Ann Eleanor Ploetz v. Morgan Stanley Smith Barney
Opinion
Ann Eleanor Ploetz, the trustee for the Laudine L. Ploetz, 1985 Trust, brought a claim against Morgan Stanley Smith Barney LLC, with whom the Trust held an account, alleging that Morgan Stanley had transferred funds from the account without authorization. The parties submitted the claim to the Financial Industry Regulatory Authority for arbitration "in accordance with the FINRA By-Laws, Rules, and Code of Arbitration Procedure." The arbitration panel assigned to the claim originally consisted of three public arbitrators, including chairperson Brett Olander. But six days before the arbitration hearing was set to begin, Olander discovered he had a scheduling conflict. Morgan Stanley asked to postpone the hearing until Olander was available again, but Ploetz did not want a delay, so the parties used FINRA's "short list" procedure to pick a new chair. Under that procedure, FINRA sent each party a random list of three public arbitrators and also the arbitrators' disclosure reports. Each party could strike one name from their list and rank the remaining names in order of preference. FINRA then combined the parties' lists and appointed the highest-ranking arbitrator to be Olander's replacement: The new chairperson was Barry Goldman.
Goldman's disclosure report stated he was currently serving as an arbitrator in two other cases that had "Morgan Stanley" as a party. His report also revealed he had served as an arbitrator in eight closed cases in which a member of the Morgan Stanley family ( e.g. , Morgan Stanley & Co. or Morgan Stanley DW, Inc.) or the Smith Barney family ( e.g. , Salomon Smith Barney, Inc., or Smith Barney Inc.) had been a party. In the case most recently closed, Goldman, serving as sole arbitrator, had dismissed as untimely the claims against a Morgan Stanley affiliate. See *897 McCormick v. Morgan Stanley , 2016 FINRA Arb. LEXIS 655 (2016). But Goldman's report did not disclose he had once served as a mediator in another case involving Morgan Stanley Smith Barney LLC. The mediation was unsuccessful, and an arbitration panel (on which Goldman did not sit) ultimately found that Morgan Stanley owed the claimant $75,000 in damages. See Arthur E. Strunk Revocable Trust v. Morgan Stanley Smith Barney LLC , 2014 FINRA Arb. LEXIS 980 (2014).
The arbitration panel in this case, with Goldman as chairperson, held hearings in Minneapolis, Minnesota, on two consecutive days in January, 2017. Within one week of the last hearing, the panel unanimously denied Ploetz's claim. The following month, however, Ploetz learned of Goldman's undisclosed service years earlier in the
Strunk
case. She moved the district court
1
to vacate the arbitration award under the Federal Arbitration Act,
see
When a district court denies a motion to vacate an arbitration award, we review its findings of fact for clear error and conclusions of law de novo.
Wells Fargo Bank, N.A. v. WMR e-PIN, LLC
,
The district court held that, to prevail under
*898
The parties disagree over the standard the district court should have used to determine whether there was "evident partiality" in Goldman.
See
Our earliest constructions of the term indicated that evident partiality exists wherever an undisclosed relationship "creates an impression of possible bias."
See
Ploetz does not warrant relief from the award under any of our evident-partiality standards since she does not explain how Goldman's undisclosed mediation of the
Strunk
case creates even an impression of possible bias. Ploetz provides us with scant information about the mediation: It must have occurred in or before 2014, it was confidential, it did not succeed, and it took place under the auspices of FINRA. Ploetz tells us that Morgan Stanley paid $1,375 for participation in the
Strunk
mediation-a $500 filing fee and a $875 session fee-and that is about all we know. Ploetz faults Morgan Stanley and FINRA for not providing her with more details about the
Strunk
mediation before she filed the motion to vacate, but her limited knowledge about the
Strunk
case works against her since she has the burden to prove evident partiality.
See
Brown v. Brown-Thill
,
*899
We see nothing in Goldman's undisclosed mediation of a years-old, unrelated case that could create an appearance of bias. The fact that Morgan Stanley was a party to the mediation and that it paid $1,375 in fees does not indicate Goldman might have been biased toward it here: If such meager circumstances could create an impression of possible bias, Goldman would now be evidently partial toward Ploetz since she paid $2,700 in session fees and her share of the $1,425 filing fee for the arbitration. Since Goldman timely disclosed the ten other cases he arbitrated where a member of the Morgan Stanley or Smith Barney family was a party, his undisclosed mediation of the
Strunk
case represented at most a trivial and inconsequential addition to that relationship.
See
Dow Corning Corp.
,
Ploetz maintains nonetheless that the district court could have found evident partiality based on the fact that Goldman did not disclose a party relationship he was required to disclose under FINRA Rule 12405(a). She reasons that since the parties submitted her claim to arbitration under the FINRA Rules and since Rule 12405(a)(4) provides that "past service as a mediator" for a party is a circumstance "which might preclude the arbitrator from rendering an objective and impartial determination in the proceeding," the court should not have "substituted its judgment for that of the parties ... [and] FINRA" when it held that Goldman's failure to disclose his mediation of the
Strunk
case did not show he was evidently partial. Ploetz misreads Rule 12405(a)(4), however: It does not provide that party mediation always precludes an arbitrator from being impartial, but only that it "might." FINRA, moreover, does not decide when an arbitrator's undisclosed relationship with a party evidences partiality under
Ploetz further maintains that had she known about Goldman's past service as a mediator, she "could have" used her peremptory challenge to strike him from the list of arbitrators who might replace Olander as chairperson. That, of course, is true. But the test for evident partiality does not turn on what the party seeking vacatur might have done with the undisclosed information (any new information might cause a party to strike an arbitrator), but on whether the undisclosed relationship demonstrates that the arbitrator had evident partiality. Here, it does not.
Ploetz asserts that both Goldman and FINRA (in appointing him) violated other FINRA Rules and that those violations also showed his evident partiality. She argues, for example, that Goldman executed his FINRA arbitrator's oath after the arbitration was over in contravention of FINRA Rule 12403(e)(4). None of the procedural errors Ploetz alleges indicates evident partiality in Goldman, however. They suggest at most an occasional failure to follow the FINRA Rules strictly, which is not an independent ground to
*900
vacate the award.
See
Brown
,
Ploetz seeks finally to vacate the award on the basis that Goldman was guilty of "misbehavior by which [her] rights ... have been prejudiced."
See
Affirmed.
The Honorable Paul A. Magnuson, United States District Judge for the District of Minnesota.
Reference
- Full Case Name
- Ann Eleanor PLOETZ, as Trustee FOR the LAUDINE L. PLOETZ, 1985 TRUST, Plaintiff-Appellant v. MORGAN STANLEY SMITH BARNEY LLC, Defendant-Appellee
- Cited By
- 5 cases
- Status
- Published