Pfannenstiel v. Merrill Lynch Pierce

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
February 20, 2007
UNITE D STA TE S CO URT O F A PPE ALS Elisabeth A. Shumaker
Clerk of Court
TENTH CIRCUIT
________________________

RO BERT PFANN ENSTIEL,

Plaintiff-A ppellant,

v. No. 04-1274

M ERRILL LYN CH , PIERCE,
FENNER & SM ITH; NA TION AL
ASSOCIATION OF SECURITIES
DEALERS, IN C.,

Defendants-Appellees.

_________________________

APPEAL FROM THE UN ITED STATES DISTRICT CO URT
FO R TH E D ISTR IC T O F C OLO RA DO
(D.C. NO . 04-B-268(M JW ))
________________________

Paul H. Schwartz, Cooley Godward LLP, Broomfield, Colorado for Plaintiff-
Appellant.

Thomas P. Howell (Bruce W. Day, Bill P. Guest, Tara A. LaClair with him on brief)
Day, Edwards, Propester & Christensen, P.C., Oklahoma City, Oklahoma, for
Defendant-Appellee M errill Lynch, Pierce Fenner & Smith.

Terri L. Reicher, National Association of Securities Dealers, Inc., W ashington D.C.
for D efendant-Appellee National A ssociation of Securities Dealers.
_________________________

Before BR ISC OE, SIL ER , * and M cCO NNELL, Circuit Judges.

*
The Honorable Eugene E. Siler, Jr., Senior United States Circuit Judge for the Sixth
Circuit, sitting by designation.
 _________________________

SILER, Circuit Judge.
_________________________

Robert Pfannenstiel (Pfannenstiel) appeals the district court’s dismissal of his

motion to vacate the judgment of an arbitration panel and the district court’s decision

that the arbitration panel was protected by arbitral immunity. Pfannenstiel contends

that his motion was timely because he served it at the earliest possible date he could

have known that grounds to vacate existed and that arbitral immunity does not apply

because the arbitration panel committed misconduct outside of its judicial function.

Because Pfannenstiel’s arguments lack merit, we AFFIRM .

BACKGROUND

In 1998, Pfannenstiel advised M errill Lynch, Pierce Fenner & Smith (M errill

Lynch) that he felt that his account statements were incorrect and that M errill Lynch

owed him compensation. M errill Lynch maintained that it had not committed any

errors in Pfannenstiel’s account and denied his request. Shortly thereafter, and for

the next several months, Pfannenstiel repeatedly attempted to convince M errill Lynch

that it had made accounting errors in his account by submitting an unsigned letter on

M errill Lynch letterhead as evidence. M errill Lynch believed that the letter was

false and again refused Pfannenstiel’s demands.

In September 2003, Pfannenstiel submitted his claim to a three-member panel

of National Association of Securities Dealers (NASD ) arbitrators requesting

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$217,785.00 plus damages. The panel denied his claim on November 7, 2003. Tw o

months later, Pfannenstiel discovered that the boxes of evidence and the hearing

tapes w ere missing after he contacted the NA SD in an effort to retrieve a docum ent

he presented at the hearing. By letter dated January 5, 2004, the NASD case

manager informed Pfannenstiel that upon conclusion of the hearing, the boxes

containing exhibits and audiotapes of the hearing were delivered to the front desk of

the hotel where the hearing had been conducted and someone claiming to be a NASD

representative had taken the materials. H ow ever, no one at the NASD admitted

taking the boxes from the hotel nor could the NASD locate them.

Pfannenstiel then filed a “Complaint and Request for Federal Intervention”

against M errill Lynch and the N ASD, requesting: 1) vacation of the arbitrators’

ruling; 2) that he be awarded unspecified damages because the N ASD lost the boxes

of evidence and the transcripts, failed to m anage his case properly, tried to coverup

the loss of evidence, breached the arbitration contract, and disregarded his rights;

and 3) for an order compelling the NASD to establish a protocol for preserving

evidence and transcripts.

M errill Lynch received Pfannenstiel’s Complaint on February 16, 2004; the

N A SD received its copy the follow ing day on February 17, 2004. The magistrate

judge assigned to the case recommended that the court dismiss the complaint because

service on the defendant was untimely under § 12 of the Federal Arbitration Act

(FA A), which requires service of a motion to vacate an arbitration award within three

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months of the delivery of the award. The magistrate judge also concluded that an

action for damages against the NA SD was barred by the doctrine of arbitral

immunity. The district court upheld the magistrate judge’s recommendations.

DISCUSSION

A district court’s decision whether to equitably toll a period of limitation is

reviewed for abuse of discretion. M ontoya v. Chao, 296 F.3d 952, 957 (10th C ir.

2002). W e review a dism issal based on arbitral immunity de novo. Salt Lake

Tribune Pub. Co., LLC v. M anagement Planning, Inc., 390 F.3d 684, 688 (10th Cir.

2004).

1. W hether Pfannenstiel Timely Served H is Complaint

The FAA requires notice of a motion to vacate, modify, or correct an

arbitration award to “be served upon the adverse party or his attorney within three

m onths after the award is filed or delivered.” 9 U.S.C. § 12. “A party to an

arbitration award who fails to comply with the statutory precondition of timely

service of notice forfeits the right to judicial review of the award.” Int’l Bhd. of

Elec. Workers, Local Union No. 969 v. Babcock & Wilcox, 826 F.2d 962, 966 (10th

Cir. 1987).

Pfannenstiel received the NASD panel’s decision on November 12, 2003.

Under 9 U.S.C. § 12, he was required to serve notice of his application to vacate the

award upon M errill Lynch by February 12, 2004, three months from the date he

received the decision. He did not serve M errill Lynch until February 16, 2004.

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 Pfannenstiel contends that the doctrine of equitable tolling should apply

because he had no way of knowing about the missing evidence until he contacted the

NASD . Equitable tolling suspends the running of a statute, and it should be applied

unless Congress provides to the contrary. United States v. Clymore, 245 F.3d 1195,

1197 (10th Cir. 2001). Although Pfannenstiel received the arbitrators’ decision on

November 12, 2003, it was not until January 7, 2004, that the NASD informed him

that it lost the materials immediately following the hearing.

Nonetheless, Pfannenstiel could have served the defendants before the

expiration of the three-month time limit. He had approximately one month left after

he learned that the evidence w as no longer available in order to timely file his

motion to vacate, but he did not file it within that time period. The one-month time

period provided Pfannenstiel am ple opportunity to serve the defendants in a timely

fashion. Thus, equitable tolling does not apply.

2. W hether the N ASD Arbitrators Enjoy Arbitral Immunity

This circuit has not yet ruled on the doctrine of arbitral immunity. The

doctrine generally rests on the notion that arbitrators acting within their quasi-

judicial duties are the functional equivalent of judges and, as such, should be

afforded similar protection. See Olson v. Nat’l Ass’n of Securities Dealers, 85 F.3d

381, 382 (8th Cir. 1996). M ore specifically, arbitral im m unity has been held to be

“essential to protect the decision-makers from undue influence and protect the

decision-making process from reprisals by dissatisfied litigants.” New England

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Cleaning Servs., Inc. v. American Arbitration Ass’n, 199 F.3d 542, 545 (1st Cir.

1999).

Every other circuit that has considered the issue of arbitral immunity

recognizes the doctrine. See, e.g., Hutchins v. Am. Arbitration Ass’n, 199 F.3d 542,

545 (1st Cir. 1999); Austern v. Chicago Bd. of Options Exch., Inc., 898 F.2d 882 (2d

Cir. 1990); Cahn v. Int’l Ladies Garment Union, 311 F.2d 113 (3d Cir. 1962);

Shrader v. NASD, Inc., 54 F.3d 774 (4th Cir. 1995); Hawkins v. NASD, Inc., 149 F.3d

330 (5th Cir. 1998); Corey v. New York Stock Exch., Inc., 691 F.2d 1205 (6th Cir.

1982); Int’l M ed. Group, Inc. v. American Arbitration Ass’n, 312 F.3d 833 (7th Cir.

2002); Honn v. NASD, 182 F.3d 1014 (8th Cir. 1999); Wasyl, Inc. v. First Boston

Corp., 813 F.2d 1579 (9th Cir. 1987). These courts uniform ly hold that arbitration

forums and sponsors, like courts of law, are immune from liability for actions taken

in connection with administering arbitration.

Supreme Court precedent also supports the doctrine of arbitral immunity. In

Butz v. Econom ou, 438 U .S. 478, 508-511 (1978), the C ourt held that there are

certain persons whose special functions require a full exem ption from liability for

acts committed within the scope of their duties. Id. at 508. The Court felt this was

necessary to protect the decision-makers from bias or intimidation caused by fear of

a lawsuit arising out of the exercise of their official functions. W hile not mentioning

NASD arbitrators specifically, the Court’s reasoning would certainly apply to them

as well.

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 Here, Pfannenstiel has not sued the individual m em bers of the NASD

arbitration panel that ruled against him. Instead, he has sued the NASD itself,

claiming, in pertinent part, that it is responsible for losing his personal property

following the arbitration hearing. The N ASD argued below , and the district court

agreed, that it was entitled to arbitral immunity from Pfannenstiel’s claim. In his

appeal, Pfannenstiel argues that the doctrine of arbitral immunity does not shield

arbitration organizations from liability for misconduct that is separate from their

judicial function. He contends that the NASD committed a tort against him when it

lost his personal property, and that the NASD misconduct has nothing to do with the

NASD arbitration decision.

W e agree with Pfannenstiel that the doctrine of arbitral immunity does not

protect arbitrators or their employing organizations from all claims asserted against

them. The key question, w e believe, is whether the claim at issue arises out of a

decisional act. M aureen A. W eston, Reexamining Arbitral Immunity in an Age of

M andatory and Professional Arbitration, 88 M in. L. Rev. 449, 505 (Feb. 2004). In

other w ords, does the claim, regardless of its nominal title, effectively seek to

challenge the decisional act of an arbitrator or arbitration panel? If so, then the

doctrine of arbitral immunity should apply. Id. If not, the doctrine would not apply.

Id. at 506; see Caudle v. American Arbitration Ass’n, 230 F.3d 920, 922 (7th Cir.

2000) (suggesting that arbitration association would not be immune from a claim for

a refund due to its failure to provide promised arbitration services); cf. Geitz v.

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Overall, 62 Fed. Appx. 744, 746 (8th Cir. 2003) (concluding that state-court clerks

were “absolutely immune only for acts that may be seen as discretionary, or for acts

taken at the direction of a judge according to court rule”); M cCray v. M aryland, 456

F.2d 1, 4 (4th Cir. 1972) (“A state officer is generally not immune under common

law for failure to perform a required ministerial act.”).

W e reject Pfannenstiel’s assertion, however, that his claim concerning the

NASD ’s loss of his property has nothing to do with the arbitration decision rendered

against him. The face of Pfannenstiel’s complaint listed both M errill Lynch and the

NASD as defendants, and expressly stated, that, “[d]ue to the unseparable [sic]

nature of the issues, the[] two cases [we]re presented under one complaint.” The

complaint further stated under a heading entitled “REQUEST,” that Pfannenstiel was

seeking vacatur of the arbitration panel’s decision “on the grounds of denial of rights

to get a fair ‘trial,’” due in pertinent part to the NASD ’s “[n]eglectful[] handling of

evidence after the ‘trial,’ neglectful[] handling of ‘trial’ tape recordings after the

‘trial,’ neglectful protocol to set standards for transfer of evidence after the ‘trial’

and cover-up after the fact rendering undue delay.” According to the complaint, the

NASD ’s actions in this regard “rendered unfair advantage to [M errill Lynch] and

deni[ed] plaintiff’s rights to ‘appeal’ or obtain ‘vacancy’ under normal methods.”

Ultimately, the complaint sought damages against the N ASD in the amount of $217,

785, the identical amount Pfannenstiel sought from M errill Lynch in the underlying

arbitration proceeding. Given these allegations, we conclude that Pfannenstiel’s

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claim is little more than a veiled attack on the decision rendered against him by the

arbitration panel, and that, accordingly, the NASD is entitled to arbitral immunity

from that claim.

C ON CLU SIO N

The judgment of the district court is AFFIRM ED.

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