Opinion
CIVIL NO. 16-1509 (PAD)
11-15-2018
The ESTATE OF Gabriel CADENAS, Petitioners, v. UBS FINANCIAL SERVICES, INC., et al., Respondents.
Harold D. Vicente-Colon, Harold D. Vicente-Gonzalez, Steven Liong-Rodriguez, Vicente & Cuebas, San Juan, PR, for Petitioners. Amelia Cristina O'Neill-Vega, Roberto C. Quinones-Rivera, McConnell Valdes, LLC, San Juan, PR, Lawrence E. Fenster, Pro Hac Vice, Bressler, Armery & Ross, P.C., New York, NY, for Respondents.
Harold D. Vicente-Colon, Harold D. Vicente-Gonzalez, Steven Liong-Rodriguez, Vicente & Cuebas, San Juan, PR, for Petitioners.
Amelia Cristina O'Neill-Vega, Roberto C. Quinones-Rivera, McConnell Valdes, LLC, San Juan, PR, Lawrence E. Fenster, Pro Hac Vice, Bressler, Armery & Ross, P.C., New York, NY, for Respondents.
OPINION AND ORDER
Delgado-Hernández, District Judge.
This is an action to vacate an arbitration award in a dispute between the Estate of Gabriel Cadenas ("Petitioner") and UBS Financial Services Inc. and UBS Financial Services Incorporated of Puerto Rico (collectively "UBS") (Docket No. 1-2), which UBS opposed, cross-moving to confirm the award (Docket No. 13). For the reasons explained below, the request to vacate the award is DENIED and the cross-motion to confirm the award is GRANTED.
I. BACKGROUND
On March 26, 2014, Petitioner filed a statement of claim for a dispute-resolution arbitration against UBS before the Financial Industry Regulatory Authority ("FINRA") (Docket No. 1-3). A three-arbitrator panel held 13 hearings over the course of 6 days, and on February 19, 2016, issued the following award: "After considering the pleadings, the testimony and evidence presented at the hearing, the Panel has decided in full and final resolution of the issues submitted for determination as follows: 1. Claimant's claims are denied. 2. Any and all relief not specifically addressed herein, including Claimant's requests for attorneys’ fees and punitive or extended damages, is denied." See, Docket No. 13-1.
On March 1, 2016, Petitioner sought to set aside the award in the San Juan Part of the Puerto Rico Court of First Instance under the Puerto Rico Arbitration Act, P.R. Laws Ann. tit. 32, § 3222 ("PRAA") (Docket No. 1-2). On March 21, 2016, UBS removed the case to this court (Docket No. 1), and on May 27, 2016, responded to the petition to set aside the award (Docket No. 13). Meanwhile, on April 20, 2016, Petitioner moved to remand (Docket No. 7), which UBS opposed (Docket No. 12). On March 15, 2017, the court denied the request to remand because the underlying claims involve federal securities laws and establish federal-question jurisdiction (Docket No. 14). As a result, it instructed Petitioner to submit an additional brief in support of its position (Docket No. 19). Petitioner did so (Docket No. 22), UBS opposed it (Docket No. 24), Petitioner replied (Docket No. 28), and UBS sur-replied (Docket No. 29).
The case was docketed as Estate of Gabriel Cadenas v. UBS Financial Services Inc., et al. , Civil No. KAC2016-0144 (905).
II. DISCUSSION
Petitioner alleges the award should be vacated under the PRAA and Section 10 of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 10, as in its view, the arbitrators engaged in misconduct and partiality (Docket Nos. 1-2; 22). The FAA embodies a national policy favoring arbitration; contains a narrow set of statutory grounds to vacate, modify, or correct an award; and supplies enforcement mechanisms for these types of actions. See, Hall Street Associates v. Mattel, 552 U.S. 576, 581-582, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008) (describing FAA). Review of arbitral decisions is "extremely narrow and exceedingly deferential." Ramos-Santiago v. United Parcel Service, 524 F.3d 120, 123 (1st Cir. 2008) (quoting Airline Pilots Ass'n, Int'l v. Pan Am. Airways Corp., 405 F.3d 25, 30 (1st Cir. 2005) ). The Puerto Rico Supreme Court adopted those principles to govern judicial review under the PRAA. Within those constraints, both the FAA and the PRAA allow review based on misconduct, 9 U.S.C. § 10(a)(3) ; P.R. Laws Ann. tit. 32 § 3222(c) ; and on partiality, 9 U.S.C. § 10(a)(2) ; P.R. Laws Ann. tit. 32 § 3222(b).
The PRAA is modeled after the FAA and tracks its language closely, as many of its provisions are translations of the FAA. See, Universal Ins. Co., Inc. v. Warrantech Consumer Product Services, Inc., 849 F.Supp.2d 227, 236 (D.P.R. 2012) (so noting in light of Puerto Rico Supreme Court precedent). Given the similarities between the FAA and PRAA with respect to the grounds for vacating awards, the court's reasoning here applies to Petitioners’ arguments under both statutes.
A. Misconduct
Petitioners complain that: (i) the arbitrators incurred in misconduct by excluding relevant documentary and expert evidence; and (ii) the proceedings were unfair insofar as the president of the panel allegedly "did not understand a great part of what happened during arbitration," for he was elderly and had difficulty hearing and understanding "the Puerto Rican accent when speaking English," and another arbitrator down with the flu was taking medications that caused her to fall asleep on several occasions (Docket Nos. 1-2, pp. 9-12; 22, pp. 2, 7, 12-14).
According to Petitioner, the panel excluded 17 documents consisting of "internal UBS documents, emails, official documents from regulatory agencies like the [Securities Exchange Commission] and the Office of the Commissioner of Financial Institutions ... that identified the problems and risks in the investments of closed-end funds bonds," as well as expert testimony and report from Heidie Calero, "expert in the Estate on her analysis and opinion on closed-end funds bonds." See, (Docket Nos. 1-2, pp. 10-11; 22, pp. 4-7; 1-1, pp. 102-300). Petitioner argues the excluded evidence would have demonstrated that UBS had actual knowledge of the unreasonably high risk of loss to their investments with UBS, and that its recommendations to invest in the closed-end funds amounted to fraud and misrepresentation (Docket No. 22).
Arbitrators are judges of the admissibility and relevance of evidence and are not bound to hear all of the evidence tendered by the parties, but rather must simply give the parties an opportunity to present evidence and arguments. See, Hoteles Condado Beach, La Concha and Convention Center v. Union de Tronquistas, Local 901, 763 F.2d 34, 39 (1st Cir. 1985) (discussing issue). Vacatur of an arbitration award is appropriate only when the exclusion of relevant evidence so affects the rights of a party that it may be said that it was deprived of a fair hearing. Id. at p. 40. And whether a hearing is unfair is "informed by the parties’ understanding of what constituted a fair hearing when they entered into their [arbitration] contract." Nat'l Cas. Co. v. First State Ins. Grp., 430 F.3d 492, 497 (1st Cir. 2005).
Petitioner voluntarily submitted its claims to binding arbitration under the FINRA Code of Arbitration Procedure (see, Docket No 13-2, p. 52), which states as relevant that: (i)"The panel will decide what evidence to admit;" (ii) "The panel is not required to follow state or federal rules of evidence;" (iii) "Production of documents in discovery does not create a presumption that the documents are admissible at the hearing;" and (iv) "A party may state objections to the introduction of any document as evidence at the hearing to the same extent that any other objection may be raised in arbitration." See, FINRA Rule 12604. And, from the limited transcripts the parties submitted, the arbitrators gave Petitioner the opportunity to present the evidence in question and argue as to its admissibility during the proceedings, as well as qualify its expert during voir dire and present her testimony.
On this end, the transcripts show that Petitioners’ evidence was: (i) offered but voluntarily withdrawn by its counsel (Docket Nos. 24-1; 24-2; 24-3); (ii) objected to by UBS and/or rejected by the panel due to the witnesses’ lack of personal knowledge to authenticate proffered documents–despite there being other available witnesses possessing the requisite knowledge that Petitioner could call but did not (Docket Nos. 24-4; 24-5; 24-6; 24-7; 28-2); or (iii) partially excluded due to the expert's lack of qualification to testify as to the subject of closed-end funds, but otherwise allowed regarding the Puerto Rico economy in general (Docket No. 28-3).
Also, although Petitioner alleges that the panel wrongfully rejected Calero's expert report–which appears to consist of a PowerPoint presentation, marked as Exhibit 23 to the petition filed before the Court of First Instance (Docket No. 1-1, pp. 289-300)–the limited arbitration hearing transcripts before the court do not show the point during the proceedings where the report was allegedly offered and rejected. Because the court cannot verify Petitioner's contention, it is disregarded as unsupported argumentation. See, U.S. v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990) (reciting rule of waiver based on underdeveloped arguments). And its claims that the panel members did not hear and understand the proceedings and dozed off at times, which are also unsupported by the record, fail for the same reason.
Against this backdrop, the arbitration panel did not stray from its directives and accorded Petitioner a full and fair hearing. Consequently, there is no reason for the court to substitute the panel's decision with a different judicial determination. See, Colón Vázquez v. El San Juan Hotel & Casino, 483 F.Supp.2d 147, 151-152 (D.P.R. 2007) (delineating limits to substitution of a judicial determination for arbitrator's decision). This holds true "[e]ven if the court is convinced that the arbitrator committed serious error, so long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority ..." ( id. )(quotation marks and citation omitted). So Petitioner's misconduct contention fail.
Petitioner's supplemental brief includes a recitation of "manifest disregard of the law" as ground to vacate an arbitration award. See, Docket No. 22, p. 9. But the brief contains no supporting argument to justify applying that ground here. Therefore, the court will not consider the extent, if any, to which it applies in this case. See, Ortiz Espinosa v. BBVA Sec. of Puerto Rico, Inc., 2015 WL 12828169, *5 & n.13 (D.P.R. Dec. 17, 2015), aff'd sub nom. Ortiz-Espinosa v. BBVA Sec. of Puerto Rico, Inc., 852 F.3d 36 (1st Cir. 2017) (rejecting similar insufficiently developed argument in unsuccessful action to vacate award).
B. Partiality
Petitioner argues that the arbitrators were partial to UBS because they allegedly granted all of UBS's evidentiary objections without allowing Petitioner to rebut them, and had a personal interest in entering an award for UBS to continue finding remunerative work as arbitrators in future FINRA proceedings against UBS (Docket No. 1-2, pp. 12-13). Elaborating on the latter theory, it posits that UBS has improperly influenced FINRA to designate more North American arbitrators than Puerto Rican arbitrators to attend the many claims that Puerto Rican citizens have filed against UBS over the sale of Puerto Rico bonds and closed-end funds, implying that such arbitrators and FINRA, as if by default, favor UBS in all of those arbitration cases, including the one currently before the court. Id. at p. 13. Assuming these arguments should not be considered abandoned for not having been raised in Petitioner's supplemental brief at Docket No. 22, they lack merit.
"[P]artiality involves a situation in which a reasonable person would be forced to conclude that an arbitrator was partial to a party." Ortiz Espinosa, 2015 WL 12828169, at *4. "Absent exceptional circumstances, courts usually do not entertain claims of bias ‘where it could have been raised at the arbitration proceedings but was not.’ " Id. at *3 (quoting JCI Communications, Inc. v. International Broth. of Elec. Workers, Local 103, 324 F.3d 42, 51 (1st Cir. 2003) ).
As in Ortiz Espinosa, Petitioner concedes that it objected on grounds of impartiality only after the arbitration hearings concluded (Docket No. 1-2, ¶¶ 8.7-8.8). Yet that is too little, too late, as objections on grounds of impartiality must be raised during the hearings. See, Early v. E. Transfer, 699 F.2d 552, 558 (1st Cir. 1983) (holding that courts "will not entertain a claim of personal bias where it could have been but was not raised at the hearing to which it applies"). For that reason alone, Petitioner's claims of partiality fail. Nonetheless, affording Petitioner the benefit of the doubt as to the timeliness of the objections, it cannot prevail.
The party asserting partiality has the burden to set forth specific facts showing improper motives on the part of the arbitrators. See, Ortiz Espinosa, 2015 WL 12828169, at *4 (acknowledging burden). It is "not enough to identify some remote connection between the arbitrator and one of the parties." ALS & Assocs., Inc. v. AGM Marine Constructors, Inc., 557 F.Supp.2d 180, 183 (D. Mass. 2008). Further, "[t]he mere fact that arbitrators are persuaded by one party's arguments and choose to agree with them is not of itself sufficient to show bias or partiality." Ortiz Espinosa, 2015 WL 12828169, at *4.
See also, Bell Aerospace Co. v. International Union, United Auto, 500 F.2d 921, 923 (2nd Cir. 1974) (bias is not established by showing that arbitrator consistently agreed with and found in favor of one party).
In this regard, Petitioner's claim of partiality based on the panel supposedly granting all of UBS's evidentiary objections is without consequence. So too is its assertion that it was not given a chance to argue against UBS's objections, as it is belied by the arbitration transcripts summarized and discussed above. And because its imputations that UBS has an improper influence over FINRA and its arbitrators are so outlandish, and equally important, underdeveloped and unsupported by any reference to evidence, they must be disregarded. Zannino, 895 F.2d at 17 (undeveloped argumentation); Ortiz Espinosa, 2015 WL 12828169, at *5 & n.13 (similar). III. CONCLUSION
It is worthwhile to note that in 2015 a FINRA arbitration panel fined UBS Financial Services Inc. of Puerto Rico $7.5 million for supervisory failures as to the suitability of investments in Puerto Rico closed-end funds and ordered payment of approximately $11 million in restitution for hundreds of customers that suffered losses, information which serves to further undermine Petitioner's allegation that UBS and FINRA are in cahoots. See, FINRA, UBS Financial Services Incorporated of Puerto Rico – 092315, available at http://www.finra.org/sites/default/files/UBS_AWC_092915.pdf.
--------
Petitioners have not provided any reason to vacate the arbitration award. Therefore, its request to vacate is DENIED, and the arbitration award is CONFIRMED.
Judgment shall be entered accordingly.