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AHMAD BARAVATI v. LYON

October 4, 1993

AHMAD BARAVATI, Plaintiff,
v.
JOSEPHTHAL LYON & ROSS INC. and PETER SHEIB, Defendants.


MAROVICH


The opinion of the court was delivered by: GEORGE M. MAROVICH

Plaintiff Ahmad Baravati ("Baravati") originally brought an arbitration claim against Defendants Josephthal, Lyon & Ross Inc. ("JLR") and Peter Scheib ("Scheib") (collectively "the Defendants") alleging various causes of action including retaliatory discharge and defamation as a result of a dispute between himself and his employer regarding certain securities dealings. The arbitrator awarded Baravati both compensatory and punitive damages after finding that Defendants had defamed him by intentionally and falsely accusing him of taking firm property on his termination form, commonly known in the securities field as his U-5 form. Baravati now seeks to confirm this award pursuant to 28 U.S.C § 1332, the Federal Arbitration Act ("FAA"), and 9 U.S.C § 9. Plaintiff also seeks Rule 11 sanctions against Defendants for their failure to cite to applicable adverse authority in their earlier motion to dismiss these proceedings for failure to join an indispensable party. For the following reasons, we confirm the award and decline to impose sanctions.

 BACKGROUND

 In April 1989, Plaintiff Ahmad Baravati began work as an account executive in the Chicago office of Rosenkrantz, Lyon & Ross, currently known as Josephthal Lyon & Ross Inc. ("JLR"), a New York-based securities dealer and a member of the National Association of Securities Dealers ("NASD"). During January 1990, he was responsible for underwriting the public stock offering of Roberts Pharmaceutical Co. ("RPC"). In conjunction with this venture, Baravati sought indications of interest to purchase RPC stock from his clients. The initial offering price of the stock was $ 6.00 per share.

 Over the course of that month, the stock market experienced declines. A number of Baravati's clients requested cancellation of their indications of interest. Baravati notified Howard Jacobson ("Jacobson"), the Chicago office manager and his immediate supervisor, of this situation. Jacobson stated he would take care of the situation. However, Baravati subsequently discovered that the names of these clients still remained on the purchase list for the stock. He brought this matter to Jacobson's attention a second time. Jacobson stated he would contact the New York office and have the orders canceled.

 Several days later Baravati learned that the purchase orders for his clients had not been canceled. Baravati contacted Averell Satloff ("Satloff"), JLR's Managing Director and a member of the Board of Directors, to discuss the situation. Satloff recommended that Baravati "cross" the stock and find alternate buyers. Additionally, Satloff recommended that Baravati sell the stock at the original asking price of $ 6.00 per share, although current market value was $ 5.00 per share.

 In early February 1990, Baravati consulted an attorney from the Chicago office of the Securities and Exchange Commission ("SEC") about this situation. On February 15, 1990, JLR withheld Baravati's paycheck without explanation. Baravati contacted Dan Purjes ("Purjes"), Chairman and Chief Executive of JLR, about the paycheck. Purjes informed him to discuss the matter with Jacobson.

 On February 22, 1990, the SEC contacted Jacobson. Jacobson questioned Baravati regarding the SEC inquiry. Later that day, JLR terminated Baravati. Baravati's second paycheck was subsequently withheld.

 Jacobson submitted a Termination Request, dated February 14, 1990, to JLR's New York office. Termination was recommended for failure to follow company policy. Baravati had not been informed of these reasons for termination.

 On February 26, 1990, Peter Scheib, company vice-president and a member of the JLR Board of Directors, completed, in accord with NASD regulations, a Uniform Termination Notice or Securities Industry Registration form ("U-5") on Baravati. On this form, Scheib indicated that Baravati had been terminated and was under internal review for "wrongful taking of firm property in the amount of $ 7,650.25." Furthermore, on March 9, 1990, JLR legal counsel wrote the Illinois Department of Labor, giving notification of Baravati's termination for cause on February 14, 1990. In this letter, JLR stated that Baravati owed the firm approximately $ 4900 for unauthorized trades.

 On March 12, 1990, the NASD Surveillance Department notified Baravati that a review of his termination was in progress. One month later, a supervisor of examiners for the NASD wrote Baravati that the investigation had been completed and the matter was filed without action. None of the allegations warranted further NASD intervention.

 Baravati filed an arbitration claim with NASD on February 6, 1991. In his complaint, Baravati alleged fifteen claims against JLR and its personnel, Purjes, Scheib, Satloff and Jacobson. These included retaliatory discharge, defamation, intentional interference with business expectancy, emotional distress, breach of implied covenant, lost commissions and quasi-contract. Baravati requested an award of $ 14,500,000 for actual, compensatory, and punitive damages, attorney fees and interest.

 An NASD arbitration panel heard the claim in Chicago, Illinois. Both parties presented testimony in hearings that were held between March 1992 and October 1992. After consideration of the pleadings, testimony, hearing evidence, and post hearing submissions, the arbitrators found in Baravati's favor. The arbitrators made the following determinations:

 
1) JLR, Scheib, and Jacobson were jointly and severally liable for a sum of $ 60,000 in satisfaction of all of Baravati's claims;
 
2) JLR, Scheib, and Jacobson were jointly and severally liable for $ 120,000 in punitive damages for the severe harm caused by the unconscionable ...

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