial court of jurisdiction over unadjudicated
claims. See Tenn. R. App. P. 4(b); Tenn. R. App. P. 4(d); Tenn. R. App. P. 4(e).
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adjudicated by the trial court and 2) it is unnecessary in light of our holding here. We note,
however, that although we have jurisdiction to adjudicate this appeal under Morgan Keegan
v. Smythe, we do not perceive Smythe to stand for the proposition that petitions asserting
multiple grounds to set-aside an arbitration award, and defenses thereto, may be serially
litigated and appealed. Such serial litigation would be a considerable misuse of judicial
resources and the time and resources of the parties. See Morgan Keegan v. Smythe, 401
S.W.3d 595, 610 (Tenn. 2013) (noting “the interests of ‘speed, simplicity, and economy’”
advanced by the arbitration process, and seeking to avoid the loss of time and resources
resulting from “do-over” proceedings.); White v. Empire Express, Inc., No.
W2010–02380–COA–R3–CV, 2011 WL 6182091, at *7 n. 14 (Tenn. Ct. App. Dec. 13,
2011) (noting, with respect to the appealability of an order compelling arbitration under the
FAA, “We are mindful that, under the Federal Arbitration Act, an order compelling
arbitration and dismissing all of the claims before it is considered to be a final, appealable
order.” See Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S. 79, 88–89 (2000)).
Nevertheless, even if the FAA were applicable to the underlying contract, the state law on
appealability governs this procedural issue. Morgan Keegan & Co. v. Smythe, No.
W2010–01339–COA–R3–CV, 2011 WL 5517036 (Tenn. Ct. App. Nov. 14, 2011).7 Even
under federal jurisprudence, however, it appears that the rule on appealability applies only
when the trial court has dismissed all of the claims before it and leaves nothing for the trial
court to decide. When some claims are arbitrable but others are not, an order dismissing and
compelling arbitration of the arbitrable claims only is not a final, appealable order. See In
re Hops Antitrust Litigation, 832 F.2d 470, 473–74 (8th Cir.1987); see Green Tree, 531 U.S.
at 88–89. Therefore, the trial court’s decision would not be considered to be final and
appealable even under federal law.
This matter is remanded to the trial court for confirmation of the arbitration award.
Costs on appeal are taxed to the appellee, Maury Bronstein, IRA.
_________________________________
DAVID R. FARMER, JUDGE
7
Reversed on other grounds by Morgan Keegan v. Smythe, 401 S.W.3d 595 (Tenn. 2013). We
observe that the Smythe court did not address whether the trial court in that case had adjudicated all the
grounds asserted by Petitioner Morgan Keegan as justifying vacatur of the arbitration award in that case.
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