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08/22/94 SHEARSON LEHMAN BROTHERS v. JON P. HEDRICH

August 22, 1994

SHEARSON LEHMAN BROTHERS, INC., PLAINTIFF-COUNTERDEFENDANT-APPELLANT,
v.
JON P. HEDRICH, DANIEL P. MILLER AND DONALD C. OWEN, DEFENDANTS-COUNTERPLAINTIFFS-APPELLEES.



Appeal from the Circuit Court of Cook County. Honorable ALBERT GREEN, Judge Presiding.

Released for Publication September 27, 1994. As Corrected October 27, 1994.

Buckley, O'connor, Jr., Manning

The opinion of the court was delivered by: Buckley

JUSTICE BUCKLEY delivered the opinion of the court:

This appeal arises out of a dispute between Shearson Lehman Brothers, Inc. ("Shearson") and three former employees, Daniel P. Miller, Jon P. Hedrich, and Donald C. Owen ("defendants"). Defendants commenced an arbitration proceeding against Shearson in front of a three-arbitrator panel convened by the National Association of Securities Dealers, Inc. ("NASD") regarding, inter alia, the amount of money owed to them under Shearson's "Executive and Select Employees Deferred Compensation Plan" ("deferred compensation plan"). The NASD panel awarded each defendant a lump sum as the amount owed under the deferred compensation plan. Shearson brought an action in the circuit court to modify, correct, or partially vacate the award. Defendants filed a counterclaim seeking to have the award confirmed and entered as rendered. The circuit Judge denied Shearson's petition to vacate or modify, confirmed defendants' award and entered judgment thereon. On appeal, Shearson contends: (1) that the circuit court erred in concluding that the arbitrators had not made a "miscalculation of figures" in arriving at the award; and (2) that, alternatively, the award should have been vacated because the arbitrators exceeded their powers by disregarding the unambiguous contractual provisions.

Each defendant had been employed by the Chicago office of Shearson, a securities brokerage firm, for many years. Defendants alleged in their complaints to the NASD arbitration board that between 1986 and 1988 the year-end bonuses which Shearson paid to them were substantially less than the amounts to which they were each entitled. They alleged that they complained to Shearson about this underpayment, but their protests were rejected. They further alleged that when it became clear to Shearson that defendants were determined to take their compensation disputes to arbitration, Shearson terminated defendants' employment. Hedrich was fired on September 25, 1989. Owen was fired on October 1, 1989. Miller was fired on October 16, 1989.

After their terminations, defendants commenced arbitration proceedings before an NASD arbitration panel. Defendants' Third Amended Statements of Claims upon which their disputes were submitted to the NASD arbitrators contained four counts for relief. Count I alleged a breach of contract by underpayment of compensation for the years 1986 through 1988. The NASD arbitration panel found for defendants on count I and Shearson paid to defendants allcount I damages. Shearson has not appealed this determination and, therefore, these aspects of the award are not at issue. Count II alleged that defendants were owed additional compensation for the partial year they worked in 1989 prior to being fired. Defendants' claims in count II for 1989 compensation were "denied and dismissed in their entirety." Defendants have not appealed this determination and it is not before us. Count III alleged that defendants were wrongfully discharged and requested "lost future earnings." These count III claims were also "denied and dismissed in their entirety." Defendants have not appealed the dismissal of their count III claims. Finally, in count IV defendants alleged that, because they were wrongfully discharged, they should be considered "fully vested" under the company's deferred compensation plan. The NASD arbitrators found Shearson liable to defendants on their count IV claims and ordered Shearson to pay Hedrich $207,264, Miller $207,264, and Owen $105,813.

Under Shearson's deferred compensation plan, a fully vested employee would be entitled to an amount equal to his contributions to the plan plus interest at a rate of 11% per annum. An employee whose employment was terminated prior to the effective vesting date, however, was only entitled to an amount equal to his contributions plus 5% interest per year. The effective date of vesting for each defendant was September 25, 1990. Paragraph 3 of each defendant's deferred compensation agreement provided:

"3. Payments Prior to Vesting or Effective Date.

If prior to September 25, 1990 Employee ceases to be an employee of the Employer or of an affiliate for any reason whatsoever (including termination of employment by Shearson with or without cause) * * * (b) Shearson shall have no obligation of any kind hereunder except to pay Employee * * * an amount equal to the amount of compensation theretofore deferred and/or withheld * * * plus interest thereon at an annual rate equal to the lesser of 5% or the weekly 90-day Treasury Bill auction rate (on a discounted basis) averaged over a 12 month period ending on the date of payment. Such interest shall be compounded annually on a calendar year basis and shall be credited with respect to the average daily balance in the deferred compensation account each calendar year."

At the time of their terminations, each defendant had made contributions to the deferred compensation plan in the following amounts: Hedrich had contributed $140,000, Miller had contributed $80,000, and Owen had contributed $80,000. If the "fully vested" 11% compounded annual interest rate were added to each defendant's contributions, each defendant would have received a greater sumthan what was awarded to them by the NASD arbitrators. On the other hand, if the "unvested" 5% compounded annual interest rate were added to each defendant's contributions, each defendant would have received less than the amount awarded. Specifically, at the 5% rate, Hedrich would be entitled to $186,928.76, Miller would be entitled to $102,406.10, and Owen would be entitled to $102,753.24. (Shearson's argument and, therefore, our analysis, assumes that, if plaintiffs are not to be considered "fully vested," then their compensation should be based on their contributions plus 5% interest and not the Treasury Bill rate.)

Since the NASD arbitrators clearly did not utilize either the "fully vested" 11% interest rate or the "unvested" 5% interest rate in calculating the amounts owed to defendants, Shearson filed an action in the circuit court seeking to modify, correct or, in the alternative, to vacate the arbitration award on the count IV claims. Defendants filed a counterclaim seeking to confirm the count IV arbitration awards. The circuit Judge denied Shearson's petition, confirmed the award, and entered judgment thereon. Shearson filed a timely appeal to this court.

Shearson argues that the damages the NASD arbitration panel awarded to defendant bears no relation whatsoever to the unambiguous mathematical formulas provided in the defendants' deferred compensation agreements. Shearson contends, therefore, that we should modify or correct this clear mathematical miscalculation and enter an award for defendants in an amount equal to their contributions plus 5% interest. If the award is not a "mathematical miscalculation," however, Shearson asserts alternatively that we should vacate the award because the arbitrators exceeded their powers by disregarding the unambiguous contractual provisions. Shearson maintains that, under both the Uniform Arbitration Act ("UAA") and the Federal Arbitration Act ("FAA"), an arbitration award should be vacated when the arbitrators "interpret" unambiguous contractual language differently from its unambiguous meaning. Shearson argues that the arbitration panel did not have the authority to substitute a "pay-out" provision different from that contained in the defendants' deferred compensation agreements and that no possible construction of the deferred compensation agreements supports the damages awarded.

Defendants argue, on the other hand, that when parties agree to arbitrate their disputes before parties they have chosen, and the award "is within the submission," courts should not set aside the award "for error either in law or fact" ( Burchell v. Marsh (1855), 58 U.S. 344, 349, 15 L. Ed. 96, 99) as long as the interpretation of the agreements "is a reasonably possible one." ( Rauh v. Rockford Products Corp. (1991), 143 Ill. 2d 377, 574 N.E.2d 636, 158 Ill. Dec. 523; Garver v. Ferguson (1979), 76 Ill. 2d 1, 389 N.E.2d 1181, 27 Ill. Dec. 773.) Defendants assert that the dispute over the amount of deferred compensation owed to them was duly submitted to the NASD panel because construction of the deferred compensation agreements was within the submission and arbitration ...


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