PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
RAYMOND JAMES FINANCIAL
SERVICES, INCORPORATED,
Plaintiff-Appellee,
v. No. 09-1038
THOMAS W. BISHOP; STEVEN H.
HAMANT; TIMOTHY E. SCANLON,
Defendants-Appellants.
Appeal from the United States District Court
for the Eastern District of Virginia, at Richmond.
Robert E. Payne, Senior District Judge.
(3:07-cv-00028-REP)
Argued: October 27, 2009
Decided: February 22, 2010
Before WILKINSON, DUNCAN, and DAVIS,
Circuit Judges.
Affirmed by published opinion. Judge Davis wrote the opin-
ion, in which Judge Wilkinson and Judge Duncan joined.
COUNSEL
ARGUED: Jay J. Levit, LAW OFFICE OF JAY J. LEVIT,
Glen Allen, Virginia; Scott Gregory Crowley, Sr., CROW-
2 JAMES FINANCIAL SERVICES v. BISHOP
LEY & CROWLEY, Richmond, Virginia, for Appellants.
Stephen Grey Cochran, HAIGHT, TRAMONTE, SICILI-
ANO, FLASK & YEONAS, PC, Vienna, Virginia, for Appel-
lee. ON BRIEF: Victor M. Glasberg, VICTOR M.
GLASBERG & ASSOCIATES, Alexandria, Virginia, for
Appellee.
OPINION
DAVIS, Circuit Judge:
This is an appeal from an order of the district court vacat-
ing an award of compensatory damages rendered by an arbi-
tration panel adjudicating claims pursuant to the rules of the
National Association of Securities Dealers ("NASD").1 The
award was in favor of three financial advisors, Appellants
Thomas W. Bishop ("Bishop"), Steven H. Hamant
("Hamant"), and Timothy E. Scanlon ("Scanlon") against the
Appellee, Raymond James Financial Services, Inc.
("Raymond James"), a broker/dealer member of NASD. The
Appellants contend that the district court erred in exceeding
the narrow scope of review prescribed by the Federal Arbitra-
tion Act. See 9 U.S.C. § 10(a). We are mindful that vacatur
of an arbitration award is, and must be, a rare occurrence
because a federal court employs a standard of review "among
the narrowest known at law." Apex Plumbing Supply, Inc. v.
U.S. Supply Co., Inc., 142 F.3d 188, 193 (4th Cir. 1998).
Nonetheless, we conclude, as did the district court, that this
case presents one of those rare instances. Accordingly, for the
reasons stated within, we affirm the judgment of the district
court.
1
NASD has been succeeded by FINRA ("Financial Industry Regulatory
Association"), but the events material to this case occurred prior to the
reincorporation of NASD as FINRA.
JAMES FINANCIAL SERVICES v. BISHOP 3
I.
The Appellants are registered representatives working as
financial advisors in the securities industry in the Richmond,
Virginia, area. In early 2001, Bishop departed from his then-
firm and entered into a written "Independent Sales Associate
Agreement" with Appellee Raymond James Financial Ser-
vices, Inc. ("Raymond James"), a registered broker/dealer.
Bishop became the branch manager at a Raymond James
Richmond office. At about the same time, apparently at Bish-
op’s urging, Hamant and Scanlon each entered into a separate
written "Financial Advisor Agreement" with Raymond James
and practiced their trade out of the Richmond office headed
by Bishop.
Each of the three agreements described the individual
financial advisor as an "independent contractor." Moreover,
each of the three agreements contained the following "Termi-
nation of Agreement" provision permitting any party to termi-
nate the agreement on five days notice:
Either party may terminate this Agreement by pro-
viding the other party no less than five (5) business
days prior written notice of intent to terminate this
Agreement. Given the unique transactional nature of
the securities business, there is no need for a liqui-
dated damages provision should either party volun-
tarily terminate the Agreement before the end of its
term as neither party would be significantly damaged
by such termination.
J.A. 274, 282, 290-91. The agreements contained no general
arbitration provision;2 as a member of NASD, however, Ray-
2
Indeed, each of the agreements contained a forum selection clause
reciting that "all legal proceedings under this Agreement will be held in
Pinellas County, Florida." J.A. 278, 286, 297. The agreements also con-
tained a provision for "Indemnification." The indemnification provision
4 JAMES FINANCIAL SERVICES v. BISHOP
mond James was required to resolve certain disputes with its
registered representatives by arbitration.
During 2003, Raymond James received several serious
complaints of misconduct from competing financial advisors
with respect to the operation of the office headed by Bishop.3
As a result of the mounting complaints, on April 27, 2004,
Raymond James notified Bishop and his co-manager at the
Richmond branch, Michael Finnie, that the branch would be
closed and that their registrations with Raymond James were
being terminated in five days. Raymond James acted specifi-
cally pursuant to the "Termination of Agreement" provision
in its Independent Sales Associate Agreement. Raymond
James left open the possibility that the representatives in the
Richmond branch, including Appellants, could affiliate with
another Raymond James branch. Indeed, Bishop’s co-
manager, Finnie, promptly re-affiliated with another Ray-
mond James branch. On June 25, 2004, however, after a two-
month extension of time by Raymond James in effecting the
branch closing, the Appellants voluntarily terminated their
respective agreements and they did not re-affiliate with Ray-
mond James.4
provided, in part, that "[r]esponsibility under [the indemnification provi-
sion] shall, if not mutually agreed upon, be determined by arbitration
before the NASD." J.A. 278, 288, 295-96. There is no suggestion in the
record that any aspect of the award under review related in any manner to
a claim for indemnification.
3
On March 7, 2003, for example, Gary Stewart ("Stewart"), the branch
manager at a competing broker/dealer, wrote to Raymond James to com-
plain that Bishop had disclosed confidential information about Stewart and
had otherwise engaged in unlawful and unethical behavior. (In 2004,
Stewart filed an arbitration claim against Bishop and Raymond James
alleging libel and tortuous interference.) Also, on May 28, 2003, Steve
Tanton, another Richmond-area investment professional, filed a NASD
arbitration claim against Raymond James, Scanlon, and Hamant for defa-
mation, tortuous interference, conspiracy, and securities violations.
4
The Appellants contend that they were impeded by Raymond James
management officials in their efforts to re-affiliate with a different branch
office.
JAMES FINANCIAL SERVICES v. BISHOP 5
Meanwhile, prior to the Appellants’ resignations, a lawyer
from Raymond James’ legal department, Terrance Bostic,
Esq., had assumed representation of the Appellants (jointly
with his representation of Raymond James) in the NASD arbi-
tration proceedings arising from some of the complaints
lodged against the Richmond office staff. Such representation
of the Appellants continued after the Richmond branch
closed. In due course, the arbitration proceedings against
Scanlon concluded in his favor while he was represented by
Bostic, whereas Hamant personally paid $10,000 in respect to
a NASD arbitration award against him. J.A. 262.5
The arbitration proceeding involving Bishop was ongoing
as of December 1, 2004. On that date, Bostic withdrew as
counsel for Bishop (while continuing as counsel to Raymond
James) based on an incipient conflict of interest. Specifically,
the conflict of interest arose when Raymond James discovered
that someone had obtained unauthorized access to its com-
puter system; legal action against Bishop was contemplated in
connection with the incident.6 In any event, within just a few
days after Bostic withdrew from his representation of Bishop,
5
The district court determined that the arbitration proceeding against
Hamant concluded "favorably to [Hamant] while [he] was represented by
the Raymond James in-house lawyer." J.A. 383. The Appellants have not
challenged that finding by the district court before us. Nevertheless, before
the arbitrators, Hamant had alleged that he personally paid a $10,000
award against him. It may well be that these two arbitration proceedings
were separate and distinct proceedings.
6
On November 30, 2004, Finnie, who had reaffiliated with another Ray-
mond James office, received an automated email message that his pass-
word had been changed, although he had not changed his password. An
internal investigation by Raymond James revealed that the password
change originated from a computer in Bishop’s new office. Accordingly,
Raymond James concluded that Bishop or one of his colleagues had
accessed Raymond James’ computer system without authorization,
changed Finnie’s password, and gained access to customer records. Ray-
mond James notified the Federal Bureau of Investigation about the inci-
dent.
6 JAMES FINANCIAL SERVICES v. BISHOP
the parties to the pending arbitration proceeding reached a
global settlement resulting in no liability to Bishop.
II.
In July 2005, the Appellants filed a consolidated arbitration
demand against Raymond James pursuant to NASD rules.
Specifically, the Appellants sought damages on the basis of
the following legal theories: (1) wrongful discharge; (2)
breach of contract; (3) tortious interference with contract; (4)
common law and statutory conspiracy; (5) violation of the
Virginia Retail Franchising Act; and (6) violation of "just and
equitable principles of trade." Thereafter, Raymond James
submitted its Answer, Affirmative Defenses, and Counter-
claims, and a Motion to Dismiss, which the Appellants
opposed.
On May 11, 2006, the arbitration panel denied Raymond
James’ Motion to Dismiss. Then, on December 12, 2006, fol-
lowing a hearing extending over several days, the arbitration
panel found Raymond James liable. In its award, the arbitra-
tion panel summarized the Appellants’ claims as follows:
breach of fiduciary and legal duties; violation of just
and equitable legal principles of trade; breach of
promises and inducements; interference with, and
unlawful termination of [the Appellants’] prospec-
tive economic advantages; interference with the per-
formance of contractual promises and inducements;
tortious and deceitful termination of [the Appel-
lants’] legitimate and high business expectations;
violation of statutory Virginia public policy set forth
in Virginia code § 13.1-558; and common law and
statutory conspiracy.
J.A. 353. The panel granted the following substantial compen-
satory damages to the Appellants: Bishop, $156,050; Hamant,
$74,050; and Scanlon, $72,050. J.A. 354.
JAMES FINANCIAL SERVICES v. BISHOP 7
By way of explanation for its award, the panel cited Ray-
mond James’ "unauthorized practice of law [sic] by employ-
ing staff counsel to advise and represent [Appellants] in their
individual capacities" in NASD arbitrations. J.A. 354. The
panel also found that Raymond James failed to warn the
Appellants that they were subjected to heightened scrutiny
after Raymond James received complaints about them. Id.
The panel further found that Bostic’s withdrawal from Bish-
op’s representation in the arbitration prejudiced "some or all
[Appellants’] litigation interest and made their transfer to
other Raymond James Financial Services, Inc. branch offices
impossible as a practical matter." Id.
On January 12 and 18, 2007, Raymond James filed in the
United States District Court for the Eastern District of Vir-
ginia a timely Motion to Vacate the Award, and an Amended
Motion to Vacate, respectively. The Appellants filed timely
Motions to Confirm the Award.
On July 26, 2007, the district court held a hearing. The
court noted the lack of clarity in the arbitration panel’s expla-
nation for its award, and in particular, among other things, the
peculiar manner in which the arbitration panel seemed to treat
the claims of all three of the Appellants identically, although
the factual circumstances and background as to Bishop, on the
one hand, and Hamant and Scanlon, on the other hand, were
quite different. When the district court asked counsel for the
latter two to identify Raymond James’ actionable conduct as
to his clients (Hamant and Scanlon), counsel indicated that the
actionable conduct was wrongful termination. When the court
asked counsel how any termination could be "wrongful" in
light of the "Termination of Agreement" provision included in
each written agreement, which on its face provided for termi-
nation at-will on five days notice, counsel argued that the law
in the NASD securities industry requires that, irrespective of
the parties’ agreement, termination of a registered representa-
tive could only be for cause.
8 JAMES FINANCIAL SERVICES v. BISHOP
Ultimately, despite its best efforts to discern some coher-
ence in the award, the district court concluded that it could not
do so and remanded the matter to the arbitration panel.7
Appellants filed an interlocutory appeal to this court from the
district court’s remand order. On April 2, 2008, we dismissed
the appeal for lack of jurisdiction.
On April 11, 2008, the arbitration panel issued a supple-
mental letter opinion in response to the district court’s remand
order. Therein, the arbitrators stated the following bases for
its award:
(1) Raymond James provided legal representation
to the Appellants "in a matter involving a business
relationship between the employer and [the Appel-
lants] that was also adversarial with a clear conflict
of interest;" (2) Raymond James’ "attorney favored
the interest of [Raymond James] to the disadvantage
of the [Appellants,] who were also his clients;" (3)
"if a corporation employs a lawyer to provide legal
services that corporation is then engaged in the prac-
tice of law. . . . As such, it is held to the same stan-
dard as a law firm and owes to its client the highest
degree of fiduciary duty. If it chooses to engage in
the business with such clients, it is obligated to place
the interest of those clients ahead of its own. [Ray-
7
The court found it "dubious" that Raymond James engaged in the "un-
authorized practice of law" simply by permitting in-house counsel to rep-
resent the Appellants in arbitrations initiated by third parties jointly
against Raymond James and its registered representatives. J.A. 394-400.
Furthermore, the court questioned the arbitration panel’s finding that Ray-
mond James had assumed the role of legal counsel for Appellants and was
therefore "held to the highest [of] ethical obligations and fiduciary duties."
J.A. 116. The court reasoned that since Bostic, and not Raymond James,
represented the Appellants, any fiduciary duty owed to the Appellants was
owed only by him. In short, given the lack of clarity in the award, the
court found it impossible to conduct meaningful, even if limited, judicial
review.
JAMES FINANCIAL SERVICES v. BISHOP 9
mond James] failed in that obligation and the
[Appellants] suffered losses pertaining to the issues
for which [Raymond James] provided its lawyer."
J.A. 362-63.
On April 24, 2008, Raymond James filed a Renewed
Motion to Vacate in the district court. Then, in a June 4, 2008
letter, the arbitration panel supplemented its supplemental
opinion, stating that "[t]he unauthorized practice of law was
one among other factors considered by the panel and that con-
sidering the case as a whole [it] believes the liability decision
to be just and appropriate." J.A. 365.
After further briefing by the parties, the district court issued
its Memorandum Opinion on December 18, 2008. The court
summarized its earlier reasoning that had prompted it to
remand the matter to the arbitration panel. J.A. 380-91. The
court went on to find that "[l]ike the original award, the letters
of clarification are not really very clear at all respecting the
legal basis for the finding of liability. Nor do they articulate
the causal link between the perceived liability and the mone-
tary award." J.A. 391.
Noting that the arbitration panel had expressly stated that
"any and all claims [sic] relief not specifically addressed
herein, including Claimants’ requests for punitive damages,
are denied," J.A. 388 (quoting arbitration award, J.A. 354),
the district court concluded that the following legal theories
had been rejected by the arbitration panel: "breach of prom-
ises and inducements; interference with the performance of
contractual promises and inducements; violation of statutory
public policy set forth in Va. Code § 13.1-558; [and] com-
mon law and statutory conspiracy." J.A. 389. Consequently,
the court concluded, the award must have been based on one
or more of the following theories: "breach of fiduciary and
legal duty; violation of just and equitable principles of trade;
10 JAMES FINANCIAL SERVICES v. BISHOP
and interference with, or unlawful termination of, [the Appel-
lants’] respective economic advantage." Id.
The court identified the precedents from this court setting
forth the statutory and extra-statutory grounds on which an
arbitration award might be found infirm. Under the Federal
Arbitration Act, it noted, an award may be vacated where the
arbitrator "exceeded his powers, or so imperfectly executed
them, that a mutual, final, and definite award upon the subject
matter submitted was not made." See 9 U.S.C. § 10(a)(4).
Moreover, consistent with longstanding precedent in this cir-
cuit, the court observed that an award might be vacated on
extra-statutory grounds where an arbitrator displayed a "mani-
fest disregard of the law" and where the award "failed to draw
its essence" from the parties’ agreement. J.A. 394-411.
Ultimately, the court concluded that the award here should
be vacated on all three grounds. First, the court concluded that
the arbitration panel exceeded its powers as proscribed by
§ 10(a)(4). This conclusion was grounded in the court’s deter-
mination that the arbitrators clearly based their award of com-
pensatory damages to the Appellants on Raymond James’
alleged "breach of fiduciary and legal duties" surrounding the
termination of their affiliation with Raymond James. Conse-
quently, the court analyzed the award under Zandford v.
Prudential-Bache Secs., Inc., 112 F.3d 723 (4th Cir. 1997),
and concluded the arbitrators clearly exceeded the authority
granted them by that case to adjudicate a dispute "arising out"
of the termination of a financial advisor in the securities
industry. The court found this alone to be reason enough to
vacate the award.
Next, the court concluded that, even assuming a claim for
"breach of fiduciary duty" could be prosecuted separately
from the Appellants’ claim of "wrongful termination," the
panel demonstrated a "manifest disregard of the law." This
conclusion was based on the court’s finding that the arbitra-
tors were aware of and understood the legal maxim that,
JAMES FINANCIAL SERVICES v. BISHOP 11
under Florida law (which the parties agree governs the written
agreements at issue), in order for a claimant to recover on a
claim of breach of fiduciary duty, the claimant must have suf-
fered damages.8 J.A. 408 (citing Patten v. Winderman, 965
So. 2d 1222, 1224 (Fla. Dist. Ct. App. 2007)). Thus, the court
found that the arbitrators were aware of the law, understood
it correctly, and found it applicable to the case before them.
The court found that the arbitrators knowingly failed to apply
the law here, however, because the only evidence of damages
presented to the arbitration panel related to their alleged
"wrongful termination" by Raymond James and not to any
"breach of fiduciary duty."9
Finally, the court concluded that the award "failed to draw
its essence" from the written agreements between the parties
because the arbitrators either disregarded or modified unam-
biguous contract provisions or based the award on their own
personal notions of right and wrong. That is, the court con-
cluded that the written agreements between the parties were
termination-at-will contracts. The arbitration panel’s award,
however, inappropriately seemed to compensate the Appel-
lants for termination of their employment. Accordingly, the
court held that any damages award based on the termination
of the Appellants’ affiliation with Raymond James or their
8
The court noted the following: (1) that Raymond James correctly
informed the panel of the controlling legal doctrine (in its Motion to Dis-
miss); (2) that the arbitrators are licensed attorneys and should know this
basic principle of law; and (3) that the arbitrators acknowledged the prin-
ciples and necessity of demonstrating damages. J.A. 408.
9
Specifically, the court found that the Appellants suffered no injury or
damage as a consequence of their representation by in-house counsel:
Hamant and Scanlon’s arbitration proceedings were resolved in their
favor, and the arbitration was settled with no liability to Bishop. As to
whether Raymond James violated a "fiduciary duty" by failing to inform
the Appellants that they were placed under "heightened supervision" as a
result of the complaints about the Richmond branch, the court found that
no such duty was owed to Appellants and, implicitly, that the arbitration
panel exceeded its power to the extent it purported to identify any such
duty.
12 JAMES FINANCIAL SERVICES v. BISHOP
inability to transfer to another Raymond James branch would
have to be vacated.
Ultimately, the court concluded that to the extent the
panel’s award was based on a breach of fiduciary duty, the
mere fact that Raymond James’ in-house counsel provided
representation to the Appellants in the third-party arbitration
proceedings did not transmute Raymond James "into a law
firm." J.A. 403. The district court recognized that the arbitra-
tion panel was not required to state the reasons for its award,
but that it had voluntarily done so. And, given that the panel’s
award had no basis in law, the court found that the panel’s
award merely reflected the panel’s personal views of right and
wrong. Even if there was a breach of some duty, the court
found no discernable damage caused by this breach.
Accordingly, Raymond James’ Renewed Motion to Vacate
was granted and the award was vacated. The Appellants have
timely appealed and we have jurisdiction pursuant to 28
U.S.C. § 1291.
III.
We review the district court’s findings of fact for clear
error and its conclusions of law, including its decision to
vacate an arbitration award, de novo. Choice Hotels Int’l, Inc.
v. SM Prop. Mgmt., LLC, 519 F.3d 200, 207 (4th Cir. 2008)
(citation omitted). We review the court’s decision to remand
an award to an arbitrator for abuse of discretion.
As we have made clear repeatedly:
Judicial review of an arbitration award in federal
court is "substantially circumscribed." Patten v.
Signator Ins. Agency, Inc., 441 F.3d 230, 234 (4th
Cir. 2006). In fact, the scope of judicial review for
an arbitrator’s decision "is among the narrowest
known at law because to allow full scrutiny of such
JAMES FINANCIAL SERVICES v. BISHOP 13
awards would frustrate the purpose of having arbitra-
tion at all-the quick resolution of disputes and the
avoidance of the expense and delay associated with
litigation." Apex Plumbing Supply, Inc. v. U.S. Sup-
ply Co., Inc., 142 F.3d 188, 193 (4th Cir. 1998).
Indeed, as we have emphasized, in reviewing such
an award, "a district or appellate court is limited to
determine whether the arbitrators did the job they
were told to do-not whether they did it well, or cor-
rectly, or reasonably, but simply whether they did
it." Remmey v. PaineWebber, Inc., 32 F.3d 143, 146
(4th Cir. 1994) (internal quotation marks omitted).
Three S Delaware, Inc. v. DataQuick Info. Sys., Inc., 492 F.3d
520, 527 (4th Cir. 2007).
IV.
On appeal, the Appellants emphasize the highly circum-
scribed standard of federal courts’ review of arbitration
awards. They argue that, although no error by the arbitration
panel is shown in any event, at most what the record shows
are mere errors of fact and/or of law which provide no basis
for judicial intervention. They argue, further, that when the
parties submitted their dispute to the process of arbitration,
they agreed to accept the arbitration award as final, save
extraordinary circumstances. The Appellants argue that no
such extraordinary circumstances existed here. Raymond
James urges affirmance on any or all of the grounds identified
by the district court. We conclude that Raymond James has
the better of the argument and find that the award cannot
withstand the deferential review mandated by 9 U.S.C. §
10(a).
A.
We conclude first that the district court did not abuse its
discretion in remanding the award to the arbitration panel for
14 JAMES FINANCIAL SERVICES v. BISHOP
clarification of the bases of the award. Like the district court,
we believe the original award is sufficiently inscrutable that
it was reasonable to seek clarification of the basis for the
award from the arbitration panel. It is true, of course, that an
arbitrator need not explain her award. United Steelworkers of
Am. v. Enterprise Wheel & Car Corp., 363 U.S. 593, 597-98
(1960). Furthermore, we are mindful of a potential danger in
such remands: "courts must approach remand to the arbitrator
with care lest the arbitrator believe that a ‘remand’ is equiva-
lent to ‘retrial’ with an expectation of an opposite result the
second time around." Randall, a Div. of Textron, Inc. v. Lodge
No. 1076, Int’l Ass’n of Machinists and Aerospace Workers,
648 F.2d 462, 468 (7th Cir. 1981). At the same time, how-
ever, as one court has noted, "[r]emand to an arbitrator for
clarification and interpretation is not unusual in judicial
enforcement proceedings." McClatchy Newspapers v. Central
Valley Typographical Union No. 46, 686 F.2d 731, 734 n.1
(9th Cir. 1982.).
Given the evident incoherence of the explanation that was
volunteered by the arbitration panel in this instance, we do not
fault the district court in its commendable efforts to seek guid-
ance through a remand, guidance that would enable the court
to conduct the limited judicial review to which Raymond
James was entitled.
[O]nce the reasons that are given [by an arbitrator]
strongly imply that the arbitrator may have exceeded
his or her authority under the submission and con-
tract whether that implication appears in the form of
vague or inconsistent results or possible extensions
beyond the terms of the contract the device of
remand is appropriate to avoid having courts rather
than the arbitrator clarify the bases for the initial
determination.
Randall, 648 F.2d at 468.
JAMES FINANCIAL SERVICES v. BISHOP 15
B.
As described above, the Appellants crafted a veritable
smorgasbord of legal theories in support of their quest for
compensatory damages. This seems to have been a sound tac-
tic. Nevertheless, the record is clear that the Appellants have
insisted throughout these proceedings that the gravamen of
their claims for damages was an alleged "wrongful termina-
tion" of their affiliations with Raymond James. To be sure, on
the face of the record, it is exceedingly obscure, to say the
least, as to how a wrongful termination might arise (1) inas-
much as their respective agreements with Raymond James
were independent contractor agreements containing the "Ter-
mination of Agreement" provision quoted above in Part I of
this opinion, and under circumstances in which (2) the Appel-
lants voluntarily terminated the agreements themselves.
Notwithstanding that the Appellants’ fundamental claim
was one for wrongful termination, we agree with the district
court that the award in this case cannot be understood as
based on anything other than the arbitrators’ finding that Ray-
mond James committed a breach of "fiduciary and legal
duties" when its in-house lawyer, Bostic, provided legal rep-
resentation to the Appellants in third-party arbitration pro-
ceedings. J.A. 389. In so concluding, the arbitration panel
clearly "exceeded [its] power" within the contemplation of 9
U.S.C. § 10(a)(4).10
10
The Federal Arbitration Act provides that a federal court may vacate
an arbitration award on the following grounds:
(1) the award was procured by corruption, fraud, or undue means;
(2) partiality or corruption in the arbitrators; (3) the arbitrator was
guilty of misconduct or misbehavior in conducting the hearing in
a manner which prejudiced a party’s rights; or (4) the arbitrator
exceeded his powers, or so imperfectly executed them, that a
mutual, final, and definite award upon the subject matter submit-
ted was not made.
9 U.S.C. § 10(a).
16 JAMES FINANCIAL SERVICES v. BISHOP
The Appellants correctly contend that, although the parties’
agreements allowed Raymond James to terminate each agree-
ment without cause and at will, all of the parties here were
covered by former NASD Rule 10101.11 Rule 10101 provides
a measure of protection for registered representatives affili-
ated with broker/dealers such as Raymond James. It was on
the authority of the expansive language of Rule 10101 that the
Appellants asserted their claims against Raymond James.
In Zandford v. Prudential-Bache Securities, Inc., we exam-
ined the scope of claims asserted under New York Stock
Exchange Rule 347 ("NYSE Rule 347"), which, in language
identical to that in Rule 10101, provided for arbitration of
"[a]ny controversy . . . arising out of the employment or ter-
mination of employment" of registered representatives. 112
F.3d 723 (4th Cir. 1997).
Prudential terminated Zandford, one of its registered repre-
sentatives, and commenced an arbitration against Zandford to
recover payment of an outstanding loan. Id. at 725. Zandford
counterclaimed. Id. The parties reached a settlement agree-
ment. Thereafter, alleging that Prudential had breached the
settlement agreement, Zandford brought an action in federal
court, alleging contract and tort claims against Prudential. Id.
at 726. The federal district court ordered arbitration of Zand-
ford’s claims, and an arbitration award favored Prudential.
Zandford returned to court seeking to vacate the award;
instead, the district court confirmed the award. Id.
Upon Zandford’s appeal to this court from the confirmation
of the award, we affirmed and held that all of Zandford’s tort
11
The current version of former NASD Rule 10101 is now a part of the
Financial Industry Regulatory Authority, Inc.’s "Code of Arbitration Pro-
cedure." The operative language is unchanged; it provides, in relevant
part: "for the arbitration of any dispute, claim, or controversy . . .arising
out of the employment or termination of employment of associated per-
son(s) with any member . . . (b) between or among members and associ-
ated persons."
JAMES FINANCIAL SERVICES v. BISHOP 17
and contract claims were covered by the NYSE Rule 347 arbi-
tration clause because they arose out of Zandford’s employ-
ment with Prudential. Id. at 729-30.12
We adopted a test fashioned by the Eighth Circuit and
embraced by many courts to hold that arbitration of a dispute
is required — i.e., that a dispute "arises out of employment or
termination of employment," where the claims "involve sig-
nificant aspects of the employment relationship, including but
not limited to explicit contractual terms." Id. at 728-29 (quot-
ing Morgan v. Smith Barney, Harris Upham & Co., 729 F.2d
1163, 1167 (8th Cir. 1984)). Under Morgan’s "significant
aspects" test, the source from which arbitrable disputes arise
is not "the employment (or termination of the employment)
contract" but "simply employment or termination of employ-
ment." Id. at 729 (citing Morgan, 729 F.2d at 1167). We rea-
soned that "the proper question is whether resolution of the
claim depends upon evaluation of a party’s performance
either as a broker or as an employer of brokers during the time
of the contractual relationship." Id. at 729 (citing Aspero v.
Shearson American Express, Inc., 768 F.2d 106, 109 (6th Cir.
1985); Fleck v. E.F. Hutton Group, Inc., 891 F.2d 1047, 1053
(2d Cir. 1989)).
In the case before us, the district court applied Zandford
and concluded that issues surrounding Raymond James’
alleged "practice of law" and the resulting alleged breach of
"fiduciary and legal duties" did not fit within the framework
of arbitrable claims under the Rule 10101 analogue to NYSE
Rule 347. Thus, it determined that the arbitrators lacked the
12
Although, unlike the facts here, Zandford’s agreement with Prudential
contained an arbitration clause, the releases exchanged in connection with
the settlement agreement had extinguished the parties’ rights and duties
under the employment agreement. See 112 F.3d at 727 ("[I]t is clear and
indeed not disputed that Zandford cannot be called upon to arbitrate any
matter on the authority of the arbitration clause included in the employ-
ment agreement."). Thus, the NYSE rule was the sole source of any duty
to arbitrate and of the power of the arbitrators to adjudicate claims.
18 JAMES FINANCIAL SERVICES v. BISHOP
authority to address this "cause of action," the very claim on
which the panel premised the award of compensatory dam-
ages to the Appellants.
We agree with the district court. As we have noted, here the
arbitrators based their award on Raymond James’ alleged
breach of "fiduciary and legal duties" in connection with their
joint representation with Raymond James by Bostic, the in-
house lawyer. Under the Zandford "significant aspects" test,
the appropriate question here "is whether resolution of the
claim depends upon evaluation of a party’s performance
either as a broker or as an employer of brokers during the time
of the contractual relationship." 112 F.3d at 729 (citations
omitted). The panel’s assertion that Raymond James acted
improperly as a "lawyer" is inconsistent with the notion that
Raymond James was acting as an "employer of brokers during
the time of the contractual relationship." There is nothing
whatsoever in the serial explanations provided by the arbitra-
tion panel to support the conclusion that the legal theory the
panel found sustained required an evaluation of any party’s
"performance." Even after the district court ordered a remand
to the panel, the panel simply reiterated what seemed inescap-
able from the original award: that the panel had adjudicated
a tort claim that fell outside of the expansive interpretation of
"arising out of employment" we adopted in Zandford.
Thus, the arbitration panel committed no mere error of law.
Rather, by rendering an award whose underlying legal basis
exceeded the bounds of arbitrable employment-related dis-
putes cognizable under NASD Rule 10101 as interpreted (by
analogy) in Zandford, the panel "exceeded [its] powers" under
9 U.S.C. § 10(a)(4).13
13
The Supreme Court’s decision in Hall Street Associates, L.L.C. v.
Mattel, Inc., 552 U.S. 576 (2008), has generated considerable uncertainty
among the lower federal courts as to the continuing viability of extra-
statutory grounds for vacating arbitration awards. See Andorra Svcs. Inc.,
v. Venfleet, Ltd., No 08- 4902, 2009 WL4691635, at *4 n.5 (3d Cir. Dec.
JAMES FINANCIAL SERVICES v. BISHOP 19
C.
The Appellants seek to avoid this result with two argu-
ments, each of which we find unpersuasive. First, they seem
to contend that once the arbitration panel’s "jurisdiction" was
established pursuant to Rule 10101, the panel was entitled
under the expansive rubric of "just and equitable principles of
trade" to interpret the propriety of Raymond James’ overall
conduct towards the Appellants.14 Thus, according to the
Appellants, the acts and omissions of Raymond James’ in-
house lawyer in undertaking joint representation of the Appel-
lants in the NASD arbitration proceedings was a fair ground
10, 2009) ("Our sister circuits have expressed varying views on the impact
of Hall Street. Compare Telenor Mobile Commc’ns AS v. Storm LLC, 584
F.3d 396, 407 n.6 (2d Cir. 2009) ("[W]e [previously] read Hall St. to hold
that the FAA set forth the ‘exclusive’ grounds for vacating an arbitration
award, and that the term ‘manifest disregard’ was merely a ‘judicial gloss’
on some of those grounds."), with Citigroup Global Mkts., Inc. v. Bacon,
562 F.3d 349, 355 (5th Cir. 2009) ("[T]o the extent that manifest disregard
of the law constitutes a nonstatutory ground for vacatur, it is no longer a
basis for vacating awards under the FAA.")). In view of our conclusion
that the district court’s order vacating the award in this case should be
affirmed under 9 U.S.C. § 10(a)(4), we find it unnecessary to consider the
effect of Hall Street.
14
Congress imposed a "just and equitable principles of trade" require-
ment in the Exchange Act of 1934. See 15 U.S.C. § 78f(b). As the so-
called "J & E" rule, NASD codified the principle in its Rule 2110: "A
member, in the conduct of its business, shall observe high standards of
commercial honor and just and equitable principles of trade." The J & E
Rule is a mainstay in private and governmental enforcement efforts in the
policing of securities markets, and is universally regarded as imposing
high ethical standards on commercial actors in the market. See, e.g., In the
Matter of the Application of Timothy L. Burkes, 51 S.E.C. 356, 1993 WL
119769, at *3 (Apr. 14, 1993) ("As the Commission has stated previously,
disciplinary hearings to require compliance with ‘high standards of com-
mercial honor and just and equitable principles of trade’ are ethical pro-
ceedings; hence the concern is with ethical implications of the Applicant’s
conduct."). Contrary to the Appellants’ suggestion, the J & E principle did
not expand the powers of the arbitration panel in this case beyond the
boundaries set by Zandford.
20 JAMES FINANCIAL SERVICES v. BISHOP
for decision and for an award of compensatory damages,
regardless of how attenuated such acts and omissions might
be from any party’s "performance either as a broker or as an
employer of brokers during the time of the contractual relation-
ship."15 We reject this contention as flatly inconsistent with
our holding in Zandford.
Second, the Appellants contend that, under the reasoning in
two cases from the Seventh and Eighth Circuits, because Ray-
mond James was required under Rule 10101 to arbitrate
claims "arising out of" the termination of Appellants’ affilia-
tion, it simply lacked the authority to terminate their affilia-
tions without cause. See Shearson Hayden Stone, Inc. v.
Liang, 653 F.2d 310, 313 (7th Cir. 1981) ("It has been held
repeatedly that an agreement to arbitrate disputes about
employee discharges implies a requirement that discharges be
only for ‘just cause.’"); PaineWebber, Inc. v. Agron, 49 F.3d
347, 352 (8th Cir. 1995) (stating that "[NASD arbitration]
necessarily alters the employment relationship from at-will to
something else-some standard of discernable cause is inher-
ently required in this context where an arbitration panel is cal-
led on to interpret the employment relationship").
The genesis of the principle applied in those cases was in
the context of arbitration provisions contained in collective
bargaining agreements. See Liang, 653 F.2d at 312-13 (citing
Int’l Ass’n of Machinists v. Campbell Soup Co., 406 F.2d
1223, 1226-27 (7th Cir.), cert. denied, 396 U.S. 820 (1969);
Amoco Oil Co. v. Oil, Chemical & Atomic Workers Int’l
Union, 548 F.2d 1288, 1294 (7th Cir.), cert. denied, 431 U.S.
905 (1977)). As to such disputes, as often as not, the issue
before the arbitrator is whether a discharged employee should
be reinstated, and if so, on what conditions. See, e.g., Lynch-
burg Foundry Co. v. United Steelworkers of Am., 404 F.2d
259, 261 (4th Cir. 1968) ("When an arbitrator is commis-
15
At oral argument, counsel for the Appellants described the practice-of-
law issue as a "stepping stone."
JAMES FINANCIAL SERVICES v. BISHOP 21
sioned to interpret and apply the collective bargaining agree-
ment, he is to bring his informed judgment to bear in order to
reach a fair solution of a problem. This is especially true when
it comes to formulating remedies."). The propriety of apply-
ing the principle in the judicial review of arbitration awards
under Rule 10101 is less than clear. In any event, in neither
of the cases relied on by the Appellants was the court faced
with an express agreement providing for termination at will.16
Accordingly, whether or not we believe those cases
announced a rule of general application, we decline to follow
them under the circumstances of this case.
V.
As we acknowledged at the outset of this opinion, vacatur
of an arbitration award by a federal court is rare, as it should
be. We are satisfied that the district court did not err in con-
cluding that this case presents such a rare occasion. Accord-
ingly, the judgment of the district court is
16
Indeed, the Eighth Circuit’s Agron opinion demonstrates that the case
is easily distinguishable from the case before us:
If Agron’s employment was purely at-will, the arbitration pro-
cedure designed to interpret that employment relationship would
serve no identifiable purpose. Accordingly, the arbitration panel
had the power to determine whether the firing was justified.
PaineWebber has not shown that the arbitrators’ power was
expressly limited to application of the Kansas at-will doctrine by
the terms of the employment agreement, promissory note, or any
other factor. Rather, PaineWebber merely contends that the
panel’s disposition improperly disregarded Kansas law. Accord-
ingly, we are powerless to upset the award.
49 F.3d at 352 (emphasis added). In contrast, the agreements at issue in
this case expressly provide for termination at will, i.e., on five days notice.
Furthermore, in light of the availability of numerous federal and state stat-
utory claims available even to at-will employees, see, e.g., Title VII of the
Civil Rights Act of 1964, 42 U.S.C. §§ 2000e, et seq., and to independent
contractors, see 42 U.S.C. § 1981, it simply is not the case that "an arbitra-
tion procedure designed to interpret [such an] employment relationship
would serve no identifiable purpose."
22 JAMES FINANCIAL SERVICES v. BISHOP
AFFIRMED.