Richard "Rip" Hale v. Morgan Stanley Smith Barney

• Court: Court of Appeals for the Sixth Circuit
• Decided: April 17, 2023
• Docket: 21-4184
• Status: Unpublished

Opinion

NOT RECOMMENDED FOR PUBLICATION File Name: 23a0168n.06

No. 21-4184

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

) FILED RICHARD “RIP” HALE, Apr 17, 2023 ) Plaintiff-Appellant, DEBORAH S. HUNT, Clerk ) ) v. ) ON APPEAL FROM THE UNITED ) STATES DISTRICT COURT FOR MORGAN STANLEY SMITH BARNEY ) THE SOUTHERN DISTRICT OF LLC, dba Morgan Stanley Wealth ) OHIO Management, ) Defendant-Appellee. ) OPINION )

Before: SUTTON, Chief Judge; BATCHELDER and MURPHY, Circuit Judges.

MURPHY, Circuit Judge. Richard “Rip” Hale has made millions of dollars as a top

financial advisor for Morgan Stanley Smith Barney LLC. For decades, Hale maintained an

unblemished record with Morgan Stanley. But Morgan Stanley eventually reprimanded him for

violating its policies and denied him membership in its “Chairman’s Club.” These actions led

Hale to demand arbitration against Morgan Stanley. An arbitrator rejected all of Hale’s claims,

and the district court denied his motion to vacate the arbitrator’s decision under the Federal

Arbitration Act. That Act requires us to review the arbitrator’s decision under some of the most

deferential standards known to law. Hale cannot meet those standards. We thus affirm.

I

In 1984, Hale took a job as a financial advisor with Morgan Stanley. Final Award, R.1-3,

PageID 35. At some point, he began to work in a Morgan Stanley office outside Dayton, Ohio. No. 21-4184, Hale v. Morgan Stanley Smith Barney LLC

Id., PageID 38. While there, Hale rose to become one of Morgan Stanley’s highest revenue

generators for his territory. Id., PageID 35. He received many awards, and Forbes Magazine put

him on its list of the country’s best wealth advisors. Id. Morgan Stanley paid Hale well for his

efforts. In 2018, he earned $2.75 million. Post-Hr’g Br., R.1-4, PageID 54 n.10. During most of

Hale’s successful career, the company never disciplined him. Final Award, R.1-3, PageID 35.

Things changed in 2013. He spoke to the media about investment strategies without getting

Morgan Stanley’s approval. Id. This media communication violated company policy. Id. Hale’s

manager thus issued him a “Letter of Education.” Id. But Hale refused to sign it. Id.

The next year, Hale spoke to a client about investing in an initial public offering during the

offering’s “pre-effective” or “quiet” period. Id., PageID 36. This conduct also violated company

policy. So a manager issued him a “Letter of Reprimand.” Id. Hale claims that he never received

this letter. Id. Yet this manager recalled discussing the letter with Hale. Id. Hale again refused

to sign it. Id. The manager thus wrote “refused to sign” at the bottom of the letter. Id.

A third reprimand followed in 2016 for Hale’s violation of three separate company policies.

A manager had referred Hale to Morgan Stanley’s “Special Investigations Unit” on the suspicion

that Hale had been reinvesting his clients’ dividend income without getting their preapproval. Id.

Morgan Stanley assigned Dan Derechin of that unit to investigate. Id.

Apart from confirming Hale’s violation of the reinvestment policy, Derechin discovered

that Hale had violated two other policies. Id., PageID 36–37. To begin with, Morgan Stanley

required financial advisors to get approval for any “Outside Business Investments.” Id., PageID

36–37. Back in 1999, however, Hale had formed a partnership to facilitate his family’s

investments. Id., PageID 37. He never disclosed these partnership investments. Id. According

to Hale, his manager assured him in 1999 that he need not disclose the partnership’s investments

2 No. 21-4184, Hale v. Morgan Stanley Smith Barney LLC

if his wife served as its president. Id. In 2016, though, Morgan Stanley’s policies required

disclosure of, and approval for, any outside investments by advisors or their spouses. Id.

In addition, Hale’s family partnership had invested in a company owned by one of Morgan

Stanley’s clients. Id., PageID 38. Morgan Stanley’s policies separately barred advisors like Hale

from investing in entities controlled by clients. Id.

For these three fresh violations, Morgan Stanley issued Hale a second “Letter of

Reprimand” in June 2016. Id. Hale agreed to accept Derechin’s finding that he violated the

reinvestment policy if the company added language to the letter implying that he had committed

only a “technical violation.” Id. But Hale refused to acknowledge any other wrongdoing or sign

the unamended letter. Id.

A few months later, Derechin traveled to Dayton on unrelated matters. Id. Hale invited

Derechin into his office. Id. In testimony during Hale’s arbitration, Hale and Derechin “fiercely

contested” what the two discussed. Id. Derechin asserted that Hale “berated” him about his

investigation and accused him of ethical lapses. Id. Hale claimed that the conversation remained

“friendly” throughout. Id., PageID 39.

In late 2016 and early 2017, Derechin presented his findings about Hale to two Morgan

Stanley committees. Id., PageID 39–40. The “Heightened Supervision Committee” saw no need

to supervise Hale more closely. Id., PageID 40. It ordered only that he participate in a “Day of

Education.” Id. But the “Guardianship Committee” rescinded Hale’s membership in Morgan

Stanley’s “Chairman’s Club.” The company uses that club to recognize certain high-performing

advisors. Id. The committee made this decision based on several factors: the three disciplinary

letters, Hale’s refusal to accept responsibility for his actions, and his hostile attitude toward

Derechin. Id. Hale “complained mightily” about missing out on the Chairman’s Club. Id.

3 No. 21-4184, Hale v. Morgan Stanley Smith Barney LLC

Upset by his perceived mistreatment, Hale demanded arbitration under the terms of his

contract with Morgan Stanley. Demand, R.32-1, PageID 358. Hale’s claims evolved over the

course of the arbitration. He ultimately asserted state-law claims for negligence, defamation, and

intentional infliction of emotional distress based on Derechin’s allegedly improper investigation.

Mot., R.31-1, PageID 282. Hale also asserted a claim that high-level Morgan Stanley officials

breached their fiduciary duties to him by failing to meet with him to discuss the matter. Id.

After reading a New York Times article, Hale later sought to add a federal age-

discrimination claim. Mot., R.32-4, PageID 445–53. This article asserted that Morgan Stanley

allowed another top advisor in Portland, Oregon, to remain with the company despite knowing

about domestic-violence allegations against him. Id., PageID 445–46. A few days after the Times

published its article, Morgan Stanley fired this advisor. Id., PageID 449. Hale still took the article

as proof that the firm had treated a younger employee better than him. Id., PageID 452. Yet the

governing arbitration rules did not allow a claimant like Hale to amend a complaint after the

respondent had filed its answer. Guidebook, R.32-1, PageID 392. So the arbitrator found that

Hale raised this federal age-discrimination claim too late. Newman Aff., R.38-1, PageID 723.

Eleven witnesses testified during the arbitration. See Hale v. Morgan Stanley, 571

F. Supp. 3d 872, 876 (S.D. Ohio 2021). The arbitrator then rejected all of Hale’s state-law claims.

Final Award, R.1-3, PageID 34–43. The arbitrator resolved the factual disputes against Hale.

According to the arbitrator, Hale had committed the policy violations that Morgan Stanley accused

him of. Id., PageID 41. Despite Hale’s claim that he had never seen the first “Letter of

Reprimand,” the arbitrator also found that Hale had been shown this letter and refused to sign it.

Id., PageID 41. The arbitrator next credited Derechin’s testimony that Hale had berated him in

Hale’s office. Id., PageID 39. These findings led the arbitrator to conclude that Hale had not been

4 No. 21-4184, Hale v. Morgan Stanley Smith Barney LLC

“defamed nor was he the victim of intentional infliction of emotional distress.” Id., PageID 42.

The findings also meant that Derechin’s investigation had not been “negligent.” Id. The arbitrator

lastly described Hale’s fiduciary-duty claim as “frivolous.” Id.

Hale filed a motion in federal district court to vacate the arbitrator’s decision under the

Federal Arbitration Act, 9 U.S.C. § 10. He asserted that the district court had jurisdiction under

28 U.S.C. § 1332(a)(1) because the parties were diverse. But the district court dismissed the case

for lack of jurisdiction. It found that Hale had failed to show that the amount of the parties’

controversy exceeded $75,000. We reversed. Hale v. Morgan Stanley Smith Barney LLC, 982

F.3d 996, 997–99 (6th Cir. 2020).

On remand, the district court denied Hale’s motion to vacate on the merits. See Hale, 571

F. Supp. 3d at 879–87. Hale now appeals a second time.

II

On appeal, we must apply two different standards of review—one for the district court’s

decision and the other for the arbitrator’s. We use garden-variety standards to review the district

court’s decision to deny Hale’s motion to vacate. That is, we evaluate the district court’s findings

of fact under the deferential clear-error test and we review its legal conclusions under the non-

deferential de novo standard. See McGee v. Armstrong, 941 F.3d 859, 867 (6th Cir. 2019); Samaan

v. Gen. Dynamics Land Sys., Inc., 835 F.3d 593, 599 (6th Cir. 2016).

But we review the arbitrator’s decision under what we have called “one of the narrowest

standards of judicial review in all of American jurisprudence.” Samaan, 835 F.3d at 600 (quoting

Uhl v. Komatsu Forklift Co., 512 F.3d 294, 305 (6th Cir. 2008)). This narrow review springs from

the Federal Arbitration Act. In 9 U.S.C. § 10(a), the Act identifies the four “exclusive” grounds

on which a federal court may vacate an arbitrator’s decision. Hall St. Assocs., L.L.C. v. Mattel,

5 No. 21-4184, Hale v. Morgan Stanley Smith Barney LLC

Inc., 552 U.S. 576, 578 (2008). Hale has relied on two of those grounds here. Appellant’s Br. 12.

The district court could have vacated his arbitrator’s decision if the arbitrator was “guilty of

misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear

evidence pertinent and material to the controversy; or any other misbehavior by which the rights

of any party have been prejudiced[.]” 9 U.S.C. § 10(a)(3). And the court could have vacated that

decision if Hale’s arbitrator “exceeded [his] powers, or so imperfectly executed them that a mutual,

final, and definite award upon the subject matter submitted was not made.” Id. § 10(a)(4).

Hale identifies five reasons why the district court erred in refusing to vacate the arbitrator’s

decision under § 10(a)(3) and (4). He is mistaken on all counts.

First, Hale argues that the district court used an overly deferential standard of review to

evaluate the arbitrator’s decision. Appellant’s Br. 16–20. To the contrary, the district court

properly recited the Federal Arbitration Act’s standards. See Hale, 571 F. Supp. 3d at 879. The

court then properly applied those standards to Hale’s claimed errors. See id. at 879–80, 883–85.

If anything, the court applied a standard that was overly generous to Hale. It suggested

that it could vacate the arbitrator’s decision if the arbitrator acted in “manifest disregard of the

law.” Id. at 881 (citation omitted). But, as the court also recognized, id. at 881 n.3, the Federal

Arbitration Act’s text does not include this manifest-disregard test; courts “created” it as an

“alternative” to the Act’s grounds for vacating an arbitrator’s decision. Merrill Lynch, Pierce,

Fenner & Smith, Inc. v. Jaros, 70 F.3d 418, 421 (6th Cir. 1995). Since then, however, the Supreme

Court has held that the Act provides the “exclusive” grounds for vacatur. Hall St., 552 U.S. at

586. So, although some of our unpublished cases have continued to apply the manifest-disregard

test, we have not yet “firmly settled” whether it survives Hall Street. See Schafer v. Multiband

Corp., 551 F. App’x 814, 819 & n.1 (6th Cir. 2014). We need not do so in this case either. We

6 No. 21-4184, Hale v. Morgan Stanley Smith Barney LLC

may simply assume that our manifest-disregard test remains valid. See id. at 818–19; see also

Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 672 n.3 (2010).

Given the district court’s reliance on a test that potentially expanded the scope of review,

why does Hale think that it reviewed the arbitrator’s decision too narrowly? He contends that the

court should have reviewed the arbitrator’s findings of fact for clear error. But he misreads the

cases on which he relies. They describe our standard of review for the district court’s findings of

fact, not for the arbitrator’s. See Barrick Enters., Inc. v. Crescent Petroleum, Inc., 496 F. App’x

614, 616 (6th Cir. 2012). That standard of review is beside the point. Hale does not claim that the

district court found any facts—let alone that it did so in a clearly erroneous manner. And the

Federal Arbitration Act’s text does not permit us to vacate the arbitrator’s factual findings solely

because we think those findings wrong or even clearly wrong. See Wachovia Secs., Inc. v.

Gangale, 125 F. App’x 671, 677 (2005); cf. United Paperworkers Int’l Union v. Misco, Inc., 484

U.S. 29, 36 (1987). So Hale (not the district court) mistakenly articulates the standard of review.

Second, Hale suggests that the arbitrator manifestly disregarded the law by rejecting his

age-discrimination claim as untimely. Appellant’s Br. 20–24. Under the test that we assume

applies, arbitrators act with manifest disregard of the law only if they refuse to apply a clear (and

clearly applicable) legal rule. Jaros, 70 F.3d at 421; Dawahare v. Spencer, 210 F.3d 666, 669 (6th

Cir. 2000). When a reasonable judge could “conceivably” reach the arbitrator’s legal conclusion,

a manifest-disregard challenge must fail even if we would have reached the opposite one. Jaros,

70 F.3d at 421. In other words, mere legal errors will not do. Schafer, 551 F. App’x at 820. An

arbitrator’s decision must “fly in the face” of obviously applicable law. Jaros, 70 F.3d at 421.

Hale argues that the arbitrator manifestly disregarded the law by rejecting his argument

that “equitable tolling” saved his age-discrimination claim. His argument has two problems.

7 No. 21-4184, Hale v. Morgan Stanley Smith Barney LLC

For one thing, Hale does not allege that the arbitrator denied his claim based on the 300-day filing

deadline in the Age Discrimination in Employment Act. See 29 U.S.C. § 626(d)(1)(B). Rather,

he alleges that the arbitrator relied on an arbitration rule that barred Hale from amending his claims

after Morgan Stanley filed its answer. Newman Aff., R.38-1, PageID 723. Hale cites no cases

applying equitable tolling to this sort of contractual mandate, which resembles a rule governing

the amendments to pleadings more than a statute of limitations. Cf. Fed. R. Civ. P. 15(a)(2).

Because Hale lacks “clearly established” law expanding equitable tolling in his requested fashion,

the arbitrator could “conceivably” conclude that the doctrine did not apply. Jaros, 70 F.3d at 421.

For another thing, even if equitable tolling could apply, Hale does not identify any “clearly

established” law that compelled the arbitrator to equitably toll his age-discrimination claim. Id.

Hale argues that he did not know that he had an age-discrimination claim until he reviewed the

news article about a Portland advisor. But our cases have analyzed five factors when deciding

whether a plaintiff could rely on equitable tolling for a belatedly filed age-discrimination claim.

See Amini v. Oberlin Coll., 259 F.3d 493, 500–01 (6th Cir. 2001). And Hale did not even attempt

to fit his argument into these factors until his reply brief. So he has forfeited any reliance on them.

See Bannister v. Knox Cnty. Bd. of Educ., 49 F.4th 1000, 1017 (6th Cir. 2022). Unable to rely on

the governing framework, he has not shown that the arbitrator’s “application” of that framework

would “fly in the face” of our equitable-tolling precedent. Jaros, 70 F.3d at 421.

Third, Hale argues that the arbitrator refused to credit his “wrongful discipline” claim.

Appellant’s Br. 24–25. But his operative pleading did not include a wrongful-discipline claim.

Mot., R.31-1, PageID 282. Besides, this argument rests on his factual contention that he was not

an at-will employee and that his contract gave him “just cause” protections from discipline. Yet

the arbitrator found that he was an at-will employee and that his repeated policy violations gave

8 No. 21-4184, Hale v. Morgan Stanley Smith Barney LLC

Morgan Stanley more than adequate cause to discipline him. Final Award, R.1-3, PageID 41–42.

Hale offers no grounds on which we can review—let alone overturn—these factual findings under

the Federal Arbitration Act. See Wachovia Secs., 125 F. App’x at 677. The findings would doom

any wrongful-discipline claim even if Hale had pleaded one.

Fourth, Hale argues that the arbitrator “exceeded [his] powers” under 9 U.S.C. § 10(a)(4)

because he did not issue a “reasoned” decision when rejecting Hale’s defamation and intentional-

infliction-of-emotional-distress claims. Appellant’s Br. 25–27. Yet the parties’ contract mandated

only “a reasoned and detailed decision stating the reasons upon which it is based and supported by

essential facts and conclusions of law[.]” Guidebook, R.32-1, PageID 393; see Hale, 571 F. Supp.

3d at 883–84. Other courts have attempted to articulate what a “reasoned” arbitration award

requires. See, e.g., YPF S.A. v. Apache Overseas, Inc., 924 F.3d 815, 820 (5th Cir. 2019); Cat

Charter, LLC v. Schurtenberger, 646 F.3d 836, 844–45 (11th Cir. 2011). But we need not provide

an authoritative definition here. The arbitrator’s nearly ten-page opinion would satisfy any test.

Final Award, R.1-3, PageID 34–43. That decision identified all of the arbitrator’s essential factual

findings—most notably, “that Hale committed the acts and omissions for which he received

discipline.” Id., PageID 41. And it contained the arbitrator’s conclusions of law—namely, that

“Hale was not defamed nor was he the victim of intentional infliction of emotional distress”

because he committed the relevant violations. Id., PageID 42.

Although Hale would have preferred the arbitrator to provide more “detailed” legal

analysis, YPF, 924 F.3d at 820, he does not explain how these two claims could have survived

under the arbitrator’s findings. As for Hale’s intentional-infliction claim, the arbitrator found that

Morgan Stanley conducted a “reasonable” investigation that resulted in “accurate” statements

about Hale’s misconduct. Final Award, R.1-3, PageID 42. In light of these findings, no person

9 No. 21-4184, Hale v. Morgan Stanley Smith Barney LLC

could describe the company’s conduct as “so outrageous in character, and so extreme in degree,

as to go beyond all possible bounds of decency, and to be regarded as atrocious, and utterly

intolerable in a civilized community.” Reamsnyder v. Jaskolski, 462 N.E.2d 392, 394 (Ohio 1984)

(quoting Restatement (Second) of Torts § 46 cmt. d (Am. L. Inst. 1965)). As for Hale’s defamation

claim, the arbitrator found that all of the negative statements about Hale were true. Final Award,

R.1-3, PageID 42. And truth is a complete defense to a defamation claim. See Ed Schory & Sons,

Inc. v. Soc’y Nat’l Bank, 662 N.E.2d 1074, 1083–84 (Ohio 1996).

Fifth, Hale asserts that the arbitrator wrongly rejected his claim that Morgan Stanley

officials breached their fiduciary duty to him. Appellant’s Br. 28. He cites a Delaware opinion

for the proposition that Morgan Stanley board members owe a fiduciary duty to shareholders to

monitor corporate activities. See In re Caremark Int’l Inc. Derivative Litig., 698 A.2d 959, 968–

70 (Del. Ch. 1996). According to Hale, this duty required Morgan Stanley officials to have “a 45-

minute adult conversation” with him about the investigation of his policy violations. Appellant’s

Br. 28. But Hale did not bring a shareholder-derivative suit. He brought a suit challenging conduct

taken against him as a Morgan Stanley employee. So even if Hale is a Morgan Stanley shareholder

too, his complaint arises from his separate employment status. The arbitrator thus accurately

described this claim as “frivolous.” Final Award, R.1-3, PageID 42.

We affirm.