Shahi v. Ascend Financial Services, Inc.

Shahi v. Ascend Financial Services, Inc. (2005-055); 179 Vt. 434; 898 A.2d 116

2006 VT 29

[Filed 14-Apr-2006]


       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.


                                 2006 VT 29

                                No. 2005-055

  Kaveh S. Shahi and Leslie R. Shahi             Supreme Court

                                                 On Appeal from
       v.                                        Washington Superior Court


  Ascend Financial Services, Inc. and            November Term, 2005
  Securian Financial Services


  Matthew I. Katz, J.

  Kaveh S. Shahi of Cleary Shahi & Aicher, P.C., Rutland, for
    Plaintiffs-Appellants.

  Alan P. Biederman and L. Maxwell Taylor of Kenlan, Schwiebert & Facey,
    P.C., Rutland, for Defendants-Appellees.


  PRESENT:  Dooley, Johnson, Skoglund and Burgess, JJ., and 
            Allen, C.J. (Ret.),  Specially Assigned

        
       ¶  1.  JOHNSON, J.   Plaintiffs Kaveh S. Shahi and Leslie R. Shahi
  appeal a decision of the superior court refusing to modify or vacate an
  arbitration award received under an arbitration process administered by the
  National Association of Securities Dealers (NASD).  Defendants Ascend
  Financial Services, Inc., and its successor-in-interest, Securian Financial
  Services, Inc., are securities brokers who sold plaintiffs certain mutual
  funds.  Plaintiffs argue that the arbitration award is so small in light of
  their damages that it reflects an "evident miscalculation" of those damages
  or was the product of the arbitration panel's bias in favor of defendants
  and the securities industry in general.  We find no such errors in either
  the arbitration award or the court's denial of plaintiff's motion to modify
  or vacate the award.  Accordingly, we affirm the court's decision on the
  merits, but reverse the court's decision not to order redaction of
  documents filed with the court containing plaintiffs' social security
  numbers.
        
       ¶  2.  In March 2000, plaintiffs purchased certain mutual funds
  recommended by a registered agent of defendants.  In the following years,
  the mutual funds, which plaintiffs purchased as a college savings plan for
  their children, declined in value to less than half plaintiffs' initial
  investment.  At the end of 2003, plaintiffs' initial $100,000.00 investment
  had an actual value of $44,133.00.  On March 17, 2003, plaintiffs submitted
  a claim for arbitration with the NASD, arguing that the mutual funds
  selected by defendants were not suitable for a college savings plan.  On
  April 27, 2004, the arbitration was held before a three-member panel.  On
  May 20, 2004, the panel ruled in plaintiffs' favor and awarded them
  $7,761.10 in compensatory damages.

       ¶  3.  Plaintiffs then filed a motion to modify or, in the
  alternative, vacate the arbitration award, arguing that the panel either
  miscalculated the damages or acted with bias in an effort to protect the
  securities industry.  The court upheld the arbitration award and dismissed
  the motion. (FN1)  Plaintiffs filed a motion for reconsideration, restating
  their objections to the award and arguing that defendants improperly
  disclosed confidential personal and financial information in its opposition
  memorandum.  The court denied plaintiffs' motion on both grounds.
   
       ¶  4.  Plaintiffs appeal the court's refusal to modify or vacate the
  arbitration award under the Vermont Arbitration Act (VAA), 12 V.S.A. §§
  5651-5681.  They first argue that the award should be modified because the
  arbitration panel either miscalculated the damages or exhibited gross
  disregard for the law of compensatory damages.  In the alternative,
  plaintiffs contend that the award should be vacated because members of the
  panel were biased in favor of the securities industry and exceeded their
  authority by issuing an award aimed at deterring future claims instead of
  resolving the present one. 

       ¶  5.  Defendants argue that any decision to modify or vacate the
  arbitration award is governed by the Federal Arbitration Act (FAA), 9
  U.S.C. §§ 1-16, which applies to any "contract evidencing a transaction
  involving commerce."  Id. § 2.  Defendants further contend that plaintiffs'
  failure to invoke the superior court's jurisdiction under the FAA renders
  that jurisdiction invalid.  The United States Supreme Court has stated that
  "the federal courts' jurisdiction to enforce the Arbitration Act is
  concurrent with that of the state courts."  Moses H. Cone Mem'l Hosp. v.
  Mercury Constr. Corp., 460 U.S. 1, 25 (1983).  Accordingly, the superior
  court has jurisdiction to hear claims arising under both the state and
  federal statutes.  Therefore, defendants' argument that the superior court
  was without jurisdiction fails, and is more appropriately understood as an
  argument addressing which law applies the VAA or the FAA.
   
       ¶  6.  Provisions of the VAA and the FAA that deal with modifying
  and vacating arbitration awards share the same basic construction: they
  list circumstances in which the arbitration award should be changed;
  indicate what, if any, discretion a court has in making that change; and
  provide procedures for implementing the court's decision.  Any differences
  between the two statutes concern issues that arise after a finding has been
  made as to the existence of one of those circumstances-specifically, a
  court's discretion to modify or vacate the award and its ability to direct
  a rehearing by the same or different arbitrators.  Under the FAA, a court
  "may" modify or vacate an award once it finds that one of several
  conditions exists.  9 U.S.C. §§ 10(a), 11.  Under the VAA, in contrast, a
  court "shall" modify or vacate an award once it finds that one of several
  conditions exists.  12 V.S.A. §§ 5677(a), 5678(b).  Moreover, although both
  statutes allow for new hearings, the VAA allows for the new hearing to be
  heard by new arbitrators, 12 V.S.A. § 5677(d), while the FAA does not
  specifically address the question of new arbitrators.  9 U.S.C. § 10(b).

       ¶  7.  Before reaching the point at which the VAA and FAA allegedly
  diverge, however, plaintiffs must satisfy at least one of the criteria
  triggering modification or vacation of an arbitration award.  The VAA and
  FAA use similar language to describe circumstances in which a court can
  modify or vacate an arbitration award.  Under the VAA, an arbitration award
  may be modified if it meets any of the criteria set forth in 12 V.S.A. §
  5678, including if "there was an evident miscalculation of figures or an
  evident mistake in the description of any person, thing or property
  referred to in the award."  12 V.S.A. § 5678(b)(1).  The FAA allows for
  modification of an arbitration award "[w]here there was an evident material
  miscalculation of figures or an evident material mistake in the description
  of any person, thing, or property referred to in the award."  9 U.S.C. §
  11.  The only difference between the two provisions is that where the VAA
  requires an "evident miscalculation" in order to modify an arbitration
  award, the FAA requires an "evident material miscalculation."  Because we
  find that the alleged miscalculation is not evident, we need not focus on
  any distinctions that may result from the inclusion of "material" in the
  federal statute.
   
       ¶  8.  The VAA allows a court to vacate an award if "there was
  evident partiality by an arbitrator appointed as a neutral or corruption in
  any of the arbitrators or misconduct prejudicing the rights of any party." 
  12 V.S.A. § 5677(a)(2).  The FAA allows a court to vacate an award "where
  there was evident partiality or corruption in the arbitrators, or either of
  them," 9 U.S.C. § 10(a)(2).  We have previously noted that provisions of
  the FAA and VAA allowing a court to vacate an arbitration award do not
  conflict with each other.  See Muzzy v. Chevrolet Div., Gen. Motors Corp.,
  153 Vt. 179, 184, 571 A.2d 609, 612 (1989) ("[T]he grounds in 12 V.S.A. §
  5677 are identical in substance to the judicial review provisions of the
  Federal Arbitration Act, 9 U.S.C. § 10(d)."). 

       ¶  9.  As illustrated above, the portions of the VAA and FAA that
  allow a court to modify or vacate an arbitration award are nearly
  identical.  Under either statute, plaintiffs would have to show "evident
  miscalculation" or "evident partiality" on the part of the arbitrators.  As
  discussed in greater depth below, plaintiffs have not made this showing. 
  Therefore, we do not need to decide which law applies.  See Havill v.
  Woodstock Soapstone Co., 172 Vt. 625, 627, 783 A.2d 423, 427 (2001) (mem.)
  (declining to reach a choice-of-law question when the result would be the
  same under either law); accord Williams v. Stone, 109 F.3d 890, 896 (3d
  Cir. 1997); Seizer v. Sessions, 940 P.2d 261, 264 (Wash. 1997).  The result
  would be the same under either statute. Accordingly, we will analyze
  plaintiffs' claims under Vermont law.
   
       ¶  10.  Vermont has a long history of upholding arbitration awards
  whenever possible.  R. E. Bean Constr. Co. v. Middlebury Assocs. &
  Middlebury Developers, Inc., 139 Vt. 200, 204, 428 A.2d 306, 309 (1980). 
  Arbitration serves the important purpose of providing an efficient
  alternative to litigation.  Id.; see also Springfield Teachers Ass'n v.
  Springfield Sch. Dirs., 167 Vt. 180, 183, 705 A.2d 541, 543 (1997)
  (discussing our repeated recognition of the importance of arbitration).  To
  allow arbitration to provide an effective alternative to litigation, trial
  courts employ a limited scope of review, acting as an appellate tribunal,
  not a second arbitrator.  Matzen Constr., Inc. v. Leander Anderson Corp.,
  152 Vt. 174, 177, 565 A.2d 1320, 1322 (1989).  "The courts must respect an
  arbitrator's determinations; otherwise, those determinations will merely
  add another expensive and time consuming layer to the already complex
  litigation process."  R. E. Bean, 139 Vt. at 204-05, 428 A.2d  at 309. 
  Thus, we do not revisit the arbitrator's decision de novo, but instead
  "confine our review to (1) whether there exist statutory grounds for
  vacating or modifying the arbitration award, and (2) whether the parties
  were afforded due process."  Springfield, 167 Vt. at 184, 705 A.2d  at 544. 
  As plaintiffs make no claim that they were denied due process, we limit our
  inquiry to whether statutory grounds exist for changing the arbitration
  award.

       ¶  11.  Under the VAA, an arbitration award may be modified only if it
  meets one of the criteria set forth in 12 V.S.A. § 5678.  Plaintiffs argue
  that the award of $7,761.10 was either a mathematical error or a gross
  disregard of the law of compensatory damages.  Section 5678(b)(1) allows
  for modification of an arbitration award if it is the result of "an evident
  miscalculation of figures."  12 V.S.A. § 5678(b)(1).  We have previously
  equated "evident miscalculation" with "the mere carrying out of a
  ministerial act in accordance with a clear formula."  Springfield, 167 Vt.
  at 185, 705 A.2d  at 544.  Plaintiffs rely heavily on Springfield, arguing
  that the arbitration panel failed to perform the "ministerial act" of
  appropriately calculating their damages.  This argument is without merit.
   
       ¶  12.  In Springfield, the arbitrator issued a two-part award: an
  order reinstating a teacher to a full-time position with full seniority,
  and an order requiring that the teacher be made whole for lost earnings
  that resulted from not receiving a job to which he was contractually
  entitled.  Id. at 182-83, 705 A.2d  at 543.  The award provided no specific
  monetary damages because it was impossible to determine the teacher's lost
  earnings due to uncertainty as to when the teacher would be reinstated. 
  Id. at 184, 705 A.2d  at 544.  We ultimately upheld the arbitrator's
  decision on the merits, but severed the award and referred it back to the
  arbitrator for a determination of lost earnings.  Id. at 185, 705 A.2d  at
  544.  We found that the calculation of damages was more than ministerial;
  that is, it was not merely a simple calculation that could be made once the
  teacher was reinstated.  Id. at 184, 705 A.2d  at 544. 
   
       ¶  13.  The present situation is quite different from that in
  Springfield.  Here, the arbitration panel provided no clear formula upon
  which the award was based.  In fact, the panel provided no reasoning at all
  in support of the award; it merely provided an amount of damages.  In the
  absence of express contractual language to the contrary, arbitration panels
  need not provide any explanation or reasoning beyond the award figure.  See
  Wall Street Assocs. v. Becker Paribas Inc., 27 F.3d 845, 849 (2d Cir. 1994)
  ("Arbitrators are not required to provide the rationale for their award,
  and courts generally will not look beyond the lump sum award in an attempt
  to analyze the reasoning processes of the arbitrators") (quotations
  omitted); cf. Muzzy, 153 Vt. at 190-91, 571 A.2d  at 616 (discussing with
  approval an interpretation of the FAA holding that arbitration panels need
  not explain their awards).  Because we accord great deference to the
  decisions of arbitration panels, we decline to speculate as to award
  calculations or formulas employed by the panel when those calculations are
  not "evident" on the face of the award.  See Brinckerhoff v. Brinckerhoff,
  2005 VT 75, ¶ 14, 16 Vt. L. Wk. 172, 889 A.2d 701 (mem.) ("[T]he fact
  that the panel declined to adopt [one party's] characterization of the
  [amount at issue] does not constitute an evident miscalculation or evident
  mistake to be modified under 12 V.S.A. § 5678(b) . . . .") (quotations
  omitted).  We will not find that an arbitration panel made an evident
  miscalculation based on one party's unsupported assertion that the panel
  erred.

       ¶  14.  Plaintiffs argue that if the panel did not miscalculate the
  damages, it must have disregarded the law of compensatory damages.  A
  party's mere conjecture, however, is not sufficient to demonstrate that an
  arbitration panel exhibited manifest disregard of the law.  

    [Manifest disregard of the law] clearly means more than error or
    misunderstanding with respect to the law.  The error must have
    been obvious and capable of being readily and instantly perceived
    by the average person qualified to serve as an arbitrator. 
    Moreover, the term "disregard" implies that the arbitrator
    appreciates the existence of a clearly governing legal principle
    but decides to ignore or pay no attention to it.  

  Muzzy, 153 Vt. at 185, 571 A.2d  at 613 (citing Merrill, Lynch, Pierce,
  Fenner & Smith, Inc. v. Bobker, 808 F.2d 930, 933 34 (2d Cir. 1986)). 
  While the panel's award may seem low to plaintiffs, it does not rise to the
  level of an obvious error that can be instantly perceived.  Moreover, there
  is no indication that the panel ignored an explicit legal principle clearly
  governing the matter.  The losses incurred by plaintiffs' mutual funds
  occurred during a period of general decline in the market.  The fact that
  the panel did not adopt plaintiffs' theory of damages, which essentially
  amounts to strict liability for losses sustained by the mutual funds, does
  not reveal a manifest disregard of the law of compensatory damages.
   
       ¶  15.  Plaintiffs next argue that the award should be vacated. 
  Under the VAA, an arbitration award may be vacated if it meets any of the
  criteria set forth in 12 V.S.A. § 5677.  Plaintiffs argue that the award
  implicates § 5677(a)(2), which requires courts to overturn arbitration
  awards that were the result of "evident partiality."  Plaintiffs infer such
  partiality from the fact that the panel found for them on the merits, but
  did not grant them the full amount of their requested damages.  According
  to plaintiffs, the panel reached this decision because of bias in favor of
  the securities industry.

       ¶  16.  Simply stated, given this Court's "limited scope of review,"
  Matzen, 152 Vt. at 177, 565 A.2d  at 1322, plaintiffs' vague assertions of
  corruption do not meet the high standard for vacating an arbitration award. 
  Plaintiffs point to no evidence of fraud or corruption in their arbitration
  proceeding.  Instead of making particularized allegations of bias, they
  discuss widespread corruption in arbitration proceedings administered by
  NASD.  Such generalized assertions fall short of the showing of "evident
  partiality" required by § 5677(a)(2).  We therefore apply our traditional
  deference to the arbitration process and affirm the decision of the
  superior court.

       ¶  17.  We now consider plaintiffs' argument that certain aspects of
  defendants' opposition memorandum containing personal and financial
  information should be sealed or stricken.  Title 4 V.S.A § 693 provides an
  affirmative right of public access to court records.  In re Sealed
  Documents, 172 Vt. 152, 156, 772 A.2d 518, 523 (2001).  The Rules for
  Public Access to Court Records provide specific guidance as to the scope of
  that right, stating a general policy that except for information
  specifically exempted, "the public shall have access to all case records." 
  V.R.P.A.C.R 6(a).  The court correctly held that the three express
  exceptions dealing with financial information are inapplicable here.  Rule
  6(b)(10) exempts financial information relating to an application for an
  attorney at public expense; Rule 6(b)(11) exempts financial information
  relating to an application to proceed in forma pauperis; and Rule 6(b)(13)
  exempts federal, state, and local tax returns not admitted into evidence. 
  None of these provisions encompass plaintiffs' requests to strike or seal
  the ordinary, personal financial information at issue here.
   
       ¶  18.  Documents containing plaintiffs' social security numbers,
  however, should have been sealed until the numbers were stricken.  Rule
  6(b)(29) lists, as an exception to the general rule of public
  accessibility, "[r]ecords containing a social security number of any
  person, but only until the social security number has been redacted from
  the copy of the record provided to the public."  V.R.P.A.C.R 6(b)(29).  See
  also V.R.C.P. 5(g) (requiring the redaction of social security numbers from
  any paper filed with a court).  Accordingly, we remand this matter to the
  superior court for an order that the documents in question be redacted to
  remove plaintiffs' social security numbers.

       Affirmed; remanded for the superior court to order sealing of
  documents containing plaintiffs' social security numbers until such time as
  those documents are redacted. 


                                       FOR THE COURT:



                                       _______________________________________
                                       Associate Justice



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                                  Footnotes


FN1.  Plaintiffs argue that the court should not have considered defendants'
  memorandum opposing the motion to modify or vacate the arbitration award
  because it was untimely filed.  Under Vermont Rule of Civil Procedure 78,
  parties have fifteen days after the filing of a motion in which to file an
  opposition memorandum.  V.R.C.P. 78(b)(1).  Rule 78(b)(1) allows, but does
  not require, a trial court to dispose of a motion without argument when an
  opposition memorandum is filed late.  Because due process favors decisions
  on the merits, we are reluctant to overturn a trial court's decision to
  allow a late filing.  See Dougherty v. Surgen, 147 Vt. 365, 366, 518 A.2d 364, 365 (1986) (discussing the desirability of judgment on the merits of a
  case).  In this case, the court was within its discretion to allow the
  opposition memorandum.