Pochat v. Merrill Lynch Pierce Fenner & Smith Incorporated et al
ORDER CONFIRMING AND MODIFYING THE ARBITRATION AWARD. Please see Order for details. The Clerk of Court shall close both cases. Signed by Judge Robin S. Rosenbaum on 8/22/2013. Associated Cases: 1:12-cv-22397-RSR, 1:12-cv-22414-RSR (RSR)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 12-22397-CIV-ROSENBAUM
ENRIQUE ALBERTO POCHAT,
MERRILL LYNCH, PIERCE, FENNER
& SMITH, INC., and MERRILL LYNCH
ORDER CONFIRMING AND MODIFYING THE ARBITRATION AWARD
This matter is before the Court on Petitioner Enrique Alberto Pochat’s Petition to Vacate
Arbitrator’s Award [D.E. 1] and Respondents Merrill Lynch, Pierce, Fenner & Smith, Inc., and
Merrill Lynch International Finance’s Petition to Confirm in Part and Modify in Part, or in the
Alternative Correct, or in the Alternative Vacate in Part and Confirm in Part Arbitration Award
[Case No. 12-22414-CIV-ROSENBAUM, D.E. 1].1 The Court has carefully reviewed the pending
Motions, all supporting and opposing filings, and the record. For the reasons set forth below, the
Court denies Pochat’s Petition and grants in part and denies in part Respondents’ Petition.
Specifically, the Court confirms the underlying Arbitration Award in all respects, except that the
Later in the day that Pochat filed the pending suit, Respondents Merrill Lynch, Pierce,
Fenner & Smith, Inc., and Merrill Lynch International Finance filed a second lawsuit, Case No.
12-22414-CIV-ROSENBAUM, seeking to confirm in part and to modify in part the same
arbitration award that is the subject of Pochat’s case. Pochat moved to consolidate the two cases,
and the Court granted the motion. See D.E. 6, D.E. 7. All references in this Order to docket
entries refer to the docket in the instant case unless otherwise specifically indicated.
Court modifies the Award pursuant to 9 U.S.C. § 11(c) to allow Merrill Lynch to offset the $200,000
it owes Pochat against the $848,915.48, plus interest from the date of default, owed by Pochat to
The Arbitration decision before this Court, Financial Industry Regulatory Authority
(“FINRA”) Dispute Resolution Arbitration No. 09-7228 (the “Arbitration”), arose from Petitioner
Enrique Alberto Pochat’s October 2009 termination from his position as a Financial Advisor in the
Miami office of Respondent Merrill Lynch, Pierce, Fenner, & Smith, Inc., a national securities
brokerage firm and a member of FINRA [D.E. 1]. The Parties dispute various aspects of the
Arbitration Award (the “Award”), which actually consists of two awards — one in favor of Pochat
and one in favor of Respondents Merrill Lynch, Pierce, Fenner, & Smith, Inc., and Merrill Lynch
International Finance (collectively, “Merrill Lynch”). See D.E. 1, Ex. A, FINRA Dispute Resolution
Award in Case No. 09-7228. The Arbitrators found Merrill Lynch liable to Pochat in the amount
of $200,000 for failing to supervise him properly during his employment in Argentina and also found
Pochat liable to Respondents for the unpaid principal and interest on a nearly $1 million loan
Petitioner received from Respondents prior to his termination. Id.
The Underlying Dispute
Petitioner Enrique Alberto Pochat began working for Merrill Lynch as a financial advisor in
1998, when he was hired by its Buenos Aires, Argentina, branch office. D.E. 1 in 12-22414 at 3.
In 2002, Pochat, who had developed a $120,000,000 client book, moved from the Buenos Aires
office to the Merrill Lynch international office in Miami, Florida. D.E. 1 at 2-3.
In early 2009, in connection with the merger between Merrill Lynch and Bank of America,
certain Merrill Lynch financial advisors were offered the opportunity to participate in Merrill
Lynch’s Advisor Transition Program (“ATP”) and receive loans from Merrill Lynch at a favorable
interest rate. D.E. 1 in 12-22414 at 3. Pochat elected to take advantage of the ATP program, and
on January 8, 2009, Petitioner executed a promissory note (the “Note” or “ATP Note”) with Merrill
Lynch in which he agreed to borrow $940,511.00 at an annual interest rate of 3.0% for all unpaid
principal. Id. The terms of the Note specify that any outstanding balance becomes immediately
payable if Petitioner’s employment with Merrill Lynch is terminated for any reason. Id. Section of
the ATP Note states, in relevant part,
Failure to Pay or Insolvency. Notwithstanding anything to the
contrary contained herein, all outstanding principal and accrued but
unpaid interest on this Note shall become due and immediately
payable if (a) the undersigned’s employment with Merrill Lynch is
terminated for any reason . . .
D.E. 1-5 at 67-692 (emphasis added). The terms of the Note also state that its “provisions . . . shall
be governed by and construed in accordance with the laws of the State of New York, without
reference to the principles of choice of law thereof.” Id. at 68. On January 23, 2009, Petitioner
received the loan amount ($940,511.00) from Merrill Lynch. Case No. 12-22414, D.E. 1 at 3.
On October 19, 2009, Pochat’s employment was terminated by Merrill Lynch. Id. According
to Respondents, Pochat had engaged in an outside investment in a Minnesota company called IPOOL
with Merrill Lynch clients when he was employed in Merrill Lynch’s Buenos Aires office in 1999,
an act known in the industry as “selling away.” Id. at 2. At this point, the Parties’ renditions of the
Some filings have more than one page-numbering system — the document’s own page
numbers and the page numbers imprinted across the top of the document by the Court’s CM/ECF
system. Where more than one page-numbering system appears on a document, this Order refers
to the page number left by the Court’s CM/ECF system.
facts diverge. Merrill Lynch states that its investigation into the outside investment “conclusively
revealed that [Pochat] violated both Merrill Lynch’s policies and industry rules/regulations regarding
improper and unauthorized selling away to clients and commingling assets with clients.” Id. at 3.
Although Petitioner does not dispute that he entered into the IPOOL investment with Merrill Lynch
clients, he asserts that it was “an act which he disclosed to his manager in Argentina, which was
commonplace and done by several other Merrill Lynch Argentina financial advisors at the time with
Argentinean clients, and which Merrill Lych had failed to inform him was unauthorized and
improper. D.E. 1 at 3. For their part, Respondents retort that “at no time did [Petitioner] ever
describe orally or in written detail his role in the transaction, including the participation of Merrill
Lynch clients, or the bundling of his clients’ assets to purchase securities only in his name.” Case
No. 12-22414, D.E. 1 at 3.
Upon terminating Pochat, Merrill Lynch filed a Uniform Termination Notice for Securities
Industry Registration (“Form U-5") with FINRA, a regulatory form that brokerage firms must file
with the agency whenever as associated person’s registration and employment with the firm is
terminated. Id. at 4. The Form U-5 for Mr. Pochat states that he violated securities industry rules
“prohibiting selling away and financial arrangements with clients.” Id.
At the time of his termination, Petitioner still owed Merrill Lynch $848,915.48, plus interest,
on the ATP Note. Id.3
Merrill Lynch initially filed a claim against Mr. Pochat in New York state court in order
to recover the balance of Petitioner’s loan obligation. D.E. 1 in 12-22414 at 4. This action was
ultimately dismissed because FINRA rules required Merrill Lynch to arbitrate such disputes. See
D.E. 1 at 4 n. 3.
In December 2009, Pochat commenced a claim in arbitration against Merrill Lynch under the
FINRA Code of Arbitration Procedure for Industry Disputes. Id. In his Statement of Claim,
Petitioner asserted the following: (1) Merrill Lynch violated FINRA Rules mandating arbitration by
filing a complaint against Pochat in New York state court to recover the balance of the ATP Note;
(2) Merrill Lynch violated FINRA Rules of fair dealing; (3) Merrill Lynch breached its employment
contract with Pochat by violating express contractual provisions and/or “the duty of good faith and
fair dealing that is legally implied in the performance of every contract under New York law”; (4)
Merrill Lynch was negligent in failing to fulfill its duty to treat Pochat with reasonable and prudent
standards; (5) Merrill Lynch tortiously interfered with Pochat’s business relationships; (6) Merrill
Lynch tortiously interfered with Pochat’s “prospective business advantage”; (7) Merrill Lynch
engaged in unfair competition; (8) Merrill Lynch disparaged Pochat and used defamatory language
in his Form U-5; and (9) Merrill Lynch was unjustly enriched. D.E. 1-5 at 14-20. Pochat
subsequently submitted an Amended Statement of Claim on April 29, 2010, contending that the ATP
Note was unconscionable. Id. at 20.
In response to Pochat’s initial Statement of Claim, Merrill Lynch submitted its Answer and
Defenses to Statement of Claim and Counterclaim on February 25, 2010. Case No. 12-22414, D.E.
1 at 4. Merrill Lynch’s Counterclaim sought recovery of the outstanding balance of the ATP Note
from Petitioner. Id. The Parties also submitted Pre-hearing Briefs on March 28, 2012, in accordance
with FINRA rules. Id. at 5.
The final arbitration hearing (the “Hearing”) was held over four days in Miami, Florida, from
April 17-20, 2012, before a panel of three FINRA arbitrators. Id. The Hearing commenced with the
Panel hearing argument on an Emergency Motion that Pochat submitted to the Arbitrators, alleging
discovery violations by Merrill Lynch. D.E. 1 at 5. According to Petitioner, Respondents had
produced to Pochat additional discovery several days before the Hearing. Id. Pochat argued in his
Emergency Motion that the production violated a Panel discovery order and FINRA rules, and he
requested that Respondents be “severely sanctioned” for their actions. See D.E. 1-11 at 2. The
Panel, after hearing argument from both Parties on the discovery issue, denied Petitioner’s
Emergency Motion and permitted the late-produced documents to be admitted into evidence. D.E.
1 at 11. The Panel then proceeded with the Final Hearing.
In the afternoon of the last day of the hearing, one of the arbitrators began questioning Merrill
Lynch about other Financial Advisors in its Buenos Aires office who may have also invested in
IPOOL with firm clients. Case No. 12-22414, D.E. 1 at 5. Specifically, the Arbitrator requested
Respondents to produce copies of the other Advisors’ “Outside Interest Questionnaires,” an internal
Merrill Lynch questionnaire that required financial advisors to disclose any investment activities
with which they were involved outside the firm. See D.E. 15-1 at 93-103. Apparently, the Arbitrator
was interested in determining whether Pochat had been “singled out” for selling away. Case No. 1222414, D.E. 1 at 5. Merrill Lynch objected to producing the documents without testimony, but the
Panel overruled its objection. Id. at 6. Respondents then made an oral Motion to Adjourn the
hearing so that Merrill Lynch could conduct further discovery and present testimony regarding the
requested materials. Id. After deliberating off the record, the Panel denied Respondents’ Motion
and required Merrill Lynch to produce the Outside Interest Questionnaires within two weeks. Id.;
see also D.E. 15-1 at 116.
The Arbitration Panel issued a unanimous award on May 29, 2012. See D.E. 1-3. The
Award states, in relevant part,
Respondent MLPFS is found liable for its failure to provide adequate
supervision to Claimant while he was employed in Argentina and
shall pay to Claimant the sum of $200,000, pre-judgment interest
specifically excluded. Post-judgment interest shall accrue in
accordance with Rule 12904(j) of the Code of Arbitration Procedure
Claimant is liable and shall pay Respondent/Counterclaimants
MLPFS and ML International the principal balance due on the note
of $848,915.48, plus interest in the additional amount of 3% per
annum from October 19, 2009 through such date as the principal and
interest are fully paid.
The Panel has denied Claimant’s request for an expungement of the
defamatory language on his form U5.
Any and all claims for relief not specifically addressed herein,
including Claimant’s request for punitive damages, and the parties’
requests for attorneys’ fees, are denied.
Id. at 4.
One week after the Panel issued its Award, on July 5, 2012, counsel for Merrill Lynch sent
letters to the FINRA Case Administrator, Steve D. Encaoua, and to counsel for Pochat, W. Stephen
Adams, stating that Merrill Lynch “hereby give[s] notice that our clients [Merrill Lynch]
affirmatively offset the $200,000 owed to Mr. Pochat against the $915,406.29 owed by Mr. Pochat
to MLPFS and ML International. This leaves Mr. Pochat owing MLPFS and ML International
$648,915.48 plus the interest as identified in the award.” Case No. 12-22414, D.E. 11-6 at 2. In
response, counsel for Pochat emailed Encaoua, contesting Merrill Lynch’s ability to decide
unilaterally to offset the Award amounts, arguing that such an act would be contrary to the Panel’s
Award because the Award was silent regarding offset. Case No. 12-22414, D.E. 1-13 at 6.
In light of Petitioner’s opposition and the fact that the Award did not mention setoff, Merrill
Lynch wrote again to Encaoua , this time formally requesting that the Panel be permitted to clarify
whether the two Award amounts could be offset. Id. at 2-3. Respondents made their request
pursuant to FINRA Rule 13905(a)(2), which allows a party to an arbitration proceeding to make
submissions to the arbitrators after an award has been rendered where “computational errors,” among
other grounds, exist. Id. Pochat opposed Merrill Lynch’s request. See D.E. 12-1. In a June 7, 2012,
letter to Encaoua, Pochat argued that the matter of offset could not be put before the Panel pursuant
to FINRA Rule 13905(a) since it did not involve a “computational error.” Id. at 2. Pochat further
contended that the Panel could not consider the issue under FINRA Rule 13905(a)(3), which permits
parties to submit documents to the Panel post-award regarding any matter, as long as all parties agree
to the issue’s submission, since Pochat would not consent to such action. Id.
On June 26, 2012, Encaoua informed the Parties that the FINRA Director of Admissions had
determined that Merrill Lynch’s submissions regarding offset “do not comply with the grounds
enumerated in Rule 13905. Accordingly, the submissions will not be sent to the arbitrators.” Case
No. 12-22414, D.E. 1-14. Thus, the Panel did not have an opportunity to consider whether the
awards to Pochat and to Merrill Lynch could be offset.
The Proceedings in this Court
On June 28, 2012, Pochat initiated the current civil action petitioning this Court to vacate in
part the Arbitration Award (“Petition to Vacate”) [D.E. 1]. Also on that date, Respondents Merrill
Lynch sought an Order from this Court in Case Number 12-22414 confirming in part and modifying
in part, or, alternatively, correcting in part, or, alternatively, vacating in part the same Arbitration
Award (“Petition to Confirm in Part”) [Case No. 12-22414, D.E. 1]. Respondents, in opposing
Pochat’s Petition to Vacate, have also moved for sanctions against Petitioner in the form of
attorneys’ fees. See D.E. 8 at 1, 16-18.
On July 13, 2012, upon Petitioner Pochat’s Motions to Consolidate [D.E. 6; Case No. 1222414, D.E. 12], Case No. 12-22414 was consolidated with the instant matter. See D.E. 7.
In his Petition, Petitioner argues that the part of the Award finding Pochat liable to
Respondents should be vacated because (1) the Panel exceeded its powers by manifestly disregarding
the law and (2) the Arbitrators were guilty of misbehavior that prejudiced Pochat’s rights. Id.
Respondents Merrill Lynch oppose Petitioner’s request for vacatur and ask this Court to
confirm the Panel’s Award in full, offset the two Award amounts, and enter judgment in favor of
Merrill Lynch for the net amount. See Case No. 12-22414, D.E. 1. In the alternative, Respondents
argue that the part of the Award finding MLPFS liable to Petitioner should be corrected because the
Panel awarded Pochat on a matter not submitted to the Panel, or, alternatively, should be vacated
because the Panel exceeded its powers and is guilty of misconduct. Id.4
Jurisdiction and Venue
Because complete diversity exists between the parties (both Merrill Lynch companies are
organized under the laws of Delaware with their principal places of business in New York, and
Pochat is a resident of Miami, Florida) and the amount in controversy exceeds $75,000, exclusive
of interest and costs, this Court has jurisdiction pursuant to 28 U.S.C. § 1332(a). Venue is proper
in this district because the Arbitration took place in Miami, Florida, and the Award was rendered in
Petitioner and Respondents filed and served their respective petitions with 30 days of
the issuance of the Arbitration Award, in accordance with FINRA Rule 13904(j).
Standard of Review
The Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-16, governs this case because federal
subject matter jurisdiction exists, see Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460
U.S. 1, 25 n. 32 (1983), and the subject of the Arbitration “evidences a transaction involving
interstate commerce.” 9 U.S.C. § 2; see also Brown v. Rauscher Pierce Refsnes, Inc., 994 F.2d 775,
778 (11th Cir. 1993) (“Our review of commercial arbitration awards is controlled by the Federal
Arbitration Act . . . .”). The FAA “imposes a heavy presumption in favor of confirming arbitration
awards,” Riccard v. Prudential Ins. Co. of Am., 307 F.3d 1277, 1288 (11th Cir. 2002), and “federal
courts should defer to an arbitrator’s decision whenever possible.” Frazier v. CitiFinancial Corp,
LLC, 604 F.3d 1313, 1321 (11th Cir. 2010) (citation omitted). “[A]s long as the arbitrator is even
arguably construing or applying the contract and acting within the scope of his authority, that a court
is convinced he committed serious error does not suffice to overturn his position.” United
Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29, 38 (1987). Accordingly, the Eleventh Circuit
has described courts’ confirmations of arbitration awards as “usually routine or summary.” Riccard,
307 F.3d at 1288.
Thus, it is also “well settled that judicial review of an arbitration award is narrowly limited.”
Davis v. Prudential Sec., Inc., 59 F.3d 1186, 1190 (11th Cir. 1995); see also Robbins v. Day, 954
F.2d 697, 683 (11th Cir. 1992), overruled on other grounds, First Options of Chicago, Inc. v.
Kaplan, 514 U.S. 938, 948 (1995) (“The [FAA] does not allow courts to ‘roam unbridled’ in their
oversight of arbitration awards, but carefully limits judicial intervention to instances where the
arbitration has been tainted in specific ways.”); Cat Charter, LLC v. Schurtenberger, 646 F.3d 836,
843 (11th Cir. 2011) (“[A]rbitrators do not act as junior varsity trial courts where subsequent
appellate review is readily available to the losing party.”) (citation and internal quotation marks
omitted). Indeed, “judicial review of arbitration decisions is among the narrowest known to the
law.” AIG Baker Sterling Heights, LLC v. American Multi-Cinema, Inc., 508 F.3d 995, 1001 (11th
Cir. 2007) (citation and internal quotation marks omitted).
In the Eleventh Circuit, Sections 10 and 11 of the FAA set forth the exclusive grounds for
vacating, correcting, or modifying an arbitration award. 9 U.S.C. §§ 10(a), 11; see also White
Springs Agric. Chems., Inc. v. Glawson Invs. Corp., 660 F.3d 1277, 1280 (11th Cir. 2011) (citing
Hall St. Assocs., LLC v. Mattel, Inc., 552 U.S. 576, 586 (2008)) (“Sections 10 and 11 of the FAA,
9 U.S.C. §§ 10, 11, provide the exclusive means by which a federal court may upset and arbitration
panel’s award.”); Cat Charter, 646 F.3d at 842 n.10 (“The Supreme Court has made clear that the
statutory grounds justifying vacatur found in 9 U.S.C. § 10(a) are exclusive.”) (citing Hall St., 552
U.S. at 578); Frazier v. Citifinancial Corp., LLC, 604 F.3d 1313, 1321, 1324 (11th Cir. 2010)
(holding that the statutory grounds for vacatur set out in the FAA are exclusive). Stated another way,
“Section 9 of the FAA provides that, upon application of any party to the arbitration, the court must
confirm the arbitrator’s award unless it is vacated, modified, or corrected in accordance with sections
10 and 11 of the statute.” Frazier, 604 F.3d at 1321 (emphasis in original).
Section 10 of the FAA permits vacatur of arbitration awards in only four narrow
Where the award was procured by fraud, corruption, or undue
Where there was evident partiality or corruption in the
arbitrators, or either of them;
Where the arbitrators were guilty of misconduct in refusing to
postpone the hearing, upon sufficient cause shown, or in
refusing to hear evidence pertinent and material to the
controversy, or of any other misbehavior by which the rights
of any party may have been prejudiced; or
Where the arbitrators exceeded their powers, or so
imperfectly executed them that a mutual, final, and definite
award upon the subject matter was not made.
9 U.S.C. § 10(a)(1)-(4). The FAA also provides that arbitration awards may be corrected or
modified in three situations. 9 U.S.C. § 11. Section 11 states that a court “may make an order
modifying or correcting the award upon application of any party to the arbitration —
Where there was an evident material miscalculation of figures
or an evident material mistake in the description of any
person, thing, or property referred to in the award.
Where the arbitrators have awarded upon a matter not
submitted to them, unless it is a matter not affecting the
merits of the decision upon the matter submitted.
Where the award is imperfect in matter of form not affecting
the merits of the controversy.
The order may modify and correct the award so as to effect the intent
thereof and promote justice between the parties.
Id. In applying these grounds for vacating, modifying, or correcting an award, the Eleventh Circuit
has cautioned, courts “must always bear in mind that the basic policy of conducting arbitration
proceedings is to offer a means of deciding disputes expeditiously and with lower costs than in
ordinary litigation.” Schmidt v. Finberg, 942 F.2d 1571, 1573 (11th Cir. 1991); see also Booth v.
Hume Pub., Inc., 902 F.2d 925, 933 (11th Cir. 1990) (“The Act’s enunciation of specific defenses
to a petition to confirm an award ‘was not intended to overthrow the general advantage of speedy
and effective decision of disputes by arbitration and the creation of these general grounds does not
obliterate the hesitation with which courts should view efforts to re-examine awards. To do
otherwise would defeat the primary advantages of speed and finality which led to the development
of arbitration. . . .’”) (citation omitted).
Pochat’s Petition to Vacate the Award in Part
Pochat argues that the part of the Award finding him liable to Respondents should be vacated
on two grounds. First, Pochat contends that vacatur is necessary under 9 U.S.C. § 10(a)(4) because,
when the Panel found him liable on the loan that he asserts that Respondents’ negligence prevented
him from being able to repay, the Arbitrators exceeded their powers by acting in “manifest
disregard” of the law. See D.E. 1 at 6-8, 12-19. Second, Petitioner urges that the Panel exceeded
its powers and was guilty of “misbehavior” because it admitted into evidence discovery that Merrill
Lynch produced two days before the Final Hearing and denied Petitioner’s Emergency Motion
requesting that Respondents’ be sanctioned for the late production. Id. at 8-11, 19-21. In sum,
Petitioner claims that “[t]he Panel’s award in favor of Merrill Lynch is simply not supported by the
evidence at the arbitration nor the law, and is in fact contradictory to the Panel’s own findings, and,
therefore, confirming this award as it is would be an unfortunate travesty of justice.” Id. at 12.
Respondents oppose Pochat’s Petition, arguing that “Petitioner has not set forth any valid
grounds for vacating the arbitration award.” D.E. 8 at 1. Specifically, Respondents claim that, in
the Eleventh Circuit, manifest disregard of the law is no longer an independent basis for vacatur and
that it also cannot be considered as “shorthand” for a claim under Section 10(a)(4), which permits
vacatur where the panel has exceeded its powers. D.E. 8 at 9-11. Merrill Lynch also objects to
Petitioner’s contention that the Panel exceeded its powers and was guilty of “misbehavior” regarding
Respondents’ late document production because “the law is clear that a Panel is given broad
discretion with respect to the admission of evidence and decisions regarding sanctions.” Id. at 2, 1316. Thus, Respondents contend, Section 9 of the FAA mandates confirmation of this part of the
Award because no grounds warrant vacatur. Id.
The Award Will Not Be Reversed for Manifest Disregard of the Law
Petitioner first argues that the Award should be vacated in part because the Panel exceeded
its powers under FAA section 10(a)(4) by manifestly disregarding the law. See D.E. 1 at 7-8, 13-19.
In this regard, Pochat suggests that In re Frymire, 96 B.R. 525 (Bankr. E.D. Pa.),5 rev’d in part on
other grounds, 107 B.R. 506 (E.D. Pa. 1989), and Wakefield v. Northern Telecom, Inc., 769 F.2d 109
(2d Cir. N.Y. 1985),6 required the Panel to decline to award Merrill Lynch repayment of the ATP
But this Court may not consider whether the Award conflicts with the Frymire and Wakefiled
decisions because even if it does, manifest disregard of the law does not provide a basis for vacatur
of an arbitration award in the Eleventh Circuit. Prior to the Supreme Court’s holding in Hall Street
In In re Frymire, the Pennsylvania bankruptcy court considered the claims of a
stockbroker who, after being terminated from his brokerage firm, sought discharge of the
“advance compensation award” he had received from the firm. Invoking the “maxim that a
promisor cannot be held responsible to perform a contractual promise which the promisee
prevents him from performing,” 96 B.R. at 540 (citations omitted), the court held that “[i]t is
apparent that, having discharged Plaintiff from its employ, [the firm] prevented the Plaintiff from
performing his undertaking to remain and have the liability to repay the entire [advance
compensation award] eliminated, without further obligation on the part of the Plaintiff.
Therefore, the Plaintiff should be relieved from his liability to repay [the firm] by reason of its
having discharged him.” Id. In reaching this conclusion, the court noted in passing that the sole
exception to this rule exists where the former employee engages in conduct “so egregious as to
have compelled his discharge.” Id.
In Wakefield, the Court of Appeals found that an employer’s termination of an at-will
employee “for the purpose of avoiding the payment of commissions which are otherwise owed”
may breach the implied covenant of good faith and fair dealing, despite the employee’s status as
an at-will employee. Wakefield, 769 F.2d at 112.
that “§§ 10 and 11 respectively provide the FAA’s exclusive grounds for expedited vacatur and
modification [of an award],” Hall St., 552 U.S. at 578, most courts, including the Eleventh Circuit,
recognized several judicially created bases for vacatur, including “manifest disregard of the law.”
See, e.g., Peebles v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 431 F.3d 1320, 1326 (11th Cir.
2005) (“In addition to the four statutory grounds, the Eleventh Circuit Court of Appeals has
recognized three non-statutory bases for vacatur of an arbitration award. The award may be vacated
(1) if it is arbitrary and capricious, (2) if its enforcement is contrary to public policy, or (3) if it
evinces a manifest disregard of the law.”).
Following Hall Street, however, the Eleventh Circuit concluded that “judicially-created bases
for vacatur” that it had previously recognized, including manifest disregard of the law, were no
longer viable. S. Comm’ns Servs. v. Thomas, 730 F.3d 1352 (11th Cir. 2013) (quoting Frazier v.
CitiFinancial Corp., LLC, 604 F.3d 1313, 1324 (11th Cir. 2010)) (internal quotation marks omitted);
see also Aviles v. Charles Schwab & Co., 435 F. App’x 824, 829 (11th Cir. 2011) (“Even manifest
disregard of the law is no longer a valid independent, non-statutory ground upon which an arbitration
award may be set aside.”) (citing Frazier, 604 F.3d at 1321-23). Similarly, the court noted that
incorrect legal conclusions provide no basis for vacating or modifying an arbitration award. S.
Comm’ns Servs., 730 F.3d 1352 (quoting White Springs, 660 F.3d at 1280).
While Pochat acknowledges Frazier, he nonetheless maintains that “manifest disregard” is
a basis for vacatur — but not as an independent judicially created ground. Rather, Pochat argues that
manifest disregard of the law should be viewed “as a judicial interpretation of the district court’s
power under § 10(a)(4) to vacate an award where the arbitrator ‘exceeded [his] powers’ . . . .” D.E.
1 at 16. At least two other circuit courts have taken this approach when interpreting the viability of
“manifest disregard” as a ground for vacatur after the Supreme Court’s pronouncement in Hall
Street. See, e.g., T. Co Metals, LLC v. Dempsey Pipe & Supply, Inc., 529 F.3d 329, 339 (2d Cir.
2010) (“This Court recently made clear in Stolt-Nielsen SA v. AnimalFeeds International Corp. that
it reads Hall Street as ‘reconceptualiz[ing] ‘manifest disregard ‘as a judicial gloss on the specific
grounds of vacatur’ of arbitration awards under 9 U.S.C. § 10. So interpreted, we concluded that
manifest disregard ‘remains a valid ground for vacating arbitration awards.”) (citing Stolt-Nielsen
SA v. AnimalFeeds Int’l Corp., 548 F.3d 85, 93-94 (2d Cir. 2008), rev’d on other grounds, 559 U.S.
662 (2010)); Comedy Club, Inc. v. Improv. W. Assocs., 553 F.3d 1277, 1290 (9th Cir. 2009) (holding
that “the manifest disregard ground for vacatur is shorthand for a statutory ground under the FAA,
specifically 9 U.S.C. § 10(a)(4), which states that the court may vacate ‘where the arbitrators
exceeded their powers.’”).
But the Eleventh Circuit has expressly declined to adopt this analysis. For example, in White
Springs, the appellant argued that the arbitration panel exceeded its powers under Section 10(a)(4)
when it “award[ed] prejudgment interest because Florida law prohibits that recovery.” White
Springs, 660 F.3d at 1283. Although the argument for vacatur was couched in terms of a statutory
basis, the Eleventh Circuit held that “[t]hese points on appeal essentially involve the same argument:
the panel exceeded its powers by acting contrary to the law. We cannot, however, review the panel’s
award for underlying legal error. Even though White Springs presents its argument in terms of the
FAA, it asks us to do what we may not — look to the legal merits of the underlying award.” Id.
(emphasis added); see also Frazier, 604 F.3d at 1323-24 (finding that, although other circuits “treat
manifest disregard of the law not as an additional, independent non-statutory ground for vacatur, but
instead as a judicial interpretation of the district court’s power under § 10(a)(4),” the Eleventh
Circuit “agree[s] with the Fifth Circuit that the categorical language of Hall Street compels” the
conclusion that “judicially-created bases for vacatur are no longer valid”); Great Am. Ins. Co. v.
Moye, 733 F. Supp. 2d 1298, 1306 (M.D. Fla. 2010) (“In response [to the holding in Hall Street],
some circuits have meshed the ‘manifest disregard’ ground for vacation into the § 10(a)(4) ‘exceeded
their scope’ provision. . . . The Eleventh Circuit, however, has rejected this approach and regards
the statutory bases as exclusive.”) (citing Frazier, 604 F.3d 1313). In view of Eleventh Circuit
precedent, no basis exists for vacating an arbitration award for manifest disregard of the law.
Accordingly, Petitioner’s request is denied.
The Panel Did Not Exceed its Powers or Engage in “Misbehavior” with Respect to
Merrill Lynch’s Late Document Production
Pochat also seeks vacatur under FAA Sections 10(a)(3) and 10(a)(4) based on the Panel’s
evidentiary rulings and its denial of Pochat’s request that Respondents be sanctioned for discovery
violations. See D.E. 1 at 8-11, 19-21. As mentioned above, Pochat filed an Emergency Motion with
the Panel regarding Respondents’ production of additional discovery documents several days before
the Hearing was to begin. Id. at 9. The late production included documents — the cover page to a
1999 Merrill Lynch Branch Office Policy Manual and two internal Merrill Lynch regulations titled
“Financial Relationships with Customers” and “Outside Activities” — that Petitioner avers had not
been produced previously and were “crucial” to his case. Id. at 10. Respondents also produced a
second Declaration from Pochat’s supervisor in Buenos Aires during the period when the alleged
“selling away” allegedly occurred. Id. According to Pochat, this document production violated both
the Panel’s discovery order7 and FINRA Rule 13514.8
The Panel Chairperson entered a discovery Order on December 3, 2010, stating as
In his Motion before the Panel, Petitioner requested that Respondents be sanctioned for their
late production, specifically asking that the Arbitrators “enter an Order striking Respondents’
Pleadings and Defenses; that a disciplinary referral be initiated against Respondents at the conclusion
of this arbitration; that monetary sanctions be assessed against Respondents; that this action proceed
to Final Hearing on the issues of damages only; and for any further relief that this Panel deems just
and proper.” D.E. 1-11 at 17. After reviewing the Motion and hearing argument from both sides
on the issue, the Panel orally denied Petitioner’s request for sanctions and permitted the documents
to be entered into evidence. See D.E. 14-2.
Petitioner contends that by not sanctioning Respondents and allowing the late-produced
documents to be entered into evidence the Arbitrators “exceeded their powers” under section
10(a)(4) and engaged in “misbehavior” sufficient to justify vacatur under section 10(a)(3). Id. at 1921. The Court respectfully disagrees.
As the Eleventh Circuit has explained, “arbitration proceedings ‘need not follow all the
‘niceties’ of the federal courts; [they] need provide only a fundamentally fair hearing.’” Indus. Risk
The Respondent has indicated that they have already produced all
responsive non-privileged documents in their possession. It is
ordered that the appropriate person in Merrill Lynch who is
responsible for conducting the document search must state in
writing: 1) he or she conducted a good faith search for the
requested documents; 2) describe the extent of the search; and 3)
state that, based on the search, no further responsive non-privileged
documents (other than those produced) exists.
D.E. 1-11 at 5-6.
FINRA Rule 13514(a) states, in relevant part, “At least 20 days before the first
scheduled hearing date, all parties must provide all other parties with copies of all documents and
other materials in their possession or control that they intend to use at the hearing that have not
already been produced.”
Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434, 1443 (11 Cir. 1998) (citing Grovner
v. Georgia-Pacific, 625 F.2d 1289, 1290 (5th Cir. Unit B 1980)). Arbitrators “enjoy wide latitude
in conducting an arbitration hearing,” and they “are not constrained by formal rules of procedure or
evidence.” Robbins, 954 F.2d at 685. “Although those procedures might not be as extensive as in
the federal courts, by agreeing to arbitrate, a party ‘trades the procedures and opportunity for review
of the courtroom for the simplicity, informality, and expedition of arbitration.’” Gilmer v.
Interstate/Johnson Lane Corp., 500 U.S. 20, 31 (1991) (quoting Mitsubishi Motors, Corp. v. Soler
Chrysler-Plymouth, Inc., 473 U.S. 614 (1985)). Moreover, “the arbitrator has great flexibility and
the courts should not review the legal adequacy of his evidentiary rulings.” Amalgamated Meat
Cutters & Butcher Workmen v. Neuhoff Bros., 481 F.2d 817, 820 (5th Cir. 1973).9
With respect to Section 10(a)(3) in particular, courts have emphasized that this subsection
does not warrant vacatur where an arbitrator merely made an erroneous discovery or evidentiary
ruling; rather, a plaintiff must show that the arbitrator's handling of these matters was in bad faith
or so gross as to amount to affirmative misconduct, effectively depriving the plaintiff of a
fundamentally fair proceeding.
See, e.g., United Paperworkers, 484 U.S. at 40 (regarding
evidentiary rulings, an arbitrator’s decision will be a basis for vacatur under section 10(a)(3) only
when such error was “in bad faith or so gross as to amount to affirmative misconduct”); Scott v.
Prudential Secs., Inc., 141 F.3d 1007, 1016 (11th Cir.1998), overruled in part on other grounds by
Hall St., 552 U.S. 576 (“a mere difference of opinion between the arbitrators and the moving party
as to the correct resolution of a procedural problem will not support vacatur under section 10(a)(3)”);
Pursuant to Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981), opinions
of the Fifth Circuit issued prior to October 1, 1981, are binding precedent in the Eleventh Circuit.
Marshall & Co. v. Duke, 941 F. Supp. 1207, 1211 (N.D. Ga. 1995) (Section 10(a)(3) “does not . .
. invite hindsight evaluations of the correctness of the judgment of an arbitration panel in managing
the presentation of evidence during an arbitration” because arbitrators have “wide latitude in
conducting an arbitration hearing”) (citation omitted). Furthermore, even a showing of arbitrator
“misbehavior,” without more, does not justify vacatur, because § 10(a)(3) also includes a prejudice
element that the petitioning party must satisfy. See 9 U.S.C. § 10(a)(3).
With the foregoing in mind, the Court concludes that the Panel did not exceed its powers nor
was it guilty of misbehavior that prejudiced Petitioner’s rights when it declined to sanction
Respondents and allowed the late-produced documents to be admitted into evidence. First, with
respect to the Panel’s denial of Pochat’s request for sanctions, the FINRA rule regarding sanctions
for alleged discovery abuses, FINRA Rule 13511, states, in relevant part,
The failure to cooperate in the exchange of documents and
information as required under the Code may result in
sanctions. The panel may issue sanctions against any party in
accordance with Rule 13212(a) for:
- Failing to comply with the discovery provisions of the Code,
unless the panel determines that there is a substantial
justification for the failure to comply.
FINRA Rule 13511(a) (emphasis added). FINRA Rule 13212(a), which Rule 13511(a) references,
The panel may sanction a party for failure to comply with any
provision in the Code, or any order of the panel or single
arbitrator authorized to act on behalf of the panel. Unless
prohibited by applicable law, sanction may include, but are
not limited to:
- Assessing monetary penalties payable to one or more
- Precluding a party from presenting evidence;
- Making an adverse inference against a party;
- Assessing postponement and/or forum fees; and
- Assessing attorneys’ fees, costs, and expenses.
FINRA Rule 13212(a) (emphasis added). The texts of these two rules make clear that a panel’s
decision to impose discovery sanctions is entirely discretionary. Moreover, even if a panel
determines that sanctions are appropriate for a discovery violation, the panel has wide latitude in
determining what particular sanction or sanctions to impose. Thus, in denying Pochat’s Motion for
Sanctions, the Panel could not have exceeded its powers, since the FINRA rules, which govern the
arbitration proceeding in this case, explicitly leave the matter of sanctions to the judgment of the
arbitrators. Nor has this Court been presented with any evidence that, when it declined to sanction
Respondents, the Panel acted “in bad faith” or engaged in “misbehavior” under Section 10(a)(3).
Similarly, the Panel did not exceed its powers or participate in “misbehavior” when it decided
to admit the late-produced documents into evidence. First, although the FINRA rules do state that,
at least twenty days prior to the hearing, a party must produce the documents it intends to admit, the
Court has not found, nor has Petitioner cited, any authority holding that a party’s violation of a
FINRA discovery rule (or any arbitral panel’s procedural rules) is grounds for vacatur under either
Section 10(a)(3) or 10(a)(4). To the contrary, the few courts to have considered such an argument
have held that violations of FINRA procedural rules are not a valid basis for vacating an award. See,
e.g., Butterworth v. Morgan Keegan & Co., Inc., 2012 LEXIS 140209, *46-48 (N.D. Ala. Sept. 28,
2012) (declining to vacate an arbitration award where petitioner argued for vacatur based on the
panel’s failure to enforce FINRA discovery rules); Stone v. Bear, Stearns & Co., Inc., 872 F. Supp.
2d 435, 452 (E.D. Pa. 2012) (“To hold otherwise would risk turning ever minor violation of FINRA
rules . . . into grounds for vacatur. This would run counter to the policy in this country favoring the
finality of arbitration awards, as well as the Supreme Court’s recent admonitions in Hall Street that
‘exceed[ing] . . . powers’ in section 10(a)(4) is a species of ‘extreme arbitral conduct’ and StoltNielsen that section 10(a)(4) attacks must fail unless the ‘arbitrator strays from interpretation and
application of the agreement and effectively ‘dispenses with his own brand of industrial justice.’”)
(internal citations omitted); see also Cartwright v. Roxbury Capital Mgmt., LLC, 2007 U.S. Dist.
LEXIS 32656, * 11 (M.D. Fla. May 3, 2007) (“The Plaintiff's claim is without merit because the
NASD's violation of its procedural rules, without more, does not support the allegation that the Panel
acted “contrary to law” because those rules are not law.”) (citing Max Marx Color & Chem. Co.
Employees’ Profit Sharing Plan v. Barnes, 37 F. Supp. 2d 248, 253 (S.D.N.Y. 1999) ("[T]o the
extent that petitioners' claim is that the Panel disregarded NASD rules, it is meritless. NASD rules
are not ‘law.’ Petitioners must point to a statutory violation to warrant vacatur of an arbitral award,
not a violation of the code of arbitration procedure.”))
Moreover, even if FINRA discovery-rule violations could be considered a form of arbitrator
“misbehavior,” Petitioner has not shown that his rights were prejudiced by the documents’
admission, as required to justify vacatur under Section 10(a)(3). See 9 U.S.C. § 10(a)(3). Other than
making general allegations that he was “severely prejudiced” by the late production, Pochat offers
only his conclusory claim that “[t]he entire outcome of the case could have been different” had the
document been timely produced because, “[f]or example, Mr. Pochat could have decided to settle
the case rather than proceed to a hearing had he been given the opportunity to review and analyze
the produced documents.” D.E. 1 at 20. Eleventh Circuit case law on Section 10(a)(3), however,
demonstrates that vacatur is warranted only where the arbitrators’ conduct deprives the party of a
fundamentally fair hearing. See, e.g., Rosensweig v. Morgan Stanley & Co., 494 F.3d 1328, 1334
(11th Cir. 2007) (finding that vacatur was not warranted under section 10(a)(3) because, even though
the arbitration panel refused to hear certain evidence, the party was not deprived of a fair hearing);
see also Indus. Risk Insurers, 141 F.3d at 1444 n. 11 (rejecting appellants’ argument for vacatur
based on the last-minute admission of discovery materials; because appellants were given an
opportunity to rebut the documents’ contents, the “relatively late provision of the  report did not
render the proceedings fundamentally unfair”). In this case, Petitioner was permitted to submit and
argue his Emergency Motion before the Panel and had ample opportunity to dispute the content or
relevancy of the late discovery materials during the Final Hearing. See D.E. 14-2. The Court,
therefore, declines to find that Petitioner was deprived of a fundamentally fair hearing and denies
his request for vacatur pursuant to Sections 10(a)(3) and 10(a)(4).
Merrill Lynch’s Cross-Petition to Confirm in Part and Modify in Part, or,
Alternatively, Correct, or, Alternatively, Vacate in Part the Award
Respondents’ Petition argues several alternative grounds for challenging the part of the
Award finding Merrill Lynch liable to Pochat for failing to supervise him properly in its Buenos
Aires office. See Case No. 12-22414, D.E. 1-15. Merrill Lynch first seeks to confirm in part and
modify in part the Award. See id. at 9-11. More specifically, Respondents seek an Order allowing
Merrill Lynch to offset the amount they owe Pochat under the Award by the amount Pochat owes
Merrill Lynch, so judgment is entered for the net amount owed to Respondents. Id. Alternatively,
pursuant to Section 11(b), Respondents ask the Court to correct the part of the award in favor of
Pochat “because the arbitrators awarded upon a matter not submitted to them.” Id. at 11-13. In the
second alternative, Merrill Lynch seeks to confirm the part of the award in Respondents’ favor but
to vacate the portion in Pochat’s favor on the grounds that the Panel exceeded its powers and
engaged in misconduct by awarding on a claim that was not presented and was time-barred and by
denying Respondents’ Motion to Adjourn the Final Hearing. Id. at 16-18.
Pochat responds that “this Court may not ‘substitute’ the Panel’s judgment by modifying the
Decision to include set-off rights.” Case No. 12-22414, D.E. 11 at 12. He also argues that the
failure-to-supervise claim was indeed presented to the Panel and that Merrill Lynch waived any
assertions that such a claim was time-barred by not raising the issue before the Arbitrators. See id.
at 12-18. Finally, Pochat concludes that the Panel’s denial of Merrill Lynch’s Motion to Adjourn
does not evidence misconduct because arbitrators have wide discretion in ruling on evidentiary
issues, and Respondents have not established that they were prejudiced by the decision. Id. at 18-20.
The Court addresses in reverse order each of Respondents’ challenges to the Award.
Petition to Vacate in Part
The Panel Did Not Exceed its Powers by Awarding on a Claim that was Not
Respondents first argue that the award in favor of Pochat must be vacated under Section
10(a)(4) because Pochat “never asserted a claim for failure to supervise, either through his pleadings
or throughout the arbitration process itself.” Case No. 12-22414, D.E. 1-15 at 15. In support of its
argument, Merrill Lynch directs the Court to Pochat’s Statement of Claim and contend that Pochat
“did not allege in any way that Merrill Lynch failed to supervise him or assert any legal claims on
Although the heading for this section of Respondents’ petition is titled “In Issuing an
Award on a Claim Ineligible for Arbitration, the Arbitrators Exceeded Their Powers and were
Guilty of Misconduct,” Respondents fail, thereafter, to make any reference to “misconduct” in
their argument. See 12-22414, D.E. 1-15 at 15. Nor is it apparent to the Court that the Panel
committed misconduct of any sort. Therefore, Merrill Lynch’s request for vacatur on the grounds
that the Panel engaged in misconduct by awarding on a claim not before it is denied.
that basis.” Id. They also insist that “[n]owhere in his Pre-hearing brief did [Pochat] raise any
allegation or claims of failure to supervise” and that “[d]uring the four full days of the arbitration
hearing, [Pochat] never raised failure to supervise as a claim under which he was seeking to
recover.” Id. at 12.
Although “[t]he law is well-established that an arbitrator can bind parties only on issues that
they have agreed to submit to him,” Davis v. Prudential Secs., Inc., 59 F.3d 1186, 1194 (11th Cir.
1995), the record reveals that the issue of failure to supervise was properly before the Panel. First,
it is evident from the Award itself, which found Merrill Lynch “liable for its failure to provide
adequate supervision to Claimant,” that the Arbitration Panel “plainly believed” that the issue of
improper supervision was an arbitrable claim. See White Springs, 660 F.3d at 1281 (noting that an
arbitrator’s “plain belief” of submission is relevant to determine whether an issue has indeed been
submitted for arbitration) (citing Executone Info. Sys., Inc. v. Davis, 26 F.3d 1314. 1321-22 (5th Cir.
More significantly, however, the record reflects that the Panel received briefing and heard
argument on the issue of Merrill Lynch’s alleged negligent supervision of Pochat during his
employment in Argentina. In his Statement of Claim, for example, the third claim that Pochat
asserted was for relief based on “Breach of Contract/Negligence”:
Merrill Lynch’s wrongful conduct towards Mr. Pochat, as detailed
above, renders it liable for breach of its employment contract(s) with
him . . . .
In the event the Panel determines that any of Merrill Lynch’s
wrongful actions fail to constitute a breach of contract, Merrill Lynch
is nonetheless liable to Mr. Pochat pursuant to negligence theory. At
all relevant times, Merrill Lynch owed a duty to treat Mr. Pochat in
accordance with reasonable and prudent standards of conduct, and it
is liable in tort for damages from its breaches of that duty.
D.E. 1-5 at 16 (emphasis added). The “wrongful conduct” that Pochat states is “detailed above”
refers to numerous allegations that Merrill Lynch never informed Pochat that outside investments
with firm clients were prohibited, that such activities were commonplace in the Buenos Aires office,
that he orally disclosed the subject investment to his Branch Manager; and that he reported it on his
“Outside Interest Questionnaire.” See D.E. 1-5 at 2-23. For instance, Pochat claimed, “If the
transaction that Mr. Pochat was involved in deviated from Merrill Lynch’s code of conduct or
Argentina government securities law, Mr. Pochat was never trained in this regard and to the
contrary, it was common practice in the branch to be involved in private ventures.” Id. at 7
(emphasis added). In addition, Pochat averred in his Amended Statement of Claim, “To his
knowledge, Mr. Pochat was not violating any of Merrill Lynch’s rules and regulations, or any
U[.]S[.] Securities laws . . . and this was common practice in Argentina. In fact, the Merrill Lynch
Branch Manager at the time had expressed a desire to participate.” Id. at 6. Pochat again repeated,
“Prior to the investment, Mr. Pochat made his manager aware that he would be investing in this
venture. Once again, it is undeniable that Merrill Lynch could have easily ascertained the details of
the investment, have sought greater information and or disclosure if such had been needed or
Pochat made similar claims in the Pre-hearing Brief he submitted to the Panel. In his
introduction, for example, Pochat described himself as having been “recklessly and unjustifiably
terminated by Merrill Lynch in 2009 for a single and isolated act that occurred 10 years prior in 1999
— an act which he disclosed to his manager and which Merrill Lynch had failed to inform him was
unauthorized and improper.” Case No. 12-22414, D.E. 1-10 at 2-3. With respect to being hired by
the Miami office after disclosing the outside investment to his manager, Pochat argued, “[O]ne can
only conclude that Merrill Lynch is itself guilty of negligence and recklessness in failing to do its
own due diligence and investigation to determine whether Mr. Pochat was worthy of all Merrill
Lynch provided him.” Id. at 6.
These issues were again before the Panel during closing arguments. Counsel for Pochat
contended that the policies and procedures in the Merrill Lynch Buenos Aires office were
“informal.” He further argued that Respondents had been unable to provide any evidence to the
Panel establishing that Pochat had ever received a Merrill Lynch training manual in Buenos Aires.
See D.E. 16-1 at 5-6.
Based on the record, it is clear that the issue of whether Merrill Lynch acted negligently
toward Pochat by not supervising him properly in Argentina was, indeed, submitted to the
Arbitrators. While Pochat may not have employed the exact phrase that the Arbitrators did in the
Award (“failure to provide adequate supervision”), Pochat nonetheless specifically requested relief
in his Statement of Claim based on Merrill Lynch’s alleged negligent treatment of him and
repeatedly argued that he had not been properly supervised regarding the firm’s policies on outside
investments with clients. Thus, the Panel did not exceed its authority by finding Merrill Lynch liable
to Pochat for negligent supervision.
The Panel Did Not Exceed its Powers By Deciding a Claim That Was
Ineligible for Arbitration11
Merrill Lynch also contends that the Panel exceeded its powers by awarding on a claim that
was ineligible for arbitration. See Case No. 12-22414, D.E. 1-15 at 13-15. Respondents base their
argument on FINRA Rule 13206, which states that “[n]o claim shall be eligible for submission to
arbitration under the Code where six years have elapsed from the occurrence or event giving rise to
the claim.” FINRA Rule 13206(a). As Respondents point out, Pochat worked in Merrill Lynch’s
Buenos Aires office until only 2002. Id. In order to be eligible for arbitration under FINRA Rule
13206(a), Respondents therefore reason, Pochat would have had to have submitted his claim for
inadequate supervision within six years, or by 2008. But Pochat did not file his Statement of Claim
with FINRA until December 2009. Id. Thus, Respondents conclude that Pochat’s claim for
negligent supervision was not eligible for FINRA arbitration, and the award based upon it must be
vacated. Id. at 15.
While Respondents are correct that FINRA Rule 13206(a) imposes a six-year eligibility
period for bringing claims, the second sentence of the rule states, “The panel will resolve any
questions regarding the eligibility of a claim under this rule.” FINRA Rule 13206(a) (emphasis
added). Claim eligibility is therefore a procedural matter for the arbitrators to decide, which receives
the same level of deference by a reviewing court as any other procedural matter that the Panel
determines. See Robbins, 954 F.2d at 685 (arbitrators “enjoy wide latitude in conducting an
Respondents’ section heading for this portion of their petition includes an allegation of
“arbitrator misconduct.” See Case No. 12-22414, D.E. 1-15 at 13. Again, however, Respondents
do not discuss “misconduct” with respect to their argument that Pochat’s claim was ineligible for
arbitration. Nor has the Court on its own noticed any such misconduct. Therefore, to the extent
that Respondents’ Petition seeks to vacate under Section 10(a)(3) for awarding on an ineligible
claim, it is denied.
arbitration hearing,” and they “are not constrained by the formal rules of procedure or evidence”).
Moreover, by not contesting the Panel’s consideration of Pochat’s failure-to-supervise claim until
after the Panel issued its Award, Respondents waived any objection that the claim was time barred.
Nor can the Court credit Merrill Lynch’s excuse for not raising this objection during the Arbitration,
in view of the fact that Pochat’s failure-to-supervise claim was properly before the Panel. Thus,
Merrill Lynch’s contention that it could not have objected is unavailable, and the Court denies
Respondents’ Motion to Vacate based on FINRA Rule 13206(a).
The Panel Did Not Engage in Misconduct When it Denied Merrill Lynch’s
Motion to Adjourn and Refused to Permit Certain Evidence at That Time
Finally, Respondents contend that vacatur is warranted under Section 10(a)(3) because the
“arbitrators’ denial of Merrill Lynch’s Motion to Adjourn prevented it from presenting pertinent and
material evidence at the hearing.” As discussed above, one of the Arbitrators, in the final hearing
session, requested that Merrill Lynch produce to the Panel documents regarding the reporting of
outside investments by several other Financial Advisors who worked in Merrill Lynch’s Buenos
Aires office during the time when Pochat allegedly engaged in “selling away” and who were also
apparently involved in the IPOOL investment. See Case No. 12-22414, D.E. 11; see also D.E. 15-1
at 93-101. When questioned by counsel for Merrill Lynch as to why the Arbitrator wanted these
documents, the Arbitrator explained, “The fact is, if [Merrill Lynch] did not follow the rules, I want
to make sure that they didn’t follow the rules for everybody. . . . See, the consistency of the manager
or the non-manager is what we want to see.” D.E. 15-1 at 99-100.
Merrill Lynch orally “objected to being required to produce documents without witness
testimony after the close of the hearing sessions, but that objection was overruled.” Case No. 12-
22414, D.E. 1-15 at 7. Respondents then made an oral motion to adjourn “to permit further
discovery on the topics that had become of interest to the arbitrator . . . and to permit Merrill Lynch
to bring forward witnesses who could address those issues.” Id. After going into executive session,
the Panel orally denied Respondents’ motion to adjourn and ordered Merrill Lynch to produce the
documents to the Panel within two weeks, which Merrill Lynch subsequently did. D.E. 1 at 5-10.
Respondents claim that “Merrill Lynch was unquestionably prejudiced by the Panel’s
decision to proceed with the arbitration hearing despite the fact that new issues had been raised upon
which Respondent had not been permitted to obtain discovery or obtain the testimony of relevant
witnesses.” Case No. 12-22414, D.E. 1-15 at 18. Thus, Merrill Lynch urges, “[T]his Court should
vacate that part of the arbitration award providing for damages to [Pochat] because the arbitrators
were guilty of misconduct in refusing to postpone the hearing to permit Merrill Lynch to properly
defend itself on that claim.” Id.
Section 10(a)(3) of the FAA permits vacatur of an arbitration award “where the arbitrators
were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown.” 9
U.S.C. § 10(a)(3). When reviewing an arbitrator's refusal to postpone a hearing, a court “must
decide whether there was ‘any reasonable basis’ for failing to postpone the hearing to receive
relevant evidence.” Scott, 141 F.3d at 1016 (quoting Schmidt, 942 F.2d at 1574).
“Any reasonable basis” is a broad standard. In Schmidt v. Finberg, for example, the court
concluded that “an arbitration panel’s possible reliance on any one of a number of factors, including
the desire for an expeditious resolution of the dispute, justified its refusal to postpone a hearing . .
. .” Scott, 141 F.3d at 1016 (citing Schmidt, 942 F.2d at 1574-75). Here, it would have been
perfectly “reasonable” for the Panel to have determined that the Arbitration proceedings, which had
lasted for more than three years, “had already been protracted so long as to violate the policy of
expeditious handling of such disputes.” Schmidt, 942 F.2d at 1574 (citing concern for further delay
of the proceedings as one of “several good and sufficient reasons to support the panel’s action” in
refusing to postpone the hearing long so that an additional witness could testify).
Furthermore, the Eleventh Circuit has held that “an arbitration award must not be set aside
for the arbitrator's refusal to hear evidence that is cumulative or irrelevant.” Robbins, 954 F.2d
(citation omitted). Nor is an arbitrator “bound to hear all the evidence tendered by the parties.”
Robbins, 954 F.2d at 685. Given the length of the Arbitration proceedings and the volume of
evidence and filings in connection with it, the Panel reasonably could have concluded that no
additional evidence was warranted. See Booth v. Hume Pub., 902 F.2d 925, 932 (“the Federal
Arbitration Act allows arbitration to proceed with only a summary hearing and with restricted inquiry
into factual issues”) (citation omitted). Therefore, the Panel’s refusal to adjourn the Arbitration and
to receive additional evidence from Merrill Lynch did not constitute misconduct in violation of
Petition to Correct in Part
Respondents next suggest that the Award should be corrected under Section 11(b), asserting
that “because the arbitrators issued an award on a matter — namely the failure to supervise claim
— never submitted to them, the award should be corrected striking that portion of the award.” Case
No. 12-22414, D.E. 1-15, at 12. Because Pochat’s claim of inadequate supervision was properly
before the Panel, however, Respondents’ request that this portion of the Award be corrected is
Petition to Modify in Part
In the third alternative, Merrill Lynch requests that the Court modify in part the Award by
offsetting the amount awarded to Pochat against the larger amount awarded to Merrill Lynch, and
enter judgment confirming the rest of the award. See Case No. 12-22414, D.E. 1 at 9-11.
Respondents argue that modification is proper pursuant to 9 U.S.C. § 11(c), which states that
courts may modify an arbitration award “where the award is imperfect in matter of form not affecting
the merits of the controversy.” Section 11 also contains the general provision that “[t]he order may
modify and correct the award, so as to effect the intent [of the arbitrators’ decision] and promote
justice between the parties.” 9 U.S.C. § 11.
In their Petition, Merrill Lynch contends that “the award is imperfect in a matter of form in
that the award does not specifically state whether Merrill Lynch may set off the $200,000 owed to
Respondent against the more than $800,000 owed by Respondent to it” and that modifying the award
to allow offset “would not affect the merits of the controversy as it would maintain the clear intent
of the arbitrators in making two monetary awards.” Case No. 12-22414, D.E. 1 at 10. Respondents
further reason that allowing offset “would promote justice between the parties because it would be
contrary to notions of fairness to require Merrill Lynch to pay Respondent $200,000 when he already
owes Merrill Lynch in excess of, and refuses to pay, more than $800,000.” Id.
Pochat, on the other hand, vigorously opposes any modification that would offset the Award
amounts, arguing that such “an unjustified rewriting of the Panel’s Decision . . . would stand in stark
contradiction to the unambiguous intent of the Panel Arbitrators.” Case No. 12-22414, D.E. 11, at
1-2. He contends that the “overwhelming weight of case law” counsels against the ability of the
Court to order offset. Id. at 9. Even if offset were generally permissible, Pochat submits,
Respondents are not entitled to offset because they did not affirmatively request it of the Panel and
because Merrill Lynch’s “unclean hands” (attributable to its alleged negligent supervision of Pochat)
preclude such relief. Id. at 9-10. Finally, even if the Court concludes that the Award is ambiguous
regarding set off, Pochat suggests that the proper course of action is to remand the matter to the
Panel for determination. Id. at 12.
Scant case law exists in the Eleventh Circuit on the question of when modification of an
arbitration award is appropriate pursuant to Section 11(c) of the FAA. See, e.g., Frazier, 604 F.3d
at 1322 (affirming, without analyzing, the district court’s finding that modification under Section
11(c) was inapplicable where the appellant argued that “the arbitrator’s decision, insofar as it granted
[the appellee] an equitable lien while simultaneously finding that [the appellant] was entitled to
retain her homestead exemption, was ‘subject to multiple interpretations’ and thus ‘imperfect,’”
implying that modification would have affected the merits of the award). Nor has any Eleventh
Circuit court spoken on the issue of offset where, as here, the arbitrators made a monetary award to
each of the parties, and offset was not addressed during the arbitration proceedings or in the award
At least one other circuit, however, has addressed offset in this general factual scenario. See
Nat’l Risk Underwriters, Inc. v. Occidental Fire & Cas. Co. of N.C., 931 F.2d 1015 (4th Cir. 1991).
In National Risk Underwriters, the Fourth Circuit considered an appeal from the district court’s
confirmation of an arbitration award wherein the court offset the two award amounts and entered a
judgment in favor of one party for the net amount. Id. at 1016. There, like here, each party to the
arbitration proceeding had prevailed on a claim against the other, and the award, which did not
calculate a net amount, was silent on the matter of offset. Id. The Fourth Circuit held that the offset
fell within the district court’s power and rejected the argument that offsetting the monetary awards
constituted an improper modification:
The district court, citing United States v. Munsey Trust Co., 332 U.S.
234, 241 n.4 . . . (1947), concluded that a general [common law] rule
exists under which offset is available where parties are mutual
debtors. Since the arbitrators did not express a clear intent not to
offset the awards, the district court ruled that the arbitrators must
have intended this general rule to apply.
Id. at 1016-17; see also RGA Reinsurance v. Ulico Cas. Co., 355 F.3d 1136, 1139 (8th Cir. 2004)
(affirming the district court’s grant of the appellee’s request for offset where mutual awards had been
made but the award was silent on offset, finding that providing for offset was merely a confirmation
of the award consistent with the panel’s order and that “[i]f an award is unambiguous but needs
clarification, then a district court has jurisdiction to conduct a confirmation proceeding”); Atl.
Aviation, Inc. v. EBM Group, Inc., 11 F.3d 1276 (5th Cir. 1994) (reversing the district court's ruling
that it could not modify the arbitration award to allow for offset, finding instead that where “[n]either
party disputed that the money was owed [under the award], and the testimony of a majority of the
arbitrators reveals that it was the panel’s intention to offset the amount owed to [the prevailing party]
by the amount [it] still owed to [the other party to the arbitration],” the panel’s failure to provide a
net award amount “was in essence a clerical error which may be corrected without disturbing the
merits of the arbitrators’ decision”).
Respondents have also directed the Court to UBS Financial Services, Inc. v. Riley, 2012
LEXIS 69875 (S.D. Cal. May 18, 2012), which involves facts almost identical to those before this
Court. In Riley, UBS had initiated a FINRA arbitration proceeding in order to recover from its
former broker, Riley, the outstanding balance on two promissory notes, which had become due when
Riley ended his employment with UBS prior to the expiration of the notes’ forgiveness period. Id.
at *2. The FINRA panel issued mutual monetary awards, but the award was silent as to whether the
two amounts could be offset. Id. at *3. UBS, the party with the larger award, subsequently filed a
motion with FINRA asking for clarification from the panel regarding offset, but its request was
denied by the Director of Arbitration. Id. at *3-4. The matter then went before the district court on
UBS’s petition to, among other things, modify the award to allow for offset. Id. at *4.
The district court, noting that FAA Section 11(c) does not allow a court to substitute its
judgment for that of the arbitrators but does permit modifying an award to reflect the intent of the
arbitrator, concluded that offset was proper. Id. at *10. As the court explained,
The arbitration award in this case would seem to be a prime example
of an award that is ‘imperfect as to form’ rather than in substance.
Here, the award would require petitioners to pay Riley the full
amount of the award even though he owes a greater amount to UBS.
But the arbitration panel never considered the merits of setoff, as the
request for clarification filed by petitioners was not submitted to the
panel for review. Allowing for setoff would not require the Court to
reconsider the merits, and it would not affect the amount of damages
awarded to either part. Rather, it would simply modify the form of
the award to avoid unjust consequences. In addition, allowing Riley
to pay just the net obligation avoids ‘the absurdity of making A pay
B when B owes A.’
Id. at *9-10 (emphasis added) (citing Citizens Bank v. Strumpf, 516 U.S. 16, 18 (1995)).12
This Court agrees with the reasoning in the cases discussed above. If the Court did not
permit offset, Merrill Lynch would be faced with the “absurdity” of having to pay Pochat when
In Citizens Bank v. Strumpf, the Supreme Court described the right of setoff as follows:
“The right of setoff (also called offset) allows entities that owe each other money to apply their
mutual debts against each other, thereby avoiding the ‘absurdity of making A pay B what B owes
A.’” Citizens Bank, 516 U.S. at 18 (citing Studley v. Boylston Nat’l Bank, 229 U.S. 523, 528
Pochat owes Merrill Lynch a far greater amount, which he has thus far refused to repay. Put simply,
absent offset, Merrill Lynch would have no choice but to pay Pochat $200,000, only to seek
immediately to recoup that sum from him as part of the full $848,915.48, plus interest, that Pochat
owes Merrill Lynch. Of course, without clarification from the Panel, it is impossible to know for
certain if it would have approved offset. But nothing in the Award or the Arbitration proceedings
even hints that the Panel intended not to allow for setoff, and it is hard for this Court to imagine that
the Arbitrators would have specifically desired the circuitous result that would arise from precluding
setoff, especially given that “the basic policy of conducting arbitrations is to offer a means of
deciding disputes expeditiously and with lower costs than in ordinary litigation.” Schmidt, 942 F.2d
Nor, contrary to Pochat’s suggestion, does the “overwhelming weight of case law” — or even
any case law of which this Court is aware — militate against the Court’s ability to order offset under
these circumstances. See Case No. 12-22414, D.E. 11 at 9. Although Pochat directs the Court to
a number of cases that he maintains support his position, all are materially distinguishable. See, e.g.,
Trustmark Ins. Co. v. Clarendon Nat. Ins. Co., 2009 LEXIS 109414 (N.D. Ill. Nov. 20, 2009)
(declining to order setoff where party was attempting to offset arbitrator’s award against a prior
settlement agreement in an unrelated matter); Vertical UK LLP v. Dundee Ltd., 2011 U.S. Dist.
LEXIS 63136 (S.D.N.Y. June 13, 2011) (issue of setoff had been presented to the arbitrators during
the proceeding, and the award had expressly mentioned offset); Orion Shipping and Trading Co. v.
E. States Petroleum Corp., 206 F. Supp. 777 (S.D.N.Y. 1962) (dealing with the arbitrator’s
calculation of damages with no mention of the issue of offset at all).
As to Petitioner’s other arguments against offset, the Court finds them similarly unavailing.
First, the fact that the Panel made an award to each party in separate paragraphs and did not mention
offset is not, in this Court’s estimation, “undeniable and blatantly clear” evidence that the Panel
intended not to allow offset. Case No. 12-22414, D.E. 11 at 9. Rather, the Panel’s silence on the
issue appears to indicate that it never considered offset one way or the other.
Finally, this Court does not conclude that Merrill Lynch is precluded from seeking offset
because Respondents did not affirmatively request it from the Panel or because they have “unclean
hands.” As to the first point, Respondents aptly point out, “Merrill Lynch was not required to predict
how the Panel would render the award . . . . Merrill Lynch could not request that the Panel address
the issue of setoff until it was presented with the award, and at that point endeavored to have the
Panel address the issue, but Mr. Pochat objected and without both parties agreeing, FINRA refused
to permit the Panel to do so.” D.E. 12 at 4-5. This Court agrees. With respect to Pochat’s “unclean
hands” argument, this Court does not find that Merrill Lynch’s alleged failure to supervise rises to
the level of “unclean hands.” Moreover, it is further noteworthy that, although Pochat now asks the
Court to remand the case to the Panel to determine whether offset should be awarded, he fought
submission and effectively precluded the Panel from providing clarification when originally given
the opportunity to allow the Panel to resolve this issue. Under these circumstances, no equitable
doctrine bars the Court from ordering offset. Accordingly, the Court grants Merrill Lynch’s petition
to modify in part the Award and holds that the $200,000 awarded to Pochat is offset by the
$848,915.48, plus interest, awarded to Merrill Lynch.
Merrill Lynch’s Motion for Sanctions in the Form of Attorneys’ Fees
In its final request, Merrill Lynch seeks imposition of an award of attorneys’ fees against
Petitioner as a sanction for filing an allegedly baseless motion to vacate. D.E. 8 at 16-18. Sanctions
are “warranted and necessary,” Merrill Lynch argues, because Pochat’s Petition to Vacate “is both
frivolous and groundless in law, and it has needlessly increased the cost of litigation.” Id. at 18.
Merrill Lynch’s argument for sanctions relies in large part on the Eleventh Circuit’s holding
in B.L. Harbert International, LLC v. Hercules Steel Co., 441 F.3d 905 (11th Cir. 2006), abrogated
on other grounds by Frazier, 604 F.3d 1313, 1321 (11th Cir. 2010), in which the Court expressed
its “exasper[ation] [with] those who attempt to salvage arbitration losses through litigation that has
no sound basis in the law applicable to arbitration awards.” Harbert, 441 F.3d at 914. As the
Eleventh Circuit explained,
Courts cannot prevent parties from trying to convert arbitration losses
into court victories, but it may be that we can and should insist that
if a party on the short end of an arbitration award attacks that award
in court without any real legal basis for doing so, that party should
pay sanctions. A realistic threat of sanctions may discourage baseless
litigation over arbitration awards and help fulfill the purposes of the
pro-arbitration policy contained in the FAA. It is an idea worth
The warning this opinion provides is that in order to further the
purposes of the FAA and protect arbitration as a remedy we are
willing, ready, and able to consider imposing sanctions in appropriate
Id. at 913-914. Despite the strong language, the Court ultimately decided not to impose sanctions
in Harbert, primarily because the Court found that the party contesting the award “did not have the
benefit of the notice and warning this [the Harbert] opinion provides.” Id. at 914.
Several years later, however, the Eleventh Circuit did impose arbitration-related sanctions
in World Business Paradise, Inc. v. Suntrust Bank, 403 F. App'x 468, 470-71 (2010). Concluding
that the appellants “failed to muster any controlling authority to support their position [for vacatur]”
and that they also “had the benefit of the notice and warning that our Hercules Steel opinion provides
about our willingness to impose sanctions to deter baseless contests of arbitration awards,” the Court
held that sanctions were appropriate. Id. at 471. Accordingly, the case was remanded to the district
court to determine the amount of sanctions to be awarded to the appellee. Id. Several district courts
in this Circuit have likewise heeded “the explicit and unveiled threat of sanctions articulated in
Harbert” and have imposed sanctions for frivolous petitions to vacate. Rueter v. Merrill Lynch,
Pierce, Fenner & Smith, Inc., 440 F. Supp. 2d 1256, 1267 (N.D. Ala. 2006) (“The court concludes
that Plaintiffs’ Motion to Vacate is both frivolous and has no real legal basis. . . . Upon analyzing
Defendant's Motion for Sanctions in light of Harbert and under the law applicable to sanctions
awarded under Rule 11, sanctions are due to be imposed in this case.”); see also Fornell v. Morgan
Keegan & Co., 2012 U.S. Dist. LEXIS 108677 at *14-16 (M.D. Fla. 2012).
Here, however, though unsuccessful, Pochat’s efforts to vacate in part the Arbitration Award
are not baseless. The grounds for vacatur that Petitioner raised are colorable and, for the most part,
have some support from evidence in the record and from relevant legal authorities. Accordingly, the
Court declines Merrill Lynch’s request to sanction Pochat.
For the foregoing reasons, the Court confirms the Arbitration Award in full and permits
Merrill Lynch to offset the $200,000 it owes to Pochat under the Award by the amount that Pochat
owes to Merrill Lynch.
Accordingly, it is ORDERED and ADJUDGED as follows:
Petitioner’s request that the Court confirm the portion of the Arbitration Award
finding Merrill Lynch liable to Pochat in the amount of $200,000 is GRANTED;
Petitioner’s request that the Court vacate the portion of the Award where Pochat is
found liable to Merrill Lynch for the outstanding balance of the promissory note, plus
interest from the date of default, is DENIED;
Respondents’ request that the Court confirm the portion of the Award finding Pochat
liable to Merrill Lynch for the balance of the promissory note, plus interest from date
of default, is GRANTED;
Respondents’ request that the Court vacate, or, alternatively, correct, the portion of
the award finding Merrill Lynch liable to Pochat for failing to supervise him properly
Respondents’ alternative request that the Court modify the Arbitration Award to
allow Merrill Lynch to offset the amount it owes to Pochat by the amount that Pochat
owes to Merrill Lynch under the Award is GRANTED;
Respondents’ request for sanctions in the form of attorneys’ fees is DENIED.
The Clerk of Court shall CLOSE this case and Case No. 12-22414-CIVROSENBAUM
DONE AND ORDERED at Fort Lauderdale Florida, this 22nd day of August 2013.
ROBIN S. ROSENBAUM
UNITED STATES DISTRICT JUDGE
Counsel of record
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