CHARLES C. LOVELL, Senior District Judge.
Before the Court is a Petition to Vacate Arbitration Award (ECF No. 1) filed by Petitioner Waveland Capital Partners, LLC ("Waveland"), and a Motion to Confirm Arbitration Award (ECF No. 11) filed by Randall A. and Helen E. Tommerup ("Tommerup"). Having reviewed the briefs and affidavits of the parties, and all the record in this case, the Court is prepared to rule. The sole issue raised by the Petition to Vacate the Arbitration Award is whether the arbitration panel manifestly disregarded the law applicable to the arbitration.
Randall and Helena Tommerup live in Dillon, Montana, and have been married forty-one years. Randall Tommerup makes and sells fence posts and rails. Helen Tommerup is a bank teller. (ECF No. 12-3, ¶ 2, Claimants' Statement of Claim.) The Tommerups discussed investing "a significant portion" of their life savings with Melvin T. Day, II ("Day"). Tommerups claim that they wanted "conservative, low risk investments that provided dependable income." (ECF 12-3, ¶ 3.) Tommerups began discussing 1031 exchanges with Day. Day is both an independent contractor
Prior to Day's relationship with Waveland, Day had a significant negative history in the investment field: he was fired by
Day recommended that the Tommerups invest in two long-term real estate investments totaling $410,000.00: (1) a January 28, 2005 investment in DBSI-Executive Park LLC, Tenant in Common, in the amount of $150,000, and (2) a September 8, 2005, investment in DBSI Arrowhead, LLC 1695, 1705 & 1715 Indian Woods Circle, Tenants in Common, in the amount of $260,000.
In Count I of their Statement of Claim, the Tommerups allege violation of federal securities laws by claiming that Waveland and Day violated section 2(1) of the Securities Act, 15 U.S.C. § 77b(a)(1), and section 3(a)(10) of the Securities Exchange Act, 15 U.S.C. § 78c(a)(10). Tommerups assert that Waveland was a controlling person within the meaning of section 20 of the Securities Exchange Act, 15 U.S.C. § 78t. Tommerups claims that Waveland and Day offered and sold unregistered securities, engaged in fraud in the offer or sale of securities, and engaged in fraud in connection with the purchase or sale of securities.
In Count II of their Statement of Claim, the Tommerups allege violations of the Securities Act of Montana, charging both a failure to register DBSI in Montana (M.C.A. § 30-10-202), and also making unsuitable recommendations, misrepresentations and omissions of material fact (M.C.A. §§ 30-10-301, -307).
In Count III of their Statement of Claim, the Tommerups allege violations of the Montana Unfair Trade Practices and Consumer Protection Act. Tommerups allege that Waveland, acting through Day, violated Mont.Code Ann. § 30-14-103 by engaging in unfair methods of competition or unfair or deceptive acts or practices in the conduct of trade or commerce.
In Count V of their Statement of Claim, the Tommerups allege breach of contract. Tommerups allege that Waveland and Day broke laws, rules, and regulations relating to the transaction and fraudulently induced them to enter into the contractual relationship by false representations and non-disclosure of material facts. The breach of FINRA Rules 2110, 2310, 2120, 2330, and 3010 allegedly constitute a breach of the contractual relationship between the Tommerups and Waveland and Day. Further, violations of the rules of the Utah Securities Commission and the Montana Rules of the Securities Department constitute further breach of the contract.
In Count VI of their Statement of Claim, the Tommerups allege Common Law Fraud. In Count VII, the Tommerups alleged Breach of Fiduciary Duty. In Count VIII, the Tommerups allege Negligence and Gross Negligence.
Judicial review of arbitration awards is highly deferential. Johnson v. Wells Fargo Home Mortg., Inc., 635 F.3d 401, 414 (9th Cir.2011). A party moving to vacate an arbitration award has the burden of proof, and the showing required to avoid confirmation of the award is very high. D.H. Blair & Co., Inc. v. Gottdiener, 462 F.3d 95, 110 (2nd Cir.2006) (quotation omitted). "Even where explanation for an award is deficient or non-existent, we will confirm it if a justifiable ground for the decision can be inferred from the facts of the case." Stolt-Nielsen SA v. AnimalFeeds Int'l Corp., 548 F.3d 85, 93 (2d Cir.2008), rev'd on other grounds, 559 U.S. 662, 130 S.Ct. 1758, 176 L.Ed.2d 605 (2010) (emphasis added). Only a "barely colorable justification" for the outcome reached by the arbitrators is necessary to confirm the award. D.H. Blair & Co., Inc., 462 F.3d at 110.
Vacatur of arbitration awards is permitted under limited circumstances by the Federal Arbitration Act ("FAA"), 9 U.S.C. § 10.
None of the requirements for justifying a vacatur can be met in this case. Petitioner Waveland has failed to provide evidence that the arbitrators understood and correctly stated the law as regards Petitioner's five-year statute of repose defense to the Securities Exchange Act claim. Waveland merely shows that Waveland presented oral and written argument on the statute of repose to the arbitrators. Even less supportable is Waveland's claim that the arbitrators improperly founded liability on a private right of action for violations of self-regulatory organization rules. The arbitrators' decision simply does not address the defenses presented by Waveland, so it cannot be said that the panel correctly stated that law and proceeded to disregard it. The most that could be said is that the arbitration panel disregarded Waveland's argument, but not the law itself.
In addition, there could be numerous reasons why the panel did not decide the case in the manner requested by Waveland. Perhaps the arbitrators decided that statute of repose and limitations defenses are not valid defenses in arbitration, and, indeed, Waveland cites no case that holds that arbitration proceedings are actions within the meaning of that term in the pertinent state and federal statutes of limitations and repose. Thus, certainty is lacking because this statute of limitations defense is not well-defined, explicit, and clearly applicable.
Waveland vigorously argues that the federal statutory claims are outside the statute of repose of five years because the two investments made by the Tommerups were dated January 28, 2005, and September 8, 2005. Relying on these dates, Waveland argues that the Tommerups' arbitration claim made on October 13, 2010, was outside the five-year statute of repose. However, it appears that the actual closing on the second investment property did not occur until February, 2006 (ECF No. 12-6), and therefore the arbitration panel could have used February, 2006, as the start date for its calculation of the five-year statute of repose as to that particular $260,000 investment. Under this finding and conclusion, an October 13, 2010, arbitration claim would be timely made under the federal statute. 28 U.S.C. § 1658(b).
Additionally, as suggested by the Tommerups, perhaps the arbitrators based their decision not on the Tommerups' federal securities claims at all, but on the Tommerups' other common law and statutory claims. If these alternative methods of proving liability were the basis of the arbitration award, then Waveland's statute of limitations defense was irrelevant to the arbitrator's decision.
The explanation that the arbitration panel did provide is as follows:
(ECF No. 4-5 at 10.) There is simply no way to know which counts were found to be the basis of Waveland's liability. However, the findings that Waveland failed to supervise Day and that the investments were unsuitable for the Tommerups would also support a conclusion of liability as to
As to these claims, the Tommerups filed their arbitration claim just two years and one month after the investment distributions stopped in September, 2008. Such claims are subject to equitable tolling under state law. See Ehrman v. Kaufman, Vidal, Hileman & Ramlow, PC, 358 Mont. 519, 246 P.3d 1048, 1052-53 (2010); Chriske v. State ex rel. Dept. of Corrections and Institutions, 357 Mont. 28, 235 P.3d 588, 590 (2010); Seale v. Gowans, 923 P.2d 1361, 1364-65 (Utah 1996); Charlesworth v. Reyns, 113 P.3d 1031, 1037 (Utah App.2005). Tommerups and the other investors were told to wait until after October 15, 2008, for a conference call that would explain the lack of distributions, and investors were also given assurances at that time that the investment properties were not in default. (ECF No. 12-5.) Tommerups filed their arbitration claims on October 13, 2010, less than two years after the conference call.
On these facts, the arbitrators could have found common law or statutory liability to which no statute of limitations defense applied. Only one timely claim was necessary to support the arbitration award, and the arbitration panel could reasonably have found that Waveland was liable as to one of Tommerups' timely claims.
Tommerups request that this Court confirm the arbitration award of $301,875 that was imposed on February 7,
An exception to the 30-day payment rule is provided to allow a party to file a motion to vacate the award in district court, but if that motion is denied then the interest is imposed as of the award date. FINRA Rule 12904 further states that "[i]nterest shall be assessed at the legal rate, if any, then prevailing in the state where the award was rendered, or at a rate set by the arbitrator(s)." (ECF No. 9-1 at 2.) This arbitration having been conducted in Helena, Montana, the pertinent state law is Montana's, which provides for a legal rate of interest of ten percent. Mont.Code Ann. § 31-1-106(1).
"A judgment confirming an arbitration award is treated similarly to any other federal judgment." Fid. Fed. Bank, FSB v. Durga Ma Corp., 387 F.3d 1021, 1024 (9th Cir.2004). "In diversity actions, state law determines the rate of prejudgment interest, and postjudgment interest is governed by federal law." American Tel. & Tel. Co. v. United Computer Systems, Inc., 98 F.3d 1206 (9th Cir.1996) (calculating and imposing post-award and post-judgment interest after confirming arbitration award) (citation omitted). The federal rate of interest is set forth at 28 U.S.C. § 1961, which provides that post-judgment interest "shall be calculated ... at a rate equal to the coupon issue yield equivalent (as determined by the Secretary of the Treasury) of the average accepted auction price for the last auction of fifty-two week United States Treasury bills settled immediately prior to the date of judgment." 28 U.S.C. § 1961(a).
Tommerups request that this Court find that Waveland's motion to vacate the arbitration award is frivolous and filed for the purpose of delaying payment of the arbitration award. Tommerups request that the Court award their attorney's fees as sanction for this Rule 11 violation. The motion is procedurally correct, because Tommerups served the motion upon Waveland 21 days before filing it, thereby providing Waveland the requisite safe harbor permitting it to reconsider
Sanctions may be imposed under Rule 11, Fed.R.Civ.P., when a court determines that a filing is frivolous, legally unreasonable or brought for an improper purpose. See Townsend v. Holman Consulting Corp., 929 F.2d 1358, 1362 (9th Cir.1990). Tommerups argue that the motion to vacate the arbitration award is frivolous and brought for the purpose of delaying payment of the arbitration award. Waveland states that it has set aside funds for payment of the award and has not brought this action for any improper purpose. While this Court has some sympathy for the exasperation Tommerups' counsel experiences in being required to litigate what has already been arbitrated, this Court's survey of the "manifest disregard" type of award vacatur/confirmation cases shows that such `re-litigation' of the dispute is frequently, if not routinely, the essence of such manifest disregard cases. See, e.g., Freedom Investors Corp. v. Hadath, 2012 WL 383944, slip. op. at *4 (S.D.N.Y. Feb. 7, 2012) ("Pinter merely raises here arguments considered and rejected by the panel"). There is a broad continuum in judicial review of petitions for vacatur on the ground of manifest disregard. On the one hand, the vacatur petition may be denied because the claimant has but a "barely colorable" claim. On the other hand, the vacatur petition may be granted because an arbitrator's decision "strains credulity" and therefore a court may be entitled to conclude that the arbitrator willfully flouted the law. See Halligan v. Piper Jaffray, Inc., 148 F.3d 197, 204 (2nd Cir.1998). Although the question of Rule 11 sanctions in this case is a close one, this Court is not persuaded that the petition for vacatur is entirely frivolous and should not have been brought.
Upon review of this record, the Court finds that Waveland fails to meet its burden to show that the arbitration award should be vacated. There is no gross error on the face of the award nor any evidence of intent to disregard the law. Thus, for the above-stated reasons,
IT IS HEREBY ORDERED that Waveland's Petition to Vacate Arbitration Award (ECF No. 1) is DENIED, and Tommerups' Motion to Confirm Arbitration Award (ECF No. 11) is GRANTED. The Arbitration Award (FINRA Case Number 10-04616) is hereby CONFIRMED in its entirety:
The Court finds that Tommerups are entitled to post-award (pre-judgment) interest at the rate of 10% on the $301,875 arbitration award, from February 7, 2012, to the date judgment enters.
The Court further finds that Tommerups are entitled to post-judgment interest on the $301,875 arbitration award, in accordance with 28 U.S.C. § 1961(a), from the date judgment enters until the judgment is paid in full.
Waveland is jointly and severally liable with Melvin T. Day, II, for the entire arbitration award and all interest thereon, excluding the $25,000 discovery sanction which is payable by Waveland only.
IT IS FURTHER ORDERED that Tommerups' Motion for Rule 11 Sanctions (ECF No. 16) is DENIED.
Let judgment enter.
(ECF No. 9-1 at 2.)