United States District Court, N.D. Illinois, Eastern Division
OPINION AND ORDER
L. ELLIS United States District Judge
that Respondents Herbert C. Kurlan and VTrader Pro, LLC
(“VTrader”) engaged in actions that caused
Petitioners Jason and Doug Urquhart (collectively, the
“Urquharts”) to lose over $4 million that they
had in their trading accounts, the Urquharts instituted an
arbitration proceeding against Kurlan and VTrader. An
arbitration panel rendered a final award in favor of the
Urquharts, prompting the Urquharts to file this action
seeking confirmation of the award pursuant to the Federal
Arbitration Act (“FAA), 9 U.S.C. § 1 et
seq.Kurlan and VTrader responded by filing a
motion to vacate the arbitration award. Kurlan and
VTrader contend that the arbitrators exceeded the scope of
their powers, failed to render a definite and final award,
and did not conduct a fundamentally fair hearing. The Court
rejects all of Kurlan and VTrader's arguments but one.
Because the Court finds the apportionment of the award
between the Urquharts, on the one hand, and Kurlan and
VTrader, on the other, ambiguous, the Court remands this case
to the arbitration panel for clarification on this discrete
issue. The Court denies the Urquharts' motion to confirm
the arbitration award without prejudice to renewal after the
panel clarifies the award.
was a Chicago Board Options Exchange, Inc.
(“CBOE”) member and trading permit holder
registered with the Financial Industry Regulatory Authority.
It operated from 2003 until it liquidated its business in
2013. Kurlan was VTrader's managing member and made all
contracted with Merrill Lynch Professional Clearing
Corporation (“Merrill Lynch”) to establish a
joint back office operation. This allowed VTrader to pool
capital in a non-segregated environment, meaning that profits
and losses of individual member traders were netted against
one another. VTrader had Class A and Class B members. Texas
Capital Management (“TCM”) became a Class B
member in 2006. TCM was formed and controlled by Michael
DeNio. TCM had its own members, including the Urquharts, who
each opened individual sub-accounts with TCM in 2007. Jason
was designated as the trader on both accounts, and the two
were considered a single trading unit. The amounts in the
Urquharts' and VTraders' accounts fluctuated.
According to the Urquharts, in 2011, their accounts grew to
over $4 million. VTrader allowed the Urquharts to withdraw
$900, 000 from their accounts between January and April 2011.
After this, however, the Urquharts were not able to withdraw
any additional amounts. Instead, in September 2011, VTrader
liquidated all positions, including those held by the
Urquharts, to address shortages in other VTrader accounts.
about October 31, 2012, the Urquharts filed a statement of
claim against Kurlan, VTrader, and Merrill Lynch demanding
arbitration, alleging negligent misrepresentation, fraudulent
inducement and concealment, unjust enrichment, promissory
estoppel, breach of fiduciary duty and good faith and fair
dealing, and violations of industry rules and
regulations.The Urquharts claimed, among other things,
that Kurlan and VTrader made material misrepresentations to
induce the Urquharts to continue trading, all the while
knowing the status of other VTrader accounts that would
ultimately lead the Urquharts not to realize the profits from
their trading activities. The Urquharts requested monetary
damages, pre- and post-award interest, forum fees, and all
other relief to which they were entitled. The parties agreed
to submit the dispute to arbitration pursuant to the
CBOE's rules of arbitration. The arbitration panel was
constituted on December 23, 2013.
arbitration hearing took place from November 2 through 6,
2015, with an additional session on November 30, 2015. Kurlan
represented himself and VTrader pro se for the first
week of proceedings because their attorney withdrew shortly
before the beginning of the hearings. Kurlan obtained an
attorney, Shane Wachtel, to represent him individually
shortly after the week of hearings concluded, providing
Kurlan with representation for the final November 30 session.
Both Kurlan and Wachtel repeatedly asked for additional time
to prepare and present a defense, but the arbitration panel
rebuffed those requests.
the course of the hearing, the Urquharts testified themselves
and called Kurlan as a witness. They also called an expert,
Ed Keiley, and had their counsel, Michael Brown, testify
concerning the attorneys' fees. Kurlan and VTrader called
three witnesses: Gary Anderson, a fact witness and expert,
Mark Bold, an industry expert, and Mark Duffy, an industry
and legal expert. Kurlan also recalled Jason to testify on
November 30. Kurlan and VTrader complained that they were not
able to present the testimony of DeNio or Donald Mankin,
VTrader's accountant. But at the close of the hearing,
Wachtel affirmed to the panel that Kurlan had presented his
case the best he could.
February 8, 2016, the arbitration panel rendered its final
award in favor of the Urquharts and against Kurlan and
VTrader in the total amount of $5, 405, 958.96, broken down
as follows: (1) $3, 860, 265.00 in compensatory damages and
pre-award interest; (2) $1, 182, 205.00 in attorneys'
fees; (3) $360, 488.96 in punitive damages; and (4) $3,
000.00 in forum fees. The award remains outstanding.
the FAA, the Court must confirm the arbitration award unless
certain statutory exceptions, as set forth in §§ 10
and 11 of the FAA, apply. 9 U.S.C. § 9. The Court
addresses whether the exceptions that Kurlan and VTrader
raise prevent confirmation in this case.
Alleged Issues with Definiteness and Scope of Award
10(a)(4) provides that the Court may vacate an arbitration
award where the arbitrators “exceeded their powers, or
so imperfectly executed them that a mutual, final, and
definite award upon the subject matter submitted was not
made.” 9 U.S.C. § 10(a)(4). The Court's review
is extremely limited, with Kurlan and VTrader bearing a heavy
burden. Oxford Health Plans LLC v. Sutter, __ U.S.
__, 133 S.Ct. 2064, 2068, 186 L.Ed.2d 113 (2013). The Court
may only vacate the award if the arbitrators acted outside
the scope of their authority, i.e., if they issued an award
that “does not draw its essence from the agreement
between the parties.” Yasuda Fire & Marine Ins.
Co. of Europe, Ltd. v. Cont'l Cas. Co., 37 F.3d 345,
349 (7th Cir. 1994). “[T]hinly veiled attempts to
obtain appellate review of the arbitrator's decision . .
. [are] not permitted under the FAA.” Gingiss
Int'l, Inc. v. Bormet, 58 F.3d 328, 333 (7th Cir.
1995). “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);
see also Oxford Health Plans, 133 S.Ct. at 2068
(“[T]he sole question for us is whether the arbitrator
(even arguably) interpreted the parties' contract, not
whether he got its meaning right or wrong.”).
Seventh Circuit has also indicated that the
“mutual” and “final” requirement
means that “the arbitrators must have resolved the
entire dispute (to the extent arbitrable) that had been
submitted to them” and the “definite”
requirement means that “the award is sufficiently clear
and specific to be enforced should it be confirmed by the
district court and thus made judicially enforceable.”
IDS Life Ins. Co. v. Royal Alliance Assocs., Inc.,
266 F.3d 645, 650 (7th Cir. 2001). Stated another way, an
arbitration award is unenforceable if it “is either
incomplete in the sense that the arbitrators did not complete
their assignment (though they thought they had) or so badly
drafted that the party against whom the award runs
doesn't know how to comply with it.” Smart v.
Int'l Bhd. of Elec. Workers, Local 702, 315 F.3d
721, 725 (7th Cir. 2002). These requirements “are ones
more of form than of substance . . . not to be confused with
whether the arbitrators' award was correct or even
reasonable, since neither error nor clear error nor even
gross error is a ground for vacating an award.” IDS
Life Ins. Co., 266 F.3d at 650.