Hudson v. Merrill Lynch International Finance Incorporated et al

Filing 41

ORDER AND REASONS - The Court finds that the arbitration award unambiguously requires Merrill Lynch to pay Plaintiff damages in the amount of $768,399.26. Plaintiff's motion 15 is therefore GRANTED and the arbitration award CONFIRMED. Signed by Chief Judge Sarah S. Vance on 11/20/12. (jjs, )

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
DANIEL MARK HUDSON

CIVIL ACTION

VERSUS

NO: 12-052

MERRILL LYNCH INTERNATIONAL
FINANCE INCORPORATED AND
MERRILL LYNCH PIERCE FENNER &
SMITH INCORPORATED

SECTION: R(1)

ORDER & REASONS
Before the Court are the following two motions: (1) Motion
For the Court to Enter an Order that Confirms and Enforces an
Award of a Panel of Arbitrators by plaintiff Daniel Mark Hudson
and (2) Motion to Confirm and Enforce an Award of a Panel of
Arbitrators by defendants Merrill Lynch International Finance,
Inc. and Merrill Lynch Pierce Fenner & Smith, Inc.

Also before

the Court are the supplemental memoranda of counsel on the issue
of whether the arbitration award should be remanded to the
original arbitrator to clarify whether the award issued to Hudson
consisted of wages from which Merrill Lynch would withhold taxes,
or Hudson was to receive the entire sum awarded.

The Court finds

that the award unambiguously requires Merrill Lynch to pay Hudson
damages in the amount of $768,399.26.

Plaintiff’s motion is

therefore GRANTED and the arbitration award CONFIRMED.

I. BACKGROUND
The facts of this case are largely uncontested.

In January

2009, plaintiff Daniel Mark Hudson, a financial advisor,
participated in an employee program created by defendants Merrill
Lynch Pierce Fenner & Smith Incorporated (“MLPFS”) and Merrill
Lynch International Finance, Incorporated (“MLIFI”).

The program

was designed as an incentive to retain certain employees when
Bank of America bought Merrill Lynch in 2009.1

The program,

called the Advisor Transition Program Agreement (“ATPA”),
involved a single lump sum payment by MLIFI to the employee in
the form of a loan: $872,517 in the Plaintiff’s case.

The

employee would then pay back the loan, plus interest, over an
eighty-four (84) month period during which MLPFS would deduct the
payments from his salary.2

On January 7, 2009, plaintiff signed

a promissory note agreeing to the terms above as well as agreeing
that, should his employment be terminated for any reason, he
would immediately owe the remaining balance on the loan.3
In December 2009, eleven months after signing the promissory
note, plaintiff’s employment with defendants was terminated under
disputed circumstances.4

1

R. Doc. 9-8 at 2.

2

R. Doc. 9-1 at 4.

3

R. Doc. 9-1 at 4.

4

In that same month, defendants demanded

R. Doc. 9-1 at 6.
2

that plaintiff pay the outstanding balance on his loan, as per
the agreement - at that time $768,399.26.5

Hudson declined and

disputed the alleged debt, which led to the commencement of
arbitration through the Financial Industry Regulatory Authority
soon thereafter.6

During arbitration, defendants requested

relief in the amount of $768,399.26, interest on that principal
in the amount of 3% per annum, attorney’s fees and costs, and
additional relief as deemed appropriate by the arbitration
panel.7

In response, plaintiff requested that all defendants’

claims be dismissed, and additionally filed claims for damages
for the following: (1) defamation, (2) invasion of privacy, (3)
intentional infliction of emotional distress, (4) unlawful age
discrimination, (5) earned but unpaid Merrill Lynch Production
Awards, and(6) fourteen other alleged earned but unpaid
compensation awards.8
In December 2011, the arbitration panel issued its award in
three parts: (1) MLPFS was ordered to pay plaintiff $768,399.26
in “damages” under the ATPA, (2) plaintiff was ordered to pay
MLIFI $768,399.26 as the balance due on his promissory note and

5

R. Doc. 9-7 at 2.

6

R. Doc. 9-1 at 6.

7

R. Doc. 9-11 at 3.

8

Id. at 3-4.
3

(3) plaintiff was ordered to pay $76,560 in attorney’s fees.9

No

party challenges the arbitration panel’s award or their
methodology in arriving at the award, and plaintiff paid the
$76,560 for attorney’s fees in January 2012.10
balance of the award is contested.

But the remaining

Defendants contend that the

“damages” award to Hudson is for “wages” and thus MLPFS is
required to withhold $246,834.26 worth of taxes from the amount
that it owes the plaintiff.11

Plaintiff, on the other hand,

contends that the award is for damages and not back pay or wages
and that MLPFS owes him the full $768,399.26.12

Plaintiff

further argues that, even if the award were wages, he must be
allowed to calculate and pay those taxes himself, rather than
relying on his former employer to do so for him.13

He also

contends that he should not have to pay MLIFI before MLPFS pays
him.14

These disputes over the interpretation of the arbitration

award have resulted in the lawsuit at bar.

9

R. Doc. 9-1 at 7.

10

Id. at 8.

11

Id. at 9-10.

12

R. Doc. 26 at 4.

13

Id. at 9.

14

R. Doc. 9-1 at 15-16.
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II. STANDARD
Under the Federal Arbitration Act, “[i]f the parties in
their agreement have agreed that a judgment of the court shall be
entered upon the award made pursuant to the arbitration ... any
party to the arbitration may apply to the court so specified for
an order confirming the award, and thereupon the court must grant
such an order unless the award is vacated, modified, or
corrected.” 9 U.S.C. § 9; see also Hall Street Assocs., L.L.C. v.
Mattel, Inc., 552 U.S. 576, 582 (2008).

A district court's

review of an arbitration award is exceedingly narrow, and the
Federal Arbitration Act provides only a limited set of
circumstances under which a court may disrupt an award. 9 U.S.C.
§§ 10, 11 (listing grounds for vacation or modification such as
fraud, partiality, misconduct, or “evident material
miscalculation”); see also Citigroup Global Markets v. Bacon, 562
F.3d 349, 352 (5th Cir. 2009).

The federal courts will defer to

the arbitrators’ resolution of the dispute whenever possible.
Anderman/Smith Operating Co. v. Tennessee Gas Pipeline Co., 918
F.2d 1215, 1218 (5th Cir. 1990).

The Congressional policy of

promoting arbitration requires that courts do not intrude
unnecessarily into questions that have been settled by an
arbitration process agreed to by the parties. Id.

A party who

wishes to move to vacate, modify, or correct an award must serve
notice of the motion upon an adverse party within three months
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after the award is filed or delivered. 9 U.S.C. § 12.

No such

opposition has been filed in this matter.

III. Discussion
At issue is whether the damages awarded to Hudson are
intended to be wages from which Merrill Lynch must withhold
taxes, or if the full amount awarded should be paid to Hudson.
Although the Fifth Circuit has permitted remand for clarification
of ambiguous arbitration awards,15 remand is unnecessary in this
case because the arbitration award is clear.

The award reads in

part:
Respondent [Daniel M. Hudson]’s counterclaim is granted
as to enforcement of the Advisor Transition Program
Agreement and Amendment, both dated November 14, 2008,
against Claimant/Counter-Respondent Merrill Lynch,
Pierce, Fenner & Smith, Inc. Accordingly, Claimant
Merrill Lynch, Pierce, Fenner & Smith, Inc. is liable
for and shall pay to Respondent damages in the amount

15

While the doctrine of functus officio generally bars an
arbitration panel from revisiting a past final judgment, the
Fifth Circuit has held that remand for clarification of the
original award – as opposed to vacatur of the original award
coupled with a new one – is appropriate. See Brown v. Witco
Corp., 340 F.3d 209, 211 (5th Cir. 2003)(district court was
correct in remanding and ordering the arbitrator to specify how
to calculate an award – there, back-pay – owed by one party to
the other.); Weinberg v. Silber, 140 F.Supp.2d 712, 722 (N.D.
Tex. 2001)(citing San Antonio Newspaper Guild Local No. 25 v. San
Antonio Light Div., 481 F.2d 821, 825 (5th Cir. 1973)(“[t]he
Fifth Circuit has made clear that when statements or directives
in an arbitration award are ambiguous, remand to the arbitrator
for clarification is proper.”).
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of $768,399.26, pre- and post-judgment interest
specifically excluded.16
The award is textually clear that MLPFS must pay “damages in the
amount of $768,399.26" to Hudson.

The panel made no mention of

“withholdings” and did not say that MLPFS was to pay Hudson a
lesser amount based on Merrill Lynch’s computation of Hudson’s
tax obligations.

Further, the exact matching of the amount

Hudson was found to owe Merrill Lynch and the amount Merrill
Lynch was found to owe Hudson (both $768,399.26) suggests that
the arbitration panel intended for this award to be a “wash.”
The defendants’ argument that the award, although it is
labeled as “damages,” is intended to be “wages” from which
Merrill Lynch should withhold taxes, goes to ambiguity in the
arbitration panel’s justification for the award.

But ambiguity

in the reasons for the award must not be mistaken for ambiguity
in the award itself.

“Arbitrators have no obligation to the

court to give their reasons for an award.” United Steelworkers of
Am. v. Enter. Wheel & Car Corp., 363 U.S. 593, 598 (1960); See
also Kurt Orban Co. v. Angeles Metal Sys., 573 F.2d 739, 740 (2d
Cir. 1978)(“Arbitrators are not required to disclose the basis
upon which their awards are made...; courts will not look beyond
the lump sum award in an attempt to analyze the reasoning
processes of the arbitrators”).

16

Because the award is clear that

R. Doc. 15-1 at 4.
7

Merrill Lynch is to pay Hudson the lump sum of $768,399.26, and
defendants have not argued or established that the award is
subject to modification by the Court for any of the narrow
reasons set out in the Federal Arbitration Act, the Court
confirms the award.

To the extent that Hudson owes taxes on the

awarded amount, it is his responsibility to pay them.

New Orleans, Louisiana, this 20th day of November, 2012.
__

_________________________________
SARAH S. VANCE
UNITED STATES DISTRICT JUDGE

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