United States District Court, N.D. Illinois, Eastern Division
ANNETTE BOSCO, individually and as Trustee of the BOSCO FAMILY TRUST DATED 7/31/96 and as Trustee of the BOSCO FAMILY TRUST DATED 6/25/96, MARY BOROWIAK, individually and as Trustee of the MARY BOROWIAK TRUST, MICHAEL BOROWIAK, RICHARD RUBEL, and DIANE RUBEL, Plaintiffs,
ROGER F. LEIBOWITZ, ROBERT P. MATHER, RICHARD LANDI, and ALLIED BEACON PARTNERS, LLC, Defendants.
MEMORANDUM OPINION AND ORDER
JORGE L. ALONSO, District Judge.
Before the Court is plaintiffs' application for confirmation of arbitration awards granted in their favor and against defendants, as well as defendants' cross-motions to vacate the awards. For the reasons stated below, the Court grants plaintiffs' application, denies defendants' motions, and confirms the arbitration awards.
In this action, plaintiffs (collectively, the "Boscos") seek to confirm, and defendants seek to vacate, arbitration awards issued in proceedings before the Financial Industry Regulatory Authority ("FINRA") on January 27, 2014 and September 12, 2014 in plaintiffs' favor and against defendants Roger F. Leibowitz, Robert P. Mather, Richard Landi, and Allied Beacon Partners ("ABP").
This dispute traces back to the entry of an arbitration award that was made in prior proceedings before FINRA, an organization that regulates the securities industry. The award was issued by a three-member panel in arbitration proceeding No. 10-01778 ("Bosco I"), which plaintiffs filed on April 14, 2010 against ABP's predecessors in interest, which the Court will call "Waterford" for brevity's sake. Waterford had employed George Gilbert, a financial advisor who handled the Boscos' investment of their life savings. For the Boscos' largest investment, Gilbert had recommended companies that turned out to be Ponzi schemes, resulting in the Boscos' loss of over one million dollars. The Boscos alleged that Gilbert and his firms had failed to perform due diligence on the investments and disclose the associated risks, made misrepresentations and omissions about them, and recommended them despite their unsuitability for the Boscos' needs. An arbitration hearing was held in May 2013,  and on May 21, 2013, the arbitrators found in favor of the Boscos and ordered ABP to pay them $1, 200, 000 in compensatory damages plus 10 percent interest per year beginning on April 14, 2010, as well as $7, 500 in costs and $400, 000 in attorneys' fees. (R. 22-5.)
Several days after the entry of the arbitration award, FINRA advised ABP that it had to "book" the award as a liability against its net capital. The upshot was that ABP's net capital would be insufficient to remain in business under FINRA and SEC rules. ABP sought to compromise the award with plaintiffs, but the parties' settlement negotiations failed.
On July 18, 2013, ABP brought an action in federal court to vacate the arbitration award, and plaintiffs cross-moved to confirm it. In February 2014, Judge Kendall entered a memorandum opinion and order denying ABP's motion to vacate the arbitration award, finding the motion "wholly meritless." She also granted plaintiffs' motion to confirm the award, converted it into a judgment against ABP, and ordered ABP to pay the Boscos' reasonable attorneys' fees for the federal-court proceeding. Allied Beacon Partners, Inc. v. Bosco, No. 13 C 5165, 2014 WL 551712 (N.D. Ill. Feb. 13, 2014).
Before ABP had filed the federal action before Judge Kendall, plaintiffs had filed on June 13, 2013 a second arbitration proceeding before FINRA, No. 13-01787 ("Bosco II"), against Mather, Leibowitz, Landi and ABP, for their failure and refusal to pay the award rendered in Bosco I. Plaintiffs asserted claims against Mather, Leibowitz, Landi, and ABP for breach of contract (including FINRA rules), negligence, and equitable and injunctive relief, and additional claims against Leibowitz and Landi as "control persons" for securities fraud, violation of the Illinois Securities Act, fraud, constructive fraud, negligence, breach of contract, and breach of fiduciary duty. Plaintiffs also named as a respondent RBC Capital Markets, LLC ("RBC"), due to the fact that it held ABP's assets as its clearing firm. In July 2013, RBC stipulated that it would not release any of ABP's assets unless the arbitration panel ordered it to do so, and the three-member arbitration panel issued a stipulated award on January 27, 2014 so requiring. (R. 1-2.) This award was given a separate case number, No. 14-00023, but the Court considers it part of Bosco II.
On July 2, 2014, the respondents filed motions to dismiss the arbitration proceeding. The motions were briefed, and the same three-member arbitration panel heard oral argument and denied the motions on August 19, 2014. An arbitration hearing was then held in Chicago from September 2, 2014 to September 5, 2014. On September 12, 2014, the panel issued an award in favor of the Boscos as follows: Mather and Leibowitz are jointly and severally liable to plaintiffs in the amount of $700, 000, plus 10 percent interest per year beginning on June 20, 2013; Landi is liable to plaintiffs in the amount of $350, 000 plus 10 percent interest per year beginning on June 20, 2013; and Mather, Leibowitz, and Landi are jointly and severally liable to plaintiffs for $600 in costs. The award sets out a specific division of these sums among the plaintiffs. The panel also ordered RBC to turn over to plaintiffs all of ABP's funds that it was holding (which was $271, 108.83). (R. 1-1.)
On September 26, 2014, the Boscos filed the instant action seeking confirmation of the awards issued in Bosco II. Defendants cross-move to vacate the awards. For convenience, the Court will refer to the awards as a single award in its discussion.
The Federal Arbitration Act ("FAA") "governs the enforcement, validity, and interpretation of arbitration clauses in commercial contracts in both state and federal courts." Jain v. de Mere, 51 F.3d 686, 688 (7th Cir. 1995). Confirmation of arbitration awards is "usually routine or summary." Hasbro, Inc. v. Catalyst USA, Inc., 367 F.3d 689, 691-92 (7th Cir. 2004). "If there is an agreement to arbitrate, and the issues presented to the arbitrator fell within that agreement, courts may overturn the arbitrator's award only on very narrow grounds." Flexible Mfg. Sys. Pty. Ltd. v. Super Prods. Corp., 86 F.3d 96, 99 (7th Cir. 1996); see also Wise v. Wachovia Sec., LLC, 450 F.3d 265, 269 (7th Cir. 2006) ("It is tempting to think that courts are engaged in judicial review of arbitration awards under the Federal Arbitration Act, but they are not."); Baravati v. Josephthal, Lyon & Ross, Inc., 28 F.3d 704, 706 (7th Cir. 1994) ("Judicial review of arbitration awards is tightly limited; perhaps it ought not be called review' at all."). "Factual or legal error, no matter how gross, is insufficient to support overturning an arbitration award." Halim v. Great Gatsby's Auction Gallery, Inc., 516 F.3d 557, 563 (7th Cir. 2008). The FAA states that an arbitral award may be set aside in only four circumstances:
(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, ...