United States District Court, E.D. Pennsylvania
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.
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.
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.
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.
hearings began before the panel of arbitrators on April 22,
2014. The evidentiary hearings were held in Philadelphia and
continued until September 25, 2017.
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
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.”
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.
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.
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
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
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
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.” (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 ...