James W. Bonar and Beverly J. Bonar v. Dean Witter Reynolds, Inc., John S. Mc Nally, Jr., Ed Leavenworth

аppeared monthly stocks that also KRAVITCH, Before TJOFLAT and statements. TUTTLE, Judges, Circuit Senior Judge. Circuit September In left Leavenworth employ of Dean for Witter work KRAVITCH, Judge: Circuit Apparently another firm. investment sat- service, dispute Arbitrators of a the Bo- isfied with between Leavenworth’s Reynolds pellees nars Dean awarded their account at Witter closed compensatory damages as well opened at account Leavenworth’s account, A three member arbitration they closed their heard new firm. When 8-9, May case on 1986. At Dean Witter delivered hearing, Dean Witter and ad- $11,- stocks had a market value liability compensatory damages.2 mitted margin been balances had 489.90 after all admission, of this Because the central faс- cleared. issue for the to decide tual January received the conduct of Dean and whether Witter cus- inquiry from a former Leavenworth an McNally justified imposition the in her account. tomer about a transaction damages.3 hearing, in At the addition second in- Dean received a When Witter testimony witnesses, ap- lay the the month, it instituted au- quiry later that pellees presented testimony of two ex- every that Leavenworth had dit of account pert support witnesses to their claim for managed. that Leav- That audit revealed expert, The second num- Nix, had embezzled funds from a presi- enworth Thomas E. testified that he was Shortly advisory Dean customers. dent and owner of an ber of investment firm, graduated from the fraud, he Universi- it after Dean Witter discovered ty of Alabama in 1980 with a bachelor’s the customers whose accounts contacted degree in finance and that in 1981 he at- affected, including appellees, had been University tended Columbia and received a apparent advised them of the embez- and degree accounting. Nix fur- bachelor’s zlement of funds from their accounts. graduation ther testified that after his addition, Dean Witter turned over the re- he for Paul in from Columbia worked St. investigation sults of its to the State Attor- manager money New York as the of a $30 Florida, Orange County, and assist- ney for portfolio in the summer million and that prosecution in the criminal and ultimate ed honorary he doctorate in received an incarceration of Leavenworth. finanсe from the Technical 9, 1985, August appellees filed a On Vienna. complaint demand for arbitration with and dire, During voir Nix admitted that he alleg- the American Arbitration Association not, been, and never had a licensed was federal violations various state and manager securities broker or branch of a laws,1 fiduciary duty, negligence, breach of this, brokerage securities house. Based on gross negligence handling in the and requested Nix not be complaint, seeking their account. The com- testify ground on the that he allowed pensatory punitive damages, named as qualified expert as an to render was “not Witter, Jr., McNally, defendants Dean John trading account.” office, manager branch Orlando request, panel rejected this Nix After and Leavenworth. Leavenworth was never that, opinion, trading in testified in his excessive, process served with and thus never became appellees' account proceedings. McNally had not a to the arbitration that Dean Witter and complaint alleged money 1. I amount of that their account would have Count of violations law, managed. Florida’s embezzlement 812 Fla.Stat.Ann. Ch. if well earned it had been (West Supp.1987), 1976 & II and Count appellees that the were enti- Witter maintained alleged violations of SEC Rule and Fla. 10b-5 losses, pocket to out of in this case tled (West Supp.1987). Stat.Ann. 517.301 1972 & $4,946.87, plus interest. The arbitrators award- $4,946.87, per- increased ed the 2. McNally liability and Dean Witter admitted Average formance of the Dow Jones Industrial compensatory damages in the amount of trading plus through during period, interest $5,886.77. figure represents This formula, the date of the award. Based on this $16,436.77, $11,- original deposit of less the by the district court the final entered appel- 489.90 value of the stock transferred to April compensatory dam- on 1987 assessed account, plus lees when closed their inter- ages against both and Dean Witter in est of 12%. $9,007.32. Neither Dean Witter the amount of 3. The arbitrators had also to decide the correct judg- McNally challenges portion nor compensatory damages, purely measure legal appeal. on See note 9. infra argued issue. The Bonars that the correct damages compensatory measure of was the properly supervised twenty pаges, account. and to strike as untimely On June the arbitrators assessed Dean Witter’s amended motion to vacate. compensatory damages against both Dean In the strike, motion to admit- McNally, Witter and ted Nix had committed perjury at the $150,000 against Dean Witter alone. hearing. arbitration Following award, Dean Witter applied By orders dated December 1986, the to the in, arbitration for a reduction granted district court appellees’ motion to of, or the elimination the award of confirm the award, denied Dean damages. The arbitrators denied that Witter’s amended motion to vacate or modi- plication July fy and denied all other motions July On Dean Witter moved to parties. of both The district court took the modify vacate or pur- the arbitration award above actions by stamping GRANTED or suant Act, Federal Arbitration 9 DENIED on the parties’ face mo- 11, (the U.S.C. 10 and §§ “Arbitration tions. result, As a there is no written Act”) grounds on the that the arbitrators explaining order the basis for these deci- lacked to award dam- sions. The district court entered a final ages, the appellees that contractually judgment based on the arbitration award right any waived damages, and against Dean Witter April on that damage award was based 2, 1987 and appeal this followed.4 upon disregard a manifest of the evidence and was so irrational as to an abuse of II. the arbitrators’ Before discretion. the dis- trict motion, court decided this A. discovered that the by credentials asserted Before we reach the issue of whether Nix as a basis for his an as Nix's perjury requires vacating the arbitra- expert witness were completely false. Nix tors’ award under 9 10(a), U.S.C. § we engineering was an student at the Univer- must consider the appellees’ contention sity of graduated Alabama and never that Dean Witter timely raise this Furthermore, institution. he at- never issue. Section 12 of the Arbitration Act tended Columbia or worked provides “[njotice of a motion to va- St. Paul. cate, modify, or correct award must be Accordingly, on November served adverse attor- Dean Witter filed an amended motion to ney three within months after the is modify vacate or the arbitration award add- filed or delivered.” The award in this case ing grounds as that the award should be was filed June 1986. Dean Witter’s 10(a) vacated under 9 U.S.C. because it original motion modify to vacate or procured through was At the fraud. same July award was filed on well time, pursuant rules, to local court within the period, three month only but Witter filed a motion for leave to file a challenged the grounds award on other in memorandum excess of twenty pages, than fraud. The amended motion to va- and attached to the copy motion a of its cate, issue, which raised the fraud proposed memorandum and documentation filed until November supporting its claim perjured Nix had Shortly thereafter, himself. Thus, appellees the issue is whether an amended filed motions confirm the motion arbitration to vacate an arbitration filed award, to file a memorandum in excess outside of the period three month and rais- appeal 4. The notice of in this case states that court's denial of Dean Witter’s motion amended McNally appeal Dean Witter and "from the final to vacate the arbitration award. Their brief day entered in this action on the 2d addresses neither the denial of Dean Witter’s April, brief, and from all by entered longer orders motion to file any a nor leading entry District judg- Court "leading final entry other orders judg- of final Despite seemingly ment.” broad Consequently, ment.” these issues are deemed appeal, appellants notice of Noone, issues that Rogero abandoned. See only raise in (11th Cir.1983). their brief stem from the district 520 n. 1 vacation, papers by party seeking filed grounds for is to confirm ing additional motion or vacate an timely original if the arbitration award function as deemed challenging pleadings post-arbitration pro- the initial timely. vacate was ceedings Consequent- untimely, the the district court. motion as amended ly, governs no cases decid- Rule which amended and they have found admit that Nevertheless, action, urge, supplemental pleadings in a civil issue.5 legislative apply histo- should also support from the to amended motions to with no does not ry, “the vacate awards. Act] [Arbitration procedure timely where a contemplate a provides Rule 15 follows: right preserves a to file motion to vacate (a) party may A Amendments. amend separately grounded chal- additional party’s pleading once as a matter of period.” lenges of the three month outside responsive course at time before a concentrating provisions By only served_ pleading par- Otherwise a Act, appellees’ argu- Arbitration ty may party’s pleading amend the key source for deter- ment overlooks leave of court or written consent question regarding procedure mining any party; of the adverse and leave shall be in the district courts. The Federal Rules freely given justice requires. when so “govern procedure in Procedure Civil motion, filed no memoran- States district courts all suits the United dum, paper or other in the district court cognizable as of a civil nature whether responsive that could be construed as a equity admirаlty, or in cases at law or pleading until after Dean Witter filed its exception stated in Rule 81.” Fed. with amended motion to the arbitration vacate pro- in provides R.Civ.P. 1. Rule 81 Therefore, award. Dean Witter was enti- Act, ceedings under the Arbitration tled to amend its motion when it did with- apply only extent rules that matters out leave the district court. Rule 15 procedure provided are not for in the “[wjhenever provides further 81(a)(3). Act. Arbitration Fed.R.Civ.P. claim or defense asserted the amended provides only Since the Arbitration Act conduct, pleading arose out of the transac- vacate, modify that notice of a motion to or tion, attempted or occurrence set forth or upon correct an award must be served original pleading, in the set forth party attorney or his within three adverse amendment relates back to the date is filed or months after deliv- 15(c). original pleading.” Fed.R.Civ.P. ered, 12, 9 see U.S.C. and contains no § original, The entire focus of Dean Witter’s governing provisions timely amendments to timely the conduct motion vacate was motions, the Federal Rules of Civil Proce- proceedings. and result apply to this dure issue. perjured The issue of Nix's dur- Proceedings ing proceedings to vacate or confirm an arbi- those arose out of the filing tration award are instituted or occurrence ‍‌‌​‌​​‌​​​​​​‌​‌​‌‌​‌​​‌‌‌​​‌‌‌‌​‌​​‌‌‌‌​​​​‌​​‌‍set forth in same transaction Thus, court, original motion in the under a district see 9 U.S.C. motion to vacate. 15, just as a normal civil is Rule Dean Witter’s amended motion to action §§ by filing comрlaint origi- commenced in the vacate relates back to the date of its court, Thus, vacate, timely district is itself a see Fed.R.Civ.P. nal motion and “motion,” although technically called a the motion.6 University 5. Our research confirms from the of Alabama and Columbia that this is an issue of impression. first until late October of 1986. The pellees suggest that Dean Witter’s failure to re- earlier, quest university or to file an records 6. The also contend that Dean Witter August motion to of 1986 investigating validity amended vacate was lax in of Nix’s perjury regarding employ- based on Nix’s credentials and thus not be should allowed the credentials, reflects an "absence of due benefit of an extension of time which to raise diligence.” the fraud issue. The record reflects that Dean July August discovered of 1986 the authentici- failure to ensure surely employment ty expert’s that Nix had lied about his Paul, with St. own credentials re- of their diligence request egregious but did not and receive records flects a more lack of due

1383 (2d Cir.1951)(A. B. Hand, J.); see also Kaiser Cement, 1339; 791 F.2d at Dogherra, 679 Having concluded that Dean Wit Third, F.2d at 1297. person seeking to ter’s amended motion vacate the arbitra vacate the award must demonstrate that timely, tion award was we must now decide the fraud materially related to an issue in court, whether the in denying district Cement, arbitration. Kaiser 791 F.2d motion, abused its discretion under the Ar 1389; at Dogherra, 1297; F.2d at 679 see bitration Act. Section 10 of the Arbitration also Newark Stereotypers’ Union No. 18 specifies grounds Act vacating v. Newark Mоrning Ledger Co., 897 F.2d provides arbitration award as follows: 594, (3d Cir.) (fraud 599 deprive must In either of the following cases the hearing), denied, of fair 954, cert. 398 U.S. United States court in and for the district 378, 89 S.Ct. 21 (1968); L.Ed.2d 365 wherein the award was made make cf. Rozier v. Ford Motor 573 F.2d vacating an order upon the award (5th Cir.1978) (relief 1889 from application party to the arbitra 60(b)(3) under requires Fed.R.Civ.P. show- tion award— perjury prevented losing party (a) procured by Where award was “fully fairly presenting his case fraud, corruption, or undue means. defense”)8; Robins, Harre v. A.H. reviewing 10(a), cases under courts (11th Cir.1985) (same). part have relied a three test to deter- This last element require does not the mov- mine whether an arbitration award should ant to establish that pro- the result of the First, be vacated for fraud.7 thе movant ceedings would have been different had the must establish the fraud clear and con- fraud not occurred. Thomp- Wilson v. Cf. vincing evidence. LaFarge Conseils et son, 638 F.2d B Cir.Unit Etudes, Cement, S.A. v. Kaiser 791 F.2d 1981) (60(b)(3)). March (9th Cir.1986); Dogherra v. Stores, Inc., Safeway Mindful that reviewing we are cert, (9th Cir.), denied, district court’s refusal to U.S. vacate under the (1982). Second, standard, S.Ct. 74 L.Ed.2d 386 narrow “abuse discretion” we the fraud must not have been nevertheless hold that discoverable under the above upon test, diligence the exercise prior perjury of due Nix’s requires vacation of the during or damages the arbitration. Karppinen portion v. of the arbitration 32, First, Karl along Machine 187 F.2d 35 award.9 its amended mo with Kiefer delay tion, approximately than a of one month in the or par other misconduct an adverse in-depth investigation course of ty.... Dean Witter’s background. penalize into Nix’s We refuse to determining party standard for whether a exercising thoroughness Dean Witter for the should be relieved a final under and caution that 60(b)(3) themselves nearly is identical to the standard for exercise. determining whether an award should be vacat 10(a). ed for fraud under See § Harre v. A.H. perjury 7. There is no doubt constitutes Robins, surprising 750 F.2d at This is 1503. meaning fraud within the of the Arbitration Act. considering that both serve the statutes same Dogherra Stores, Inc., 1293, Safeway v. F.2d 679 permitting reopening function of the of an oth (9th denied, 990, Cir.), 1297 cert. 459 U.S. 103 judgment upon erwise final a demonstration of 346, (1982); S.Ct. 74 L.Ed.2d Harre 386 v. cf. proceedings, fraud in the and both counteract Robins, 1501, (11th Cir.1985) A.H. 750 F.2d 1503 strong policy favoring finality of аwards (perjury constitutes fraud under Fed.R.Civ.P. judgments. Mortgage See Bankers Co. v. 60(b)(3)) 8). note {see infra States, (5th Cir.) (finality United F.2d 423 77 pertinent part, 60(b) provides In Rule as fol- denied, judgments), cert. 399 U.S. 90 lows: (1970); S.Ct. 26 L.Ed.2d Newark Ster (b) Mistakes; Inadvertence; Union, Excusable Ne- eotypers' (finality at 598 F.2d Evidence; glect; Newly Fraud, awards). Thus, Discovered arising arbitration cases under etc. On motion and such terms as are 60(b)(3) persuasive Rule ing are in decid- just, party's the court relieve a or a 10(a). cases under legal representative judgment, from final order, proceeding 9.Although following or for Dean rea- Witter's amended motion re- (3) (whether quested sons: fraud heretofore denom- that the district court vacate the "arbi- extrinsic), award,” misrepresenta- inated vacating only intrinsic or tration we are the award brief, sub- Dean Witter stressed in its Dean Witter because tion to vacate appellants liability clear and con- admitted for com- district court mitted to the perjury. pensatory damages, only Letters vincing Nix’s factual issue evidence of university officials re- before the arbitrators was whether from the relevant that, testimony, Nix contrary pellants’ negligent enough conduct was vealed graduated from justify imposition had never attended Colum- and had never support appellees’ puni- of Alabama In claim for Furthermore, an affidavit University. damages, bia Nix tive testified at considerable Resources Officer at St. how, from the Human length opinion, in his Dean about Wit- Company Marine Insurance Paul Fire and appellees’ ter had mishandled the account. Nix had never worked for compared confirmed example, For Nix testified subsidiary. banking or its Paul either St. average portfolio to the turnover in a with Second, it Dean Witter has shown that objec- objectives appellees’ similar perjury discovered Nix’s could not have tives, the turnover rate he calculated for hearing. during the before appellees’ “extremely account was the rules of the American Arbitra- Because addition, high.” when asked whether he pre- provide do not for a tion Association thought appellees’ account had been lists, hearing exchange of Dean witness traded, excessively responded: “Brief- Nix testify not know who would did ly say I it was not so would have expert witnеsses until the time only] gross excessive but and abusive.” [sic pre-hearing op- hearing. Without a Appellees’ ended his direct exami- counsel thoroughly investigate Nix’s portunity to asking expert opinion nation Nix for his credentials, have Dean Witter could not disregard as to whether there had been a the extent to which he lied about known interests of the customer. Nix for best hearing.10 at the them responded: Yes, I do. Mr. Leavenworth and Dean has also demonstrated that for the Bo- Witter were fiduciaries perjury materially related to an issue Nix’s account, arbitration, opinion. They satisfying my nars’ had thus its bur- control, prong they ran the show. Ed Leaven- under the third of the test. As den First, Cir.1959), part punitive damages, rev’d in for two reasons. argument suggests, grounds, posture Dean Witter’s dе- U.S. 80 S.Ct. other motion, (1960); phrasing Pottberg's spite Hyman the broad its amended L.Ed.2d 1424 challenging Ex'hrs, (2d Cir.1939), only the award of that it we are compensatory damages, vacating only portion and not the award of brief, Witter stresses that In its the award. liability compensatory it admitted because damages, 10. Nix had testified as an expert witness for factual issue for the arbitra- in at least two other securities counsel was whether its conduct warrant- tors to decide likely hearings. Most antici- imposition fraud arbitration ed the of It fur- pating appearance proceeding testimony in this as stresses that because Nix’s relat- Nix's ther well, damages, copy Dean had obtained a of his ed to the issue of the award Witter application registration as an invest- should nоt be allowed to stand. Dean Witter SEC for adviser, argues testimony that Nix’s 1983. This never affected dated October damages. compensatory degree plication decision on had arbitrators’ stated that Nix obtained Alabama, Accordingly, we have construed Dean Witter’s in insurance from the requesting only motion as vacation of the but did not mention of the other credentials hearing, Dean to which he had testified. At the by attempted impeach pointing Nix to Second, if even we so construe applica- in his SEC out the dearth of credentials motion, amended we would not vacate the tion, it was not correct and but Nix claimed that compensatory damages, perju- award of as Nix’s application later that he had filed an amended ry materially not relate to that issue. The did had the SEC with the SEC. That Dean Witter compensatory issue of the correct measure of only pre-hearing application it had a matter; shows that purely legal was a Nix never quick opportunity check on Nix’s back- to run a lawyer, testimony purported to be a and his had ground actually Thus, testified at the hear- in case he nothing to do with that issue. in accord- ing. that Dean Witter only part It does demonstrate ance with our to vacate enormity of Nix’s Enterprise have discovered the see & could an arbitration Wheel America, proceedings. CarCorp. perjury v. United before the arbitration Steelworkers of may worth have been the first mate on testimony.11 The arbitrators’ written ship, but John McNally cap- was the award, although brief, reflects the influ- McNally tain. John delegated have ence of testimony. Nix’s Nix was only responsibility reviewing the expert, only fact the witness, who checks, reviewing transactions, daily unequivocally pinpointed Dean Witter as blotter, whatever, but it comes ultimately care,” who “didn’t and who testi- back down to him. fied that McNally less was culpable for regard you With to that can't dismiss showing some concern over the state the responsibility involved here. The ul- appellees’ account. The arbitrators’ award timate responsibility comes back down to damages against Witter, the office manager. There was dis- but not against McNally, unquestionably regard for the They customer. embez- reflects the influеnce of this testimony. zled from them. They embezzled from Thus, by establishing the foundation that people other put to money into their ac- allowed the to hear influential expert count, they They churned it. even went testimony on the central issue of negligent so far as run margin an excessive supervision, the fraud materially related to balance for three months. an issue in the arbitration.12 And from appearances all here and from testimony it Our decision would seem Robins, that Harre v. A.H. while Mr. show did concern Cir.1985) supports this couldn’t why understand it went for nine- Harre, conclusion. we held that ty days more, the evidence my district court abused its discretion in deny- perspective during that timeframe ing a motion relief from un- Dean Witter didn’t care. You wouldn’t 60(b)(3)13 der Rule plaintiff aftеr the dem- margin let a run for ninety days balance onstrated key that a defense expert had if you did care. falsified his credentials order per- to be mitted testify If Nix had not on committed perjury by ultimate issue in falsifying credentials, plaintiff’s his case. it is The extremely theory in Harre doubtful that he permit- would was that IUD, have been the Daikon Shield manufac- testify ted to as an expert, and the Robins, arbitra- tured and sold allowed bacteria tors would have heard none of the above to ascend within the tailstring core of its 11. Under pellees Federal Rule of Evidence Nix it testimony corroborated the qualified would not However, expert have as an expert witness. their Perhaps other witness. if Nix’s as are not testimony bound had followed a number other еx- Evidence, Federal Rules of perts see Section who had all that the testified account had American Arbitration Association Commercial negligently supervised, been agree we would Rules, chance, Arbitration is a there albeit al- testimony that his merely was cumulative. On nonexistent, most facts, however, the arbitrators would these character- testify have expert despite allowed Nix to as an testimony ization of Nix's merely as "cumula- his slight lack of credentials. The unfairly chance tive" importance minimizes its in these not, however, happening sion, change does proceedings. our deci- permitted because even if Nix had been The argue also testimony that Nix’s testify, expert his credentials as have would negligent supеrvision “merely reflects the been so opinions weak render mean- obvious, and the unsatisfactory su- conclusion— ingless. pervision something counsel on these facts —is argue could expert even in the absence of testi- argue testimony that Nix’s mony.” They argue from Dean merely cumulative and therefore could not have Witter employees, revealing that Dean Witter prejudiced support Witter’s case. To did guidelines not follow its own internal argument, appellees the point out Paul that Lan- investors, safeguarding enough support was to dauer, expert Nix, the who testified before also the However, arbitrators’ award of opined that account had been appellees what could done have is excessively negligently traded supervised. irrelevant; ‍‌‌​‌​​‌​​​​​​‌​‌​‌‌​‌​​‌‌‌​​‌‌‌‌​‌​​‌‌‌‌​​​​‌​​‌‍they what matters did offer This, however, does not mean that the arbitra- “expert’’ Nix’s testimony extensive to buttress ignored tors testimony Nix’s on the same sub- testimony lay witnesses and now must live fact, ject. given experts two testi- consequences with the of that decision. fied sion, negligent on the crucial supervi- issue Nix’s was invaluable supra to the 13.See note 8. by reviewing portions infec- bacteria caused relevant of that

the uterus where Keith, expert, agreement. Paragraph provides the defense was as fol- Dr. tion. offering opin- his lows: initially prohibited Daikon Shield caused

ion on whether controversy Any between [Dean Witter] proper because a foun- plaintiffs injury [appellees] arising out of or re- аnd the concerning established had not been dation lating this contract or the breach to the Daikon Shield. Af- experience arbitration, with thereof, by shall be settled that he had conduct- rules, Dr. Keith testified ter then obtain- accordance with the on the Daikon Shield experiments ing, ed either the Arbitration Committee role in the transmission of tailstring and its of the Chamber of Commerce that, testify bacteria, permitted York, he was or the American Ar- State of New Association, opinion, the Daikon Shield in his or the Board of bitration illness, plaintiffs did Ex- contribute to of the New York Stock Arbitration bacteria, and not unreason- change, [appellees] may transmit elect.... as during dangerous for use as an IUD ably Any arbitration hereunder shall be be- question. plaintiff period and the the time fore at least three arbitrators arbitrators, Keith had never majority discovered that Dr. or a later award of the experiments them, final, he described. performed judgment shall be perjury, egregious of such we may In the face the award rendered be entered finding court, federal, the district having juris- trouble had no state or denying abused its discretion court diction. 60(b)(3) The facts of motion. plaintiffs As- Section of the American Arbitration conclu- do not warrant a different this case Rules, in- sociation Commercial Arbitration Accordingly, Dean Witter is entitled sion. agreement corporated by reference into the hearing punitive issue of to a new American Ar- once the chose the panel of a different arbi- damages before forum, pro- Association as their bitration

trators.14 grant any arbitrator vides that “[t]he remedy just he deems or relief which

III. agree- equitable and within the argues also award parties.” Finally, paragraph ment of the be- should be vacated punitive provides agreement 17 of the customer power under cause the arbitrators lacked agreement and its enforcement that “[t]his agreement appellees’ customer the State governed the laws of shall be or, damages, alternatively, punitive award of New York....” any right to appelleés waived because paragraph cus- Without damages by executing the custom- incorporating Rule 42 agreement, by tomer these agreement.15 We address both оf er Rules, authorized the of the Arbitration clarify scope of arguments in order to damages. to award panel’s the new Roofing Supply Willoughby & See award International, Inc., Kajima Inc. v. (N.D.Ala.1984), n. 11 argu- F.Supp. 358 & of Dean Witter’s Because both of similar arbi- (incorporation reference interpretation of the stem from its ments authorized analysis rule in similar contract begin our tration agreement, we customer Cir.1974). (1st In a case argue reverses that if this court 14. The this, perjury expert of an and vacates the arbitration where the such original agree proceedings, matter should be remanded the panel has so tainted the we witness arbitrators, who should then state the difficult for Witter that it would ‍‌‌​‌​​‌​​​​​​‌​‌​‌‌​‌​​‌‌‌​​‌‌‌‌​‌​​‌‌‌‌​​​​‌​​‌‍be with Dean testimony, weight given and whether to Nix’s impor- now tо determine the arbitrators award in the have made the same would testimony. weight given Nix’s tance or Although testimony. are we absence of that original panel, see 9 to remand to the authorized 10(d) Act autho- Section of the Arbitration so, 10(e), required do see we are not U.S.C. "where rizes vacation of an arbitration Corp. America v. Int'l Union Electronics Electrical, powers.” the arbitrators exceeded their Workers, Local & Machine Radio

1387 punitive damages), affirmed, 776 effect, F.2d 269 Willoughby announced a rule (11th Cir.1985). law, however, New York of construction that, for contracts prohibits hand, one awarding arbitrators from puni- punitive authorize damages in damages. and, tive arbitration Garrity Lyle Stuart, See v. hand, the other call that 354, authority question into 40 N.Y.2d 353 N.E.2d with a choice оf 386 law provision. Willoughby tells (1976). Thus, N.Y.S.2d 831 us that in light in order to de- of the federal policy “any that cide doubts appellees’ whether the con- agree- customer cerning scope the of arbitrable prohibits ment issues arbitrators awarding from should be resolved in arbitration,” favor of punitive damages, we must determine Moses H. Cone Memorial Hosp. Mercu- whether the paragraph addition of 17 to ry Corp., Constr. 1, 24-25, 460 U.S. 103 agreement means that an award of 927, 941-42, S.Ct. (1983), L.Ed.2d we punitive damages longer is no “within the give precedence must to the provi- contract agreement parties.” allowing sions punitive damages.16 We hold that under Willoughby, paragraph Because we 17 does not have affirmed the agree- this effect on the Willoughby on the basis ment. of the district оpinion, court’s 776 F.2d 269 Cir. finding 1985), After that a nearly contract it is now law of this circuit. identical Accordingly, agree customer Dean Witter’s argument that arbitrators did panel authorized not have to to punitive punitive award damages, damages award Wil court must fail. Without loughby rejected the choice provision, argument law defendant’s agreement, public policy customer prohibited like parties in Willoughby, contract vesting from arbitrators authorized the ar- with the authority to punitive bitrators punitive damages. to award award Fur- damages. doing, In so thermore, because the agreement the court customer indicated that a choice of law evidenced a . transaction in interstate com- provision subject contract to the Arbi merce, governed it is by the Federal not, itself, Arbi- tration Act does prevent arbi 9 See U.S.C. tration Act. 2. Under the awarding trators from rule construction announced in Wil- Although the in Willoughby pro contract loughby, addition the choice of law vided that governed Alabama law provision does deprive not the arbitrators agreement, the court held that “even if power their punitive award damages. policy Alabama law and were deemed con remand, Upon the new of arbitrators York,” sistent with of New the choice punitive is free to award if it provision of law prevent would not finds the facts warrant such an award. awarding arbitrators punitive from dam ages. F.Supp. According at 359. reject We also argu Dean Witter’s court, the Willoughby Garrity dealt ment that even if the arbitrators had the powers with the of arbitrators under state power punitive damages, ap award law and public policy, state and has no pellees right waived punitive their dam application in arising cases under Arbi ages by signing agreement. the customer Thus, Id. tration Act. a choice of law According definition, accepted its a waiv provision in a governed contract by the iser a voluntary relinquish and intentional merely designates Arbitration Act the sub right. ment of a Guaranty Nat’l known law stantive ap must arbitrators Pachivas, Ins. Co. v. 458 So.2d ply determining whether conduct of (Fla.Dist.Ct.App.1984); Wilds v. Permen parties ter, warrants an 228 So.2d 410 (Fla.Dist.Ct.App. damages; it deprive 1969); does the arbitra Nassau Trust Co. v. Montrose Con tors of their authority to award Corp., crete Products 56 N.Y.2d F.Supp. at 1269-70, 359. N.E.2d 451 N.Y.S.2d course, 16. Of the Arbitration Act awarding would not dam- provision override prohibit- ages. a clear in a Willoughby, F.Supp. contract at 1388 State, New York v. compensatory damages 40 the award of City (1982); 668 659, against Dean Witter and is AF- N.E.2d 389 N.Y.

N.Y.2d 357 (1976).17 previous FIRMED. As our 340 S.2d demonstrates, the customer discussion TJOFLAT, Judge, specially Circuit clarity agreement far from a model of concurring: damages. subject punitive Para by reference the graph incorporating precedent agree I that under circuit Arbitration Associa rules of the American precluded in this case is not arbitrator tion, “grant any to allowed the arbitrators awarding punitive damages. See Wil just remedy [they] Roofing Kajima or relief which loughby Supply & Co. v. deem[ed] Int'l, Inc., scope of the equitable (N.D.Ala.1984), and within the F.Supp. and 598 353 Paragraph agreement parties.” of the 17 on the basis the district court’s affd govern (11th Cir.1985). opinion, provided New York law would 776 F.2d 269 I agreement and its enforcement. The separately my write to air reservations explicitly puni mentioned agreement precedent. never about the wisdom of that damages. Simply by signing such an tive notes, As the court the Bonars’ customer ambiguous ‍‌‌​‌​​‌​​​​​​‌​‌​‌‌​‌​​‌‌‌​​‌‌‌‌​‌​​‌‌‌‌​​​​‌​​‌‍agreement, the could agreement incorporates by reference the relinquish right their not have intended to rules of the American Arbitration Associa- v. See Starkenstein damages. punitive provides 42 of rules tion. Section those Smith, Pierce Fenner & Lynch Merrill may grant any arbitrator reme- “[t]he Inc., (M.D.Fla. F.Supp. 572 191-92 eq- dy just or relief which he dеems 1983); Willoughby, F.Supp. 598 at 363. agree- within the uitable argument ignores the defini- Witter’s added). parties.” (Emphasis tion of waiver.18 how, appropriate I can understand in an case, an arbitrator find that an award argument is Dean Witter’s final damages punitive “just would be record, of the dam- the basis however, equitable.” difficulty, I have ages so irrational as to award was understanding punitive damages can how Be- of the arbitrators’ discretion. abuse scope of the ever be considered “within the remanding puni- are the issue of cause we agreement parties” some ex- of the absent hearing, new where tive for a press provision the contract. developed, we decline to new record will be irrationality point. decide the issue at this view, voicing I do not mean to impugn ability of arbitrators to fashion

IV. appropriate remedies. Nor do I mean to portion give policy district court’s final short shrift to the federal favor- suggest I judgment confirming the award of arbitration. mean damages against parties contractually agree to is RE- that when arbitration, VERSED; disputes punitive damages submit contract the issue hearing simply they that: they REMANDED for a new before a do no more than disputes to arbi- to submit contract portion agree different of arbitrators. The words, confirming court’s tration. In other the arbitration of the district side, Co., (2d Although Oppenheimer v. Cir.1985), & 890 not addressed either there 779 they New York’s analyze is an issue as to which state’s or because do not law. Florida’s, apply if there would to determine light accepted waiver definition issue We had been a waiver relinquishment of a waiver an intentional issue, of law how- need not decide the choice Dean, Witter, right, Reyn a olds, Inc., see v. known Pierson ever, states have the same stan- because both (7th Cir.1984): 742 F.2d Sur and, standard, waiver, under that dard for appellees Smith, Merrill, Pierce, Lynch, man v. Fenner & right did not waive their Cir.1984): v. Shahmirzadi F.Supp. Barney, Upham & Smith 49, Harris Paine, Webber, (D.D.C.1985); Baselski cited in its brief 18. The cases that Dean Witter Curtis, Inc., F.Supp. Jackson & support argument unpersua- the waiver are (N.D.Ill.1981). sive, directly either because do not ‍‌‌​‌​​‌​​​​​​‌​‌​‌‌​‌​​‌‌‌​​‌‌‌‌​‌​​‌‌‌‌​​​​‌​​‌‍face the punitive damages, see Rush issue of a waiver of clause ain contract is inserted with the understanding that the arbitrator’s remedi- FILLINGIM, Richard power al will bе limited to fashioning relief Petitioner-Appellant, fairly

that is included within scope parties’ agreement. scope That may of BOONE, Eddie encompass course variety Sheriff County, of “make of Leon Florida, al., which, whole” remedies et correctly Respondents-Appellees. when plied, uphold bargain serve economic No. 87-3370. parties struck entering into the scope contract. Whether that fairly can United States Appeals, Court of encompass said to pen- assessment of a Eleventh Circuit. alty for misconduct, willful or wanton how- Jan. ever, extremely doubtful. Punitive dam- ages designed are to serve the societal punishment deterrence;

functions remedies,

unlike contract are not de-

signed parties’ vindicate contractual

bargain. Consequently, express absent an

provision contract,

should be considered as scope outside the agreement

of the parties’ beyond

power arbitrator award.

The rules of the American Arbitration recognize

Association important dis

tinction by providing that

award those remedies that are “within scope agreement parties.”

Applying this principle, courts outside this

circuit have held that pow arbitrators lack

er to damages absent an

express provision in See, the contract. e.g., Foley P.

Howard Co. v. International Workers,

Bhd. Elec. Local 789 F.2d (9th Cir.1986); Internatinal

Ass’n Heat & Frost & Asbes Insulators Workers, tos Local Pipe v. General Inc., Covering, (8th 792 F.2d Cir.

1986); Regional Baltimore Joint Bd. v. Clothes, Inc.,

Webster

Cir.1979). I believe our circuit’s

adherence to a different rule reflects a

basic misunderstanding of the nature of

punitive damages and the of arbitra-

tors’ powers. remedial

Case Details

Case Name: James W. Bonar and Beverly J. Bonar v. Dean Witter Reynolds, Inc., John S. Mc Nally, Jr., Ed Leavenworth

Court Name: Court of Appeals for the Eleventh Circuit

Date Published: Jan 22, 1988

Citation: 835 F.2d 1378

Docket Number: 87-3270

Court Abbreviation: 11th Cir.