Allied Beacon Partners, Inc. v. Bosco
Filing
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Enter MEMORANDUM, OPINION AND ORDER: For the reasons set forth, the Court denies ABPs Application and Motion to Vacate the Arbitration Award and grants the Boscos Application and Motion to Confirm the Arbitration Award. The arbitration award is the reby converted to a judgment against ABP. The Court further orders ABP to pay the Boscos reasonable legal fees for this proceeding, in addition to what it must pay as awarded in the arbitration. The Boscos shall file a fee petition with this Court within 30 days. Signed by the Honorable Virginia M. Kendall on 2/12/2014.Mailed notice(tsa, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
ALLIED BEACON PARTNERS, INC.,
f/k/a Waterford Investor Services, Inc.,
Plaintiff,
v.
LOUIS BOSCO, ANNETTE BOSCO,
LOUIS AND ANNETTE BOSCO,
TRUSTEES OF THE BOSCO FAMILY
TRUST DTD 6/25/96, LOUIS AND
ANNETTE BOSCO, TRUSTEES OF
THE BOSCO FAMILY TRUST DTD
7/31/96, MARY BOROWIAK, MARY
BOROWIAK, TRUSTEE OF THE
MARY BOROWIAK TRUST,
MICHAEL BOROWIAK, RICHARD
RUBEL, and DIANE RUBEL,
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No. 13 C 5165
Hon. Virginia M. Kendall
Defendants.
MEMORANDUM OPINION AND ORDER
Allied Beacon Partners, Inc., formerly known as Waterford Investment Services, Inc.
(“ABP” or “Waterford/ABP”) bring this Applicaton and Motion to Vacate the Arbitration Award
entered in favor of Louis Bosco; Annette Bosco; Louis and Annette Bosco, Trustees of the Bosco
Family Trust DTD 6/25/96; Louis and Annette Bosco, Trustees of the Bosco Family Trust DTD
7/31/96; Mary Borowiak; Mary Borowiak, Trustee of the Mary Borowiak Trust; Michael
Borowiak; Richard Rubel; and Diane Rubel (collectively, the “Boscos”) on May 20, 2013,
pursuant to 9 U.S.C. § 10. (Dkt. Nos. 1, 23.) The Boscos, in turn, filed an Application and
Motion to Confirm the Arbitration Award. (Dkt. Nos. 8, 21.) For the reasons stated below, the
Court denies ABP’s Application and Motion to Vacate the Arbitration Award and grants the
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Boscos’ Application and Motion to Confirm the Arbitration Award. The Court thereby converts
the arbitration award entered in the Boscos’ favor into a judgment against ABP.
BACKGROUND
Beginning in 2005, the Boscos invested their “life savings” with George Gilbert, who
was a financial advisor at Waterford (now ABP), and before that was with Community Bankers
Securities, LLC (“CBS”). Waterford Inv. Servs., Inc. v. Bosco, 682 F.3d 348, 350–51 (4th Cir.
2012). The largest investment the Boscos made at Gilbert’s suggestion were in companies that
turned out to be Ponszi schemes, and by 2009, the Boscos had lost over one million dollars. Id.
at 351. The Boscos brought claims for these losses before the Financial Industry Regulatory
Authority (“FINRA”), alleging that Gilbert and his firms failed to do the proper due diligence on
these investments, made misrepresentations and omissions regarding them, did not disclose the
risks associated with them, and recommended them despite being unsuitable for the Boscos’
needs. Id. at 352.
Waterford/ABP filed a declaratory action in the Eastern District of Virginia seeking a
judgment that it was not required to arbitrate the dispute with the Boscos and an injunction
against it being required to participate in any arbitration. Id. Specifically, Waterford/ABP
argued that Gilbert was not an “associated person” of Waterford/ABP, and that Waterford was
not a successor-in-interest to CBS and CBS’s agreement to arbitrate its customers’ claims. Id.
Magistrate Judge Dohnal and Senior District Judge Payne disagreed, and Waterford/ABP was
ordered to arbitrate the Boscos’ claims. Waterford Inv. Servs., Inc. v. Bosco, 2011 WL 3820723
(E.D. Va. July 29, 2011) (Dohnal, Mag. J.); Waterford Inv. Servs., Inc. v. Bosco, 2011 WL
3820496, 1, 999 (E.D. Va. Aug. 26, 2011) (Payne, J.). Waterford/ABP appealed and the Fourth
Circuit affirmed. Waterford, 682 F.3d at 350.
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The parties conducted an arbitration hearing in Chicago, Illinois between May 14, 2013
and May 16, 2013. The arbitrators found in favor of the Boscos and ordered ABP to pay the
Boscos 1 a total of $1,207,500 plus 10% per annum interest beginning on April 14, 2010, as well
as $400,000 in attorneys fees. (Dkt. No. 21-1 at pp. 5–6.) ABP now argues the award is invalid
because:
1.
The award was procured by undue means;
2.
There was evident partiality in the arbitrators;
3.
The arbitrators refused to hear evidence pertinent and material to
the controversy;
4.
The arbitrators failed to adhere to and follow Virginia [law],
exceeded their powers or so imperfectly executed them that a
mutual, final, and definite award upon the subject matter submitted
was not made; and
5.
The arbitrators finding of successor liability, without hearing or
receiving any evidence at all, deprived ABP of due process of law
in violation of the Virginia and United States Constitutions.
(Dkt. No. 1 at pp. 1–2.) The Boscos counter that the award was fairly entered, and that in either
event, ABP’s grounds for challenging it are meritless and unsupported because ABP did not
provide the record or arbitration transcripts.
STANDARD OF REVIEW
Motions to vacate arbitration awards are highly disfavored in the Seventh Circuit, and
this Court’s review of such an award is “extremely limited.” See Yasuda Fire & Marine Ins. Co.
of Europe, Ltd v. Cont'l Cas. Co., 37 F.3d 345, 349 (7th Cir. 1994); see also Nat'l Wrecking Co.
v. Int'l Bhd. of Teamsters, Local 731, 990 F.2d 957, 960 (7th Cir. 1993). Courts may not
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Specifically, the panel awarded $600,000 to the Bosco Family Trust DTD 6/25/96; $28,000 to Michael Borowiak;
$376,000 to Mary Borowiak; $196,000 to Richard Rubel and Diane Rubel; and $7,500 to the Bosco Family Trust
DTD 6/25/96, Michael Borowiak, Mary Borowiak, Richard Rubel, and Diane Rubel. Each award also included 10%
per annum interest beginning on April 14, 2010.
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interfere with an arbitrator’s findings of fact merely because it disagrees with them, otherwise
the purpose of arbitration proceedings as speedy and cost-effective dispute resolution options
would be undermined. See Health Servs. Mgmt. Corp. v. Hughes, 975 F.2d 1253, 1258 (7th Cir.
1992) (“Thus, the court’s function in confirming or vacating an arbitration award is severely
limited. If it were otherwise, the ostensible purpose for resort to arbitration, i.e., avoidance of
litigation, would be frustrated.”); see also United Paperworkers Int'l Union, AFL-CIO v. Misco,
Inc., 484 U.S. 29, 38 (1987) (collective bargaining agreement context); Flexible Mfg. Sys. Pty.
Ltd. v. Super Prods. Corp., 86 F.3d 96, 100 (7th Cir. 1996) (“Thinly veiled attempts to obtain
appellate review of an arbitrator’s decision . . . are not permitted under the FAA. Factual or legal
errors by arbitrators—even clear or gross errors—do not authorize courts to annul awards.
Insufficiency of the evidence is not a ground for setting aside an arbitration award under the
FAA.” (internal citations omitted)).
Courts will only disrupt an arbitration award if the arbitrator “effectively dispenses his
own brand of industrial justice because there is no possible interpretive route to the award,” but
they will not disrupt an award even when “an arbitrator committed serious error or the decision is
incorrect or even whacky.” Johnson Controls, Inc. v. Edman Controls, Inc., 712 F.3d 1021,
1025–26 (7th Cir. 2013) (applying these principles, outlined by courts in the collective
bargaining agreement context, to commercial disputes). See also Flexible Mfg., 86 F.3d at 100
(“The fact that an arbitrator makes a mistake, by erroneously rejecting a valid, or even a
dispositive legal defense, does not provide grounds for vacating an award unless the arbitrator
deliberately disregarded what she knew to be the law.”). Nevertheless, the Federal Arbitration
Act (“FAA”) permits a court to vacate an arbitration award in four narrow instances:
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(1)
[W]here the award was procured by corruption, fraud, or undue
means;
(2)
[W]here there was evident partiality or corruption in the
arbitrators, or either of them;
(3)
[W]here 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 have been
prejudiced; or
(4)
[W]here 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.
9 U.S.C. § 10(a)(1)–(4). But the Seventh Circuit has repeatedly cautioned against the type of
substantive challenge brought by ABP here, that is, a request that a federal court review an
arbitration award for errors of law or fact. See, e.g., Prostyakov v. Masco Corp., 513 F.3d 716,
723 (7th Cir. 2008) (writing, in “some frustration,” that “we do not—and will not—review
arbitral awards for legal or factual error”). This is particularly true given “the long line of
Seventh Circuit cases that have discouraged parties from challenging arbitration awards and have
upheld Rule 11 sanctions in cases where the challenge to the award was substantially without
merit.” CUNA Mutual Ins. Society v. Office and Professional Employees Int’l Union, Local 39,
443 F.3d 556, 561 (7th Cir. 2006).
DISCUSSION
I.
ABP Provides No Evidence to Support Any of its Claims
ABP alleges the arbitration was flawed because the decision was obtained through undue
means, in violation of its due process rights, and at the hands of partial, biased arbitrators who
refused to hear evidence central to its arguments. The party seeking to modify or vacate an
arbitration award bears the burden of proving that such a modification or vacation is warranted.
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See, e.g., Simas v. Balcer, 2001 WL 62576, *2 (N.D. Ill. Jan. 25, 2001) (“The petitioner has the
burden of demonstrating the existence of a valid ground for vacating the [arbitration] award.”);
Wilson v. Sterling Foster & Co., 1998 WL 749065, *5 (N.D. Ill. Oct. 15, 1998) (stating that “the
party seeking to vacate or modify an arbitration award bears the burden of proof”); Forum Ins.
Co. v. First Horizon Ins. Co., 1989 WL 65041, *3 (N.D. Ill. June 8, 1989) (“[Petitioner] has the
burden of establishing a violation of 9 U.S.C. § 10.”); see also Metter v. Wachovia Sec., LLC,
2008 WL 4395086, *2 (N.D. Ill. Sept. 23, 2008) (“The burden of proving evident [arbitrator]
partiality rests with the party asserting the claim.”).
ABP has failed to provide transcripts of the arbitration proceeding, and the Court is
therefore unable to adequately consider the record. See Health Servs., 975 F.2d at 1258–59.
Rather than cite to specific portions of the proceeding that support its sweeping claims, ABP
merely refers to generally to the testimony elicited during the course of the three-day proceeding,
as well as to entire exhibits without providing them to the Court or citing to specific pages. (Dkt.
No. 4, 24.) ABP had ample opportunity to provide this evidence to the Court because it was able
to respond to the Boscos’ motions that cited this defect in the record. The Court therefore finds
that ABP has failed to meet its evidentiary burden for all of its claims and denies its Motion to
Vacate the Arbitration Award. E.g., World Bus. Paradise, Inc. v. Suntrust Bank, 403 F. App’x
468, 470 (11th Cir. 2010) (“Thus Appellants have not provided this Court with any evidentiary
support for their assertions [because they did not provide the transcripts of the proceedings].
This lack of evidence is especially problematic where, as here, the opposing party disputes the
factual basis for the claims of misconduct and partiality. We conclude that Appellants have
failed to support their claims of misconduct and partiality and have therefore failed to establish
adequate grounds to vacate the award.”); Univ. Commons-Urbana, Ltd. v. Universal
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Constructors Inc., 304 F.3d 1331, 1337 (11th Cir. 2002) (finding that, because the arbitration
hearings were not transcribed, “we have no indication of the arbitrators’ reasons for [the award],
and, thus, we have no reason to believe that they disregarded the law in doing it.”); Baylor
Health Care Sys. v. Equitable Plan Servs., Inc., 2013 WL 3367401, *18, ––– F. Supp. 2d –––
(N.D. Tex. July 5, 2013) (“[Petitioner] did not provide a transcript of the testimony presented
during the arbitration hearing . . . . The court . . . concludes that, without a record and transcript
of the arbitration hearing and the arbitration testimony referred to in the parties’ briefing, it must
presume that the arbitrator’s decision . . . is correct.”); Jamoua v. CCO Inv. Servs. Corp., 2010
WL 891148, *5 (E.D. Mich. Mar. 10, 2010) (“Where, as here, the party moving to vacate the
award provides no transcript or record evidence, but presents only self-serving and conclusory
allegations unsupported by any record evidence, it is impossible for this Court to determine that
the [Arbitration] Panel was guilty of misconduct.”); Dailey v. Legg Mason Wood Walker, Inc.,
2009 WL 4782151, *4 (W.D. Pa. Dec. 8, 2009) (“Given that Plaintiff has deliberately chosen not
to submit transcripts from the arbitration hearing, the Court has little upon which to test his farflung claims of [the panel’s decision’s] ‘irrationality.’”).
ABP also argues, among other reasons, that the arbitration award should be vacated
because the panel employed Illinois law when it should have applied Virginia law. However, as
discussed above, this Court will not disturb an arbitration award even if the arbitrators make
errors of law and fact. Johnson Controls, 712 F.3d at 1025–26. This Court makes no ruling as
to which law should have been applied in the arbitration, not only because it may not, but also
because it cannot due to the lack of any transcripts or any other evidence that Illinois or Virginia
law should apply—the Boscos urge that ABP never even raised this argument to the arbitration
panel. The Court will not speculate on this topic and also denies ABP’s claims on this point. In
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fact, the same reasoning applies to all of ABP’s claims: ABP faces an already steep burden when
asking a court to overturn an arbitration panel’s decision, and that burden became
insurmountable when ABP provided no evidence to support any of its claims. This Court cannot
and will not attempt to upset the decisions of an independent arbitration panel, three judges on
the Fourth Circuit Court of Appeals, and a Magistrate Judge and Senior District Court Judge on
the Eastern District of Virginia without any evidence suggesting such an extreme remedy is
warranted.
II.
ABP is Ordered to Pay the Boscos’ Reasonable Legal Fees Associated with this
Filing
Rule 11(b) states that in presenting papers to federal court, the attorney or party thereby
certifies that the filing is “not being presented for any improper purpose, such as to harass, cause
unnecessary delay, or needlessly increase the cost of litigation,” and that the legal argument
presented is “warranted by existing law or by a nonfrivolous argument” for changing the law.
See Fed.R.Civ.P. 11(b)(1), (2). When considering sanctions, this Court employs a standard of
objective reasonableness, and must consider whether a reasonable attorney would have or should
have known that his conduct violated the provisions of the Rule. See Thompson v. Duke, 940
F.2d 192, 195 (7th Cir. 1991). The Court must look to the circumstances surrounding the party’s
conduct, and may impose sanctions even if only some of the party’s actions violated the Rule.
See Teamsters Local No. 579 v. B & M Transit, 882 F.2d 274, 280–81 (7th Cir. 1989). The
Court need not hold a hearing before imposing Rule 11 sanctions, if they are entered “based on
the objective record of a party's conduct . . . .” Id. at 279.
As discussed above, there is an outright hostility in the Seventh Circuit to parties
challenging arbitration awards. Prostyakov, 513 F.3d at 723. And the free availability of
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sanctions against those who challenge arbitration awards and fail has been emphatically noted:
“The rules . . . to discourage groundless litigation are being and will continue to be enforced in
this circuit to the hilt—as a recital of opinions published by this court [imposing sanctions]
should make clear. Lawyers practicing in the Seventh Circuit, take heed!” Dreis & Krump Mfg.
Co. v. Int'l Assoc. of Machinists & Aerospace Workers Dist. No. 8, 802 F.2d 247, 255–56 (7th
Cir. 1986). Arbitration is designed to ensure the timely and final resolution of disputes, and the
Seventh Circuit has made it clear that courts of this Circuit are encouraged to sanction lawyers
who attempt to undermine the goals of the arbitration system through meritless challenges. See
Dreis & Krump Mfg. Co., 802 F.2d at 254–55 (“[W]e indicated that we would award attorney’s
fees against parties that challenge arbitration awards without basis and we noted that attorney’s
fees had in the past been awarded more freely in such cases than in other cases of groundless
litigation.”).
ABP’s Motion to Vacate the Arbitration Award is wholly meritless and appears to be an
attempt to get a fifth bite at the apple after failing in two actions in the Eastern District of
Virginia, then on appeal to Fourth Circuit Court of Appeals, and finally with the arbitration panel
itself. This long, expensive stretch of litigation is precisely what private arbitration proceedings
are meant to avoid. Because this additional flurry of briefing occurred at no fault of the Boscos,
they should not be required to bear the costs of continually defending their fairly entered
arbitration award. The Court therefore orders ABP to pay the Boscos’ reasonable legal fees—in
addition to the award and legal fees issued as a result of the arbitration award—accrued in the
present case. The Boscos are directed to file a fee petition within 30 days for entry by the Court.
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CONCLUSION
For the reasons set forth above, the Court denies ABP’s Application and Motion to
Vacate the Arbitration Award and grants the Boscos’ Application and Motion to Confirm the
Arbitration Award. The arbitration award is thereby converted to a judgment against ABP. The
Court further orders ABP to pay the Boscos’ reasonable legal fees for this proceeding, in
addition to what it must pay as awarded in the arbitration. The Boscos shall file a fee petition
with this Court within 30 days.
________________________________________
Virginia M. Kendall
United States District Court Judge
Northern District of Illinois
Date: February 13, 2014
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