Cadenas v. UBS Fin. Servs., Inc.

456 F.Supp.3d 351

The ESTATE OF Gabriel CADENAS, Petitioners,

v.UBS FINANCIAL SERVICES, INC., et al., Respondents.

CIVIL NO. 16-1509 (PAD)

United States District Court, D. Puerto Rico.

Signed November 15, 2018

Harold D. Vicente-Colon, Harold D. Vicente-Gonzalez, Steven Liong-Rodriguez, Vicente & Cuebas, San Juan, PR, for Petitioners.

Amelia Cristina O'Neill-Vega, Roberto C. Quinones-Rivera, McConnell Valdes, LLC, San Juan, PR, Lawrence E. Fenster, Pro Hac Vice, Bressler, Armery & Ross, P.C., New York, NY, for Respondents.

OPINION AND ORDER

Delgado-Hernández, District Judge.

This is an action to vacate an arbitration award in a dispute between the Estate of Gabriel Cadenas ("Petitioner") and UBS Financial Services Inc. and UBS Financial Services Incorporated of Puerto Rico (collectively "UBS") (Docket No. 1-2), which UBS opposed, cross-moving to confirm the award (Docket No. 13). For the reasons explained below, the request to vacate the award is DENIED and the cross-motion to confirm the award is GRANTED.

I. BACKGROUND

On March 26, 2014, Petitioner filed a statement of claim for a dispute-resolution arbitration against UBS before the Financial Industry Regulatory Authority ("FINRA") (Docket No. 1-3). A three-arbitrator panel held 13 hearings over the course of 6 days, and on February 19, 2016, issued the following award: "After considering the pleadings, the testimony and evidence presented at the hearing, the Panel has decided in full and final resolution of the issues submitted for determination as follows: 1. Claimant's claims are denied. 2. Any and all relief not specifically addressed herein, including Claimant's requests for attorneys’ fees and punitive or extended damages, is denied." See, Docket No. 13-1.

On March 1, 2016, Petitioner sought to set aside the award in the San Juan Part of the Puerto Rico Court of First Instance under the Puerto Rico Arbitration Act, P.R. Laws Ann. tit. 32, § 3222 ("PRAA") (Docket No. 1-2).¹ On March 21, 2016, UBS removed the case to this court (Docket No. 1), and on May 27, 2016, responded to the petition to set aside the award (Docket No. 13). Meanwhile, on April 20, 2016, Petitioner moved to remand (Docket No. 7), which UBS opposed (Docket No. 12). On March 15, 2017, the court denied the request to remand because the underlying claims involve federal securities laws and establish federal-question jurisdiction (Docket No. 14). As a result, it instructed Petitioner to submit an additional brief in support of its position (Docket No. 19). Petitioner did so (Docket No. 22), UBS opposed it (Docket No. 24), Petitioner replied (Docket No. 28), and UBS sur-replied (Docket No. 29).

II. DISCUSSION

Petitioner alleges the award should be vacated under the PRAA and Section 10 of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 10, as in its view, the arbitrators engaged in misconduct and partiality (Docket Nos. 1-2; 22). The FAA embodies a national policy favoring arbitration; contains a narrow set of statutory grounds to vacate, modify, or correct an award; and supplies enforcement mechanisms for these types of actions. See, Hall Street Associates v. Mattel, 552 U.S. 576, 581-582, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008) (describing FAA). Review of arbitral decisions is "extremely narrow and exceedingly deferential." Ramos-Santiago v. United Parcel Service, 524 F.3d 120, 123 (1st Cir. 2008) (quoting Airline Pilots Ass'n, Int'l v. Pan Am. Airways Corp., 405 F.3d 25, 30 (1st Cir. 2005) ). The Puerto Rico Supreme Court adopted those principles to govern judicial review under the PRAA.² Within those constraints, both the FAA and the PRAA allow review based on misconduct, 9 U.S.C. § 10(a)(3) ; P.R. Laws Ann. tit. 32 § 3222(c) ; and on partiality, 9 U.S.C. § 10(a)(2) ; P.R. Laws Ann. tit. 32 § 3222(b).

A. Misconduct

Petitioners complain that: (i) the arbitrators incurred in misconduct by excluding relevant documentary and expert evidence;³ and (ii) the proceedings were unfair insofar as the president of the panel allegedly "did not understand a great part of what happened during arbitration," for he was elderly and had difficulty hearing and understanding "the Puerto Rican accent when speaking English," and another arbitrator down with the flu was taking medications that caused her to fall asleep on several occasions (Docket Nos. 1-2, pp. 9-12; 22, pp. 2, 7, 12-14).

Arbitrators are judges of the admissibility and relevance of evidence and are not bound to hear all of the evidence tendered by the parties, but rather must simply give the parties an opportunity to present evidence and arguments. See, Hoteles Condado Beach, La Concha and Convention Center v. Union de Tronquistas, Local 901, 763 F.2d 34, 39 (1st Cir. 1985) (discussing issue). Vacatur of an arbitration award is appropriate only when the exclusion of relevant evidence so affects the rights of a party that it may be said that it was deprived of a fair hearing. Id. at p. 40. And whether a hearing is unfair is "informed by the parties’ understanding of what constituted a fair hearing when they entered into their [arbitration] contract." Nat'l Cas. Co. v. First State Ins. Grp., 430 F.3d 492, 497 (1st Cir. 2005).

Petitioner voluntarily submitted its claims to binding arbitration under the FINRA Code of Arbitration Procedure (see, Docket No 13-2, p. 52), which states as relevant that: (i)"The panel will decide what evidence to admit;" (ii) "The panel is not required to follow state or federal rules of evidence;" (iii) "Production of documents in discovery does not create a presumption that the documents are admissible at the hearing;" and (iv) "A party may state objections to the introduction of any document as evidence at the hearing to the same extent that any other objection may be raised in arbitration." See, FINRA Rule 12604. And, from the limited transcripts the parties submitted, the arbitrators gave Petitioner the opportunity to present the evidence in question and argue as to its admissibility during the proceedings, as well as qualify its expert during voir dire and present her testimony.

On this end, the transcripts show that Petitioners’ evidence was: (i) offered but voluntarily withdrawn by its counsel (Docket Nos. 24-1; 24-2; 24-3); (ii) objected to by UBS and/or rejected by the panel due to the witnesses’ lack of personal knowledge to authenticate proffered documents–despite there being other available witnesses possessing the requisite knowledge that Petitioner could call but did not (Docket Nos. 24-4; 24-5; 24-6; 24-7; 28-2); or (iii) partially excluded due to the expert's lack of qualification to testify as to the subject of closed-end funds, but otherwise allowed regarding the Puerto Rico economy in general (Docket No. 28-3).⁴

Against this backdrop, the arbitration panel did not stray from its directives and accorded Petitioner a full and fair hearing. Consequently, there is no reason for the court to substitute the panel's decision with a different judicial determination. See, Colón Vázquez v. El San Juan Hotel & Casino, 483 F.Supp.2d 147, 151-152 (D.P.R. 2007) (delineating limits to substitution of a judicial determination for arbitrator's decision). This holds true "[e]ven if the court is convinced that the arbitrator committed serious error, so long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority ..." ( id. )(quotation marks and citation omitted). So Petitioner's misconduct contention fail.⁵

B. Partiality

Petitioner argues that the arbitrators were partial to UBS because they allegedly granted all of UBS's evidentiary objections without allowing Petitioner to rebut them, and had a personal interest in entering an award for UBS to continue finding remunerative work as arbitrators in future FINRA proceedings against UBS (Docket No. 1-2, pp. 12-13). Elaborating on the latter theory, it posits that UBS has improperly influenced FINRA to designate more North American arbitrators than Puerto Rican arbitrators to attend the many claims that Puerto Rican citizens have filed against UBS over the sale of Puerto Rico bonds and closed-end funds, implying that such arbitrators and FINRA, as if by default, favor UBS in all of those arbitration cases, including the one currently before the court. Id. at p. 13. Assuming these arguments should not be considered abandoned for not having been raised in Petitioner's supplemental brief at Docket No. 22, they lack merit.

"[P]artiality involves a situation in which a reasonable person would be forced to conclude that an arbitrator was partial to a party." Ortiz Espinosa, 2015 WL 12828169, at *4. "Absent exceptional circumstances, courts usually do not entertain claims of bias ‘where it could have been raised at the arbitration proceedings but was not.’ " Id. at *3 (quoting JCI Communications, Inc. v. International Broth. of Elec. Workers, Local 103, 324 F.3d 42, 51 (1st Cir. 2003) ).

As in Ortiz Espinosa, Petitioner concedes that it objected on grounds of impartiality only after the arbitration hearings concluded (Docket No. 1-2, ¶¶ 8.7-8.8). Yet that is too little, too late, as objections on grounds of impartiality must be raised during the hearings. See, Early v. E. Transfer, 699 F.2d 552, 558 (1st Cir. 1983) (holding that courts "will not entertain a claim of personal bias where it could have been but was not raised at the hearing to which it applies"). For that reason alone, Petitioner's claims of partiality fail. Nonetheless, affording Petitioner the benefit of the doubt as to the timeliness of the objections, it cannot prevail.

The party asserting partiality has the burden to set forth specific facts showing improper motives on the part of the arbitrators. See, Ortiz Espinosa, 2015 WL 12828169, at *4 (acknowledging burden). It is "not enough to identify some remote connection between the arbitrator and one of the parties." ALS & Assocs., Inc. v. AGM Marine Constructors, Inc., 557 F.Supp.2d 180, 183 (D. Mass. 2008)....