857 F.

2d 742
Fed. Sec. L. Rep. P 94,757, 12 Fed.R.Serv.3d 855

O.R. SECURITIES, INC., Plaintiff-Appellant,

v.
PROFESSIONAL PLANNING ASSOCIATES, INC.,
Defendant-Appellee.
No. 87-8531.

United States Court of Appeals,

Eleventh Circuit.
Oct. 12, 1988.
1

Thompson & Mitchell, W. David Wells, Lawrence Friedman, St. Louis, Mo.,
for plaintiff-appellant.

Steven Jay Gard, Page & Bacek, Terry Weiss, Vaughan, Davis Birch &
Murphy, Atlanta, Ga., for defendant-appellee.

Appeal from the United States District Court, Northern District of Georgia.

Before FAY and CLARK Circuit Judges, and GONZALEZ* , District Judge.
GONZALEZ, District Judge:

This is an appeal by O.R. Securities, Inc. ("O.R."), from an Order of the district
court dismissing O.R.'s Complaint and Application to Vacate Arbitration
Award. O.R. had filed suit in district court to vacate an award in the amount of
$81,998.00 made by a National Association of Securities Dealers, Inc.
("NASD") arbitration panel against O.R. and in favor of appellee Professional
Planning Associates, Inc. ("PPA").

We begin with a brief description of the parties and the arbitration proceedings.
WZW Financial Services, Inc. ("WZW"), PPA and O.R. each provide financial
planning services to customers. On April 1, 1985, pursuant to an agreement
between WZW and PPA, approximately 20 financial planners who had been
licensed through WZW resigned from that firm and transferred their licenses to

Professional Planning Associates Investments ("PPA Investments"), a newly

formed broker dealer wholly owned by PPA. Subsequently, a dispute developed
over the amount of commissions which members of PPA Investments claimed
were owed to them by WZW pursuant to the agreement. WZW refused to pay
the commissions and PPA brought an arbitration proceeding against WZW on
August 14, 1985.
7

On March 6, 1986, PPA amended its claim before the arbitration panel to
include O.R., an NASD member, as an additional party. PPA contended that
O.R. was properly included in the arbitration proceeding because in October
1985 WZW had transferred "substantially all of its assets" to O.R. 1

O.R. moved to dismiss the arbitration proceeding against it, on the ground that
it was not liable to PPA on a theory of successor liability because it never
explicitly or implicitly assumed WZW's liabilities. PPA filed a written response.
The arbitration panel did not expressly decide the motion to dismiss, but
instead, considered the merits of the parties' respective positions at the
arbitration hearing. On July 25, 1986, the panel issued its award in favor of
PPA.

In its Complaint and Application to Vacate Arbitration Award filed in the

district court, O.R. alleged that the arbitration award "reflected manifest
disregard of the law, was arbitrary and capricious, was irrational and was
plainly contrary to public policy because it made O.R. Securities liable for
WZW's obligations to PPA when O.R. Securities had no legal liability
whatsoever to PPA." O.R. also contended that the award "was procured through
corruption, fraud, collusion and undue means between PPA and WZW, and the
arbitrators did not consider this evidence." O.R. also sought to conduct
discovery in order to clarify certain issues raised in the Complaint, namely, (1)
the extent and nature of the alleged collusion between WZW and PPA; (2)
whether the arbitrators considered O.R.'s arguments against the imposition of
liability; and (3) whether there were actual factual and legal bases for imposing
liability on O.R. as a successor to WZW.

10

PPA opposed opening discovery and filed a motion to dismiss the complaint for
failure to state a claim for which relief could be granted under the Federal
Arbitration Act, 9 U.S.C. Sec. 1 et seq. The district court denied the request to
conduct discovery and dismissed O.R.'s complaint. In dismissing the complaint,
the district court refused to recognize the "manifest disregard of the law"
standard proposed by O.R. and stated that even if it were a proper ground for
vacating the arbitration award, manifest disregard of the law was not shown on
the face of the complaint. The district court also found that O.R.'s Complaint

did not state sufficient facts to support vacating the arbitration award on the
ground of fraud. The district court's Orders denying discovery and dismissing
O.R.'s Complaint are now before us.2
11

O.R. contends the district court erred in dismissing O.R.'s complaint because
PPA failed to prove that O.R. could "prove no set of facts in support of [its]
claim which would entitle it to relief." Conley v. Gibson, 355 U.S. 41, 45-46,
78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). O.R. argues that under the rules of
notice pleading, Fed.R.Civ.P. 8(a), it had stated a claim for vacating the
arbitration award and the district court erred in dismissing the Complaint and in
not permitting discovery on the claims raised.

12

O.R. misconstrues the procedures which the district courts must follow when
considering a request to vacate an arbitration award. Under the Arbitration Act,
an application to vacate an award "shall be made and heard in the manner
provided by law for the making and hearing of motions." 9 U.S.C. Sec. 6. Rule
81(a)(3), Federal Rules of Civil Procedure, provides that the Federal Rules of
Civil Procedure apply to proceedings brought under the Arbitration Act "only
to the extent that matters of procedure are not provided for in those statutes."
Fed.R.Civ.P. 81(a)(3). Under Fed.R.Civ.P. 7(b), "[a]n application to the court
for an order shall be by motion which, unless made during a hearing or trial,
shall be made in writing, shall state with particularity the grounds therefor, and
shall set forth the relief or order sought."

13

The policy behind section 6 "is to expedite judicial treatment of matters

pertaining to arbitration." World Brilliance Corp. v. Bethlehem Steel Co., 342
F.2d 362, 365-66 (2d Cir.1965) citing S.Rep. No. 536, 68th Cong., 1st Sess.
(1924); H.R.Rep. No. 96, 68th Cong., 1st Sess. (1924). "The statutes and rules
do not permit a party to initiate a challenge to an arbitration award by filing a
complaint or an "Application [to Vacate Arbitration Award]." Interior Finish
Contractors Association of Delaware Valley v. Drywall Finishers Local Union
No. 1955, 625 F.Supp. 1233, 1240 (E.D.Pa.1985). It is clear that such a request
for relief shall be made in the form of a motion as provided in Fed.R.Civ.P.
7(b).

14

The manner in which an action to vacate an arbitration award is made is

obviously important, for the nature of the proceeding affects the burdens of the
various parties as well as the rule of decision to be applied by the district court.
If, as O.R. contends, the application to vacate the award may be brought in the
form of a complaint, then the burden of dismissing the complaint would be on
the party defending the arbitration award. The defending party would be forced
to show that the movant could not prove any facts that would entitle him to

relief from the arbitration award. See Conley, 355 U.S. at 45-46, 78 S.Ct. at
102, 2 L.Ed.2d at 84. If the defending party did not prevail on its motion to
dismiss, the proceeding to vacate the arbitration award would develop into full
scale litigation, with the attendant discovery, motions, and perhaps trial. This is
the procedure which O.R. argues the district court should have applied.
15

We disagree. It is well-established that "[t]he purpose of the Federal Arbitration

Act was to relieve congestion in the courts and to provide parties with an
alternative method for dispute resolution that would be speedier and less costly
than litigation." Ultracashmere House, Ltd. v. Meyer, 664 F.2d 1176, 1179,
(11th Cir.1981). The policy of expedited judicial action expressed in section 6
of the Federal Arbitration Act, 9 U.S.C. Sec. 6, would not be served by
permitting parties who have lost in the arbitration process to file a new suit in
federal court. The proper procedure, as discussed above, is for the party seeking
to vacate an arbitration award to file a Motion to Vacate in the district court.

16

The fact that this motion came before the district court on PPA's Motion to
Dismiss Complaint does not affect our disposition of this case. "The liberality
of the ... Federal Rules is such that an erroneous nomenclature does not prevent
the court from recognizing the true nature of a motion." Sacks v. Reynolds
Securities, Inc., 593 F.2d 1234, 1239 (D.C.Cir.1978) (citation omitted). The
memoranda of both parties submitted to the district court adequately briefed the
issue of whether the arbitration award in question should have been vacated.
Thus, we hold that the district court did not err in considering the merits of
O.R.'s request to vacate the arbitration award.3 We now review the proceedings
below as though O.R. had filed a Motion to Vacate and PPA had opposed that
motion. See id. at 1239.

17

In reviewing the district court's disposition of a motion to vacate, we consider

whether the district court abused its discretion under the Arbitration Act. Bonar
v. Dean Witter Reynolds, Inc., 835 F.2d 1378, 1383 (11th Cir.1988). Section 10
of the Arbitration Act specifies the following grounds for vacating an
arbitration award:

18

(a) Where the award was procured by corruption, fraud, or undue means.

19

(b) Where there was evident partiality or corruption in the arbitrators, or either
of them.

20

(c) Where the arbitrators were guilty of misconduct in refusing to postpone the
hearing ... or in refusing to hear evidence pertinent and material to the

controversy; or of any other misbehavior by which the rights of any party have
been prejudiced.
21

(d) Where 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.

22

9 U.S.C. Sec. 10. Courts are generally prohibited from vacating an arbitration
award on the basis of errors of law or interpretation. Wilko v. Swan, 346 U.S.
427, 74 S.Ct. 182, 98 L.Ed. 168 (1953).

23

However, several courts have mentioned the proposition that a "manifest

disregard of the law" by the arbitrators may warrant vacating the award. See
Jenkins v. Prudential-Bache Securities, Inc., 847 F.2d 631 (10th Cir.1988);
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bobker, 808 F.2d 930 (2d
Cir.1986); Stroh Container Co. v. Delphi Industries, Inc., 783 F.2d 743 (8th
Cir.) cert. denied, 476 U.S. 1141, 106 S.Ct. 2249, 90 L.Ed.2d 695 (1986) (court
declined to expressly adopt manifest disregard of law standard where
arbitration award would be affirmed even under that standard). The judicially
created manifest disregard of the law standard was first mentioned in dictum by
the Supreme Court in Wilko v. Swan, 346 U.S. 427, 436-37, 74 S.Ct. 182, 18788, 98 L.Ed. 168 (1953). The Court in Wilko recognized that courts have
limited power to vacate arbitration awards, but stated that

24
[w]hile
it may be true ... that a failure of the arbitrators to decide in accordance with
[applicable law] would "constitute grounds for vacating the award pursuant to
section 10 of the Federal Arbitration Act," that failure would need to be made clearly
to appear.... [T]he interpretations of the law by the arbitrators in contrast to manifest
disregard are not subject, in the federal courts, to judicial review for error in
interpretation.
25

Wilko, 346 U.S. at 436-37, 74 S.Ct. at 187-88, 98 L.Ed. 176 (footnotes

omitted).

26

The courts which have recognized the manifest disregard of law standard define
it as necessarily meaning "more than error or misunderstanding with respect to
law." Bobker, 808 F.2d at 933 (citations omitted). Manifest disregard "may be
found 'when arbitrators understand and correctly state the law, but proceed to
disregard the same.' " Stroh Container Co., 783 F.2d at 750 (citations omitted).

27

O.R. contends that the arbitrators exhibited a manifest disregard of the law

when they held O.R. jointly and severally liable. First, O.R. claims that the
arbitrators failed to consider the applicable law because they never ruled on
O.R.'s Motion to Dismiss. This argument is without merit, as the arbitration
transcript (which was before the district court), clearly shows that the panel
heard evidence and argument on the merits of O.R.'s position.
28

Next, appellant argues that the panel's conclusions that O.R. was liable plainly
contradicts the evidence presented as well as the law of successor liability, and
that therefore, the panel acted in manifest disregard of the law. We are not
convinced that the district court abused its discretion in holding that O.R. failed
to establish a manifest disregard of the law by the arbitrators. First, this circuit
has never adopted manifest disregard of the law as a ground for vacating an
arbitration award. However, we need not decide that issue today because even
if we were to accept such a ground, O.R. has failed to make any showing that
the arbitrators acted in manifest disregard of the law.

29

The arbitrators' decision fails to provide any explanation for their conclusion
that O.R. is liable to PPA. It is well-settled, however, that arbitrators are not
required to explain their reasons for an award. Wilko, 346 U.S. 427, 74 S.Ct.
182, 98 L.Ed. 168. O.R. argues that the arbitrators' silence, combined with their
failure to rule on O.R.'s Motion to Dismiss, compels a finding that the panel
ignored the law.

30

Contrary to O.R.'s arguments, "the absence of express reasoning by the

arbitrators [does not] support the conclusion that they disregarded the law."
Stroh Container Co., 783 F.2d at 750. In fact, when the arbitrators do not give
their reasons, it is nearly impossible for the court to determine whether they
acted in disregard of the law. "[T]o allow a court to conclude that it may
substitute its own judgment for the arbitrator's whenever the arbitrator chooses
not to explain the award would improperly subvert the proper functioning of
the arbital process...." Id., citing Sobel v. Hertz, Warner & Co., 469 F.2d 1211,
1214 (2d Cir.1972).

31

If a court is to vacate an arbitration award on the basis of a manifest disregard

of the law, there must be some showing in the record, other than the result
obtained, that the arbitrators knew the law and expressly disregarded it. We
recognize that this would be extremely difficult where the arbitrators failed to
state the reasons for their decision.4 However, we repeat that a party seeking to
vacate an arbitration award on the ground of manifest disregard of the law may
not proceed by merely objecting to the results of the arbitration. To do so
would result in relitigation of the claim, in violation of the basic purposes of
arbitration: a fast, inexpensive resolution of claims.

32

O.R. argues that the district court should have permitted discovery so that it
could determine whether the arbitrators disregarded the law. We find that the
district court did not abuse its discretion in not permitting discovery on this
issue. "Arbitration proceedings are summary in nature to effectuate the national
policy of favoring arbitration, and they require 'expeditious and summary
hearing, with only restricted inquiry into factual issues.' " Legion Insurance Co.
v. Insurance General Agency, Inc., 822 F.2d 541, 543 (5th Cir.1987) quoting
Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1,
22, 103 S.Ct. 927, 940, 74 L.Ed.2d 765 (1983).

33

The record of the arbitration proceedings in this case shows that the issue of
successor liability was clearly presented to the arbitrators and the arbitrators
declined to state reasons for their conclusions. This ends the inquiry. The
district court properly denied discovery of the arbitrators and of the merits of
O.R.'s claims. "Courts have repeatedly condemned efforts to depose members
of an arbitration panel to impeach or clarify their awards." Legion Insurance
Co., 822 F.2d at 543. Furthermore, O.R. cannot be permitted to relitigate the
merits of its claim. For the reasons stated above, we hold that the district court
did not abuse its discretion in dismissing O.R.'s request to vacate the arbitration
award on the ground that O.R. had failed to show a manifest disregard of the
law.5

34

O.R. also argues that the district court abused its discretion in dismissing its
complaint, because the complaint stated a claim for vacating the award on the
basis of fraud under 9 U.S.C. Sec. 10(a). We now turn to that issue.

35

At the outset, we note that as the moving party, O.R. had the burden to set forth
sufficient grounds to vacate the arbitration award in his moving papers. The
rules of notice pleading, Fed.R.Civ.P. 8, do not apply to a proceeding to vacate
an arbitration award, as all relief must be sought in the form of a motion. See
supra, 745-46.

36

In order to prevail on a motion to vacate on the grounds of fraud, O.R. must

meet the three requirements set forth in Bonar v. Dean Witter Reynolds, Inc.,
835 F.2d 1378, 1383 (11th Cir.1988). First, it "must establish fraud by clear
and convincing evidence." Id. "Second, the fraud must not have been
discoverable upon the exercise of due diligence prior to or during the
arbitration." Id. Finally, O.R. "must demonstrate that the fraud materially
related to an issue in the arbitration." Id.

37

To support its claim of fraud, O.R. alleges that Joseph T. Weinrich, President of

WZW, "incorrectly testified [at the arbitration proceeding] that he became an

officer of O.R. Securities after the purchase of assets, and may have made other
incorrect statements to support the false contention that O.R. Securities became
a successor to WZW." O.R. also contends that PPA and WZW constructed a
fraud whereby WZW failed to comply with PPA's numerous document
requests. O.R. contends that the arbitrators held WZW's failure to comply
against O.R.
38

The issue of WZW's failure to comply with discovery requests of PPA is clearly
meritless. The arbitration transcript shows that O.R. and PPA specifically noted
at the hearing that there had been no request for production of documents made
of O.R. 6 The record before the district court clearly showed no evidence of
fraud with respect to the withholding of documents. The district court did not
abuse its discretion in denying discovery on this issue.

39

Likewise, we find that the district court did not abuse its discretion in not
permitting discovery or further proceedings in regard to the issue of the alleged
false testimony by WZW's president. The truth or falsity of Mr. Weinrich's
testimony was or should have been noticed by O.R. during the course of the
arbitration proceedings. As such, O.R. had the opportunity to cross-examine on
the alleged false testimony. Because the alleged fraud was discoverable during
the arbitration proceedings, O.R. may not seek to vacate the judgment on that
ground. See Bonar, 835 F.2d at 1383.7

40

For the foregoing reasons, the judgment of the district court is AFFIRMED.

Honorable Jose A. Gonzalez, Jr., U.S. District Judge for the Southern District
of Florida, sitting by designation

The transfer of assets from WZW to O.R. arose out of a September 26, 1985
agreement between those two companies. Under the agreement, O.R. purchased
WZW's customer accounts and certain of its sales representative contracts. PPA
contends the sale amounted to a continuation of WZW's business by O.R. or a
fraudulent conveyance of assets made by WZW shortly after commencement of
the arbitration proceedings. O.R. argues that the sale was merely a sale of
corporate assets for cash with no resulting successor liability

PPA's Motion for Attorney's Fees was still pending in the district court at the
time O.R. filed its Notice of Appeal. Because we find that PPA's request for
attorney's fees is collateral to the main action, the district court's Order of
Dismissal is a final, appealable order under 28 U.S.C. Sec. 1291. See C.I.T.

Corp. v. Nelson, 743 F.2d 774 (11th Cir.1984)

3

We also find that the district court did not err in conducting a summary
procedure. As discussed in Legion Insurance Co. v. Insurance General Agency,
Inc., 822 F.2d 541, 543 (5th Cir.1987):
The district court was not required by the Federal Rules to conduct a full
hearing on appellant's motion [to vacate the arbitration award]. See
Fed.R.Civ.P. 43(e) (providing that court may direct that motions be decided on
the papers rather than after oral testimony); Fed.R.Civ.P. 78 (providing that
court may decide motions on written statements of reasons in support and
opposition to expedite business).
Because we find, infra, O.R. failed to allege sufficient bases to support its
claims for relief, the district court was not required to hold an evidentiary
hearing.

This problem is, perhaps, a strong argument in support of not recognizing

manifest disregard of the law as a basis for vacating an arbitration award, but it
does not affect our disposition of this case

O.R. argues that the district court erred in dismissing the Complaint without
ruling on O.R.'s contention that the award was irrational, violated public policy
and exceeded the arbitrator's powers. We find no error, as O.R. simply raises
these additional grounds to re-argue the merits of the issues before the
arbitrators

The transcript of the arbitration contains the following:

[Arbitrator]: Insofar as we know, there were, there were documents requested
by the claimant, requested of O.R. Securities.
[PPA]: No, they were requested of WZW, and among those were the financial
statements.
[Arbitrator]: And we have not, we've been told they were not produced.
[O.R.]: And I want to make it clear again that no one ever asked OR Securities
to produce documents.
[PPA]: That's correct. We asked WZW to produce those financial statements.
They have not been produced. That's why we're asking for verbal testimony at
this time.

Arbitration transcript, p. 89, 1. 10-22 (emphasis added).

7

Unlike the "incorrect" testimony allegedly offered in the present case, the false
nature of the testimony in Bonar was not readily apparent. There, a witness
completely falsified his credentials so as to be designated an expert. The
opposing party was unable to investigate the witness' credentials prior to the
arbitration proceeding because the rules of the American Arbitration
Association do not provide for a prior exchange of witness lists. Bonar, 835
F.2d at 1384. Thus, the fraud was not discoverable prior to or during the
arbitration process