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March 16, 1988

McLaughlin, Piven, Vogel, Inc., Petitioner
Sidney E. Gross and Irene L. Gross, Respondents and Municipal Securities Rulemaking Board, Intervenor/Respondent

The opinion of the court was delivered by: MCGLYNN



 This dispute arises out of the Grosses' purchase of a block of $ 10,000 Alaska State Housing Finance Corporation Bonds, with a 10.50 percent coupon, from MPV in March 1985. At a price of 104 1/2 per bond, the total price of the bonds was $ 10,450. *fn1" Subsequent to the transaction, the Grosses received a confirmation, containing the terms of the contract between the parties, which listed the bonds as callable on and as having a yield of 9.952 percent until December 1, 1994. The confirmation also stated that "all transactions are subject to the rules, regulations, requirements (including margin requirements), and customs of . . . the Securities Exchange Commission . . . and of any association whose rules and regulations govern transactions in said market." On April 9, 1985, the Grosses were mailed ten bond certificates which, on their reverse side, contained a notice that "the bonds are also subject to redemption at the option of the corporation, in whole or in part as provided in the indenture on any date on or prior to June 1, 1986, from Bond proceeds and other amounts . . . ." *fn2" In a letter to the arbitrator, MPV's Vice President of Compliance Regulation, Thomas English, stated that James DeNicola, "the Account Executive . . . who serviced the Gross account . . . has told me that he made the customers aware of the 'Callable' and 'Special Callable' features that existed on these bonds prior to the trade date of the transaction." This assertion, however, was not supported by any affidavit or statement by the account executive.

 The Grosses deny that the account executive disclosed the existence of the early redemption clause and allege that they did not receive the bond certificates until April 16, 1985, six weeks after purchase. Although the Grosses allege that they did look at the reverse side of the Bonds to examine the "Redemption Schedule" to insure that the earliest call date listed on the confirmation was correct, they contend that they did not look beyond the "Redemption Schedule" to the paragraph explaining the special redemption feature which was positioned immediately below the "Redemption Schedule." In addition, the Grosses allege that they asked the account executive for a prospectus but were told if they waited for a prospectus, the investment opportunity would be lost. MPV alleges that such a request was never received.

 On April 30, 1986, the bonds were called pursuant to the early redemption provision on the back of the bond certificates. On June 1, 1986, the Grosses received $ 10,000 creating a loss which the arbitrator determined to be $ 2,500. The Grosses commenced arbitration in August, 1986 by filing a Uniform Submission Agreement and Statement of Claim with the Board. The Grosses charged MPV with deceiving them by failing to disclose the early redemption feature of the bonds.

 After receiving such notice, MPV submitted its Uniform Submission Agreement, in which it agreed to abide by the rules of the Board's arbitration procedure and the result thereof. MPV was mindful of the fact that if it refused to submit to the Board's arbitration procedure after a claim was filed, the arbitration would proceed without MPV being able to file its defense. See MSRB Rule 35 §§ 5(b)(2)(iii), 34(1). MPV also submitted information at the arbitrator's request.

 On March 27, 1987, an arbitration award was entered in favor of the Grosses and against MPV in the amount of $ 2,500. MPV sought review of the award from the Board which upheld the arbitrator's decision. MPV now seeks relief in this court alleging violations of due process and equal protection and that the award should be set aside as irrational. *fn3"


 The essential aspect of due process is that the party which is about to suffer the loss of a constitutionally protected interest be given an opportunity to be heard "at a meaningful time and in a meaningful manner." See Mathews v. Eldridge, 424 U.S. 319, 47 L. Ed. 2d 18, 96 S. Ct. 893 (1976); Goldberg v. Kelly, 397 U.S. 254, 25 L. Ed. 2d 287, 90 S. Ct. 1011 (1970). The type and nature of process which is due, however, does not lend itself to fixed requirements. Instead, the concept of due process is "flexible and calls for such procedural protections as the particular situation demands." Morrissey v. Brewer, 408 U.S. 471, 481, 33 L. Ed. 2d 484, 92 S. Ct. 2593 (1972); see Mathews 424 U.S. at 335. Accordingly, judicial-type hearings are not necessarily required in all cases. In fact, in cases where the party being deprived of the protected interest is not charged with wrongdoing or where there are no factual disputes or credibility issues, an informal oral hearing or even a "paper hearing" may be appropriate. See Gray Panthers v. Schweiker, 230 U.S. App. D.C. 219, 716 F.2d 23, 35 (D.C. Cir. 1983); Eguia v. Tompkins, 756 F.2d 1130, 1138-39 (5th Cir. 1985); Monumental Health Plan v. Department of Health and Human Services, 510 F. Supp. 244, 249 (D. Md. 1981); Northeast Emergency Medical Assoc. v. Califano, 470 F. Supp. 1111, 1121 (E.D. Pa. 1979) H. Friendly, " Some Kind of Hearing ", 123 U. Pa. L. Rev. 1267, 1281 (1975); Sullivan v. Carignan, 733 F.2d 8 (1st Cir. 1984); cf. O'Neill v. Town of Nantucket, 545 F. Supp. 449, 454-55 (D. Mass. 1982), aff'd, 711 F.2d 469 (1st Cir. 1983).

 Although MPV's challenge to the Board's rules on obtaining an arbitration hearing is not frivolous under these facts, I find that based on the contract between the parties MPV voluntarily submitted to the Board's arbitration rules and, by doing so, waived its right to challenge those procedures in this court. In order to waive a constitutional right, the waiver must reflect an intentional relinquishment of a known right. Bueno v. City of Donna, 714 F.2d 484 (5th Cir. 1983); see also Piankhy v. Cuyler, 703 F.2d 728, 730 (3d Cir. 1983) (discussing waiver of criminal defendant's rights). A waiver of constitutional rights, however, is subject to the most stringent scrutiny. Bueno 714 F.2d at 492; see also Piankhy, 703 F.2d at 730. Whether a party has waived a constitutional right depends upon the facts of each case including the background, experience, and conduct of the party. Piankhy, 703 F.2d at 730. The evidence must reflect a basis for finding actual knowledge of the existence of the right, a full and complete understanding of its meaning, and an understanding of the consequences of the waiver. Bueno, 714 F.2d at 493.

 In this case, MPV does not allege that it was unaware of its constitutional right to due process or of the Board's arbitration rules. Nor does MPV allege that it did not fully understand the Board's rules or the effect of submitting to those rules. In light of MPV's sophisticated knowledge of and participation in the securities market and its previous actions in this case, such allegations would be, at the very least, highly suspect. Despite its knowledge of the Board and its rules, MPV voluntarily agreed to be bound by the Board's rules in Clause Two of the contract between the parties set forth in the Notice of Confirmation of Trade, which was mailed to the Grosses after the transaction was completed. *fn4" This clause said that it would be bound by the rules and regulations of the Securities Exchange Commission and any association whose rules govern the market. Clearly, ...

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