WMA Securities, Inc. v. Wynn

GWIN, District Judge.

GWIN, District Judge.

I concur with the majority’s decision that the district court properly held the dispute arbitrable and that the National Association of Securities Dealers (“NASD”) arbitration panel had jurisdiction. However, because the arbitration panel’s initial award did not clearly inform the parties of the cause of action on which it was based and because the arbitration panel did not have the authority to award attorney fees, I respectfully dissent from those portions of the majority’s decision.

Courts have reached different conclusions on an when individual becomes a customer of a NASD member from whom he did not directly purchase securities. Compare John Hancock Life Ins. Co. v. Wilson, 254 F.3d 48, 58-59 (2d Cir.2001) (holding that “customer” should be read broadly under NASD rules), with Wheat, First Sec., Inc. v. Green, 993 F.2d 814, 820 (11th Cir.1993) (holding that NASD member need not arbitrate a claim with a current customer because the plaintiff was not a customer at the time of the fraudulent activity). Regardless of the merits of these competing arguments, I agree the Sixth Circuit’s recent decision in Vestax Sec. Corp. v. McWood, 280 F.3d 1078, 1082 (6th Cir.2002), settles the issue. Because Dean and Margaret Wynn were customers of Scott Rothfuss, an “associated person” of WMA Securities, Inc. (“WMAS”), the Wynns were also customers of WMAS and entitled to arbitrate their dispute.

On the other hand, I believe the district court erred by not recognizing the arbitration panel’s June 8, 1999, letter clarifying its earlier arbitration award. The majori-

*731ty is correct that the junctus officio doctrine serves to prevent arbitrators from revisiting a final award. Nonetheless, there are exceptions to the doctrine. The NASD panel was entitled to issue its clarification letter when “the award, although seemingly complete, [left] doubt whether the submission has been fully executed.” Green v. Ameritech Corp., 200 F.3d 967, 977 (6th Cir.2000) (quoting La Vale Plaza, Inc. v. R.S. Noonan, Inc., 378 F.2d 569, 573 (3d Cir.1967)). The June 8, 1999, letter is even more appropriate when it is understood that “exceptions from the functus officio doctrine were narrowly drawn to prevent arbitrators from engaging in practices that might encourage them to change their reasoning about a decision, to redirect a distribution of an award, or to change a party’s expectations about its rights and liabilities contained in an award.” Teamsters Local 312 v. Matlock, Inc., 118 F.3d 985, 992 (3d Cir.1997). The arbitrator’s June 8, 1999, letter does not reflect a change in their reasoning, a redistribution of resources, or a change either a party’s expectations.

In their amended statement of claim, the appellees specifically request rescission of the contract under Ohio Rev.Code § 1707.43. (J.A. at 570-71). At closing arguments before the arbitration panel, WMAS argued that the appellee’s proper claim for relief was rescission. Return of the securities is a required element of relief on a rescission claim. See Ohio Rev. Code § 1707.43; see also Farley v. Henson, 11 F.3d 827, 837 (8th Cir.1993) (indicating the purpose of the rescissory calculation of § 12 of the 1933 [Securities] Act, 15 U.S.C. § 771, is to place the plaintiff in the position he held before he entered into the wrongful transaction) (citing Randall v. Loftsgaarden, 478 U.S. 647, 655-56, 106 S.Ct. 3143, 92 L.Ed.2d 525 (1986)).

In its award, the arbitration panel states the plaintiff sought “actual damages in the amount of $283,485.77, lost opportunity damages and recission interest under the Ohio Securities Act.” (J.A. at 589). Nonetheless, in announcing its decision, the arbitration panel merely concluded that WMAS was liable and ordered it to pay compensatory damages. The arbitration panel said nothing about which theory of recovery it based its decision upon.

Furthermore, while the majority describes WMAS’s motion as one to amend or correct an error of law, the only action the appellant asked for was that the arbitration panel change its award so the securities be returned upon payment by WMAS. Inherent within WMAS’s motion is the assumption that the arbitration panel found for the claimants based on their rescission claim. If the rescission theory was not the basis for the award, there would have been no need for the arbitrators to respond. Instead, the arbitration panel agreed that the appellant’s motion sought clarification of the its award. The arbitrator’s June 8,1999, letter stated:

It was the opinion of the arbitration panel that its decision was final. However, this matter is being submitted to the arbitration panel post hearing for clarification. [I]t is the unanimous decision of the panel that its award be based on the claimants’ recission claim. Regardless of value, the security shall be returned to respondents.

The letter does change any aspect of the arbitrator’s original award.

This case is similar to the Third Circuit’s holding in La Vale. In La Vale, an arbitrator awarded $31,000 to the defendant. The plaintiff sued to recover $25,000 of a $56,000 deposit it had delivered to the defendant during the pendency of the arbitration proceeding. The defendant argued that the arbitration panel had recognized the $56,000 as a partial payment and that the $31,000 award was supposed to supple*732ment the original payment. The arbitrator’s award made no mention of the deposit payment. La Vale, 378 F.2d at 570.

The Third Circuit upheld the district court’s resubmission of the issue to the arbitration panel for clarification as to whether the sum of $56,000 was a deposit or a payment on account. Id. at 573. The La Vale court concluded that functus officio doctrine would not prevent the resubmission because it would “in no way reopen the merits of the controversy.” Id.

Similarly, the arbitration panel’s June 8, 1999, letter did not reopen the merits of the controversy. The letter does not alter the original award or change either party’s expectation. Because the claimants sought rescission of the contract they knew rescission required return of the securities. The arbitration panel’s letter only clarifies the basis for its holding. The instruction to return the securities is not a new award. Instead, it just identifies a required consequence of finding for the claimants’ on their rescission claim.

At the same time, because the arbitration panel based its decision on the claimants’ rescission claim, it improperly awarded attorney fees. The NASD Code of Arbitration Procedure does not explicitly authorize an award of attorney fees. Instead, NASD Rule 10332(c) says:

[t]he arbitrator(s) may determine in the award the amount of costs incurred ... and, unless applicable law directs otherwise, other costs and expenses of the parties and arbitrator(s) which are within the scope of the agreement of the parties.

(J.A. at 221). WMAS shows that attorney fees are not awarded under the federal and state statutes upon which the appellees’ have based their claims. See 15 U.S.C. § 771; Ohio Rev.Code § 1707.43; see also Straub v. Vaisman & Co., 540 F.2d 591, 599 (3d Cir.1976).

Furthermore, contrary to the district court’s and majority’s assertion, the parties’ mutual request for attorney fees does not constitute an agreement.1 The mere fact both parties asked for attorney fees does not authorize the arbitration panel to award those fees in light of applicable law to the contrary. For this reason, I would vacate the arbitration panel’s award of attorney fees.

. In their amended statement of claim, the appellee's asked for "actual damages, together with benefit of the bargain damages, lost opportunity costs, model portfolio damages, prejudgment interest, attorneys’ fees, costs, punitive damages, and such other relief as is deemed necessary and proper.” (J.A. at 586). In its answer, WMAS asked that "it be dismissed from these proceedings and that it recover its costs and attorney fees incurred herein.” (J.A. at 415).