Zarecor et al v. Morgan Keegan & Company Inc
ORDER denying Petitioners' 27 Motion for Reconsideration; denying as moot Respondent's 36 Motion for Leave to Supplement the Record. Signed by Judge Susan Webber Wright on 11/10/11. (vjt)
IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
HERSCHEL and MONA ZARECOR;
HERSCHEL ZARECOR IRA;
MONA ZARECOR IRA;
HERSCHEL ZARECOR III IRA; and
HERSCHEL ZARECOR III
MORGAN KEEGAN & COMPANY,
NO: 4:10CV01643 SWW
Petitioners Herschel Zarecor, Mona Zarecor, and Herschel Zarecor III commenced this
action seeking confirmation of an arbitration award rendered by a Financial Industry Regulatory
Authority (“FINRA”) arbitration panel (“the Panel”), and Respondent Morgan Keegan &
Company, Inc. (“Morgan Keegan”) counterclaimed to vacate the award. By order and judgment
entered July 20, 2011, the Court denied confirmation and vacated the award.
Now before the Court is Petitioners’ motion for reconsideration pursuant to Rule 59(e) of
the Federal Rules of Civil Procedure (docket entries #27, #28), Morgan Keegan’s response in
opposition (docket entry #29), Petitioners’ reply (docket entry #30), Morgan Keegan’s sur-reply
(docket entry #34), and Petitioners’ response to the sur-reply (docket entry #35). After careful
consideration, and for reasons that follow, the motion for reconsideration will be denied.
Morgan Keegan is a member of FINRA, an organization that regulates member securities
firms doing business in the United States. Upon joining FINRA, a member organization agrees
to comply with FINRA Rules. See FINRA By-laws art. IV, § 1. Pursuant to Rule 12200 of the
FINRA Code of Arbitration Procedure for Customer Disputes, a FINRA member must arbitrate a
dispute under the Code if:
• Arbitration under the Code is either:
(1) Required by a written agreement, or
(2) Requested by the customer;
• The dispute is between a customer and a member or associated person
of a member; and
• The dispute arises in connection with the business activities of the
member or the associated person, except disputes involving the insurance
business activities of a member that is also an insurance company.
FINRA Code Arb. P. Customer Disp. R. 12200.
In July 2009, Petitioners instituted an arbitration proceeding against Morgan Keegan by
filing a statement of claim (“SOC”) with FINRA.1 In answer to the SOC, Morgan Keegan
asserted, among other things that “[s]ome or all of [Petitioners’] claims . . . are not arbitrable
under the FINRA Rules or any arbitration agreement” and that Petitioners did not qualify as
customers of Morgan Keegan. Docket entry #13, Ex. B. Morgan Keegan also filed a motion to
dismiss under Rule 12504(a)(6)(B) of the FINRA Code of Arbitration Procedure for Customer
Disputes (docket entry #13, Ex. C), which the Panel denied (docket entry #13, Ex. F).
Background facts regarding the underlying dispute are set forth in the Court’s order
entered July 20, 2011 and will not be repeated here.
On October 27, 2010, after a hearing, the Panel issued an award in Petitioners’ favor,
ordering Morgan Keegan to pay a total $541,000 in compensatory damages. On November 12,
2010, Petitioners commenced this action seeking confirmation of the award, and Morgan Keegan
filed a timely answer and counterclaim to vacate the award.
In support of its counterclaim for vacatur, Morgan Keegan argued that the Panel lacked
jurisdiction over Petitioners’ claims because Morgan Keegan “did not enter into a written
agreement to arbitrate disputes with the Petitioners and . . . the Petitioner were never customers
of Morgan Keegan.”
Docket entry #13, at 2.
In a reply brief, Petitioners did not dispute the
absence of a written agreement to arbitrate. Instead, Petitioners asserted: “Under FINRA Rules,
customers are entitled to arbitrate without a written arbitration agreement.” Docket entry #14, at
7. Petitioners also argued that, by participating in the arbitration proceedings, Morgan Keegan
waived any right to contest arbitrability.
The Court rejected Petitioners’ waiver argument, finding that Morgan Keegan repeatedly
objected to the Panel’s jurisdiction, thereby preserving the argument that underlying dispute is
not subject to FINRA arbitration. Additionally, the Court found that Petitioners do not qualify
as customers of Morgan Keegan, and the Panel lacked authority to decide Petitioners’ claims.
Petitioners now seek reconsideration, reporting for the first time that Respondent signed a
FINRA submission agreement. Under FINRA Rule 13000, “The FINRA Submission Agreement
is a document that parties must sign at the outset of an arbitration in which they agree to submit
to arbitration under the Code.” FINRA Code Arb. P. Customer Disp. R. 13000. Petitioners
provide a copy of a submission agreement, signed by house counsel for Morgan Keegan on
August 17, 2009,2 which reads as follows:
1. The undersigned parties (“parties”) hereby submit the present matter in
controversy, as set forth in the attached statement of claim, answers, and all related
cross claims, counterclaims and/or third-party claims which may be asserted, to
arbitration in accordance with the FINRA By-Laws, Rules, and Code of Arbitration
2. The parties hereby state that they or their representative(s) have read the
procedures and rules of FINRA relating to arbitration, and the parties agree to be
bound by these procedures and rules.
3. The parties agree that in the event a hearing is necessary, such hearing shall be
held at a time and place as may be designated by the Director of Arbitration or the
arbitrator(s). The parties further agree and understand that the arbitration will be
conducted in accordance with the FINRA Code of Arbitration Procedure.
4. The parties agree to abide by and perform any award(s) rendered pursuant to this
Submission Agreement. The parties further agree that a judgment and any interest
due thereon, may be entered upon such award(s) and, for these purposes, the parties
hereby voluntarily consent to submit to the jurisdiction of any court of competent
jurisdiction which may properly enter such judgment.
5. The parties hereto have signed and acknowledged the foregoing Submission
Docket entry #28, Ex. A. Petitioners now assert that the submission agreement is a binding
contract to arbitrate, which gave the Panel jurisdiction to determine arbitrability. Additionally,
Petitioners now argue that Morgan Keegan submitted the issue of arbitrability to the Panel, and
the Panel’s decision on the issue is entitled to substantial deference.
Rule 59(e) of the Federal Rules of Civil Procedure permits a district court to correct its
own mistakes in the time period immediately following entry of judgment. Innovative Home
Morgan Keegan presents evidence that, although counsel signed the agreement on
August 17, 2009, it submitted the submission agreement to FINRA on November 10, 2009, five
days after it filed an answer contesting arbitrability. See docket entry #29, Ex. #1 (Clouatre
Dec.); docket entry #13, Ex. B (Answer dated Nov. 5, 2009).
Health Care, Inc. v. P.T.-O.T. Assocs., 141 F.3d 1284, 1286 (8th Cir. 1998). The limited
function of Rule 59(e) motions is to correct manifest errors of law or fact or present newly
discovered evidence. Id.
Petitioners contend that the Court “overlooked the material fact” that there was a signed
submission agreement. According to Petitioners, they simply “failed to highlight” that Morgan
Keegan signed a submission agreement, and evidence of the agreement “has been part of the
record all along.” The Court disagrees. Before the Court entered judgment in this case, the only
reference to a submission agreement appeared in a copy of the arbitration award attached to the
complaint. A single entry in the “case information” section of the award reads: “Respondent
signed the Submission Agreement: August 17, 2009.” Compl., Ex. A, at 1.
referenced the foregoing entry or mentioned the term “submission agreement” in numerous
briefs filed before entry of judgment. Considering the legal arguments presented before
judgment, the Court’s failure to notice a single, cryptic reference to a submission agreement does
not amount to a manifest error of law or fact.
Rule 59(e) “cannot be used to introduce new evidence, tender new legal theories, or raise
arguments which could have been offered or raised prior to entry of judgment.” Innovative
Home Health Care, Inc. v. P.T.-O.T. Assocs., 141 F.3d 1284, 1286 (8th Cir. 1998)(citation
omitted).3 In this case, evidence that Morgan Keegan signed a submission agreement was
To prevail on a Rule 59(e) motion on the ground of newly discovered evidence, the
movant must show that (1) the evidence was discovered after trial; (2) the movant exercised due
diligence to discover the evidence before the end of trial; (3) the evidence is material and not
merely cumulative or impeaching; and (4) a new trial considering the evidence would probably
produce a different result. See United States v. Metropolitan St. Louis Sewer Dist., 440 F.3d
930, 933, 440 F.3d 930 (8th Cir. 2006). See U.S. Xpress Enter. Inc. v. J.B. Hunt Transp., Inc., 320
F.3d 809, 815 (8th Cir.2003) (discussing factors one must show to prevail under Rule 60(b)(2),
which are the same under Rule 59(e)).
available to Petitioners before the Court entered judgment in this case, and Petitioners could
have offered evidence of the agreement and raised an argument regarding the impact of the
agreement prior to entry of judgment. Instead, Petitioners steadfastly argued that they qualified
as Morgan Keegan customers entitled to demand arbitration under FINRA Rule 12200, and they
failed to oppose Morgan Keegan’s repeated assertion that the parties never entered an arbitration
Petitioners make the additional, new argument that Morgan Keegan submitted the issue
of arbitrability to the Panel and that the Panel’s decision on arbitrability is entitled to substantial
deference. Unless parties clearly and unmistakably agreed otherwise, the determination of
whether parties have agreed to resolve a dispute through arbitration is a question for the Court.
See Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83, 123 S. Ct. 588, 591 (2002)(quoting
AT & T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 649, 106 S. Ct. 1415
(1986)). If the parties agreed to submit the question of arbitrability to the arbitrator, a court
should defer to the arbitrator’s arbitrability decision. First Options of Chicago, Inc. v. Kaplan,
514 U.S. 938, 943, 115 S. Ct. 1920, 1924 (1995). “If, on the other hand, the parties did not agree
to submit the arbitrability question itself to arbitration, then the court should decide that question
just as it would decide any other question that the parties did not submit to arbitration, namely,
independently.” Id. Petitioners’ current argument is in stark contrast to their pre-judgment
position that Morgan Keegan waived the right to contest arbitrability and failed to contest
arbitrability before the Panel. Based on the evidence and briefs before the Court prior to entry of
judgment, the Court found that the parties did not agree to resolve the underlying dispute through
arbitration, and Petitioners failed to advance an argument, before now, that the parties agreed to
submit the question of arbitrability to the Panel.
After careful consideration, the Court finds that Petitioners are not entitled to relief under
Rule 59(e). Accordingly, the motion for reconsideration (docket entry #27 ) is DENIED. It is
further ordered that Respondent’s motion to supplement the record (docket entry # 36) is
DENIED AS MOOT.
IT IS SO ORDERED THIS 10TH DAY OF NOVEMBER, 2011.
/s/Susan Webber Wright
UNITED STATES DISTRICT JUDGE
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?