Morani v. Landenberger

• Court: Court of Appeals for the First Circuit
• Decided: November 2, 1999
• Docket: 99-1010
• Status: Published

Opinion

USCA1 Opinion

                 United States Court of Appeals

                     For the First Circuit


No. 99-1010



                        DENNIS G. MORANI,



                      Plaintiff, Appellant,



                                v.



   WILLIAM LANDENBERGER and COMMONWEALTH EQUITY SERVICES, INC.,



                      Defendants, Appellees.


APPEAL FROM THE UNITED STATES DISTRICT COURT



                FOR THE DISTRICT OF MASSACHUSETTS



         [Hon. Edward F. Harrington, U.S. District Judge]


Before



                    Selya, Boudin and Lynch,

                                

                        Circuit Judges. 


Dennis G. Morani on brief pro se.

     Thomas G. Nicholson and Finneran & Nicholson, P.C. on brief

for appellees.


November 2, 1999


BOUDIN, Circuit Judge.  This appeal arises out of a

troubling dispute between appellant Dennis Morani and his former

financial advisor, appellee William Landenberger.

  Morani alleges that, during and subsequent to his

recovery from a motor vehicle accident that left Morani brain

damaged, Landenberger fraudulently advised him and his wife to

accept an inadequate lump sum settlement from their disability

insurer and to invest the money through Landenberger and the

brokerage company he represented, appellee Commonwealth Equity

Services, Inc. ("Commonwealth").  Landenberger then allegedly

recommended and executed inappropriate investments, "churned" the

account by making frequent trades so as to maximize his

commissions, and failed adequately to disclose commission rates and

other investment details to the Moranis.

  After learning of Landenberger's alleged misconduct,

Morani filed a pro se complaint in the federal district court in

Massachusetts.  He alleged that Landenberger and Commonwealth had

violated various federal securities laws--based on Landenberger's

advice regarding the insurance settlement, the inappropriate

investments and churning, and the lack of disclosure.  However,

when they first opened their investment account, the Moranis had,

along with Landenberger, signed a "Pre-Dispute Arbitration

Agreement."  The agreement provided that

    [the parties] agree that all controversies

  that may arise between us concerning any order

  transaction, or the continuation, performance,

  or breach of this or any other agreement

  between us, whether entered into before, on,

  or after the date of this account is opened,

  shall be determined by arbitration before a

  panel of independent arbitrators . . . .



The agreement warned, inter alia, that "[a]rbitration is final and

binding on the parties" and that "[t]he parties are waiving their

right to seek remedies in court, including the right to jury

trial."  

  After filing the pro se complaint, Morani retained

counsel and, in October 1997, filed a "Uniform Submission

Agreement"--thus submitting certain claims against Landenberger and

Commonwealth to an arbitration panel sponsored by the National

Association of Securities Dealers and agreeing to "abide by" any

resulting arbitration award.  Morani's "Statement of Claim" echoed

the allegations in the pro se complaint regarding churning and the

inadequate insurance settlement.  The Moranis sought compensatory

damages of $360,000 ($335,000 based on the inadequate insurance

settlement and $25,000 based on churning) plus punitive damages.

  Landenberger and Commonwealth then moved to dismiss

Morani's complaint in the district court for failure to state a

claim or, in the alternative, to stay the district court action

pending the outcome of arbitration, arguing that relief could not

be granted in the district court because all of Morani's claims

were covered by a valid arbitration agreement.  By endorsement, the

district court stayed the case pending arbitration.  At that point,

Morani had already initiated arbitration proceedings in the manner

described above.  9 U.S.C.  3.

  The arbitration hearing, at which Morani was represented

by counsel, took place over five days in July and August 1998, and

resulted in a $10,000 award, issued on October 1, 1998.  The three-

member arbitration panel did not make any findings of fact or

otherwise explain the basis for the award; indeed, the arbitration

agreement provides that "[t]he arbitrators' award is not required

to include factual or legal reasoning."  Unsatisfied with the

outcome, Morani returned pro se to district court, moved to vacate

the arbitration decision and requested a hearing or trial on his

original complaint.  Appellees opposed Morani's motions and

apparently revived their own motion to dismiss.

  On November 20, 1998, after a hearing, the district court

denied the motion to vacate and, treating the motion to dismiss as

a motion for summary judgment, Fed. R. Civ. P. 12(b), 56, granted

summary judgment for the appellees, stressing in a written opinion

that Morani had voluntarily submitted his claims to arbitration by

filing the Uniform Submission Agreement and Statement of Claim and

that "[t]his Court must hold the plaintiff to that voluntarily-

entered-into agreement."  Morani filed a timely notice of appeal to

this court.

  Arbitration awards are subject only to limited review. 

We will vacate an award only on the narrow grounds specified by the

Federal Arbitration Act, 9 U.S.C.  10, or in other extreme

situations including "instances where it is clear from the record

that the arbitrator recognized the applicable law--and then ignored

it."  Advest, Inc. v. McCarthy, 914 F.2d 6, 9 (1st Cir. 1990).  

  Morani's principal contention is that the arbitration

award should be set aside because he was not able to question

Landenberger before the arbitration panel.  What appears to have

happened is this: after presenting testimony from several

witnesses, but not Landenberger, Morani's lawyer indicated that he

was prepared to rest his case.  The lawyer apparently expected,

based on witness lists prepared by the appellees' counsel, that

Landenberger would testify on his own behalf and would thus be

subject to cross-examination.  In fact, the appellees did not call

Landenberger, and Morani apparently was not permitted to reopen his

case in order to question him.  

  Because arbitration proceedings do not necessarily follow

typical courtroom procedure, there may be cases in which unexpected

application of strict procedural rules could rise to the level of

"misconduct . . . in refusing to hear evidence pertinent and

material to the controversy," one ground for vacatur under 9 U.S.C.

 10(a)(3).  See, e.g., Harvey Aluminum (Inc.) v. United

Steelworkers of America, 263 F. Supp. 488, 491-94 (C.D. Cal. 1967). 

But Morani's lawyer surely should have realized that, after

presenting witness testimony for several days and then resting his

case, he might not be able to introduce additional non-rebuttal

testimony.

  Morani's other main argument is that he did not

understand the original arbitration agreement that he signed on

opening the account and that it was induced by fraud.  This may

not be a frivolous argument in light of Morani's brain damage, see

generally Krasner v. Berk, 319 N.E.2d 897, 898-900 (Mass. 1974),

and perhaps it could have been used to counter a motion to compel

arbitration, see Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388

U.S. 395, 403-04 (1967).  But Morani can hardly disavow the

agreement at this late stage after invoking it himself and

proceeding to arbitration with the assistance of counsel.

  There is one problem remaining.  Morani says some of the

claims raised in his pro se complaint were not subject to dismissal

or summary judgment because they were not in fact arbitrated. 

Morani's brief in this court then describes the issues he now wants

to pursue, and some of them are issues that clearly were

arbitrated.  This is apparent after comparing his brief with the

arbitrators' own written statement, at the close of the

arbitration, as to the issues actually arbitrated.

  Nevertheless, Morani's premise is likely correct in part.

His district court complaint arguably covers four different claims,

and available evidence suggests that he probably submitted only two

of those claims in the arbitration proceeding.  Specifically, the

complaint makes the following allegations against Landenberger: (1)

fraudulent advice regarding the insurance settlement; (2) excessive

and inappropriate trading (churning); (3) failure to provide

prospectuses and forgery of prospectus receipts; and (4) failure to

disclose commission rates and other fees.  Based on Morani's

statement of claim and the arbitrators' decision, Morani appears to

have submitted only the first two claims to arbitration.

  There are two problems with this argument for Morani. 

The first is that very little of this was made clear to the

district court.  Morani did not make this argument either in his

written opposition to the renewed motion to dismiss nor in his

lengthy oral presentation at the hearing; Morani's wife, who also

spoke at the hearing, did refer very briefly to forgery of

prospectus receipts as an issue not resolved by arbitration; but

when the district judge said (mistakenly) that this was a new claim

not raised in the original complaint, neither of the Moranis

corrected the district judge.

  We are not going to rely on this failure adequately to

preserve the issue, because counsel for the appellees explicitly

told the district judge that all claims pressed in Morani's

complaint had been submitted to arbitration; defense counsel twice

repeats that statement in his appellate brief.  This appears, as we

have just explained, to be an inaccurate statement.  And it is a

reasonable guess that in considering the motion to dismiss the

district court wrongly assumed that the arbitration proceeding did

encompass all of the claims set forth in Morani's district court

complaint.

  However, Morani faces a second difficulty.  Those claims

in Morani's complaint that he chose not to submit to arbitration

were nevertheless arbitrable under the agreement, or at least he

does not give us any reason to think otherwise.  In effect what

Morani is saying is that when the district judge stayed the

proceeding pending arbitration, Morani was entitled to submit some

of his claims to the arbitrators, withhold others, and say nothing

to the judge about this reservation until after the arbitrators had

acted and the case had returned to court.  It seems to us that

Morani is not entitled to a second bite at the apple without some

adequate explanation for withholding claims that were arbitrable

but were apparently not submitted.  

  It is hard to find any direct precedent on this issue: 

if arbitration is welcomed, the complaining party is usually

anxious to submit all of its arguably arbitrable claims to

arbitration; conversely, if arbitration is disputed, normally an

order issues directing arbitration of arbitrable claims.  E.g.,

Sevinor v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 807 F.2d 16

(1st Cir. 1986).  Here, the district court simply endorsed a stay

pending arbitration since the parties were by then agreed that

arbitration should occur; but surely the court intended that

whatever claims in the complaint were arbitrable should be

submitted to the arbitrators at the same time.  No other reading of

the stay makes sense.

  We might feel differently about this point if Morani were

being disadvantaged on a technical issue for lack of counsel.  Cf.

Ahmed v. Rosenblatt, 118 F.3d 886, 890 (1st Cir. 1997), cert.

denied, 118 S. Ct. 1165 (1998).  But here, Morani did have counsel

when determining what to submit to arbitration and in conducting

the arbitration proceeding.  It was his counsel's job, which may

well have been performed quite properly, to select for arbitration

those claims that provided some prospect of success.  In any event,

to the extent Morani failed to present some claims to arbitration

that were set forth in the complaint and were arbitrable under his

agreement, this was a counseled decision.

  We add that the district judge made every effort to give

Morani a fair opportunity to be heard, and the judge did all he

could to untangle a morass of allegations.  The judge heard not

only from Morani and his wife but also from a non-lawyer advocate

whom Morani brought to court, and the judge pressed both sides in

an effort to develop information that neither side had explained

adequately.

  The judgment of the district court is affirmed.  Each

side will bear its own costs on the appeal.

  It is so ordered.