Ploetz v. Morgan Stanley Smith Barney LLC

Filing 17

MEMORANDUM AND ORDER: IT IS HEREBY ORDERED that the Petition filed by Ann Eleanor Ploetz 1 is DENIED. LET JUDGMENT BE ENTERED ACCORDINGLY. (Written Opinion) Signed by The Hon. Paul A. Magnuson on 05/25/2017. (LLM)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Ann Eleanor Ploetz, as Trustee
For the Laudine L. Ploetz,
1985 Trust,

Civil No. 17-1112 (PAM/DTS)

Petitioner,
v.

MEMORANDUM AND ORDER

Morgan Stanley Smith Barney, LLC,
Respondent.

This matter is before the Court on a Petition to Vacate Arbitration Award. For the
following reasons, the Petition is denied.
BACKGROUND
Petitioner Ann E. Ploetz, in her capacity as Trustee of the Laudine L. Ploetz, 1985
Trust, sought to arbitrate tort and contract claims against Respondent Morgan Stanley
Smith Barney (“MSSB”), accusing MSSB of making unauthorized transfers from the
Trust’s account. (Pet. (Docket No. 1) Ex. A at 1; MacDonald Aff. (Docket No. 3) ¶ 2.)
Under the arbitration rules of the Financial Industry Regulatory Authority (“FINRA”),
the arbitration panel was comprised of three arbitrators. (Pet. Ex. A at 4.) After more
than a year of discovery, and less than a week before the January 2017 arbitration was to
begin, the chairperson of the panel resigned due to a scheduling conflict. (Kendrick Aff.
(Docket No. 11) ¶ 3-4.) The parties agreed to truncated procedures for selecting another
arbitrator, and ultimately selected Barry Goldman as the new chair of the panel.
(MacDonald Aff. ¶ 4.)

FINRA requires that arbitrators disclose any potential conflicts, including past
service as an arbitrator or mediator. FINRA Rule 12405. Goldman disclosed that he had
served as an arbitrator in proceedings involving MSSB on four occasions and was
currently serving as an arbitrator in two pending MSSB arbitrations. (MacDonald Aff.
Ex. 5.) Neither party sought to disqualify him on the basis of these contacts with MSSB.
After a two-day hearing, the panel unanimously determined that Ploetz’s claims were
without merit. (Pet. Ex. A.)
In February, Ploetz’s attorney learned that Goldman had served as a mediator in a
2012 proceeding in Michigan involving MSSB. (MacDonald Aff. ¶ 9.) Mediation under
FINRA is voluntary and private, akin to settlement discussions, and thus there was no
record of this proceeding and it was handled by attorneys not involved in the instant
arbitration. The 2012 mediation was unsuccessful and that case eventually proceeded to
arbitration, with the arbitration panel finding for the claimant and against MSSB.
(Kendrick Aff. ¶ 7.) There is no indication that Goldman was involved in the case after
the unsuccessful mediation.
Ploetz contends that Goldman’s failure to disclose his service as a mediator on the
prior MSSB case warrants vacating the arbitration award and requiring the parties to
arbitrate the case anew.
DISCUSSION
A.

Service of Petition
MSSB argues that it was not served with the Petition in the manner the statute

requires and that any attempted service now would be untimely. A motion to vacate must
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be served within three months of the award. 9 U.S.C. § 12. MSSB contends that the
statute requires service by marshal because MSSB is not a resident of Minnesota. The
statute provides that nonresident parties must be served “by the marshal of any district
within which the adverse party may be found in like manner as any other process of the
court.” Id. But the statute provides that residents may be served “as prescribed by law
for service of notice of motion in an action in the same court.” Id. Ploetz mailed the
Petition to MSSB’s main office in New York and to MSSB’s attorney in the underlying
arbitration, which complies with Fed. R. Civ. P. 5’s requirements for service of notice of
motion.
MSSB has seven offices in Minnesota. Thus, under both federal and Minnesota
law, it is a “resident” of Minnesota. As an LLC, federal law deems MSSB to reside “in
any judicial district in which such defendant is subject to the court’s personal jurisdiction
with respect to the civil action in question.” 28 U.S.C. § 1391(c)(2). MSSB makes no
argument that it is not subject to this Court’s personal jurisdiction for this proceeding.
And under Minnesota law, a corporation or other such entity “shall be considered as
residing in any county wherein it has an office, resident agent, or business place.” Minn.
Stat. § 542.09. Again, MSSB has multiple offices in Minnesota. Service was proper.
B.

Motion to Vacate
“Under the [Federal Arbitration Act,] courts may vacate an arbitrator’s decision

‘only in very unusual circumstances.’” Oxford Health Plans LLC v. Sutter, 569 U.S. C,
133 S. Ct. 2064, 2068 (2013) (quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S.
938, 942 (1995)). The FAA lists the only circumstances under which a court may vacate
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an arbitration award. Hall St. Assocs., LLC v. Mattel, Inc., 552 U.S. 576, 590 (2008).
These grounds are:
(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators . . . ;
(3) 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 have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed
them that a mutual, final, and definite award upon the subject matter
submitted was not made.
9 U.S.C. § 10.
Ploetz contends that the award should be set aside for evident partiality and for
arbitrator misbehavior. She relies almost solely on a 1968 Supreme Court decision,
Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145 (1968) and a
New Jersey district court decision from 1958, Rogers v. Schering Corp., 165 F. Supp. 295
(D.N.J. 1958). She contends that it is inappropriate for the Court to consider any more
recent appellate court interpretations of Commonwealth Coatings because the Supreme
Court itself has not changed the Commonwealth Coatings holding. Her position that the
law on this issue is sclerotic and may only be refined by the Supreme Court is not
supported by either subsequent caselaw or by our legal system’s precedent-based
jurisprudence, which relies on the evolution of legal principles through subsequent
interpretations of Supreme Court opinions.

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According to Ploetz, because the parties agreed to be bound by the FINRA rules,
and because the FINRA rules provide that failure to disclose is a “circumstance[] which
might preclude the arbitrator from rendering an objective and impartial determination,”
FINRA Rule 12405(a)(4), a refusal to vacate the award would frustrate the parties’
bargained-for legitimate expectations, not to mention the FAA’s standards. She contends
that Commonwealth Coatings sets forth a bright-line rule that when the parties bargain
for disclosure of conflicts and the arbitrator fails to disclose a conflict, the arbitration
award must be vacated.
But a party contending that an arbitration award should be vacated because of an
arbitrator’s “evident partiality” bears a “heavy burden.”

Williams v. Nat’l Football

League, 582 F.3d 863, 885 (8th Cir. 2009) (quoting Choice Hotels Int’l, Inc. v. SM Prop.
Mgmt., LLC, 519 F.3d 200, 212 (4th Cir. 2008)). Even if an arbitrator fails to make a
disclosure regarding potential conflicts of interest, a party must still “demonstrate evident
partiality” on the arbitrator’s part. Williams, 582 F.3d at 886. “Because arbitration
awards are favored, a party seeking to vacate on th[e] ground [of evident partiality] has ‘a
high burden of demonstrating objective facts inconsistent with impartiality.’” Brown v.
Brown-Thill, 762 F.3d 814, 820 (8th Cir. 2014) (quoting Kolel Beth Yechiel Mechil of
Tartikov, Inc. v. YLL Irrevocable Trust, 729 F.3d 99, 105 (2d Cir. 2013)). A busy
arbitrator’s prior contacts with a large corporate party are “inevitable, requiring a specific
showing that particular contacts influenced the arbitrator’s resolution of this dispute.” Id.
(emphasis in original).

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Here, there is simply no evidence that Goldman’s prior mediation with MSSB had
any effect on the resolution of Ploetz’s claim. Indeed, Goldman disclosed six other
MSSB-related proceedings over which he had presided and those proceedings did not
cause Ploetz to question his impartiality. Ploetz insists that the Commonwealth Coatings
decision sets forth a black-and-white rule: failure to disclose means evident partiality and
vacatur of the award. But that is not what the plethora of Eighth Circuit decisions
interpreting Commonwealth Coatings hold, and those decisions are as binding on this
Court as a Supreme Court decision.
Ploetz does not cite any case decided after Commonwealth Coatings interpreting
that decision to require vacatur of an award solely because an arbitrator failed to disclose
relevant party contacts. This is likely because there are no such cases. It appears as
though every Court of Appeals to have addressed the issue has rejected Ploetz’s
interpretation of Commonwealth Coatings that “the fact of the nondisclosure alone
mandates vacatur under either a ‘reasonable impression of bias’ or ‘appearance of bias’
standard.” Nationwide Mut. Ins. Co. v. Home Ins. Co., 429 F.3d 640, 644 (6th Cir.
2005); see also id. at 645 (explicitly rejecting “as dicta . . . the appearance of bias
standard espoused in the [Commonwealth Coatings] plurality opinion”).
Nor can Ploetz establish that Goldman was guilty of misbehavior that would
warrant vacating the arbitration award.

“A party seeking to vacate an award for

misconduct under § 10(a)(3) must show that he was ‘deprived of a fair hearing.’” Brown,
762 F.3d at 820 (quoting Grahams Serv. Inc. v Teamsters Local 975, 700 F.2d 420, 422
(8th Cir. 1982)). Ploetz does not argue that she was deprived of a “fair opportunity to
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present evidence and argument in support of [her] position.” Id.; see also Riniker v.
UnitedHealth Grp. Inc., No. 12-cv-2875, 2015 WL 1782566, at *4 (D. Minn. Apr. 20,
2015) (Ericksen, J.) (“The paradigmatic § 10(a)(3) challenge is one in which an arbitrator
declines to take evidence offered by a party.”). Absent any such evidence, she has not
established that vacatur is appropriate under § 10(a)(3).
CONCLUSION
Petitioner has not established that the arbitration must be vacated. Accordingly, IT
IS HEREBY ORDERED that the Petition (Docket No. 1) is DENIED.

LET JUDGMENT BE ENTERED ACCORDINGLY.

s/ Paul A. Magnuson

Date: May 25, 2017

Paul A. Magnuson
United States District Court Judge

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