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Murray Popkave, Trustee of the v. John Hancock Distributors LLC

February 7, 2011


The opinion of the court was delivered by: Anita B. Brody, J.



On July 8, 2010, Petitioner Murray Popkave ("Popkave" or "Petitioner") filed a Petition to Confirm an Arbitration Award issued by a Financial Industry Regulatory Authority ("FINRA") panel. Notice of Removal ¶ 2, ECF No. 1. On July 27, 2010, Respondent John Hancock Distributors ("JH Distributors" or "Respondent") removed the action from the Court of Common Pleas of Philadelphia County to this court, invoking diversity jurisdiction under 28 U.S.C. § 1332(a). Id. ¶ 5. That same day, JH Distributors filed a Petition to Vacate the Arbitration Award. Pet. Vacate, ECF No. 3. JH Distributors alleges that the FINRA arbitrators exceeded their powers and engaged in manifest disregard of the law by proceeding with arbitration when JH Distributors was not the proper party to the dispute. Id.


Popkave is the Trustee of the Louise S. Hodge Multiple Powers Liquidity Trust ("Trust"). Statement of Claim Ex. 1, at 1, ECF No. 5. The Trust was the beneficiary of a variable annuity purchased by Louise S. Hodge ("Hodge") from John Hancock Mutual Life Insurance Company ("JH Mutual") in 1993. Id. Subsequently, JH Mutual demutualized into John Hancock Life Insurance Company ("JH Life"). Pet. Vacate ¶ 2. JH Distributors is a subsidiary of JH Life. Tr. Ex. G, at 52, ECF No. 3.

After Hodge died in October of 2007, Popkave sought to reallocate the assets of the annuity into a money market account. Statement of Claim Ex. 1, at 1-2. Popkave has alleged that when he first attempted to effect this transfer, the annuity was worth $619,204.17. Id. at 1. At that time, a representative of JH Life gave Popkave claim forms to fill out to effect the transfer. Id. at 2. Two weeks after Popkave submitted the forms to JH Life, JH Life told Popkave that his paperwork could not be located. Tr. Ex. G, at 10. Four weeks after Popkave submitted the forms, JH Life told Popkave that the forms were outdated and that he had to complete new versions. Id. Popkave has argued that the annuity lost over $350,000 in value during the course of the claim form confusion. Statement of Claim Ex. 1, at 3.

Popkave sought damages from JH Distributors before a FINRA arbitration panel. FINRA panels may arbitrate disputes between customers and FINRA members. Code of Arbitration Procedure for Customer Disputes § 12101(a), FINRA Manual, (last visited Feb. 7, 2011). Popkave has defended his choice of forum and respondent on the grounds that JH Mutual, a FINRA member, initially sold the variable annuity, Resp. to Mot. Dismiss Ex. D, at 1, ECF No. 3; Answer to Pet. Vacate 2, ECF No. 7; that JH Distributors, a FINRA member, currently underwrites Hancock variable annuities, Resp. to Mot. Dismiss Ex. D, at 1; and that JH Distributors is a subsidiary of JH Life, Tr. Ex. G, at 47; Answer to Pet. Vacate 2. Ultimately, the

FINRA panel issued an award of $579,795.14 in Popkave‟s favor, Award Ex. 8, ECF No. 5, and it is this arbitral award that he seeks to confirm.

JH Distributors brings a Petition to Vacate the Arbitration Award, maintaining that JH Life is the appropriate respondent to Popkave‟s claim. Pet. Vacate; Answer to Pet. Vacate 2. JH Distributors emphasizes that the issuer of the annuity, JH Mutual, has since demutualized into JH Life. Thus, Popkave received claim forms from and submitted claim forms to JH Life, not JH Distributors. Pet. Vacate ¶ 2.

JH Distributors has previously voiced these arguments. After Popkave initiated the arbitration, JH Distributors filed a Motion to Dismiss, claiming in part that it was not the proper party to the dispute, which the arbitrators denied without explanation prior to the hearing. Id. ¶¶ 2, 5. At the hearing itself, following the close of Popkave‟s case, JH Distributors again moved to dismiss on proper party grounds, and the panel once again denied the motion without explaining its reasoning. Id. ¶¶ 9, 13. However, JH Distributors points to the arbitrators‟ line of questioning surrounding this motion as evidence that they recognized but then deliberately disregarded the applicable law. Finally, at the close of its own case, JH Distributors renewed its Motion to Dismiss a third time, raising the same issue, which the panel again denied without elaboration. Id. ¶¶ 16-17.

For the reasons outlined below, I will grant Popkave‟s Petition to Confirm the Arbitration Award and deny JH Distributors‟ Petition to Vacate the Arbitration Award.

III.Standard of Review

Review of arbitral awards by courts of law is limited and deferential. See Brentwood Med. Assocs. v. United Mine Workers of Am., 396 F.3d 237, 241 (3d Cir. 2005) ("There is a strong presumption under the Federal Arbitration Act in favor of enforcing arbitration awards. As such, an award is presumed valid unless it is affirmatively shown to be otherwise . . . ." (internal citations omitted)); Dluhos v. Strasberg, 321 F.3d 365, 370 (3d Cir. 2003) ("If a dispute-resolution mechanism indeed constitutes arbitration under the [Federal Arbitration Act], then a district court may vacate it only under exceedingly narrow circumstances."). "The party seeking to vacate the award bears the burden of proving that vacatur is appropriate." Franko v. Ameriprise Fin. Servs., No. 09-09, 2009 U.S. Dist. LEXIS 48907, at *9 (E.D. Pa. June 11, 2009); see also Handley v. Chase Bank USA NA, No. 09-4377, 2010 U.S. App. LEXIS 16921, at *4 (3d Cir. July 15, 2010) ("The party seeking to overturn an award bears a heavy burden . . . .").

The Federal Arbitration Act provides only four grounds upon which arbitral awards may be vacated, 9 U.S.C. § 10(a) (2006),*fn1 and those grounds are to be exclusive, Hall St. Assocs., LLC v. Mattel, Inc., 552 U.S. 576 (2008). The ground at issue in this case arises "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). In order to overturn an arbitral decision for excess of power on the part of the arbitrators, the Third Circuit has more specifically held that the terms of the award must be ""completely irrational.‟" Franko, 2009 U.S. Dist. LEXIS 48907, at *10 (citing Southco, Inc. v. Reell Precision Mfg. Corp., 556 F. Supp. 2d 505, 511 (E.D. Pa. 2008); Sherrock Bros., Inc. v. DaimlerChrysler Motors Co., 260 F. App‟x 497, 501 (3d Cir. 2008)). To be "completely irrational," the arbitrators‟ decision must "escape[] the bounds of rationality" and be entirely unsupported by the record. Id. (citing Southco, 556 F. Supp. 2d at 511; Exxon Shipping Co. v. Exxon Seamen's Union, 993 F.2d 357, 360 (3d Cir. 1993)).

The Third Circuit has recognized an additional ground for vacatur in exceptional cases- manifest disregard of the law. See Black Box Corp. v. Markham, 127 F. App‟x 22, 25 (3d Cir. 2005) ("The "manifest disregard of the law‟ doctrine is a judicially-created one that is to be used "only [in] those exceedingly rare circumstances where some egregious impropriety on the part of the arbitrators is apparent, but where none of the [vacatur] provisions of the [FAA] apply.‟" (quoting Duferco Int'l Steel Trading v. T. Klaveness Shipping A/S, 333 F.3d 383, 389 (2d Cir. 2003)).*fn2 Manifest disregard of the law addresses itself to situations in which it is evident from the record that the arbitrator knew the applicable law, and yet chose to ignore it. See Aetna Cas. & Surety Co. v. Dravo Corp., No. 97-149, 1997 U.S. Dist. LEXIS 11648, at *3 (E.D. Pa. Aug. 1, 1997); see also O.R. Secs., Inc. v. Prof'l Planning Assocs., 857 F.2d 742, 747 (11th Cir. 1988) ("If a court is to vacate an arbitration award on the basis of a manifest disregard of the law, there must be some showing in the record, other than the result obtained, that the arbitrators knew the law and expressly disregarded it."); Advest, Inc. v. McCarthy, 914 F.2d 6, 10 (1st Cir. 1990) (same). "Other courts have held that the "manifest disregard‟ principle means that the correct legal standard must have been so obvious that the typical arbitrator would readily and instantly have perceived it, the arbitrator must have been subjectively aware of that standard, and he must have proceeded to ignore that standard in fashioning the award." Nat'l Fire Ins. Co. v. Sippel Dev. Co., No. 06-0390, 2006 Dist. LEXIS 39635, at *6 (W.D. Pa. June 15, 2006); accord Aetna, 1997 U.S. Dist. LEXIS 11648, at *5 ("In certain circumstances, the governing law may have such widespread familiarity, pristine clarity, and irrefutable applicability that a court could assume the arbitrators knew the rule and, notwithstanding, swept it under the rug." (quoting Advest,914 F.2d at 10)). In the end, as long as there is a "barely colorable" justification for the arbitrators‟ decision, however, it is to be upheld. See Forest Elec. Corp. v. HCB Contractors, No. 91-1732, 1995 U.S. Dist. LEXIS 1135, at *29 (E.D. Pa. Jan. 30, 1995); see also Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp., 103 F.3d 9, 13 (2d Cir. 1997).

It remains an open question whether courts of the Third Circuit will continue to apply the manifest disregard of the law standard following the Supreme Court‟s decision in Hall Street that the four FAA grounds for vacatur are to be exclusive. See Paul Green Sch. of Rock Music Franchising, LLC v. Smith, 389 F. App‟x 172, 176-77 (3d Cir. 2010) ("In the wake of Hall Street, a circuit split has emerged regarding whether manifest disregard of the law remains a valid ground for vacatur. This Court has not yet entered that debate."). If manifest disregard of the law is no longer a valid ground for vacatur, parties seeking to vacate arbitral awards might face a higher hurdle, as the grounds for vacatur would be even more limited than before. I need not reach the issue of the ongoing viability of the manifest disregard standard at this time, however. Even applying the old standard, with its arguably lower bar for vacatur, I conclude that the ...

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