Prudential-Bache Securities, Inc. v. Tanner

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 95-1590

PRUDENTIAL-BACHE SECURITIES, INC.,

Plaintiff - Appellant,

v.

ROBERT D. TANNER, ET AL.,

Defendants - Appellees.

No. 95-1591

JOSE F. RODRIGUEZ, ET AL.,

Plaintiffs - Appellees,

v.

PRUDENTIAL-BACHE SECURITIES, INC.,

Defendant - Appellant.

No. 95-1592

PRUDENTIAL-BACHE SECURITIES, INC.,

Plaintiff - Appellee,

v.

ROBERT D. TANNER, ET AL.,

Defendants - Appellants.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. Salvador E. Casellas, U.S. District Judge]

Before

Torruella, Chief Judge,

Campbell, Senior Circuit Judge,

and Watson,* Judge.

Thomas F. Curnin, with whom Roy L. Regozin, Cahill Gordon &

Reindel, Guillermo J. Bobonis, Carlos Bobonis-Gonz lez, Bobonis,

Bobonis & Rodr guez-Poventud, Louis J. Scerra, Jr. and Goldstein

& Manello, P.C. were on brief for Prudential Securities

Incorporated.
Jos Angel Rey, with whom Jos Luis Gonz lez-Casta er and

Harold D. Vicente were on brief for Robert D. Tanner, et al.

December 29, 1995

* Of the United States Court of International Trade, sitting by
designation.

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TORRUELLA, Chief Judge. Appellant Prudential
TORRUELLA, Chief Judge.

Securities Incorporated, formerly Prudential-Bache Securities,

Inc. ("Prudential"), seeks the reversal of a judgment, entered in

two consolidated actions, confirming arbitration awards entered

by a panel of New York Stock Exchange arbitrators in favor of

Jos F. Rodr guez ("Rodr guez"), Robert Tanner ("Tanner"),

Garland Hedges ("Hedges"), Wolfram Pietri ("Pietri"), and Jos

Cimadevilla ("Cimadevilla"), former employees of Prudential's

subsidiary in Puerto Rico, Prudential-Bache Capital Funding

Puerto Rico, Inc. ("PBPR"). Prudential argues that the award

should be vacated on either of two grounds: first, that the

arbitration award was in manifest disregard of Puerto Rico Law

80; and second, that it went against a well-defined and

established public policy requiring that securities firms

maintain accurate and current books and records. However, we

find that Prudential neither meets the standard for the vacation

of an award on the grounds of manifest disregard, set out in

Advest, Inc. v. McCarthy, 914 F.2d 6 (1st Cir. 1990), nor

demonstrates that the arbitration panel found that appellees

acted against public policy. Since its argument that the

district court erred in refusing to vacate the awards of

attorney's fees and costs also fails, we affirm the judgment of

the court below on all points.

BACKGROUND
BACKGROUND

The arbitration underlying this case arose out of

Prudential's decision to close its Puerto Rican subsidiary and

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terminate the employment of several executives assigned to PBPR.

On December 29, 1990, Rodr guez, former President of PBPR,

together with his wife and their conjugal partnership, filed suit

against Prudential, seeking compensation for his allegedly

wrongful discharge. Appellant Prudential moved to compel

arbitration, and the lower court stayed all discovery and ordered

the parties to proceed with the arbitration of all claims

pertaining to Rodr guez. The claims of his wife and their

conjugal partnership were stayed pending the arbitration's

outcome. Meanwhile, the claims of Tanner, Hedges, Pietri and

Cimadevilla, all also former PBPR executives, were brought

directly through arbitration.

An arbitration panel appointed by the New York Stock

Exchange heard the parties' claims between February 1992 and

December 1993. On January 7, 1994, the panel issued its award,

under which Prudential was to pay Tanner $1,028,000, Rodr guez

$1,014,250, Hedges $312,750, Pietri $310,750, and Cimadevilla

$216,025. Various amounts in costs and attorney's fees were also

awarded. When Rodr guez moved the district court for entry of

judgment on the award, Prudential filed a petition to vacate the

arbitration award as against all claimants on the grounds that

(1) the award was against public policy; (2) the award was in

conflict with Puerto Rico Law 80; (3) the award of attorney's

fees was contrary to law; (4) the arbitrators improperly denied

Prudential the opportunity to conduct discovery into the

claimants' financial position and current earnings; (5) the award

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failed to properly record the decision of the arbitrators that

Prudential was not responsible for promissory notes issued by

Tanner and Rodr guez to their employees at Prudential in lieu of

cash bonuses; and (6) the award incorrectly noted that the

arbitrators ordered that appropriate shares of the bonus were to

be paid to claimants. They

contest the district court's findings on the first three of these

issues on appeal.

DISCUSSION
DISCUSSION

A. Standard of Review
A. Standard of Review

As the Supreme Court recently stated, "courts of

appeals should apply ordinary, not special, standards when

reviewing district court decisions upholding arbitration awards."

First Options of Chicago, Inc. v. Kaplan, U.S. , , 115

S. Ct. 1920, 1926, 131 L.Ed.2d 985 (1995). Accordingly, we

accept findings of fact that are not clearly erroneous and decide

questions of law de novo. Id., 115 S. Ct. at 1926.

However, our discussion does not end there. "We must

consider, of course, the district court's standard of

review . . . ." Kelley v. Michaels, 59 F.3d 1050, 1053 (10th

Cir. 1995). When a district court faces an arbitrator's

decision, "the court will set that decision aside only in very

unusual circumstances." First Options, 115 S. Ct. at 1923. The

first set of "unusual circumstances" are laid out in Section

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10(a) of the Federal Arbitration Act ("FAA"), 9 U.S.C. 10(a)

(1994).1 See Gateway Technologies v. MCI Telecommunications, 64

F.3d 993, 996 (5th Cir. 1995) (laying out the scope of judicial

review of arbitration awards in the light of First Options and

the FAA).

Prudential relies on a second, narrower, set of grounds

for review, established by case law for "manifest disregard of

the law." See Wilko v. Swan, 346 U.S. 427, 436-37 (1953)

(creating the exception), overruled on other grounds by Rodr guez

de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 484-

85 (1989); Advest, 914 F.2d at 9 n.5 (noting that this

judicially-created method of review is based on dicta in Wilko

1 Section 10(a) provides that a court may vacate an award:

(1) Where the award was procured by
corruption, fraud, or undue means.
(2) Where there was evident
partiality or corruption in the
arbitrators . . . .
(3) Where the arbitrators were 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 of
any other misbehavior by which the rights
of any party have been prejudiced.
(4) Where the arbitrators exceeded
their powers, or so imperfectly executed
them that a mutual, final, and definite
award upon the subject matter submitted
was not made.
(5) Where an award is vacated and the
time within which the agreement required
the award to be made has not expired the
court may, in its discretion, direct a
rehearing by the arbitrators.

9 U.S.C. 10(a) (1994); see Advest, 914 F.2d at 8 (stating that

10 "carefully limits judicial intervention").

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and not found in 10). The test for a challenge to an

arbitration award for manifest disregard of the law is set out in

Advest, Inc. v. McCarthy:

a successful challenge . . . depends upon
the challenger's ability to show that the
award is "(1) unfounded in reason and
fact; (2) based on reasoning so palpably
faulty that no judge, or group of judges,
ever could conceivably have made such a
ruling; or (3) mistakenly based on a
crucial assumption that is concededly a
non-fact."

Advest, 914 F.2d at 8-9 (quoting Local 1445, United Food and

Commercial Workers v. Stop & Shop Cos., 776 F.2d 19, 21 (1st Cir.

1985)).

B. Timeliness of Prudential's Petition to Vacate
B. Timeliness of Prudential's Petition to Vacate

Before addressing Prudential's arguments, we examine a

threshold issue appellees raise: whether Prudential's petition

to vacate was timely. Appellees argue that Prudential's petition

is governed by Rule 627(g) of the Rules of the New York Stock

Exchange ("NYSE"), which they maintain establishes a 30-day

period for filing petitions to vacate.2 Since the petition was

2 The Rule states:

All monetary awards shall be paid within
thirty (30) days of receipt unless a
motion to vacate has been filed with a
court of competent jurisdiction. An
award shall bear interest from the date
of the award: (i) if not paid within
thirty (30) days of receipt, (ii) if the
award is the subject of a motion to
vacate which is denied, or (iii) as
specified by the arbitrator(s) in the
award. Interest shall be assessed at the
legal rate, if any, then prevailing in
the state where the award was rendered,

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filed on March 9, 1994, sixty-one days after the award was

issued, under appellees' reading of Rule 627(g), Prudential's

petition would be time-barred. In turn, Prudential claims that

its petition is governed by the 90-day period set out in 12 of

the FAA, 9 U.S.C. 12 (1994),3 and so is timely. The court

below found that Section 12 of the FAA applies, and the petition

is not time-barred. We affirm.

Appellees make their argument in two stages. First,

they maintain that, since parties may agree to arbitrate under

non-FAA rules,4 and the parties submitted a Uniform Submission

Agreement to the NYSE providing that the arbitration would be

conducted in accordance with the rules of the exchange,5 those

or at a rate set by the arbitrator(s).

2 New York Stock Exchange Guide, Rule 627(g) (1989).

3 The Rule states, in pertinent part:

Notice of a motion to vacate, modify or
correct an award must be served upon the
adverse party or his attorney within
three months after the award is filed or
delivered.

9 U.S.C. 12 (1994).

4 See Mastrobuono v. Shearson Lehman Hutton, U.S. , ,

115 S. Ct. 1212, 1216, 131 L.Ed.2d 76 (1995) (noting that "the
FAA's pro-arbitration policy does not operate without regard to
the wishes of the contracting parties"); Volt Info. Sciences,

Inc. v. Board of Trustees, 489 U.S. 468, 479 (1989) ("Arbitration

under the Act is a matter of consent, not coercion, and parties
are generally free to structure their arbitration agreements as
they see fit").

5 Each appellee signed an Employment Agreement with Prudential
that contained an arbitration clause. The clause provided for,
inter alia, settlement of all claims arising between Prudential

and its employees through arbitration under the prevailing

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rules trump the FAA. Second, they argue that Rule 626(g), by

requiring payment of the award within 30 days of its receipt if a

motion to vacate has not been filed, compels the conclusion that

any challenge to an arbitration award must be filed within the

same period.

We are not convinced, however. We do not question that

the NYSE Rules apply. Where parties agree to a set of rules

different than those of the FAA, "enforcing those rules according

to the terms of the agreement is fully consistent with the goals

of the FAA, even if the result is that arbitration is stayed

where the Act would otherwise permit it to go forward." Volt,

489 U.S. at 479. While we agree with appellees' first premise,

however, we do not subscribe to their second one.

Appellees seek to find a time limit in Rule 627(g) that

it does not include. To support their reading of the rule,

appellees argue that it is meant to operate as a stay of

execution for the period during which the party may challenge the

award. In that context, they maintain it would be senseless to

allow such a stay for only 30 days if the period to file a

petition to vacate is to be governed by the 90-day period of the

FAA, as the award would be subject to enforcement during the 60

days following the expiration of the stay. While their logic

holds some merit, they cannot escape the fact that the text of

Constitution and Rules of the NYSE. Also, the Submission
Agreement which the parties filed with the NYSE shows that they
submitted their dispute to arbitration in accordance with that
body's Rules, Constitution, By-laws, Regulations, and/or Code of
Arbitration.

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the Rule is clear. As stated by the court below, "[t]he plain

language of Rule 627(g) . . . does not even address the question

of a time limitation on motions for vacatur, but rather

establishes when awards are to be paid and the precise moment at

which interest begins to accrue on unpaid amounts of an award."

Rodr guez v. Prudential-Bache Sec., Inc., 882 F. Supp. 1202, 1206

(D.P.R. 1995). We are unwilling to read a time limit into its

language.

In contrast, the text of Section 12 is unambiguous,

clearly setting out a 90-day time limit. Since the Rules of the

NYSE provide no time limit, we find that the FAA 90-day provision

applies, and appellant's petition is timely. See Escobar v.

Shearson Lehman Hutton, Inc., 762 F. Supp. 461, 463 (D.P.R. 1991)

("A party who seeks judicial review of an arbitration award must

comply with the notice requirements of section 12 . . . ."); cf.

Franco v. Prudential Bache Sec., Inc., 719 F. Supp. 63, 64

(D.P.R. 1989) (finding motion to overturn an arbitration award

untimely for failure to petition within 90-day period of 12).

C. Manifest Disregard of the Law
C. Manifest Disregard of the Law

As stated above, judicial review of arbitration awards

is available where arbitrators have acted in manifest disregard

of the law. See Wilko, 346 U.S. at 436-37. As this court stated

in Advest, Inc. v. McCarthy, arbitration awards are subject to

review "where it is clear from the record that the arbitrator

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recognized the applicable law--and then ignored it."6 914 F.2d

at 9.

Prudential argues that this is such a case. It asserts

that appellees were terminated for "just cause" under

Commonwealth Law 80, which sets out the remedy for employees

under contracts without fixed duration who are wrongfully

discharged. 29 L.P.R.A. 185a (Supp. 1991). Law 80 details

what constitutes just cause for discharge, including "[f]ull,

temporary or partial closing of the operations of the

establishment." 29 L.P.R.A. 185b(d) (Supp. 1991). It provides

an exclusive remedy.7 See Alvarado-Morales v. Digital Equip.

6 We emphasize that this is a narrow basis for review: a mere
mistake of law by an arbitrator cannot serve as the basis for
judicial review. We have long recognized the general rule that
"courts are not to review the merits of an arbitral award."
Challenger Caribbean Corp. v. Uni n General de Trabajadores, 903

F.2d 857, 861 (1st Cir. 1990). They "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." Misco, 484 U.S. at

38. Thus our review is circumscribed by the provisions of
Section 10(a) and the specifications of the "manifest disregard
of the law" test laid out by this court in Advest.

7 While "[t]here is no question that Act No. 80 is the exclusive
remedy for wrongful discharge in Puerto Rico," Weatherly v.

International Paper Co., 648 F. Supp. 872, 875 (D.P.R. 1986),

three exceptions exist to the rule that Law 80 precludes other
civil actions against an employer who wrongfully terminates an
employee. They arise (1) when a plaintiff has an independent
cause of action for a tort committed in the course of the
discharge, Vargas v. Royal Bank of Canada, F. Supp. 1036, 1039

(D.P.R. 1985); (2) when a plaintiff is protected by other social
legislation, Weatherly, 648 F. Supp. at 877 n.8 (listing the

twelve statutes that provide remedies for employment termination
alongside Law 80); and (3) when the plaintiff's termination
violates his or her constitutional rights, In re El San Juan

Hotel Corp., 149 B.R. 263, 273 (D.P.R. 1992); Santini Rivera v.

Serv. Air, Inc., 94 JTS 121 (Hern ndez Denton, J., concurring).

This is not to say, however, that the parties to an employment

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Corp., 843 F.2d 613, 615 n.1 (1st Cir. 1988) (noting the

exclusiveness of the remedy for wrongful constructive discharge);

Rodr guez v. Eastern Air Lines, Inc., 816 F.2d 24, 27-28 (1st

Cir. 1987) (finding that the remedy's exclusive nature precludes

reinstatement claim).

Prudential contends that, given that the five appellees

were discharged from employment in Puerto Rico under employment

agreements without a fixed duration, Law 80 applies. Since the

law provides an exclusive remedy, and the appellees' claims arise

out of their termination, it argues, the only penalty appellees

could claim for wrongful discharge would be that set by Law 80.

Prudential carries its argument a step further, maintaining that

under Section 185b(d) of Law 80 there was no wrongful discharge,

as the employees were terminated in conjunction with the closing

of PBPR.8 Since "employees who are dismissed for cause are not

entitled to the relief afforded by Act 80," Marti v. Chevron

U.S.A., Inc., 772 F. Supp. 700, 705 (D.P.R. 1991), Prudential

concludes, the arbitrators' award is irreconcilable with Law 80,

contract cannot make an agreement regarding indemnification in
the case of wrongful termination. See Santini Roig v. Iberia

L neas A reas de Espa a, 688 F. Supp. 810, 817 (D.P.R. 1988)

(allowing recovery under Law 80 when parties had been indemnified
according to a collective bargaining agreement, stating that Law
80 "is an independent statute that provides for a separate cause
of action for monetary relief regardless of the terms of the
collective bargaining agreement.").

8 Prudential makes the additional arguments that appellee
Tanner's alleged failure to record a transaction in accordance
with federal and company rules provided just cause for
termination, and that appellee Rodr guez' decision to resign was
not constructive discharge under Law 80. These arguments are
also defeated under the analysis presented below.

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and so was made in manifest disregard of it.

In order to demonstrate that the arbitrator both

recognized and ignored the applicable law, Advest, 914 F.2d at 9,

"'there must be some showing in the record, other than the result

obtained, that the arbitrators knew the law and expressly

disregarded it,'" id. at 10 (quoting O.R. Sec., Inc. v.

Professional Planning Assocs., Inc., 857 F.2d 742, 747 (11th Cir.

1988)). The demand for a showing in the record sets up a high

hurdle for Prudential to clear, because where, as here,

arbitrators do not explain the reasons justifying their award,9

"appellant is hard pressed to satisfy the exacting criteria for

invocation of the doctrine." Id. "In fact, when the arbitrators

do not give their reasons, it is nearly impossible for the court

to determine whether they acted in disregard of the law." O.R.

Sec., 857 F.2d at 747. But see Advest, 914 F.2d at 10

(suggesting that a court could find arbitrators in disregard of

the law despite the lack of a record where "the governing law

[has] 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.").

In the present case Prudential's argument is thwarted

9 It is well established that arbitrators are not required to
either make formal findings of fact or state reasons for the
awards they issue. Labor Relations Div. of Constr. Indus. of

Mass., Inc. v. International Bhd. of Teamsters, 29 F.3d 742, 747

(1st Cir. 1994); Raytheon Co. v. Automated Business Sys., Inc.,

882 F.2d 6, 8 (1st Cir. 1989).

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by the fact that the arbitrators did not explain the reasons

behind their award. It is undisputed that Law 80 was not the

only cause of action asserted by Prudential's former employees

before the arbitrators. What is more, it is equally uncontested

that appellees presented evidence regarding damages under Law 80

in contradiction of Prudential's position. Given the fact that

the panel members heard conflicting arguments, it is difficult to

maintain that they both recognized the applicable law and then

ignored it, id. at 9, without the benefit of a statement of their

reasons. The broad leeway arbitrators enjoy in determining

remedies, see id. at 11; Challenger Caribbean Corp., 903 F.2d at

869, further stymies Prudential's attempt to demonstrate a

manifest disregard of the law on the part of the panel, given

that their remedial options are not limited to those offered

during the hearing. Advest, 914 F.2d at 11.

Accordingly, we are not convinced that the court below

abused its discretion in finding that, judging from the award,

the arbitrators considered and rejected Prudential's argument

that it had just cause to terminate appellees.10 Therefore,

like the district court before us, we "decline Prudential's

10 The parties briefly debate two grounds for recovery
concurrent to Law 80: (1) whether the appellees' claims for
emotional and mental suffering are based on tortious conduct
separate and independent from the termination of their employment
for the purposes of Law 80; and (2) whether a partnership between
Tanner, Cabrer, Rodr guez and Prudential was formed under Puerto
Rico law.
We find that the arbitrators may have rejected Prudential's just
cause argument and therefore uphold their award. Accordingly, we
need not address the details of these disputes.

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invitation to revisit the merits of their factual contentions",

Rodr guez, 882 F. Supp. at 1209, and affirm their decision. Cf.

O.R. Sec., 857 F.2d at 748 ("The record of the arbitration

proceedings in this case shows that the issue of successor

liability was clearly presented to the arbitrators and the

arbitrators declined to state reasons for their conclusions.

This ends the inquiry.").

D. Public Policy
D. Public Policy

Prudential argues that the awards in favor of appellees

Tanner and Rodr guez should be vacated because they are contrary

to a well-defined and dominant public policy requiring that

securities firms maintain correct books and records.

Specifically, Prudential asserts that Tanner and Rodr guez failed

to record three puts11 to Schering Plough, PaineWebber and

Squibb, as well as a one million dollar rebate (together, the

"transactions"). The failure to record the transactions, it

asserts, violates a dominant public policy demanding accurate

books and records.

A court may vacate an arbitration award where the

arbitration agreement as interpreted would violate public policy.

See United Paperworks Int'l Union v. Misco, Inc., 484 U.S. 29,

42-43 (1987); W.R. Grace & Co. v. Local Union 759, United Rubber

Workers, 461 U.S. 757, 766 (1983). However, this authority does

11 A put is "[a]n option permitting its holder to sell a certain
stock or commodity at a fixed price for a stated quantity and
within a stated period. Such a right is purchased for a fee paid
the one who agrees to accept the stock or goods if they are
offered." Black's Law Dictionary 1237 (6th ed. 1990).

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not include "a broad judicial power to set aside arbitration

awards as against public policy." Misco, 484 U.S. at 43.

Rather, the court's power is limited "to situations where the

contract as interpreted would violate 'some explicit public

policy' that is 'well defined and dominant, and is to be

ascertained 'by reference to the laws and legal precedents and

not from general considerations of supposed public interests.''"

Id. (quoting W.R. Grace, 461 U.S. at 766).

In United Paperworks Int'l Union v. Misco, Inc., the

Supreme Court set out two requirements for overturning

arbitration awards on the grounds of public policy. First, the

"alleged public policy must be properly framed under the approach

set out in W.R. Grace." Id. This demands "examination of

whether the award created any explicit conflict with other 'laws

and legal precedents' rather than an assessment of 'general

considerations of supposed public interests.'" Id. (quoting

W.R. Grace, 461 U.S. at 766); see W.R. Grace, 461 U.S. at 766,

770 (finding that obedience of judicial orders and voluntary

compliance with Title VII of the Civil Rights Act of 1964 are two

such public policies). Second, "the violation of such a policy

must be clearly shown if an award is not to be enforced." Misco,

484 U.S. at 43.

To meet the demands of the first requirement and

demonstrate that the policy is "ascertained 'by reference to the

laws and legal precedents,'" id. (quoting W.R. Grace, 461 U.S. at

766), Prudential points to the reporting requirements set out for

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registered broker-dealers in Section 17(a) of the Securities

Exchange Act of 1934, 15 U.S.C. 78q(a) (1994), and the rules

promulgated under that Act, SEC Rule 17a-3, 17 C.F.R. 240.17a-3

(1994), as well as the rules of self-regulatory organizations.

See, e.g., 2 New York Stock Exchange Guide, Rule 440 (1989). All

of these statutes and rules mandate recording transactions like

those of Tanner and Rodr guez in the books and records of the

registered broker-dealer. It is not disputed that these

regulations applied to the transactions.

We need not address, however, whether these reporting

requirements establish an explicit public policy such that the

"award create[s] any explicit conflict with other 'laws and legal

precedents.'" Misco, 484 U.S. at 43 (quoting W.R. Grace, 461

U.S. at 766). Since the second requirement of the Misco analysis

demands that the violation of the policy "be clearly shown," id.,

and Prudential cannot show that the arbitration panel found that

Tanner and Rodr guez violated public policy, its argument fails.

In reviewing an arbitration award challenged on public

policy grounds, we "tak[e] the facts as found by the arbitrator."

Board of County Comm'rs v. L. Robert Kimball and Assocs, 860 F.2d

683, 686 (6th Cir. 1988), cert. denied, 494 U.S. 1030 (1990); see

Misco, 484 U.S. at 45 ("The parties did not bargain for the facts

to be found by a court, but by an arbitrator chosen by

them . . . ."). Although the parties are in dispute whether

Tanner and Rodr guez' failure to record the transactions is an

admitted fact, Prudential's argument is again undercut by the

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arbitrators' decision not to explain their award. The

arbitration panel heard Prudential's claims, and its award of

more than one million dollars each to both Tanner and Rodr guez

"suggests that they were unpersuaded by Prudential's

allegations."12 Rodr guez, 882 F. Supp. at 1208. In the face

of the panel's silence and its awards, we cannot conclude that

the arbitrators, in their fact-finding capacity, necessarily

found that there was a recording violation, and we refuse to do

so in their stead. See Misco, 484 U.S. at 44-45 (holding that

for the Court of Appeals to draw inferences from known facts was

an "inappropriate" exercise in factfinding).

E. Attorney's Fees and Costs
E. Attorney's Fees and Costs

Prudential's final contention is that the arbitrators'

awards of attorney's fees and costs to the appellants should be

vacated. First, it claims that the award of attorney's fees is

not contemplated by Rule 629(c) of the NYSE.13 Prudential

12 Prudential asserts that the district court improperly relied
on an issue Prudential did not raise before it, namely, that the
transactions were done without authorization. Indeed, the
district court characterizes the authorization issue as
"Prudential's main contention." Rodr guez, 882 F. Supp. at 1209.

However, its discussion of Prudential's argument to the panel as
well as the arbitrators' decision, quoted above, refers not only
to the authorization issue, but also to Prudential's "assumption
that the actions . . . were in fact unlawful." Id. at 1208.

Therefore, we can rely on these findings of the district court in
our discussion of whether there was a clear violation of public
policy, without being guilty of factfinding.

13 That rule provides, in pertinent part:

In addition to forum fees, the
arbitrator(s) may determine in the award
the amount of costs incurred pursuant to
Rules 617, 619 and 623 and, unless

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argues that because the rule does not explicitly mention

attorney's fees, to assume it provides an implicit independent

basis for awarding them is contrary to the general American rule

that parties typically bear their own legal fees. See Alyeska

Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 247 (1975),

superseded by statute as stated in Stanford Daily v. Zurcher, 550

F.2d 464, 465-66 (9th Cir. 1977). Second, Prudential points out

that under Puerto Rico law attorney's fees may be awarded only if

provided for by statute, or against a party which raises and

obstinately pursues meritless claims or otherwise vexatiously

engages in unnecessary litigation. See P rez Marrero v. Colegio

de Cirujanos Dentistas, 92 J.T.S. 124 (1992); Elba A.B. v.

Universidad de Puerto Rico, 90 J.T.S. 13 (1990). Prudential

argues that no judge could reasonably find that it raised

frivolous claims or pursued them improperly, given its claims of

violations of the record-keeping requirements by Rodr guez and

Tanner.

We disagree. Since Prudential does not state its basis

for overturning the award, we presume it is relying on Section

10(a)(4) of the FAA, which provides that courts may set aside

awards when the arbitrators exceed their powers. 9 U.S.C.

10(a)(4). This award was, however, within the panel's

applicable law directs otherwise, other
costs and expenses of the parties. The
arbitrator(s) shall determine by whom
such costs shall be borne.

2 New York Stock Exchange Guide, Rule 629(c) (1989).

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authority. First, we do not think that the district court read

an implicit basis for awarding attorney's fees into Rule 629(c).

The rule states that it provides for "costs and expenses, unless

applicable law directs otherwise." We read this language to

include attorney's fees, and have found no case law suggesting

otherwise.14

Second, although not noted by the court below, the

record reveals that both parties requested attorney's fees from

the panel (Joint Appendix, pp. 811, 923-24), suggesting that

awarding fees was contemplated by the parties to be within the

scope of the agreement to arbitrate. The case law suggests that

this is an important factor. See Bacard Corp. v. Congreso de

Uniones Industriales, 692 F.2d 210, 214 (1st Cir. 1982) (finding

arbitrator exceeded his authority awarding attorney's fees where

grieving union did not claim them, and their award "did not draw

its essence from the collective bargaining agreement"); Wing v.

J.C. Bradford & Co., 678 F. Supp. 622, 626 (N.D. Miss. 1987)

14 In fact, we have found little case law on this issue,
although there is certainly precedent for the award of attorney's
fees. See, e.g., Phoenix Central v. Dean Witter Reynolds, Inc.,

768 F. Supp. 702, 703 (D. Ariz. 1991) (granting order to confirm
NYSE panel arbitration award including attorney's fees); Barbier

v. Shearson Lehman Hutton, 752 F. Supp. 151, 154 (S.D.N.Y. 1990)

(confirming NYSE arbitrators' award of attorney fees without
comment), aff'd in part, rev'd in part, 948 F.2d 117 (2d Cir.

1991). What cases we have found addressing whether arbitrators
should have awarded attorney's fees analyze the issue under state
law, not the Rules of the NYSE. See, e.g., Zate v. A.T. Brod &

Co., 839 F. Supp. 27, 29 (M.D. Fla. 1993) (analyzing whether

arbitrator should have awarded attorney's fees under Florida
law); Emrick v. Deutsche Bank Capital Corp., No. 91 Civ. 0592,

1991 WL 61091, at *2-4 (S.D.N.Y. Apr. 15, 1991) (weighing NYSE
panel's failure to award attorney's fees under New York labor
law).

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(confirming NYSE arbitration panel award of attorney's fees where

parties submitted the award of fees to panel).

Third, Prudential is correct in stating that Puerto

Rico law demands a finding that a "party or its lawyer has acted

obstinately or frivolously." P.R. R. Civ. P. 44.1(d). However,

appellees offered examples of Prudential's conduct to support

such a conclusion. It is reasonable to find that the fact that

the panel awarded attorney's costs indicates it found Prudential

obstinate and/or temarious in litigating some of the claims, or

in its conduct. Thus, given that the panel had evidence in front

of it as to obstinate or frivolous conduct, that both parties

requested attorney's fees, and that the NYSE Rules provide for

the award of fees, we cannot conclude that the arbitrators

exceeded the scope of their authority under Section 10(a)(4).

Finally, Prudential argues that the former employees

failed to leap a procedural hurdle, since they did not submit a

verified statement to the panel itemizing all expenses sought, as

mandated by Puerto Rico civil procedure. P.R. R. Civ. P.

44.1(a), (b). In so arguing, Prudential ignores the fact that

the parties agreed to arbitrate under the rules of the NYSE, and

Rule 629(c) imposes no itemization requirement. Nevertheless,

the appellees itemized their costs in their closing brief, filed

five days before the parties made their final arguments to the

panel. While Prudential had the opportunity to challenge the

accuracy or reasonableness of the costs, it chose not to do so.

Therefore, because we do not find that the arbitration panel

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clearly exceeded the scope of its powers, and giving its decision

the deference due to arbitrators, we find that the award of

attorney's fees should not be vacated. Cf. Advest, 914 F.2d at 8

(stating that even where arbitrators' factual or legal error is

"painfully clear," courts may not reconsider an award's merits).

CONCLUSION
CONCLUSION

For the foregoing reasons, the judgment of the district

court is affirmed.
affirmed.

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