Superior Court of Massachusetts, Suffolk, Business Litigation Session
Family Endowment Partners, L.P. et al.
James Sutow et al Opinion No. 132125
MEMORANDUM OF DECISION ON SUMMARY JUDGMENT
Edward P. Leibensperger, Justice
This matter comes before the court on the parties' cross motions for summary judgment. Plaintiffs seek to have an arbitration award against them in the amount of approximately $48 million vacated. Defendants seek to have the award continued. The action is brought under the Massachusetts Uniform Arbitration Act, G.L.c. 251, § § 11 and 12.
The underlying dispute is a claim by defendants, James Sutow and Jane Sutow (" the Sutows") that plaintiffs, Family Endowment Partners, L.P. (" FEP") and Lee P. Weiss, provided investment advice that was grossly negligent, fraudulent, a breach of fiduciary duty, and in violation of federal and state law. The Sutows assert that in the period 2010 to 2012, FEP and Weiss placed the Sutows' investments in imprudent, unsuitable and fraudulent investments. They also claim that FEP and Weiss mismanaged their account and made fraudulent statements to them.
The relationship between the Sutows and FEP commenced in December 2009, when they entered into a Financial Planning and Investment Advisory Agreement (" the Agreement"). The Agreement includes a provision (¶ 21) entitled " Governing Law, Jurisdiction and Arbitration." The relevant subsections are (a) " This Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts, excluding its conflicts of laws provisions"; and (c) " Unless otherwise agreed by the parties, any dispute, claim or controversy between the parties arising out of or related to this Agreement or the performance of the parties hereunder, shall be resolved by arbitration before the American Arbitration Association, in accordance with the rules then in effect of the American Arbitration Association. Any award rendered in any such arbitration shall be binding and enforceable against the parties hereto."
In July 2013, the Sutows initiated a Demand for Arbitration before the American Arbitration Association (" AAA"). On September 16, 2013, FEP and Weiss answered the Demand for Arbitration and asserted counterclaims. Neither FEP nor Weiss objected to proceeding with the arbitration or to the jurisdiction of the AAA. In his Thirteenth Affirmative Defense, Weiss, only, stated, " [c]laimants' Demand is barred because Weiss is not a party to the Agreement." Yet FEP and Weiss proceeded to assert a counterclaim " pursuant to the applicable AAA Rules" against the Sutows. Among the counterclaims is Count V wherein FEP and Weiss expressly " seek a declaration that they have fulfilled all of their contractual obligations to the Sutows."
The parties proceeded in the arbitration process. The arbitration trial took place over thirteen days before an arbitrator jointly chosen by the parties, Philip S. Cottone. On April 14, 2015, Mr. Cottone issued the Award of Arbitrator. As referenced, the award was in favor of the Sutows in the amount of approximately $48 million. The counterclaims by FEP and Weiss were denied. The present action to vacate the award of the arbitrator was filed on May 13, 2015.
FEP and Weiss filed this timely action to vacate the award. They contend that the arbitration award " shall be vacated" pursuant to two of the five statutory grounds that require a court to vacate an arbitration award: G.L.c. 251, § 12(a)(2) and (3). Subsection (2) requires the court to vacate the award if there was evident partiality by the arbitrator or corruption by the arbitrator or misconduct prejudicing the rights of a party. Subsection (3) requires the court to vacate the award if the arbitrator exceeded his powers. Each ground for vacating the award will be discussed in turn.
I. Was There Evident Partiality By the Arbitrator or Other Misconduct?
The sum and substance of the claim by FEP and Weiss of evident partiality is that Mr. Cottone knew counsel for the Sutows as a fellow professional in the field of securities arbitration. No claim of actual corruption or misconduct is asserted. There is no claim of a financial or even a social relationship between the two men. Instead, the argument by FEP and Weiss is that because the two attorneys had previous professional interactions, there was evident partiality of the arbitrator.
First, the fact that the two attorneys had professional interactions was fully disclosed to FEP and Weiss and waived by them. In the Notice of Appointment of the Arbitrator, Mr. Cottone disclosed that he had previously conducted three mediations, the last in 2005, in which counsel for the Sutows represented a party. Notwithstanding that disclosure, FEP and Weiss elected to proceed with Mr. Cottone. Then, at the start of the arbitration trial, Mr. Cottone disclosed that he had seen Sutows' counsel from time to time at meetings of the " Plaintiff's Investors Arbitration Bar Association."  With that disclosure, FEP and Weiss were requested to acknowledge their acceptance of Mr. Cottone as the arbitrator. Counsel for FEP and Weiss responded, " No objection whatsoever."
Next, it appears that FEP and Weiss investigated further after they received the adverse arbitration award (an investigation they could have done at the time of the arbitrator's appointment). They point to the facts that (1) in 2012, the Sutows' counsel gave a presentation on LIBOR to a meeting of the Greater Delaware Valley Associates of Conflict Resolution at which the arbitrator attended, and (2) Mr. Cottone and the Sutows' counsel authored separate articles that were published in a 2005 continuing legal education manual by the Pennsylvania Bar Institute entitled " Prosecuting and Defending Customer Clients Against Stockbrokers."
I find that the claim of " evident partiality" is completely unsubstantiated. First, the professional interactions between Mr. Cottone and counsel for the Sutows were adequately disclosed. FEP and Weiss had no objection. Moreover, mere professional interaction between two members of a specialized area of the bar, without more, does not begin to suggest evident partiality. Bernstein v. Gramercy Mills, Inc., 16 Mass.App.Ct. 403, 413, 452 N.E.2d 231 (1983) (no basis to vacate award on " partiality" ground where arbitrator had professional interactions with counsel for a party). The attempt by FEP ...