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Hessong v. Cape Securities, Inc.

United States District Court, D. Maryland

July 16, 2018

PAUL AND BEATRICE HESSONG, Plaintiffs,
v.
CAPE SECURITIES, INC., et al., Defendants.

          MEMORANDUM OPINION

          Richard D. Bennett United States District Judge

         Attached In May of 2015, Plaintiffs Paul and Beatrice Hessong (the “Hessongs” or “Plaintiffs”) initiated arbitration proceedings against Defendants Cape Securities, Inc., Steve Costa Tzotzis, Jeff Bodner, James Webb and Michael Lovett (collectively, “Defendants”) by submitting a Statement of Claim to the Financial Industry Regulatory Authority (“FINRA”). (ECF No. 1-2.) The FINRA Panel rendered an arbitration award (the “Award”) totaling $45, 000 in favor of the Defendants and against the Plaintiffs. (ECF No. 1 at ¶ 51.) On January 6, 2017, the FINRA Director served the Award upon the Plaintiffs. (ECF No. 1 at ¶ 63.) On February 19, 2018, the Plaintiffs filed a Motion to Vacate Arbitration Award, Remand to Enforce Settlement Agreement and for Declaratory Judgment in this Court. (ECF No. 1.) Currently pending is the Defendants' Amended Motion to Dismiss the Plaintiffs' Motion to Vacate and Remand. (ECF No. 14.)[1] The parties' submissions have been reviewed, and no hearing is necessary. See Local Rule 105.6 (D. Md. 2016). For the following reasons, the Defendants' Amended Motions to Dismiss (ECF No. 14) is GRANTED and Plaintiffs' Motion to Vacate Arbitration Award, Remand to Enforce Settlement Agreement and for Declaratory Judgment (ECF No. 1) is DENIED.

         BACKGROUND

         In May of 2015, the Plaintiffs filed a Statement of Claim to the Financial Industry Regulatory Authority (“FINRA”), bringing multiple claims against the Defendants regarding improper trading of their accounts with Cape Securities, Inc. (ECF No. 1-2.) The Defendants filed an Answer and Counter-Claim against the Plaintiffs. (ECF No. 1-3.) Subsequently, both Parties signed a Submission Agreement agreeing to proceed with arbitration under FINRA's Arbitration Code. (ECF No. 1 at ¶ 17.) The proceedings were scheduled for August 8, 2016 and November 14-16, 2016 in Baltimore, Maryland. (ECF No. 1 at ¶ 11, ¶ 37.)

         The Plaintiffs allege, however, that a settlement between the parties was reached prior to the arbitration proceedings. (ECF No. 1 at ¶ 41.) They therefore did not attend the August 8, 2016 hearing because they thought the matter had settled. Id. Pursuant to Defendants' request for sanctions, the arbitrators ordered Plaintiffs to pay $7, 500 in damages as a result for failure to appear. (Id. at ¶ 42-43.) Plaintiffs filed a motion to reconsider on the basis that a settlement agreement had been made, which was denied by the arbitrators. (Id. at ¶ 44.) On October 25, 2016, while the FINRA proceedings progressed, Plaintiffs filed a Motion for Declaratory Judgment and a Stay of Arbitration in the Supreme Court of the State of New York for Suffolk County, alleging that the FINRA arbitration proceedings should be stayed because the matter had been settled. (Id. at ¶ 46.) On November 14, 2016, the Supreme Court of the State of New York for Suffolk County denied the Plaintiffs' motion. (ECF No. 14-3.)

         Accordingly, the arbitration proceeded under FINRA's Arbitration Code and the Panel rendered an Arbitration Award (the “Award”) totaling $45, 000 in favor of the Defendants and against the Plaintiffs. (ECF No. 1 at ¶ 51.) On January 6, 2017, the FINRA Director served the Award upon the Plaintiffs. (Id. at ¶ 63.) On August 1, 2017, the Defendants filed a motion to confirm the FINRA Award in the Superior Court for Henry County Georgia. (ECF No. 14-5) The Georgia state court confirmed the FINRA Award and entered an order granting judgment against the Hessongs in the amount of $45, 000. Id. On January 24, 2018, the Plaintiffs filed a motion to set aside the default judgment in the Georgia state court. Id. The Defendants then enrolled the judgment in the Circuit Court of Washington County Maryland. (ECF No. 1 at ¶ 63.)[2]

         On February 19, 2018, the Plaintiffs filed a Motion to Vacate Arbitration Award, Remand to Enforce Settlement Agreement and for Declaratory Judgment in this Court. (ECF No. 1.) The Plaintiffs assert that the Award and subsequent judgments are void for lack of subject matter jurisdiction, personal jurisdiction, and fraud. They further allege that the enforcement of the Georgia state court judgment violates the Due Process Clause of the 14th Amendment as well as the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq. (ECF No. 1.) Subsequently, the Defendants filed the pending Amended Motion to Dismiss Plaintiffs' Motion to Vacate and Remand. (ECF No. 14.)

         STANDARD OF REVIEW

         The United States Court of Appeals for the Fourth Circuit has described review of an arbitral award as “among the narrowest known at law because to allow full scrutiny of such awards would frustrate the purpose of having arbitration at all-the quick resolution of disputes and the avoidance of the expense and delay associated with litigation.” Apex Plumbing Supply, Inc. v. U.S. Supply Co., 142 F.3d 188, 193 (4th Cir. 1998). Showing grounds for vacatur requires a petitioner to “clear a high hurdle.” Stolt-Nielsen S.A. v. Animal Feeds Int'l Corp., 559 U.S. 662, 671 (2010).

         Under the FAA, a district court may vacate an arbitration award under four grounds:

(1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators, or either of them; (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. Where a petitioner seeks to vacate an award on the ground that the arbitrators “exceeded their powers, ” the petitioner must do more than show the arbitrators seriously erred. Stolt-Nielsen, 559 U.S. at 671-72. Instead, “it is only when [an] arbitrator strays from interpretation and application of the agreement and effectively dispense[s] his own brand of industrial justice that his decision may be unenforceable.” Id. (citations and internal quotation marks omitted).

         The Fourth Circuit also recognizes “manifest disregard of the law” as a basis for vacating an arbitration award under the FAA where the plaintiff shows “(1) the disputed legal principle is clearly defined and is not subject to reasonable debate; and (2) the arbitrator refused ...


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