Mendel v. Morgan Keegan & Co.

110 F.Supp.3d 1203

Jake MENDEL, etc., et al., Plaintiffs,

v.MORGAN KEEGAN & COMPANY, INC., Defendant.

Civil Action No. 13–AR–1630–S.

United States District Court, N.D. Alabama, Southern Division.

Signed May 26, 2015.

Charles N. Gill, Richard Hamilton Gill, Copeland Franco Screws & Gill, P.A., Montgomery, AL, Richard S. Frankowski, The Frankowski Firm LLC, Birmingham, AL, for Plaintiff.

Kathryn Roe Eldridge, Peter S. Fruin, Maynard Cooper & Gale PC, Birmingham, AL, for Defendant.

MEMORANDUM OPINION

WILLIAM M. ACKER, JR., District Judge.

On March 20, 2014 this court entered an order in the above entitled case staying the consideration of cross-motions for summary judgment filed by plaintiffs, Jake Mendel, etc., et al. ("Mendel Parties") and by defendant, Morgan Keegan Company, Inc. ("Morgan Keegan"). After becoming aware of an appeal pending in the Supreme Court of Alabama in a case entitled Municipal Workers Compensation Fund, Inc. v. Morgan Keegan, No. 1120532, this court concluded that the wisest course was to await the outcome in Municipal Workers before deciding this case. This court, of course, could not predict what the Supreme Court of Alabama would decide on the issues before it in Municipal Workers, but this court could and did predict that whatever the Supreme Court ultimately held might very well prove dispositive in the case before this court. On April 3, 2015 the Supreme Court handed down a unanimous decision in Municipal Workers, having the effect of lifting the stay in this court and placing the cross-motions under submission.

The instant case arrived in this court on August 30, 2013 when Morgan Keegan removed it from the Circuit Court of Jefferson County Alabama, where it had been filed on August 2, 2013 by Mendel Parties as an "appeal" under the provisions of Alabama Rules of Civil Procedure 71B and 71C of an arbitration award in which Morgan Keegan had been ordered to pay Mendel Parties the sum of $279,500.31, which Mendel Parties contended was the product of "evident partiality" by an arbitrator and was woefully inadequate to compensate them for the losses they had sustained as a result of Morgan Keegan's misconduct while acting as their investment advisor. Alabama Rules 71B and 71C are interesting and strange. They are also unique and peculiar to Alabama. There is nothing remotely like them among the Federal Rules of Civil Procedure. The pertinent provisions are:

Rule 71B. Appeals from arbitration awards.

(a) Who may appeal. Any party to an arbitration may file a notice of appeal from the award entered as a result of the arbitration.

(b) When filed. The notice of appeal shall be filed within thirty (30) days after service of notice of the arbitration award. Failure to file within thirty (30) days shall constitute a waiver of the right to review.

(c) Where filed. The notice of appeal shall be filed with the clerk of the circuit court where the action underlying the arbitration is pending or if no action is pending in the circuit court, then in the office of the clerk of the circuit court of the county where the award is made.

* * *

(f) Procedure after filing. The clerk of the circuit court promptly shall enter the award as the final judgment of the court. Thereafter, as a condition precedent to further review by any appellate court, any party opposed to the award may file, in accordance with Rule 59, a motion to set aside or vacate the judgment based upon one or more of the grounds specified in Ala.Code 1975, § 6–6–14, or other applicable law. The court shall not grant any such motion until a reasonable time after all parties are served pursuant to paragraph (e) of this rule. The disposition of any such motion is subject to civil and appellate rules applicable to orders and judgments in civil actions.

(g) Appellate review. An appeal may be taken from the grant or denial of any Rule 59 motion challenging the award by filing a notice of appeal to the appropriate appellate court pursuant to Rule 4, Alabama Rules of Appellate Procedure.

(emphasis added).

Rule 71C. Enforcement of arbitration awards.

(a) Who may enforce. Any party to an arbitration may seek enforcement of the award entered as a result of the arbitration.

(b) When filed. If no appeal has been filed pursuant to Rule 71B within thirty (30) days of service of the notice of the award, thereby resulting in a waiver of the right to review, the party seeking enforcement of the award may at any time thereafter seek enforcement of the award in the appropriate circuit court as set forth in paragraph (c) of this rule.

(c) Where filed. The motion for entry of judgment shall be filed with the clerk of the circuit court where the action underlying the arbitration is pending or if no action is pending in the circuit court, then in the office of the clerk of the circuit court of the county where the award is made.

(d) What filed. A party seeking enforcement of an award shall file a motion for entry of judgment, and shall attach to the motion a copy of the award, signed by the arbitrator, if there is only one, or by a majority of the arbitrators.

Promptly after receiving Morgan Keegan's notice of removal, Mendel Parties filed a motion to remand, contending, inter alia, that they were required by Rules 71B and 71C to attack the arbitration award in the Jefferson County Circuit Court and therefore could not have challenged it in this court. Mendel Parties argued a fortiori that because a prerequisite to removal under 28 U.S.C. § 1441(a) is that the federal court have original jurisdiction over the controversy, Morgan Keegan's removal was improper despite the complete diversity of citizenship and value of more than $75,000 in controversy that would otherwise have created jurisdiction under 28 U.S.C. § 1332. This court was faced with a case of first impression. No Alabama federal court had previously been asked to decide this jurisdictional question unique to Alabama.

On October 24, 2013, the court held an in-chambers hearing on Mendel Parties' motion to remand and explored in depth with the parties the problems arising under the procedural circumstances and under these unique and confusing Alabama rules for enforcing or attacking an arbitration award. Only after Morgan Keegan conceded that the law of Alabama, which clearly had been invoked by the Mendel Parties, would follow the case from the Jefferson County Circuit Court to this court and would provide Mendel Parties whatever means Alabama law provides for attacking the arbitration award, did Mendel Parties give up their insistence that the case was improperly removed.

At that same oral hearing, Morgan Keegan insisted that the arbitration award was not supported by the evidence and that the arbitrators committed gross error in awarding any sum whatsoever to Mendel Parties. Nevertheless, Morgan Keegan refused the court's somewhat jesting invitation to join Mendel Parties in their request that the award be set aside and that the controversy be assigned to a new panel. This, of course, would have ended this case. While not itself timely invoking Rules 71B and 71C and thus having waived its right to challenge the award Morgan Keegan, has not tendered to Mendel Parties the sum of $279,500.31 awarded it by the arbitrators.

Being convinced that Alabama procedural rules cannot grant exclusive jurisdiction to Alabama courts over a challenge to an arbitration award entered in Alabama if the requisites for federal jurisdiction under 28 U.S.C. § 1332 exist, and being further convinced that the law of Alabama applies to the review of an arbitration award arrived at in Alabama, this court denied Mendel Parties' motion to remand and entered a foreshortened scheduling order fixing deadlines for the completion of discovery and the filing of dispositive motions.

A Rule 56 motion can be granted only if undisputed material facts entitle the movant to judgment as a matter of law. In this case the dispute boils down to a hot debate over questions of law under the Federal Arbitration Act and the Alabama Arbitration Act, as interpreted by Alabama courts, but the few facts upon which plaintiffs/movants, Mendel Parties, rely are not in dispute. Morgan Keegan has made the same arguments to this court with respect to what must be proven in order to obtain the vacatur of an arbitration award that it made to the Supreme Court of Alabama in Municipal Workers, a case in which it was a party and in which the Supreme Court flatly disagreed with it. In other words, as it has turned out, if the Supreme Court of Alabama has correctly enunciated the controlling principles of Alabama law, the material undisputed facts in this case lead to the same conclusion reached by the Supreme Court of Alabama.

Undisputed Material Facts

Morgan Keegan acted as the broker and investment advisor to Mendel Parties. As such, it invested Mendel Parties' funds in investment products that produced very substantial losses. This triggered a claim by Mendel Parties against Morgan Keegan followed by an application for the arbitration of the claim pursuant to the arbitration provision in the contract between the parties. This provision called for the arbitral services of the Financial Industry Regulatory Authority ("FINRA") and further provided that FINRA rules would apply. FINRA thereupon furnished the parties a list of potential arbitrators, including John F. Allgood. Allgood and two others were chosen as arbitrators. Allgood was the presider.

The FINRA rules unequivocally require potential arbitrators to disclose to the parties not only any direct or indirect individual financial or personal interest in the outcome of the arbitration, but any existing or past, direct or indirect financial, business, professional, family, social or other relationships with any of the parties. In Allgood's formal disclosure form, under the section entitled "Employment," he acknowledged that from September 2001 until the date of his disclosure, he was "of counsel" to Ford & Harrison LLP, a law firm. He...