Response (Part 1)
COME NOW Hurshel Tyler and the Estate of Mildred Tyler, Deceased, by her Independent Executor Bill Tyler (hereinafter referred to as the Tylers or Defendants) and file this their Response to the Original Petition and Motion to Modify, Correct and/or Vacate Arbitration Award (hereinafter referred to as the Challenge) filed by Raymond James Financial Services, Inc. (hereinafter referred to as Plaintiff). This Response also serves as Defendants Brief in Support of its Motion and Application to Confirm Arbitration Award.I. Introduction
Having imposed binding arbitration in all of its agreements, Plaintiff wants to avoid the binding part, once it faces a large, adverse Award. As the Court is likely aware, the Texas and Federal Arbitration Acts, as well as controlling case authorities, prohibit court review of an arbitration panels factual or legal findings. Yet it is precisely such a prohibited view of legal determinations that Plaintiff seeks in its complaints about the arbitration panel applying Texas law. Plaintiffs other two complaints relating to miscalculation and the rescission remedy are wholly without factual support in the record. By seeking a return of the investments to remedy the purported miscalculation, Plaintiff seeks to negate the Panels compensatory award to the Tylers and convert it to an over $170,000 compensatory award to Plaintiff, the wrongdoer! Regardless, Plaintiff cannot overcome the extreme standard for overturning an arbitration award in court, and its Challenge must be denied.II. Factual Background
Plaintiff filed this action seeking to challenge a securities arbitration conducted by the Financial Industry Regulatory Authority (FINRA) which resulted in a May 10, 2011 arbitration Award, a copy of which is attached as Exhibit A. The underlying arbitration arose from a series of wrongful acts on the part of a Branch Office Manager in Plaintiffs Amarillo, Texas office who upon being assigned to handle the Tylers brokerage accounts, liquidated the Tylers $3.5 million bond portfolio and invested the money in complex, long term, costly annuities and life insurance products with equity exposure of over 80%. In this dramatic shift in investments, Plaintiff made over $700,000 in commissions. Volume 4 of Transcript, p.99, lines 15 20. The evidence presented at the arbitration showed that Plaintiff was responsible for the wrongful acts, not only because of the doctrine of respondeat superior but also because Plaintiff Raymond James committed its own wrongdoing - in failing to supervise the Branch Office Manager and in failing to supervise the Tylers accounts. The FINRA arbitrators agreed and found Plaintiff liable based upon respondeat superior and separately for violating FINRA Rule 3010 (the Supervision Rule)1. In addition, the arbitration panel found that Plaintiff violated FINRA Rule 2310 (the Suitability Rule)2 and that it had breached its contract with the Tylers.
Plaintiffs agreements with the Tylers contained a binding arbitration provision that forced the Tylers to forego court and file their claim in arbitration. It provided in pertinent part:
Arbitration is final and binding on the parties.
The parties are waiving their right to seek remedies in court, including the right to trial by jury.
Pre-arbitration discovery is generally more limited than and different from court proceedings.
The arbitrators award is not required to include factual findings or legal reasoning and any partys right to appeal or seek modification of rulings by the arbitrators is strictly limited.Arbitration and Dispute Resolution
(a) Any dispute or controversy, either arising in the future or in existence now, between me and you (including your offices, directors, employees or agents and the introducing broker, if applicable) will be resolved by arbitration conducted before the New York Stock Exchange, Inc., the National Association of Securities Dealers, Inc., the American Stock Exchange, Inc. or other self-regulatory organizations (SRO) subject to the jurisdiction of the Securities and Exchange Commission (SEC) pursuant to the arbitration rules of the applicable SRO, and in accordance with the Federal Arbitration Act (Title 9 of the United States Code).
(b) A court of competent jurisdiction may enter judgment based on the award rendered by the arbitrators.The agreements are attached as Exhibit B with pertinent sections highlighted [emphasis added].
1 Available for viewing here
2 Available for viewing here
On May 5, 2010 the Tylers filed their initial Statement of Claim with FINRA, commencing arbitration proceedings styled Hurshel Tyler And His Wife Mildred Tyler, by and through her power of attorney Bill Tyler vs. Raymond James Financial Services, Inc. and LPL Financial Corporation, FINRA arbitration No. 10-12162. Plaintiff then filed its Submission Agreement in response, and expressly agreed to arbitrate all of the Tylers claims before FINRA, a copy of which is attached as Exhibit C. Over the next 10 months, the parties engaged in extensive pre-hearing litigation, including exhaustive discovery and motion practice involving both procedural and dispositive motions. Before the commencement of the arbitration, Mildred Tyler passed away and Defendants settled with LPL Financial Corporation. Defendants Statement of Claim detailed the wrongdoing that occurred and the rules, regulations and laws that were violated as a result. A copy of Defendants Statement of Claim is attached as Exhibit
D. Plaintiff asserted various defenses. A copy of Defendants Response is attached as Exhibit E.
The arbitration commenced on March 21, 2011 in Dallas, Texas and lasted five consecutive days. At the conclusion of the arbitration hearing, when asked by the Arbitrator Freeman, the Chairman of the three-person arbitration panel, both parties represented that they were treated fairly and were able to put on their case without any remaining issues3:
Are there any other issues or objections you think we need to get on the record here?
MS. STONEMAN: I don't think so.
MS. REYES: No.
Ms. Stoneman represented the Tylers and Ms. Reyes represented Raymond James Financial Services, Inc..
ARBITRATOR FREEMAN: What I would like to ask you to do, I would like those two witness books, if you don't mind, leave those here. We are going to
go to lunch and come back to the room and start to plan out how we are going to attack this. So if you pack up all of your stuff. Do you feel you have gotten your case said?
MS. REYES: Yes.
MS. STONEMAN: Yes, we do.
ARBITRATOR FREEMAN: Been treated fairly?
MS. STONEMAN: Yes.
ARBITRATOR FREEMAN: No objections.
Volume 5 of the Transcript, p.185 line 21 p.186, line 13.
The arbitrators issued the Award on May 10, 2011 and awarded the Tylers $1,129,796 in compensatory damages, 5% interest on that sum from December 1, 2006 through May 10, 2011 (which amount is $251,066), $34,988 in arbitration costs, $82,281 in IRS related costs, and
$250,000 in attorneys fees for a total monetary award of $1,738,141.
On June 7, 2011, the Tylers filed a Motion and Application to Confirm Arbitration Award in the 90th Judicial District Court in Young County, Texas, Mr. Tylers county of residence. The next day on June 8, 2011, Plaintiff filed its Challenge in this Court. After the Tylers agreed to transfer venue of the case to this court, Tylers counsel proposed to Plaintiffs counsel that we choose a date by which we would each file a brief supporting our respective
positions. Plaintiffs counsel represented that its arguments were contained in the Petition that it filed and thus a brief on its part would be unnecessary. Plaintiffs counsel suggested that we instead choose a date by which Claimants would file a response to the Challenge and a date for Plaintiff to reply after which we would have a hearing on the issues to be scheduled in September after Labor Day. The parties filed a Rule 11 Agreement to this effect. Since then, a hearing has been scheduled for Friday, September 16 at 10:30 a.m. for oral argument on Plaintiffs Challenge and Defendants Motion to Confirm Arbitration Award.
Accordingly, the Tylers hereby file their opposition to Plaintiffs effort to vacate, modify, or correct the arbitration award pursuant to Tex. Civ. Prac. & Rem. Code § 171 and the Federal Arbitration Act 9 U.S.C.A. § 11. In so doing, the Tylers also provide the court with authority to grant their Motion to Confirm the Arbitration Award.III. Legal Standard and Summary of Issues
Texas law favors arbitration. Brazoria v. Knutson, 142 Tex. 172, 176 S.W.2d 740 (1944);
L.H. Lacy Co. v. City of Lubbock, 559 S.W.2d 348, 351 (Tex.1977); see also, Prudential Secs.,
Inc. v. Marshall, 909 S.W.2d 896, 900 (Tex. 1995) (orig. proceeding) (per curiam) (arbitration is
inexpensive, rapid alternative to traditional litigation procedures). Indeed, arbitration has found such favor with Texas courts that every reasonable presumption must be indulged in to uphold arbitration awards. Island on Lake Travis, Ltd. v. Hayman Co. General Contractors, Inc., 834
S.W.2d 529 (Tex. App. - Austin 1992, writ granted, judgm't vacated w.r.m.). Massey v. Galvan,
822 S.W.2d 309, 316 (Tex. App. 1992, writ denied); Carpenter v. North River Ins. Co., 436
S.W. 549, 553 (Tex. Civ. App. 1968, writ ref'd n.r.e.).
Judicial review of an arbitration award adds expense and delay and thereby diminishes the benefits of arbitration as an efficient, economical system for resolving disputes, and, accordingly, review of an arbitration award is extraordinarily narrow. Ancor Holdings, LLC v.
Peterson, Goldman & Villani, Inc., 294 S.W.3d 818, 825 (Tex. App.Dallas, 2009); CVN Group,
Inc. v. Delgado, 95 S.W.3d 234, 238 (Tex. 2002); IPCO-G.&C. Joint Venture v. A.B. Chance
Co., 65 S.W.3d 252, 255 (Tex. App.Houston [1 Dist.], 2001). Such review should be not only
limited but expeditious. Crossmark, Inc. v. Hazar, 124 S.W.3d 422 (Tex. App.Dallas, 2004).
Judicial review of an arbitration award is so limited that an award may not be vacated even if there is a mistake of fact or law. In re Guardianship of Cantu de Villarreal, 330 S.W.3d 11, 18
(Tex. App.Corpus Christi, 2010).
Arbitration awards are entitled to great deference by the courts lest disappointed litigants seek to overturn every unfavorable arbitration award in court. Crossmark at 429; Ancor
Holdings at 826. Because of the deference given to arbitration awards, judicial scrutiny focuses
on the integrity of the process, not the propriety of the result. Id. An arbitration award has the same effect as a judgment of a court of last resort, and the trial judge reviewing an award may not substitute her judgment for that of the arbiters merely because she would have reached a different conclusion. Bailey and Williams v. Westfall, 727 S.W.2d 86, 90 (Tex. App.Dallas,
1987). Whatever indignation a reviewing court may experience in examining an arbitration record, it must resist the temptation to condemn imperfect proceedings without a sound statutory basis for doing so. Millmaker v. Bruso, 2008 WL 4560624 (S.D. Tex. 2008), quoting Prestige
Ford v. Ford Dealer Computer Servs., Inc., 324 F.3d 391, 394 (5th Cir. 2003). Courts may not
independently review an arbitrators decision on the merits despite allegations that the decision rests on factual errors or misinterprets the parties agreement. Major League Baseball Players
Assn v. Garv e y, 532 U.S. 504, 509 (2001).
The Texas Supreme Court has ruled that a court reviewing an arbitration award lacks jurisdiction to review complaints that do not assert statutory, common law, or public policy grounds to vacate or modify the award. See, CVN Group, Inc. v. Delgado, 95 S.W.3d 234, 239
(Tex. 2002). Plaintiff has alleged statutory grounds on which to modify or vacate the Tylers arbitration award, however, as will be shown, the evidence on which Plaintiff relies in meeting this burden is like trying to fit a square peg into a round hole. Plaintiff fails to acknowledge the principles that judicial review of arbitration decisions, on both the facts and the law, is extremely limited and is amongst the narrowest known to the law, and that the courts are without authority to second-guess the arbitrators findings or conclusions.
Plaintiffs challenge is premised on the following three grounds:
- There is an evident miscalculation of numbers which can be corrected by requiring the arbitration panel to order the return of the investments to Plaintiff.
- The arbitrators exceeded their powers by awarding attorneys fees under Texas law, because Florida law applied to the case and thus the attorneys fee portion of the Award should be vacated.
- In the alternative, the arbitrators exceeded their authority by awarding relief not requested in that Defendants specifically chose rescission rather than damages and emphasized their right to forego damages and insist upon a rescissionary remedy.
Each of these three grounds has no basis. As will be shown, there was no evident miscalculation of numbers. Plaintiffs tortured reading of the Award to support this argument is a stretch, at best. As for Plaintiffs argument that Florida, not Texas law, applied to the case, this
argument was a surprise to Defendants, since Plaintiff didnt utter one word about the application of Florida law in the five-day arbitration, nor in its legal brief filed with the arbitration panel. Nonetheless, an arbitrators application of the law, even if an outright mistake, is not reviewable by the court. The same is true for Plaintiffs argument that the panel exceeded its authority by awarding relief not requested, although the Tylers will show that the basis of Plaintiffs factual claim has no support. Contrary to Plaintiffs assertions, the record reflects that Defendants asked the arbitrators to award a monetary figure that did not require as a component that the Tylers return the investments to Plaintiff. Moreover, FINRA arbitrators are instructed that
rescission may or may not include the return of the securities at issue.
Plaintiff showed its true colors in its Challenge when it wrote, as of the time Defendants moved their accounts from RJFS, they [the Tylers] had gains in the subject annuities of over
$958,000.00.4 This statement is totally irrelevant to any issue before the court and serves no
purpose other than to highlight that Plaintiff did not think the Award was fair or right.5 In any event, this may help explain what motivated Plaintiff to file this baseless Challenge.
1. There Is No Evident Miscalculation Of Numbers or Figures
The Texas statutory language upon which Plaintiff relies allows the court to modify the Award if there is an evident miscalculation of numbers. Civil Practice & Remedies Code § 171.091(a)(1)(A). 9 U.S.C.A. § 11(a) refers to an evident material miscalculation of figures. Plaintiffs claim that the arbitrators failed to require the return of the securities made the bases
4 The cited to figure does not appear in the record; rather, one must add together figures in the record that are 100 pages apart. In addition, one of the figures came from Plaintiffs counsel, and was not corroborated by the witness.
5 Defendants have the opposite view and were disappointed that the Award was not significantly higher.
of the transactions does not qualify as either a miscalculation of numbers or a miscalculation of figures.
Texas has articulated the standard for this statutory basis for modification of an award:
A court may not overturn an award based upon evident miscalculation of figures unless the mistake is clear, concise and conclusive from the record.
Miscalculation implies inadvertence or an error caused by oversight. If the amount of the award is rationally inferable from the facts before the arbitrator, there is no evident miscalculation of figures. Furthermore, if the amount of the award falls within the range established by the testimony, we should not disturb the award on that basis. A claimant's dissatisfaction with the amount of an award will not support a judicial modification of that award.
Vernon E. Faulconer, Inc. v. HFI, Ltd. Partnership, 970 S.W.2d 36, 39 (Tex. App.Tyler, 1998),
Plaintiff has failed to show the arbitrators made any miscalculation or mistake in calculating the award. The Tylers counsel stated in her closing argument to the panel: And don't forget that we are -- a part of that award of 3.5 million includes the tender of the investments, all three of them, back to Raymond James. And if for some reason you are uncomfortable with that or you believe that is too administratively difficult to accomplish, then Mr. Tyler will retain those investments and dispose of them at his choosing, but then don't subtract from the award the $1.3 million. Volume 5 of the Transcript, p.179 lines 9. Plaintiffs claim that the arbitrators made a miscalculation by not ordering the investments returned to Plaintiff is undercut by the fact that Defendants offered to the panel a remedy that did not require a return of the investments to Plaintiff. The record indicates that this is precisely what the arbitrators did they agreed upon a monetary figure that allowed the Tylers to retain the investments at issue. Accordingly, there is simply no evidence of a mistake or miscalculation, much less an evident one. Rather, it was the panels deliberate disposition of a substantive dispute rationally inferable from the facts in the record. Moreover, Plaintiffs arguments fail every element that comprises the statutory basis for miscalculation. The most obvious is that Plaintiffs claim does not even contain any numbers or figures that are the hallmark of a miscalculation claim. See, Millmaker v. Bruso, 2008 WL
4560624 (S.D. Tex. 2008)(miscalculation where arbitrators awarded fees and expenses, a portion of which had been double counted); NetKnowledge Technologies, L.L.C. v. Rapid Transmit Technologies, 2007 WL 518548 (N.D. Tex. 2007), aff'd on other grounds, 269 Fed. Appx. 443
(5th Cir. 2008)(arbitrator's duplication of figures was a double-counting of a claim for damages, which court corrected under the Federal Arbitration Act, 9 U.S.C.A. § 11(a)).
What Plaintiff is asking this Court to do is examine the intent of the arbitrators in how they came up with their Award, and this should not be permitted. Plaintiffs argument is not unlike that made in Fogal v. Stature Const., Inc., 294 S.W.3d 708, 711 (Tex. App. Houston 1st
Dist. 2009), review denied, (Oct. 23, 2009), where the challenging party complained about the failure of the arbitrator to include prejudgment interest in the arbitration award. The court held that this was not an evident material miscalculation under the Federal Arbitration Act (FAA) for modifying the award. U.S.C.A. § 11.
Importantly, the foundation of Plaintiffs claim that its clear that the Panel awarded rescission is, quite simply, false. Rather, the face of the Award evidences that the arbitrators rejected Defendants rescissionary claim:
At the hearing, Claimants presented varying theories of recovery.
The range of their damages requested for rescission was
Respondent, Raymond James Financial Services, Inc., is liable for and shall pay to Claimants, Hurshel Tyler and the Estate of Mildred Tyler, Deceased, Bill Tyler, Independent Executor, the sum of $1,129,796.00 in compensatory damages.
Exhibit A, the Award, pp. 2 and 4, emphasis added.
The language that the Panel chose to use in the Award acknowledges that Defendants requested rescission but instead it awarded compensatory damages. Compensatory damages are defined in most legal dictionaries as payment for actual injury or economic loss, which is distinguishable from a rescissionary award. So assigning the words used their commonly understood meaning, rescission was not awarded.
In addition, the Panels findings on liability support the conclusion that the Panel awarded a compensatory remedy, as opposed to a rescissionary one. The Panel sustained Defendants claims of suitability, failure to supervise, respondeat superior, breach of contract, and violations of FINRA Rules 2310 and 3010. These claims which are torts and breach of contract require compensatory damages. And the Panel rejected Claimants' causes of actions: Texas Deceptive Trade Practices, Texas Insurance Law violations, violations of various securities laws, breach of fiduciary duty, and common law fraud. Exhibit A, the Award, p.3. Therefore, the Panel rejected Defendants only causes of action - the statutory claims - that specifically provide for and allow a rescissionary recovery. Thus, the overwhelming weight of
the evidence based on the Award itself is that the Panel meant what it wrote when it awarded
the sum of $1,129,796.00 in compensatory damages.
The evidence is also stronger that the Panel awarded a compensatory amount, as opposed to a rescissionary amount for reasons that go beyond the language the Panel used in the Award. In their Statement of Claim filed with FINRA, the Tylers pled both rescissionary and actual or compensatory damages. Exhibit D, Statement of Claim, p.26. At the arbitration, though the Defendants urged the Panel to make a rescissionary award, a compensatory award was not off of the table. In the opening statement, Defendants counsel stated, when you hear our expert discuss the recovery and the rescission calculations that were presenting to you in this case Volume 1 of Transcript, p.42, lines 7 10. Recovery is different than rescission. And the Tylers counsel closed her opening with the following statement:
In closing, I would simply say and remind you, gentlemen, that each cause of action is actionable; that claimants really need only prove one cause of action in order to allow you to render an award; and most importantly, that we are here not out on any limbs. We're not trying to get something we don't think we're entitled to or can get under the law, and that's all we ask you gentlemen to do, is hear the evidence and do what you think is right, and do what you think is equitable in this circumstance. Thank you very much. [emphasis added].
Accordingly, it is not accurate to state that the only remedy sought was rescission with a return of the investments as Plaintiff has claimed in its Challenge.
Defendants counsel then questioned Defendants expert David Sanderford about damages in the following exchange:
Q. Okay. In your opinion, if this panel finds liability, would damages be an adequate remedy for Mr. Tyler?
I think it would be inadequate remedy. I think an equitable remedy, such as rescission, is more appropriate, especially in light of what I call an ongoing and egregious and willful intention to avoid the broker's responsibility to Mr. Tyler.
Volume 2 of Transcript, p.467, lines 12 19. [emphasis added].
Defendants expert recognized that although rescission was a more appropriate remedy, the Panel instead could choose to award a damage or compensatory remedy, which is what the panel did.
Plaintiff argues rather curiously that The various elements of the award make it clear that the Panel awarded rescission (p.3 of Plaintiffs Challenge). This claim likewise has no support. The first element, as discussed above, uses the phrase compensatory damages to describe the $1,129,796.00 figure. Even assuming for the sake of argument that the panel had instead written, the sum of $1,129,796.00 in rescissionary damages, which it could have done,
there would still be an absence of any miscalculation. In the parlance of securities arbitration proceedings, the term rescission does not necessarily entail a return of the investments. FINRAs procedures include training its arbitrators. FINRA provides its arbitrators with the Arbitrators Guide, a lengthy document that provides arbitrators with important information about their responsibilities and duties as arbitrators in securities cases. Attached as Exhibit F are select pages from the Guide. Importantly, FINRA advises arbitrators that rescission may or may not include a return of the investments:
Other Remedies Rescission
Rescission is designed to place the claimant in the same position occupied before the wrongful transaction. It may include the return of the securities at issue.
Exhibit F, FINRA Arbitrators Guide, p.49 [emphasis added].
According to FINRA, arbitrators are empowered to award the remedy of rescission but not require a return of the investments. So even assuming the arbitrators awarded a sum that they characterized as rescission, this would not give rise to an evident miscalculation.
Plaintiffs miscalculation argument would be stronger if the panel had awarded an amount that exactly matched the rescission amount sought by the Tylers, because arguably such sum envisioned a return of the investments to Plaintiffs. To illustrate, the arbitrators recited the following in the Award:
At the hearing, Claimants presented varying theories of recovery. The range of their damages requested for rescission was calculated with the withdrawals and interest in three different scenarios and the results were $3,543,454.00;
$3,546,627.00; and $3,534,641.00 with reductions of $377,471.00; $374,298.00; and $386,284.00.
At the arbitration hearing, evidence was introduced that established that the terminal (or ending) value of the three investments to be returned to Plaintiff was $1.3 million. Volume 3 of the Transcript, p.503, lines 6 24. The above figures take into account a return of the investments and hence a credit to Plaintiff of $1.3 million. Hypothetically, if the panel instead had awarded the sum of $3,165,983, $3,172,329 or $3,148,357 (the respective results of the offsets described above), then Plaintiffs might argue that a miscalculation is evident by virtue of the fact that without a return of the investments, Plaintiff is deprived of the credit of $1.3 million. But that would only be the case if the panel awarded a figure that equaled the rescission amount sought.
It is significant that the $1,129,796.00 awarded by the arbitrators is significantly less than the rescission amount sought by the Defendants, even when the terminal value is deducted from each figure: the resulting values are $1,865,983, $1,872,329 and $1,848,357. This is further evidence of the absence of any miscalculation; the Panel found liability and clearly intended to award Defendants compensation for the violations. But if this court grants Plaintiff the relief it is requesting and forces a return the investments to Plaintiff at a value of $1.3 million, the result is that there would be a negative compensatory award! It would be as if the Plaintiff, the wrongdoer, was awarded $170,204. That is such a clear contravention of what the Panel intended that it should not be countenanced.
Nor does the second element of the Award make it clear that the arbitrators awarded rescission. The panel awarded interest on the above-stated sum at the rate of 5% per annum from and including December 1, 2006 through and including the date the Award is served. The panels reference to the above stated sum is to the compensatory damage amount of
$1,129,796.00, so theres no reference to rescission there. Moreover, pre and post-judgment
interest is commonly awarded by securities arbitration panels and it is usually at the interest rate prescribed by applicable state law. The 5% figure represents the judgment rate set forth in Chapter 304 of the Texas Finance Code and is the rate that should be used whether the panel ordered a rescission remedy or a compensatory damage remedy.
The third element of the Award is the sum of $34,988.00 in costs for expenses. Again, it is axiomatic that there is nothing in this element that makes it clear that the arbitrators awarded rescission. The same is true for the fourth and fifth elements of the Award. In the fourth element, the panel likewise spelled out that the sum of $82,281.00 was for costs for IRS penalties on taxes past due. And the last element was for the sum of $250,000.00 in attorneys' fees pursuant to Texas statute on breach of contract. These elements make no reference to rescission. Plaintiff does not explain, and logically cannot explain, how The various elements of the award make it clear that the Panel awarded rescission (p.3 of Plaintiffs Challenge). Plaintiffs purported miscalculation is not evident on the face of the Award nor in the record.
The panels decision cannot be characterized as an evident miscalculation but rather a factual decision on the part of the arbitrators that was within the arbitrators discretion. The compensatory damage figure of $1,129,796.00 awarded by the panel was precise and thus the result of a conscious decision. The arbitrators were not required to explain how they arrived at the compensatory figure. Though the parties could have agreed to require the arbitration panel to issue an explained award, the parties made no such agreement. FINRA Rule 12904, in pertinent part, outlines the process:
FINRA Rule 12904. Awards
(f) The award may contain a rationale underlying the award.
(g) Explained Decisions
(1) This paragraph (g) applies only when all parties jointly request an explained decision.
(2) An explained decision is a fact-based award stating the general reason(s) for the arbitrators' decision. Inclusion of legal authorities and damage calculations is not required.
(3) Parties must make any request for an explained decision no later than the time for the prehearing exchange of documents and witness lists under Rule 12514(d).
FINRA Rule 12904 makes clear that the arbitration panel is under no obligation to enlighten the parties about their rationale underlying the award or any explanation for their result. The parties agreement with each other likewise states, The arbitrators award is not required to include factual findings or legal reasoning See Exhibit B, Agreements. Without an explanation, the figure in an arbitration award is always an uncertainty. The parties addressed this issue during the arbitration when the Chairman asked the parties about whether or not they requested a reasoned or explained award:
ARBITRATOR FREEMAN: By the way, I don't recall that you folks asked for a reasoned award.
MS. STONEMAN: That's correct.
ARBITRATOR FREEMAN: So you're not going To know how we did it.
MS. STONEMAN: That's right.
Available for viewing at: http://www.finra.org/web/groups/industry/@ip/@reg/@rulfil/documents/rulefilings/p018366.pdf
ARBITRATOR FREEMAN: It's going to be a mystery when you get it.
MS. STONEMAN: That's right.
MS. REYES: The amount of time we spend when we get an award when a number is just a crazy number.
MS. STONEMAN: It's always a crazy number.
MS. REYES: 75 percent of this and -- we always try to figure it out.
Volume 5 of the Transcript, p.124, lines 8 23.
When parties agree to arbitration, they agree to accept whatever reasonable uncertainties might arise from the process. The size of the award is one such uncertainty and a claimant's dissatisfaction alone will not support judicial modification of that award. Babcock & Wilcox
Co. v. PMAC, Ltd., 863 S.W.2d 225, 235 (Tex. App.Hous. [14 Dist.], 1993)(citations omitted).
Despite the fact that it is not known how the arbitrators arrived at the $1,129,796.00 compensatory figure, there is every reason to believe that the Award accurately reflects the arbitrators intent and the figure is rationally inferable from the facts before the arbitrators. Arbitrators traditionally enjoy broad authority to fashion remedies designed to fit the specific issues presented to them under an arbitration agreement. CVN Group, Inc. v. Delgado, 47
S.W.3d 157, 162 (Tex. App.Austin, 2001).
Defendants urge the court reject Plaintiffs contention of miscalculation on the basis that Plaintiff has failed to sustain its burden of proof in establishing that there was an evident miscalculation of numbers or figures.
2. The Arbitrators Did Not Exceed Their Powers By Awarding Attorneys Fees Under Texas Law
There are a multitude of reasons the Court should deny Plaintiffs request to vacate the attorney fee portion of the arbitrators Award: a) in making this argument, Plaintiff has violated a FINRA rule which prohibits firms from using an arbitration agreement to limit the ability of the arbitrators to make an award; b) presumably the arbitrators considered Plaintiffs contention that Florida law applied, as it claimed in its Answer, and rejected it, instead choosing Texas law; c) the panel acted within its authority and powers by applying Texas law, d) Plaintiffs failure to argue the application of Florida law in either its pre-hearing brief or at any time during the five- day arbitration constitutes a waiver, and e) Plaintiff pled for recovery of its own attorneys fees, so Plaintiffs argument is disingenuous. For all of these reasons, Plaintiffs argument should be denied.
a) Plaintiffs Argument is in Violation of FINRA Rule 3110(f)(4)
Plaintiffs argument that the arbitrators exceeded their authority by awarding attorneys fees in contravention of the agreement that requires Florida law to apply is a violation of FINRA Rule 3110 (the Books and Records rule). FINRA Rule 3110(f)(4) provides:
(4) No predispute arbitration agreement shall include any condition that:
(A) imits or contradicts the rules of any self-regulatory organization;
(B) imits the ability of a party to file any claim in arbitration;
(C) limits the ability of a party to file any claim in court permitted to be filed in court under the rules of the forums in which a claim may be filed under the agreement;
(D) limits the ability of arbitrators to make any award.
Plaintiff agreed to abide by the rules and procedures of FINRA in the Submission Agreement that Plaintiff signed submitting this case to arbitration:
The parties hereby state that they or their representative(s) have read the procedures and rules of FINRA relating to arbitration, and the parties agree to be bound by these procedures and rules.