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Morgan Stanley Smith Barney LLC v. Walker

United States District Court, E.D. Pennsylvania

May 31, 2018

STEPHEN T. WALKER, Respondent.


          Joyner, J.

         Presently before the Court are Petitioners Morgan Stanley Smith Barney LLC and Morgan Stanley Smith Barney FA Notes Holdings LLC's Petition to Confirm Arbitration Award (Doc. No. 1), Respondent Stephen Walker's competing Motion to Vacate Arbitration Award and his accompanying Memorandum (Doc. Nos. 28 & 29), Petitioners' Response thereto (Doc. No. 40), and Respondent's Reply thereof (Doc. No. 45). For the following reasons, we GRANT Petitioners' Petition to Confirm and DENY Respondent's Motion to Vacate.

         I. BACKGROUND

         Petitioners Morgan Stanley Smith Barney LLC (“Morgan Stanley”) and Morgan Stanley Smith Barney FA Notes Holdings LLC (“Notes Holdings”) and Respondent Stephen Walker (“Walker”) were parties to an arbitration before a panel of arbitrators, commissioned under the Financial Industry Regulatory Authority (“FINRA”), that began in 2010. The three-member arbitration panel entered a final award on November 1, 2017. Petitioners have moved in this Court to confirm the award. In response, Walker has cross-moved to vacate the award.

         The parties' dispute dates back to 2001 when Walker joined Morgan Stanley as a financial advisor. As is common in the securities industry, Walker executed two promissory notes with Morgan Stanley for sums of money when he joined the firm. The written terms of these promissory notes provided that the sums owed would be accelerated and become immediately due and payable upon the termination of Walker's employment for any reason.

         The relationship eventually soured and Morgan Stanley terminated Walker in May 2010. In September 2010, Morgan Stanley commenced an arbitration against Walker with the FINRA office of Dispute Resolution, No. 10-04094, claiming that Walker was obligated to pay Notes Holding the outstanding principal and interest on the two promissory notes. The parties brought two other FINRA arbitrations that were consolidated with No. 10-04094. In the first, No. 10-04888, Morgan Stanley asserted claims for theft of trade secrets and unfair competition against Walker and Oppenheimer & Co., Inc. In the second, No. 11-01780, Walker brought claims for tortuous interference with business relationships, unfair competition, improper conversion of property, and defamation against Morgan Stanley and Daniel Thompson, who was the manager of Walker's branch at Morgan Stanley.

         Evidentiary hearings began before the panel of arbitrators on April 22, 2014. The evidentiary hearings were held in Philadelphia and continued until September 25, 2017.

         Relevant to his current Motion to Vacate, Walker presented the panel with a motion that claimed Morgan Stanley and Thompson committed spoliation. Walker did so through a motion filed on April 2, 2014, for “(1) a finding of spoliation and for sanctions; and (2) to compel discovery and for sanctions for discovery abuses.” (Walker Mem. (Doc. No. 29), Ex. I (“Spoliation Mot.”)). This was a lengthy motion that laid out Walker's allegations, supporting evidence, and legal arguments. Id. The core allegation underlying Walker's spoliation claim was that Thompson and Morgan Stanley destroyed a large amount of physical and electronic files that Walker maintained in his office at Morgan Stanley. It is worth adding that Morgan Stanley also presented to the panel its own spoliation claim against Walker.

         In his spoliation motion, Walker specifically requested that the panel hold a separate hearing on his spoliation claim before the commencement of the evidentiary hearings, which were scheduled to begin just a few weeks later. Id. at 30. Walker noted that “[c]ourts routinely hold separate evidentiary hearings prior to trial on the issue of spoliation.” Id. (citing Victor v. Lawler, 520 Fed.Appx. 103, 105 (3d Cir. 2013); Bozic v. City of Washington, 912 F.Supp., 257, 259 (W.D. Pa. 2012)). Walker insisted that holding a preliminary hearing would be more efficient than considering his spoliation claim along with the parties' core claims during the hearings. Id. at 31. Walker further argued that “if the Panel finds that spoliation did occur, it should be determined prior to the hearing since any sanctions ordered by the Panel could affect the merits hearing.” Id.

         On April 18, 2014, the arbitration panel entered an Order that deferred judgement on Walker's spoliation claim, without prejudice, until the panel determined that it should be decided. (Pets. Resp., Ex. B (Doc. No. 40)). The arbitrators also denied Walker's request for a separate, preliminary hearing on his spoliation claim. Id.

         The record shows that both parties presented evidence to the arbitrators regarding Walker's spoliation claim during the evidentiary hearings. For example, Walker's attorney questioned Thompson on the events underlying Walker's spoliation claim. (See e.g., Pets. Resp., Ex. C). Walker's attorney also solicited testimony from Walker regarding the same. (See e.g., Walker Mem., Ex. G at 2750-57). In addition, Walker's post-hearings submission again detailed his spoliation claim.

         In its final award, the arbitrators awarded Notes Holdings a total award against Walker of $1, 951, 587.85. The arbitrators awarded Walker damages against Morgan Stanley in the amount of $525, 000, which was offset by $15, 000, the amount in which the arbitrators held Walker was liable to Morgan Stanley. The panel also awarded Thompson $10, 000 against Walker.

         Along with these damages awards, the panel also addressed Walker's spoliation claim. Specifically, in the final award, the panel denied “Walker's request for spoliation damages.” (Walker Mem., Ex. E (“Arbitration Award”) at p. 7). The panel also denied “[a]ny and all relief not specifically addressed herein.” Id.

         Because Walker has yet to satisfy the panel's award, Morgan Stanley and Notes Holdings have moved in this Court to confirm the award. In response, Walker has moved to vacate it. Walker argues that we should vacate the award because the arbitrators failed to sufficiently address his claim for spoliation, thereby disregarding a clearly established legal principle and stripping him of a fundamentally fair proceeding.

         In support of his position, Walker claims the arbitration panel “completely ignored” his spoliation claim. (Walker Mem. at 17). Walker further claims that the arbitrators “never actually did anything about it, despite Walker's counsel repeatedly imploring them to do so.”[1] (Walker Reply at 7 (Doc. No. 45)). Moreover, Walker claims that the relief he requested would only have been “effective” if it was “granted in advance of the arbitration hearing on the merits of the claims.” (Walker Mem. at 20 (emphasis original); see also Walker Reply at 16 (“Common sense and a fundamental sense of fairness would at least ...

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