Baghdady v. Sadler
U.S. Court of Appeals for the First Circuit
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September 9, 1992 [NOT FOR PUBLICATION]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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