Decker v. Merrill Lynch

Opinion

RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206 ELECTRONIC CITATION: 2000 FED App. 0080P (6th Cir.) File Name: 00a0080p.06

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT _________________

;  EMILY DECKER,  Plaintiff-Appellant,   Nos. 98-1658; v.  99-1558 > MERRILL LYNCH, PIERCE,   Defendant-Appellee.  FENNER AND SMITH, INC.,

 1 Appeal from the United States District Court for the Eastern District of Michigan at Detroit. No. 98-71347—Julian A. Cook, Jr., District Judge. Argued: February 2, 2000 Decided and Filed: March 6, 2000 Before: MERRITT and MOORE, Circuit Judges; BELL,* District Judge.

* The Honorable Robert Holmes Bell, United States District Judge for the Western District of Michigan, sitting by designation.

1 2 Decker v. Merrill Lynch Nos. 98-1658; 99-1558

_________________ COUNSEL ARGUED: Joseph H. Spiegel, Southfield, Michigan, for Appellant. Thomas R. Cox, MILLER, CANFIELD, PADDOCK & STONE, Detroit, Michigan, for Appellee. ON BRIEF: Joseph H. Spiegel, Southfield, Michigan, for Appellant. Thomas R. Cox, Clarence L. Pozza, Jr., MILLER, CANFIELD, PADDOCK & STONE, Detroit, Michigan, for Appellee. _________________ OPINION _________________ KAREN NELSON MOORE, Circuit Judge. This appeal is a consolidation of two related appeals before this court involving the same parties and the same underlying dispute. Emily Decker and Merrill Lynch engaged in a National Association of Securities Dealers (“NASD”) arbitration hearing to resolve a dispute regarding Merrill Lynch’s management of Decker’s securities investment. After receiving an arbitration award, Decker filed a lawsuit against Merrill Lynch claiming that Merrill Lynch improperly interfered with the arbitration when one of its wholly owned subsidiaries hired the chairperson of the arbitration panel to act as a closing agent for various real estate transactions. In her suit, Decker seeks damages based on tortious interference with contract, breach of contract, and other grounds. Merrill Lynch filed a motion to dismiss for failure to state a claim and to confirm the arbitration award, while Decker filed a motion for summary judgment on her claims. The district court denied Decker’s motion for summary judgment and granted Merrill Lynch’s motion to dismiss holding in part that Decker’s claims constitute an impermissible collateral attack on the arbitration award in violation of the Federal Arbitration Act (“FAA”). Decker appeals the district court’s decision. As this appeal was pending, Decker filed a second statement of claim for arbitration with NASD that was identical to the 10 Decker v. Merrill Lynch Nos. 98-1658; 99-1558 Nos. 98-1658; 99-1558 Decker v. Merrill Lynch 3

We believe that it is logical to extend our holding in Corey complaint she filed in court. Merrill Lynch responded by to Decker’s claims presented in a second arbitration. The filing a motion with the district court requesting the court to FAA provides the exclusive remedy for challenging acts that enforce its judgment granting Merrill Lynch’s motion to taint an arbitration award whether a party attempts to attack dismiss and to enjoin Decker from proceeding with her new the award through judicial proceedings or through a separate arbitration claim. The district court granted Merrill Lynch’s second arbitration. It would be a violation of the FAA to motion and enjoined Decker from arbitrating her second allow Decker to arbitrate the very same claims that we have claim, which judgment Decker also appeals. We AFFIRM determined constitute an impermissible collateral attack when the district court’s grant of Merrill Lynch’s motion to dismiss previously presented for adjudication by a court. Decker may because Decker’s claims collaterally attack the arbitration not bypass the exclusive and comprehensive nature of the award and the FAA provides the exclusive remedy for FAA by attempting to arbitrate her claims in a separate challenging acts that taint an arbitration award. We also second arbitration proceeding. Therefore, we hold that the AFFIRM the district court’s injunction barring Decker from district court properly granted Merrill Lynch’s motion to proceeding with her second NASD arbitration claim because enjoin Decker’s separate arbitration of her claims.3 this claim also operates as an impermissible collateral attack on the arbitration award in violation of the FAA. III. CONCLUSION I. FACTS AND PROCEDURE For the reasons stated above, we AFFIRM the district court’s judgment granting Merrill Lynch’s motion to dismiss Decker and Merrill Lynch entered into a Uniform and AFFIRM the district court’s judgment enjoining Submission Agreement to resolve through NASD Arbitration Decker’s second arbitration claim. a dispute over Merrill Lynch’s handling of Decker’s securities investment. After nine days of hearing sessions, the chairperson of the three-person arbitration panel transmitted a letter to the parties disclosing that his law office had been hired by Lender’s Service, Inc., a wholly owned subsidiary of Merrill Lynch, to act as a closing agent for several real estate transactions in his geographic area. He stated that because such transactions are unrelated to Merrill Lynch’s securities business, he did not believe that this client relationship would affect his impartiality. In response, Decker filed with the arbitration panel a motion for sanctions against Merrill Lynch for interfering with the arbitration process and for depriving her of a fair hearing. She also asked the chairperson to step down due to this conflict of interest. The entire arbitration panel met in executive session and decided to deny Decker’s 3 motion for sanctions and request for recusal. The arbitration There is no need for this court to address the district court’s concluded on November 12, 1997, and Decker was awarded conclusion that preclusion doctrines bar Decker from arbitrating her second NASD claim or its determination that Decker waived her right to damages in the amount of $40,000 on December 9, 1997. arbitrate by substantially invoking the litigation machinery because we conclude that, consistent with our holding in Corey, the FAA bars Decker’s second arbitration claim. 4 Decker v. Merrill Lynch Nos. 98-1658; 99-1558 Nos. 98-1658; 99-1558 Decker v. Merrill Lynch 9

On March 5, 1998, Decker filed a complaint against Merrill B. Injunction Barring Decker’s Second Arbitration Lynch in Michigan state court claiming that Merrill Lynch Claim owed Decker a duty not to interfere with the arbitration process by directly or indirectly hiring the chairperson of the Decker also argues that the district court erred in granting arbitration panel during the course of the arbitration, conduct Merrill Lynch’s motion to enjoin arbitration of her second it should have known would harm her. Decker does not seek NASD claim because she asserts that her claims fall within vacatur of the arbitration award under the FAA in this suit, the scope of a valid arbitration agreement and thus must be but instead asserts various common law tort and contract arbitrated. There is strong federal policy in favor of claims. Merrill Lynch removed the case to federal court arbitration of disputes. The FAA establishes that “any doubts based on diversity jurisdiction. It then moved, under Federal concerning the scope of arbitrable issues should be resolved Rule of Civil Procedure 12(b)(6), to dismiss all of Decker’s in favor of arbitration, whether the problem at hand is the claims against it for failure to state a claim upon which relief construction of the contract language itself or an allegation of may be granted and to confirm the arbitration award. Decker waiver, delay, or a like defense to arbitrability.” Moses H. filed a motion for summary judgment pursuant to Federal Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24- Rule of Civil Procedure 56(c), asserting no genuine issue of 25 (1983). This strong federal policy in favor of arbitrating material fact exists regarding Merrill Lynch’s liability. The claims governed by an arbitration contract, however, also district court confirmed the arbitration award and granted provides that arbitration awards may only be subject to Merrill Lynch’s motion to dismiss because it concluded that limited judicial review under the FAA. See Federated Dep’t Decker’s complaint constitutes a collateral attack on the Stores, Inc. v. J.V.B. Indus., Inc., 894 F.2d 862, 866 (6th Cir. arbitration award in violation of the FAA, which provides the 1990) (citing Moses H. Cone Mem’l Hosp., 460 U.S. at 24). exclusive remedy to challenge an arbitration award. The district court also held that these issues had already been As discussed above in Part II.A supra, we concluded in decided by the arbitration panel in response to Decker’s Corey that a party’s exclusive remedy for challenging an motion for sanctions and thus were precluded from arbitration award is to seek relief under the FAA; a party may relitigation. Decker appeals the district court’s judgment not file a suit in court making claims alleged to be granting Merrill Lynch’s motion to dismiss and denying her independent but that in fact collaterally attack an arbitration motion for summary judgment. award. See Corey v. New York Stock Exch., 691 F.2d 1205, 1213 (6th Cir. 1982). The question of whether a party may After filing her appeal with this court, Decker filed a pursue these same types of allegedly independent claims second statement of claim for arbitration with NASD, though a second arbitration proceeding, instead of a judicial asserting the same allegations as in her complaint. In proceeding, is one of first impression in this circuit. Nor have response, Merrill Lynch filed a motion with the district court we found much law addressing this issue in other federal to enforce its judgment granting Merrill Lynch’s motion to courts. But see Prudential Sec. Inc. v. Hornsby, 865 F. Supp. dismiss and to enjoin Decker from proceeding with this 447, 453 (N.D. Ill. 1994) (granting a party’s motion to enjoin second arbitration claim. The district court granted Merrill arbitration because the court concluded that the arbitration Lynch’s motion, holding that Decker is precluded from claims were merely an impermissible collateral attack on a relitigating in arbitration the court’s determination that her prior arbitration award and thus in violation of the FAA). claims are a collateral attack on the arbitration award and also holding that Decker has waived her right to arbitrate these claims by first substantially invoking the judicial process. issue preclusion. 8 Decker v. Merrill Lynch Nos. 98-1658; 99-1558 Nos. 98-1658; 99-1558 Decker v. Merrill Lynch 5

this argument to be persuasive. Like the plaintiff in Corey, Decker filed a timely notice of appeal of the district court’s Decker’s alleged prejudice did not result when the Merrill order. This appeal has been consolidated with Decker’s Lynch subsidiary hired the chairperson of the arbitration panel appeal of the district court’s judgment granting Merrill to perform legal services, but instead resulted from the impact Lynch’s motion to dismiss. of this action on the arbitration award. Her ultimate objective in this damages suit is to rectify the alleged harm she suffered In sum, Decker now asks this court to reverse the district by receiving a smaller arbitration award than she would have court’s grant of Merrill Lynch’s motion to dismiss, reverse the received in the absence of the chairperson’s relationship with district court’s denial of her motion for summary judgment Merrill Lynch. In order to pursue this objective, Decker regarding Merrill Lynch’s liability, and remand for a should have filed a motion to vacate the arbitration award determination of damages. In the alternative, Decker requests under the FAA by claiming that “the award was procured by that we reverse the district court’s grant of Merrill Lynch’s corruption, fraud, or undue means” or that “there was evident motion to enjoin arbitration and allow Decker to pursue her partiality or corruption in the arbitrators.” 9 U.S.C. second NASD claim. § 10(a)(1)-(2). As noted above, the FAA “provides the exclusive remedy for challenging acts that taint an arbitration II. ANALYSIS award.” Corey, 691 F.2d at 1211. Because Decker chose to attack collaterally the arbitration award in violation of the A. Dismissal of Decker’s Complaint FAA, she fails to state a claim upon which relief may be granted. We review de novo a dismissal under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which Decker argues that it would violate public policy to apply relief can be granted. See Merriweather v. City of Memphis, Corey to this case because it would encourage fraud and 107 F.3d 396, 398 (6th Cir. 1997). “The claim should not be deceit in the arbitration process. However, we have noted dismissed unless it appears beyond doubt that plaintiff can that in light of the strong federal policy in favor of enforcing prove no set of facts in support of [her] claim which would arbitration agreements, courts only have a limited role in entitle [her] to relief.” Scheid v. Fanny Farmer Candy Shops, reviewing arbitration awards as authorized under the FAA. Inc., 859 F.2d 434, 436 (6th Cir. 1988) (quoting Windsor v. See Federated Dep’t Stores, Inc. v. J.V.B. Indus., Inc., 894 The Tennessean, 719 F.2d 155, 158 (6th Cir. 1983), cert. F.2d 862, 866 (6th Cir. 1990) (citing Moses H. Cone Mem’l denied, 469 U.S. 826 (1984)). Hosp. v. Mercury Constr. Co., 460 U.S. 1, 24 (1983)). Decker did not follow the proper procedure for challenging The FAA states, “[a] written provision in . . . a contract her arbitration award under the FAA, and therefore we affirm evidencing a transaction involving commerce to settle by the district court’s grant of Merrill Lynch’s motion to dismiss2 arbitration a controversy thereafter arising out of such for failure to state a claim upon which relief can be granted. contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Once an arbitration is conducted under a valid arbitration an impermissible collateral attack on the award. Unlike the plaintiff in contract, the FAA “provides the exclusive remedy for Turner, however, Decker could have raised her claims under the FAA. challenging acts that taint an arbitration award.” Corey v. 2 New York Stock Exch., 691 F.2d 1205, 1211 (6th Cir. 1982). Because we conclude that Decker’s claims are clearly prohibited under our reasoning in Corey, we need not address the district court’s A party may file a petition to vacate an arbitration award alternate holding that Decker’s claims are barred under the doctrine of where (1) “the award was procured by corruption, fraud, or 6 Decker v. Merrill Lynch Nos. 98-1658; 99-1558 Nos. 98-1658; 99-1558 Decker v. Merrill Lynch 7

undue means”; (2) “there was evident partiality or corruption award, Decker asserts that they constitute a separate, in the arbitrators, or either of them”; (3) “the arbitrators were independent action and do not fall under the scope of the guilty of . . . misbehavior by which the rights of any party FAA. have been prejudiced”; or (4) “the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, We have held that where a party files a complaint in federal and definite award upon the subject matter submitted was not court seeking damages for an alleged wrongdoing that made.” 9 U.S.C. § 10(a). In addition, a party may petition a compromised an arbitration award and caused the party federal court to modify or correct an award “[w]here there injury, it “is no more, in substance, than an impermissible was an evident material miscalculation of figures or an collateral attack on the award itself.” Corey, 691 F.2d at evident material mistake” in description; “[w]here the 1211-12. In Corey, the plaintiff filed a complaint against the arbitrators have awarded upon a matter not submitted to sponsor of an arbitration for improperly selecting a biased them”; or “[w]here the award is imperfect in matter of form panel of arbitrators which had allegedly caused him prejudice. not affecting the merits of the controversy.” 9 U.S.C. § 11(a)- See id. at 1211. Although the plaintiff filed his suit against a (c). An arbitrator’s award will be binding on the parties different defendant than his original adversary in the unless they challenge the validity of the underlying contract arbitration and requested damages instead of vacatur or to arbitrate under § 2 of the FAA or seek to vacate, modify, or modification of the arbitration award, the court concluded that correct the award under §§ 10 or 11. See Corey, 691 F.2d at the suit was in effect a collateral attack on the award. The 1212. court reasoned that the selection of biased arbitrators in itself did not injure the plaintiff; it was the impact that the allegedly In this case, Decker does not challenge the validity of her biased arbitrators had on his award that injured him. See id. contract to arbitrate with Merrill Lynch. Nor does she seek to at 1213. Because the FAA is the exclusive means of vacate, modify, or correct the arbitration award. Instead, challenging an arbitration award, the court concluded that the Decker makes several claims under contract and tort law that plaintiff should have filed a motion for vacatur under § 10 of she argues constitute an independent action. In her first the Act, which allows review of an arbitration award where count, she alleges that Merrill Lynch’s hiring of the the arbitrators are alleged to have been biased. See id. chairperson of the arbitration panel constitutes tortious Therefore, the court affirmed the district court’s grant of interference with their contract to have a fair and impartial summary judgment dismissing the plaintiff’s claims. arbitration of their dispute. Second, Decker claims that Merrill Lynch breached its obligations to her under their Decker attempts to distinguish Corey by noting that her arbitration contract. In her third count, Decker argues that case involves a different allegation of wrongdoing and that Merrill Lynch breached its contract with NASD to comply the Corey court did not specifically hold that claims for with NASD procedures and codes thereby harming Decker, tortious interference and breach of contract1are impermissible the intended third-party beneficiary of the contract. Fourth, collateral attacks on an arbitration award. We do not find Decker alleges that Merrill Lynch breached its duty of good faith owed to her under their arbitration contract. Finally, in the alternative, she asserts a negligence claim, arguing that 1 Merrill Lynch breached its general duty not to hire an She also cites to a Florida state appellate court decision which allowed a plaintiff to bring a legal malpractice action against the lawyer arbitrator who was presiding over an arbitration involving who represented him in an arbitration proceeding. In Turner v. Anderson, Decker and Merrill Lynch, which resulted in harm to Decker. 704 So.2d 748, 750 (Fla. Dist. Ct. App. 1998), the court concluded that Because these claims do not directly challenge the arbitration the plaintiff could not have raised this claim to set aside the arbitration award under the FAA, and thus it is a separate, distinct claim rather than