Ray v. Longhi

JAMES W. RAY, Plaintiff, v. LARRY A. LONGHI, Defendant.

Case No. 3:20-cv-213-J-32JRK

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA JACKSONVILLE DIVISION

January 29, 2021

ORDER

This case comes before the Court on two post-arbitration motions. Plaintiff James Ray filed the Petition to Vacate Arbitration Award (Docs. 1, 1-10) to vacate the award issued in Longhi v. Ray, No. 19-01860, Financial Industry Regulatory Authority, Inc. ("FINRA") Office Of Dispute Resolution (Dec. 19, 2019) (the "Award") (Doc. 1-3). Ray subsequently filed an Amended Memorandum of Law in Support of Petitioner's Amended Petition to Vacate Arbitration Award. (Doc. 7). Defendant Larry Longhi filed a response opposing vacatur of the Award and moves the court to confirm the Award. (Doc. 10).

I. BACKGROUND

In the underlying arbitration, Longhi, a Florida citizen, filed breach of contract, breach of fiduciary duty, and negligence claims against Ray, who is also a Florida citizen. (Docs. 1-1; 1-2 at 1, 1-3 at 1). In addition, Longhi claimed that Ray agreed to pay Longhi $159,000 in a pre-suit settlement, and that the arbitration was commenced to enforce the settlement. (Doc. 1-3 at 1). In total, Longhi sought damages of $412,000. (Doc. 1-2 at 1). After holding a hearing in Jacksonville, Florida, a panel of three arbitrators unanimously rendered an award against Ray in the amount of $159,000 plus interest at the rate of 4.75 percent per annum from May 10, 2019 until the Award is paid in full. (Docs. 1-2 at ¶ 9; 1-3 at 2, 4). The arbitral panel also ordered Ray to pay Longhi $300 to cover Longhi's FINRA arbitration filing fee. (Doc. 1-3 at 3).

During the arbitration proceedings, Arbitrator Nicholas J. Taldone served as Public Arbitrator and Presiding Chairperson (Doc. 1-3 at 4). Under FINRA Rules, to qualify as a public arbitrator certain criteria must be met:

FINRA Rule 12100(y)(5)

A person shall not be designated as a public arbitrator who is employed by, or is a director or officer of, an entity that directly or indirectly controls, is controlled by, or is under common control with, any partnership, corporation, or other organization that is engaged in the financial industry unless the affiliation ended more than five calendar years ago.

(Doc. 1-6).

FINRA Rule 12100(y)(6)

A person shall not be designated as a public arbitrator who is an attorney . . . who has devoted 20 percent or more of his or her professional time, in any single calendar year, to any entities listed in paragraph (y)(1)¹ and/or to any persons or entities associatedwith any of the entities listed in paragraph (y)(1) unless the calendar year ended more than five calendar years ago.

Id.

FINRA Rule 12100(y)(7)

A person shall not be designated as a public arbitrator who is an attorney . . . who has devoted 20 percent or more of his or her professional time, in any single calendar year, to representing or providing services to parties in disputes concerning investment accounts or transactions, or employment relationships within the financial industry unless the calendar year ended more than five calendar years ago.

Id.

FINRA Rule 12100(y)(8)

A person shall not be designated as a public arbitrator if the person is an employee of a bank or other financial institution and the person effects transactions in securities . . . or supervises or monitors the compliance with the securities and commodities laws of employees who engage in such activities unless the affiliation ended more than five calendar years ago.

Id.

In his Oath of Arbitrator Submission, Arbitrator Taldone reported that he had not been employed by an entity organized under or registered pursuant to the Securities Exchange Act of 1934, Investment Company Act, or theInvestment Advisers Act of 1940; that he had not devoted more than twenty percent of his time representing clients in the financial industry; and that he was not representing any investors or broker-dealers at the time of the underlying arbitration. (Doc. 1-9 at 7, 10). In his Arbitrator Disclosure Report, Arbitrator Taldone disclosed that, at the time of the arbitration, he was representing individuals adverse to companies in the securities industry, that he had previously served as counsel to investors in securities cases, that he had previously been employed as General Counsel by a publicly traded corporation, and that less than ten percent of law he practiced involved securities and investors. (Doc. 1-4 at 2, 6).

After Ray filed the motion to vacate the Award before this Court, FINRA investigated Arbitrator Taldone and confirmed that he met the requirements to be listed as a public arbitrator during the course of the Longhi v. Ray arbitration proceedings. (Doc. 10-2 at 4).

II. DISCUSSION

A. Ray's Motion to Vacate the Award

Ray asserts that the Award should be vacated under the Federal Arbitration Act ("FAA") or the Florida Arbitration Code ("FAC") because (1) "the Arbitrators failed to make a full and proper disclosure of their conflicts to the Respondent;" (2) "the Arbitrators exceeded their powers, or so imperfectly executed them, or both, that a mutual, final and definite award upon the subjectmatter submitted was not made;" and (3) "the Arbitrators acted in knowing, willful, and manifest disregard of the law." (Doc. 7 at 2).

The determination of whether the FAA or the FAC governs depends on whether the parties' arbitration agreement involves interstate commerce. "When an arbitration agreement involves interstate commerce, the [FAA] governs, supplemented by the [FAC] to the extent that the FAC does not conflict with the FAA." UBS Financial Serv. Inc. v. Walzer, No. 9:19-CV-81161-ROSENBERG/REINHART, 2019 WL 7283220, at *2 (S.D. Fla. Dec. 27, 2019); see also Kong v. Allied Prof'l Ins. Co., 750 F.3d 1295, 1303 (11th Cir. 2014) ("The FAA applies to all contracts involving interstate commerce."); 9 U.S.C. § 1-2. Surprisingly, the parties have not provided details on the contents or scope of their arbitration agreement.² Nevertheless, the provisions of the FAA and FAC relevant to this dispute are consistent.

"Under the [FAA], federal courts have limited authority to vacate or modify an arbitration award. Vacatur is allowed 'only in very unusual circumstances,' and those circumstances are described in the [FAA]." Gheradi v. Citigroup Global Markets Inc., 975 F.3d 1232, 1236 (11th Cir. 2020) (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942 (1995); see alsoAralar v. Scott McRea Auto. Group, LLLP, No. 3:16-cv-146-J-JBT, 2018 WL 1806584, at *2 (M.D. Fla. Apr. 17, 2018). The FAA prescribes vacatur in cases in which there is fraud, bias, or procedural misconduct. 9 U.S.C. § 10(a)(1)-(3). A district court may also vacate an arbitration awards if it finds that "the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made." Id. § 10(a)(4). The relevant sections of the FAC mirror the FAA's grounds for vacating arbitration awards. See FLA. STAT. § 682.13(a)-(b), (d).

1. Ray waived his right to vacate the award on the basis of arbitrator partiality.

In Barclays Capital Inc. v. Platt, the District Court for the Southern District of Florida court explained that under Section 10(a)(2) of the FAA:

Evident partiality exists where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration. Accordingly, an arbitration award may be vacated due to evident partiality of an arbitrator only when either (1) an actual conflict exists, or (2) the arbitrator knows of, but fails to disclose, information which would lead a reasonable person to believe that a potential conflict exists. The partiality in question must be direct, definitive and capable of demonstration rather than remote, uncertain and speculative. As a result, the mere appearance of bias or partiality is not enough to set aside an arbitration award.

No. 15-21850-civ-MARTINEZ-GOODMAN, 2018 WL 10759189, at *2 (S.D. Fla. Dec. 26, 2018) (internal citations and quotation marks omitted); see also University Commons-Urbana, Ltd. v. Universal Constructors Inc., 304 F.3d 1331, 1341 (11th Cir. 2002) ("[F]or an award to be vacated, the arbitrator mustnot have disclosed enough information for a reasonable person to realize that a potential conflict existed. Otherwise, the party would have—or, at least, should have—recognized the conflict at the time of the disclosure, and promptly objected."); Amalgamated Transit Union, Local 1579 v. City of Gainesville, 264 So.3d 375, 380 (Fla. 1st DCA 2019) (Under Florida law, "[t]he correct test for weighing an arbitrator's evident partiality consists of judging whether the complaining party made a showing through credible evidence, giving rise to a reasonable impression of partiality that was direct, definite, and capable of demonstration, as distinct from a mere appearance of bias that was remote, uncertain, and speculative.") (internal quotation marks omitted). "The burden of demonstrating facts which would establish a reasonable impression of partiality is on the party challenging the award." see also Perez v. Cigna Health & Life Ins. Co., No. 8:18-cv-1862-T-60JSS, 2020 WL 3473735, at *4 (M.D. Fla. Jun. 4, 2020) (citing Austin S. I, Ltd. v. Barton-Malow Co., 799 F. Supp. 1135, 1142 (M.D. Fla. 1992) (internal quotation marks omitted).

In addition, the Eleventh Circuit has reasoned that a movant waives the right to vacate an award under Section 10(a)(2) of the FAA if the movant did not contest the arbitrator's appointment despite evidence of the arbitrator's partiality being disclosed during the arbitration proceedings. University Commons-Urbana, 304 F.3d at 1340-41. Put simply, any instance of alleged partiality is waived if the party moving to vacate was aware of an arbitrator'spartiality during arbitration and failed to act. Cf. Stone v. Bear, Steans & Co., 872 F. Supp. 2d 435, 439 (E.D. Pa. 2012) (finding that the petitioner "waived any...