Baghdady v. Sadler

Opinion

USCA1 Opinion

September 9, 1992       [NOT FOR PUBLICATION]

UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
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No. 92-1214

                                  ELIE J. BAGHDADY,

                                Plaintiff, Appellant,

                                          v.

                               LARRY D. SADLER, ET AL.,

                                Defendants, Appellees.

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                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

                     [Hon. Joseph L. Tauro, U.S. District Judge]
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                                        Before

                            Cyr and Boudin, Circuit Judges,
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                             and Hornby,* District Judge.
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            Edward  F. Haber with  whom Andrew  A. Rainer and  Spairo, Grace &
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        Haber were on brief for appellant.
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            Bryan G. Killian  with whom  David A. Guberman, Barbara  O'Donnell
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        and Sherin and Lodgen were on brief for appellees.
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        * Of the District of Maine, sitting by designation.

HORNBY,  District  Judge.   This  appeal  challenges  a
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          decision compelling arbitration of a dispute between a securities

          firm  and  a  customer,  and  the  eventual  confirmation of  the

          arbitrator's  award.  The record  satisfies us that  there was an

          enforceable agreement between the parties to arbitrate  disputes.

          We  therefore conclude  that the  lower court  properly compelled

          arbitration under the Federal Arbitration Act,  9 U.S.C.    1-16.

          Because  the challenge to the award reveals only frustration with

          the results, there  is no  basis to vacate  the district  court's

          decision to confirm the award.  We therefore affirm.

Facts
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Elie J. Baghdady held a substantial number of shares in

          a company called Teledyne, Inc.  ("Teledyne").  Unhappy with  the

          handling of  his securities account at another brokerage firm, in

          July,  1981,  Baghdady transferred  his  Teledyne  shares to  the

          Boston  office of  Merrill Lynch,  Pierce,  Fenner &  Smith, Inc.

          ("Merrill Lynch").  According to  Baghdady, he opened the Merrill

          Lynch account for the  single purpose of containing risks  he was

          facing on certain call  options.  He expected the  arrangement to

          last only until he could find a broker with sufficient "expertise

          in  options  to help  him  out  of  [his]  precarious  investment

          situation."  When he opened the Merrill Lynch account on July 29,

          1981,  Baghdady signed  an  agreement called  a "Standard  Option

          Agreement."    The  agreement  provided  that "[a]ny  controversy

          between [Baghdady and  Merrill Lynch] arising out of  such option

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transactions or  [the] agreement shall be  settled by arbitration

          only before the National Association of Security Dealers . . . ."

                    In  November, 1981,  Baghdady met  Larry D.  Sadler and

          John  Voll, two  stockbrokers  operating out  of Merrill  Lynch's

          Burlington,  Massachusetts,  office  with  expertise  in  options

          trading.  Believing that the Burlington office would better serve

          his needs  and perhaps find a  way to reduce the  losses that had

          continued to  escalate under Merrill Lynch's  watch, in December,

          1981, Baghdady directed Merrill  Lynch to open an account  in his

          name  at  the  Burlington location.    Merrill  Lynch  did so  by

          transferring  the trade balances in the Boston account to a newly

          assigned account at Burlington.  Once at the Burlington office, a

          slightly  different investment  strategy was pursued  although it

          still  involved  options  trading  against  the  Teledyne  stock.

          Baghdady's misfortunes continued at  the Burlington office and by

          the time he closed that account in 1982 his losses had mounted to

          $1,432,248.91.

               On  August 2,  1985,  Baghdady brought  this action  against

          Merrill  Lynch  and Sadler,  seeking  damages  for their  alleged

          mishandling of his securities account.   Merrill Lynch and Sadler

          moved to compel arbitration under the Federal Arbitration  Act, 9

          U.S.C.     1-16.    That   motion  was  granted  over  Baghdady's

          objections  and  the case  proceeded  to  arbitration before  the

          National Association of  Securities Dealers,  Inc. (the  "NASD").

          On February 26, 1991, following an  evidentiary hearing, a three-

          member  NASD panel  awarded  Baghdady the  amount of  $60,720.15.

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Baghdady petitioned  the district court to vacate  or correct the

          NASD  award, but  on January 14,  1992, the  court confirmed  the

          award.  Baghdady has appealed, challenging both the initial order

          to arbitrate and the final confirmation of the award.

The Decision to Compel Arbitration
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The  document that  Baghdady signed  on July  29, 1981,

          explicitly governed  "any transaction" executed by  Merrill Lynch

          for  put and  call  options.   It  stated that  "any  controversy

          between us arising out of such option transactions . . . shall be

          settled by  arbitration. . . ."  The  document did not  limit its

          terms  to a particular account.   Instead, its  scope extended to

          all  accounts the customer might  have with Merrill  Lynch.1  The

          controversy  here  involves put  and  call  options exercised  by

          Merrill Lynch on behalf  of Baghdady.  It is  thus clearly within

          the terms of the  agreement to arbitrate.  Baghdady  asserts that

          he did not read the  printed text of the document when  he signed

          it, did not intend to enter into an arbitration agreement and did

          not intend that the  agreement would apply to any  other account.

          He likewise asserts that when he opened the Burlington account in
                              
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               1 Paragraph 3,  for example, provided:   "Any securities and
          funds held by you  in any account of mine with  you shall be held
          by you as security for the performance by me of my obligations to
          you  under this  Agreement."   Paragraph 8  also made  clear that
          Merrill  Lynch  contract  documents  applied  to  more  than  one
          account:   "Any agreement by  me with you,  whether previously or
          hereafter  made applicable to any account of mine with you, shall
          also apply to such option transactions except to the extent which
          it conflicts with  this agreement.   In the event of  a conflict,
          this agreement  shall control,  and where there  is no  conflict,
          each provision of each agreement shall apply."

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December,  1981, he did not  intend the July  agreement to apply.

          Although these  may be disputed  matters, they are  not material.

          The  document Baghdady did  sign was  clear on  its face  and its

          scope was unrestricted.2   There is  no suggestion that  Baghdady

          was prevented from reading the document before he signed it.

                    Baghdady argues that  under this interpretation  of the

          document,  a  new account  opened  30 years  later  in Melbourne,

          Australia, would  still  be  subject  to  arbitration.    If  the

          customer's relationship with Merrill Lynch was ongoing during the

          30  years (as it was here during  six months), that might well be

          the  case.  Neither  in that case nor  in this case  do we have a

          situation  where the contractual relationship has  come to an end

          such  that  the  parties  might  reasonably  expect  their  legal

          agreement  to  have  lost  any  continuing  vitality.    Instead,

          Baghdady transferred  his stock directly from  the Boston account

          to the Burlington account.

                    Baghdady also points to the language in Par-Knit Mills,
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          Inc. v.  Stockbridge Fabrics Co., Ltd., 636 F.2d 51, 54 (3rd Cir.
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          1980),  that "[i]f  there  is doubt  as  to whether  [an  express

          unequivocal arbitration  agreement] exists,  the  matter, upon  a

          proper and timely  demand, should be submitted  to a jury."   The

          "doubt"  in Par-Knit,  however -- and thus  the genuine  issue of
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          material fact -- was  whether a company's production  manager had

          authority  to bind the corporation for which  he spoke.  There is
                              
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               2 Baghdady is bound by his "external expression of intention
          as distinguished from [any] undisclosed intention."   Restatement
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          (Second) of Contracts   2 cmt. b (1981).
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no dispute  here that  Baghdady  had authority  to bind  himself.

          Since we find the language clear in the contract he signed, there

          is no  issue  for a  trial, jury  or nonjury,  under the  Federal

          Arbitration Act, 9 U.S.C.   4.

                    We conclude therefore that the district court  properly

          ordered arbitration under the Federal Arbitration Act.

The Arbitration Award
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The Federal Arbitration Act permits a district court to

          vacate an arbitration award where it finds certain wrongdoing  or

          abuses in the arbitration process.  9  U.S.C.   10.  Baghdady has

          not  asserted that any such statutory  abuses have occurred here.

          Rather,  he  contends that  the  award should  have  been vacated

          because  there was evidence of a "manifest disregard of the law,"

          citing Wilko v.  Swan, 346  U.S. 427, 436-37  (1953) (creating  a
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          judicial standard  for reviewing  arbitration awards  outside the

          Federal Arbitration Act), overruled on other grounds by Rodriquez
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          de  Quijas  v.  Shearson/American  Express, Inc.,  490  U.S.  477
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          (1989).

                    Cut  to  its  essence,  Baghdady's claim  is  that  the

          arbitrators  fully understood  established  legal principles  for

          calculating damages, but disregarded  those principles.  Baghdady

          insists that such disregard of the law is proven by the amount of

          damages  actually  awarded.   He  maintains  that the  $60,720.15

          awarded  was  the   "sum  of  [his]   losses  on  precisely   two

          transactions  in the  account."   If that was  the basis  for the

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award,  he argues, then there must have been a manifest disregard

          of the  law because the  arbitration panel could  not justifiably

          have  distinguished  those  two  transactions   from  the  losses

          demonstrated  on  "the 25  other  transactions  in his  account."

          Baghdady's displeasure  with his recovery,  however, provides  no

          basis for  vacating  the  award.   For  us  to  find  a  manifest

          disregard of  the law, "there must be some showing in the record,

          other than the result obtained, that the arbitrators knew the law
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          and expressly  disregarded it."   Advest,  Inc. v.  McCarthy, 914
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          F.2d  6,  10  (1st  Cir.  1990)  (emphasis  supplied)  (citations

          omitted).3    Here,  Baghdady  has nothing  but  the  arbitration

          result  to buttress  his claim  of manifest  disregard.   That is

          simply insufficient.

               Advest  left open  one  other additional  possibility:   "In
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          certain circumstances, the governing law may have such widespread

          familiarity, pristine clarity, and irrefutable applicability that

          a   court  could  assume  the  arbitrators  knew  the  rule  and,

          notwithstanding, swept it  under the rug."  Id. at  10.  But like
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          Advest,  this  is  not  such  a  case.    As  Advest  recognized,
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          "arbitrators  possess latitude  in crafting  remedies as  wide as

          that  which they possess in deciding cases. . . .  That leeway is

          at  its zenith when, as  here, the arbitration  clause imposes no

          limitations on  choice  of remedies."   Id.  at 10-11  (citations
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               3 Baghdady also  seeks to have  us modify Advest  to include
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          "consideration  of  how  the law  was  applied  to  the facts  or
          otherwise to  avoid a miscarriage of justice."   We see no reason
          to do  so.   Such a  modification  would cut  against decades  of
          judicial treatment of arbitrators' decisions.

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omitted).   Even  if the  award  here was  based on  two specific

          transactions as Baghdady suggests, the  panel may have found that

          the  defendants   had  breached   a  promise  to   rescind  those

          transactions.  Baghdady  argues that this finding would have been

          erroneous.   That, however, is a  matter beyond the scope  of our

          review.  As we have said before, we "do not sit to hear claims of

          factual or legal  error by  an arbitrator as  an appellate  court

          does in reviewing decisions  of lower courts."  Advest,  914 F.2d
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          at 8 (quoting United Paperworkers Int'l Union v. Misco, Inc., 484
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          U.S.  29, 38  (1987)).   "[As]  long as  the  arbitrator is  even

          arguably construing  or applying  the contract and  acting within

          the scope  of  his  authority,'  a court's  conviction  that  the

          arbitrator  made a  serious mistake  or committed  grievous error

          will not furnish a satisfactory basis for  undoing the decision."

          Advest, 914 F.2d at 9 (quoting  Misco, 484 U.S. at 38).  Whatever
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          its reasoning, the  panel's award  here was at  least within  the

          realm of possible remedies that could have been fashioned in this

          case.  The district court properly confirmed the award.

                    Judgment AFFIRMED.
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