Opinion
CV126016736.
12-28-2012
George MESSIER v. MERRILL LYNCH INTERNATIONAL FINANCE, INCORPORATED et al.
UNPUBLISHED OPINION
MARK H. TAYLOR, J.
I
BACKGROUND
The parties have filed cross motions to vacate and confirm an arbitration award. The plaintiff is George Messier, who seeks to vacate an arbitration award entered against him in favor of the defendants, Merrill Lynch International Finance, Incorporated (MLIFI) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPFS), collectively referred to as Merrill Lynch. The positions of the parties in this case have been briefed and, by agreement, the matter was taken on the papers by the court.
The following facts are generally agreed to by the parties. Messier was employed by MLPFS as a financial advisor, during which he entered into a promissory note in favor of MLIFI in the principal amount of $170,389 (Note). Messier terminated his employment with MLPFS on or about March 18, 2011. Subsequently on April 7, 2011, Merrill Lynch filed a Statement of Claim against Messier with the Financial Regulatory Authority (FINRA) for amounts due under the Note. Messier agreed to an unrestricted submission of the issues between the parties to FINRA for arbitration. In response to Merrill Lynch's claim, Messier denied the allegations and asserted special defenses and counterclaims for Merrill Lynch's failure to pay wages to him in the form of commissions and bonus totaling $63,496.97. He additionally asserted a claim for double damages and attorneys fees pursuant to General Statutes §§ 31-72.
A hearing was held before a FINRA arbitrator on August 7, 2012, who issued a ruling on September 12, 2012 in favor of Merrill Lynch on each of its claims, awarding Merrill Lynch $121,414.26 in compensatory damages, $5,059.86 in prejudgment interest, and $15,000 .00 in attorneys fees. Without specifically addressing the factual claims or legal arguments of either party in his decision, the arbitrator perfunctorily denied Messier's " [c]ounterclaim ... in its entirety." See Award FINRA Dispute Resolution, No. 4, attached to the plaintiff's application.
Messier's claim at its essence is that the FINRA award denied his right to receive earned wages in contravention of Connecticut public policy, as reflected in state statutes. Although the issues of law and fact associated with this claim were briefed and argued before the arbitrator, Messier asserts that no issue of fact raised by Merrill Lynch would result in the lawful denial of a wage claim under Connecticut law.
Messier claims, and the court agrees, that Connecticut's statutory wage scheme evidences a strong prohibition against the unlawful withholding of earned wages by employers. For example, Connecticut General Statutes § 31-71c states that whenever an employee leaves his employment voluntarily, by discharge, suspension or is laid off, an employer is obligated to pay an employee's wages in full. General Statutes § 31-71e further provides that no employer may withhold or divert any portion of an employee's wages, except pursuant to four narrow exceptions, which Messier asserts are inapplicable in this case. Further evincing a strong public policy supporting the payment of wages in Connecticut, General Statutes §§ 31-71g and 31-72 provide for both criminal penalties and punitive damages, respectively, for violations of our wage and hour laws.
Messier specifically alleges Merrill Lynch unlawfully withheld compensation in the amount of $32,430.81, representing 50 percent of a disputed trading error. The second withholding at issue is the sum of $17,500.00, representing a bonus that Messier claims had been earned. And Messier's final claim was for $13,566.16, which was withheld from his final paycheck through an alleged, unjustifiable proration by Merrill Lynch of his earned commissions. The total amount of earned compensation withheld from Messier in these three instances was $63,496.97, which, if doubled pursuant to General Statutes § 31-72, would exceed the arbitration award to Merrill Lynch for its claims under the Note.
In response to these claims, Merrill Lynch relies upon the undisputed fact that Messier entered into an unrestricted arbitration agreement to submit disputes between the parties to FINRA and abide by any award rendered pursuant to the FINRA arbitration process. The court notes, however, that in its post-arbitration brief, Merrill Lynch discusses the substantial evidence presented at the arbitration hearing and sets forth a detailed legal argument in support of its claim that all of Messier's vested wages have been tendered to him in accordance with Connecticut law. The brief makes the colorable argument that all wages have been paid to Messier, net of deductions and prorated payments allowed pursuant to his employment contract.
II
DISCUSSION
Our appellate courts have repeatedly held that arbitration awards are protected from judicial intrusion upon review and are afforded heightened protection where there is an unrestricted arbitration agreement, as exists in this case. " Arbitration is a creature of contract and the parties themselves, by the terms of their submission, define the powers of the arbitrators ... Judicial review of arbitral decisions is narrowly confined ... When the parties agree to arbitration and establish the authority of the arbitrator through the terms of their submission, the extent of our judicial review of the award is delineated by the scope of the parties' agreement ... When the scope of the submission is unrestricted, the resulting award is not subject to de novo review even for errors of law so long as the award conforms to the submission ... Because we favor arbitration as a means of settling private disputes, we undertake judicial review of arbitration awards in a manner designed to minimize interference with an efficient and economical system of alternative dispute resolution ...
" Where the submission does not otherwise state, the arbitrators are empowered to decide factual and legal questions and an award cannot be vacated on the grounds that ... the interpretation of the agreement by the arbitrators was erroneous. Courts will not review the evidence nor, where the submission is unrestricted, will they review the arbitrators' decision of the legal questions involved ... In other words, [u]nder an unrestricted submission, the arbitrators decision is considered final and binding; thus the courts will not review the evidence considered by the arbitrators nor will they review the award for errors of law or fact." (Citation omitted; internal quotation marks omitted.) Hartford Steam Boiler Inspection and Ins. Co. v. Underwriters at Lloyd's and Cos. Collective, 121 Conn.App. 31, 50, 994 A.2d 262, cert. denied, 297 Conn. 918, 996 A.2d 277 (2010).
Based upon Appellate Court authority, the protection afforded to the arbitration process appears to be sweeping and extends to an arbitrator's failure to address issues submitted to arbitration. For example, in Economos v. Liljedahl Bros., Inc., 86 Conn.App. 578, 862 A.2d 312 (2004), aff'd, 279 Conn. 300, 901 A.2d 1198 (2006), the trial court granted the plaintiff's application to vacate an underlying arbitration award, concluding that the arbitrator failed to address several claims raised by the plaintiffs during the arbitration. On appeal, the Appellate Court reversed the decision of the trial court, holding that " [i]f the submission [for arbitration] is unrestricted ... an arbitrator is not required to decide the issues presented according to law ... [This is because] [w]here the submission [for arbitration] does not otherwise state, the [arbitrator is] empowered to decide factual and legal questions and an award cannot be vacated on the grounds that the construction placed upon the facts or the interpretation of the agreement by the [arbitrator] was erroneous. Courts will not review the evidence nor, where the submission is unrestricted, will they review the [arbitrator's] decision of the legal questions involved." (Internal quotation marks omitted.) Id., at 584-85 .
In Economos, the unaddressed issue was whether the arbitration submission conformed to the arbitration contract, not that the arbitrator did not address the claims raised by the plaintiff's counterclaim, and the Appellate Court nonetheless held that it did. Id., at 584-86.
Nevertheless, even in the case of an unrestricted submission, our Supreme Court has " recognized three grounds for vacating an award: (1) the award rules on the constitutionality of a statute ... (2) the award violates clear public policy ... [and] (3) the award contravenes one or more of the statutory proscriptions of § 52-418." (Internal quotation marks omitted.) Blakeslee Arpaia Chapman, Inc. v. Dept. of Transportation, 273 Conn. 746, 756, 873 A.2d 155 (2005). In the present case, exception one is inapplicable, as no constitutional issue was raised or addressed in the arbitration award. Exceptions two and three, however, require further examination.
Exception two, regarding a violation of public policy, has been raised and briefed by Messier in the present case. Generally, in reviewing unrestricted arbitration awards, " [t]he public policy exception applies only when the award is clearly illegal or clearly violative of a strong public policy." Garrity v. McCaskey, 223 Conn. 1, 7, 612 A.2d 742 (1992). Moreover, where there is a colorable claim of a violation of public policy, the court may depart from the very limited judicial review of unrestricted arbitration submissions and may proceed with a de novo review of the arbitration award.
In Schoonmaker v. Cummings & Lockwood of Connecticut, P.C., 252 Conn. 416, 747 A.2d 1017 (2000), our Supreme Court enunciated the standard of review for determining whether an arbitration decision violates public policy. It stated: " Where there is no clearly established public policy against which to measure the propriety of the arbitrator's award, there is no public policy ground for vacatur. If, on the other hand, it has been determined that an arbitral award does implicate a clearly established public policy, the ultimate question remains as to whether the award itself comports with that policy. We conclude that where a party challenges a consensual arbitral award on the ground that it violates public policy, and where that challenge has a legitimate, colorable basis, de novo review of the award is appropriate in order to determine whether the award does in fact violate public policy." (Emphasis added.) Id., at 429. See Cheverie v. Ashcraft & Gerel, 65 Conn.App. 425, 431-32, 783 A.2d 474, cert. denied, 258 Conn. 932, 758 A.2d 228 (2001).
The court in Schoonmaker, " however, feared a considerable increase in such challenges. It therefore cautioned against granting de novo review for a bare public policy claim. The court noted: ‘ We emphasize, however, that a party raising such a challenge to an arbitral award may not succeed in receiving de novo review merely by labeling its challenge as falling within the public policy exception to the normal rule of deference. The substance, not the form, of the challenge will govern. Thus, the court should not afford de novo review of the award without first determining that the challenge truly raises a legitimate and colorable claim of violation of public policy. If it does raise such a claim, de novo review should be afforded. If it does not, however, the normal deferential scope of review should apply.’ [ Schoonmaker v. Cummings & Lockwood of Connecticut, P.C., supra, 252 Conn. at 429 n. 7]." Cheverie v. Ashcraft & Gerel, supra, 65 Conn.App. at 431-32.
Here, the difficulty in reviewing the public policy claim specifically, results from the arbitrator's unarticulated denial of Messier's wage withholding counterclaim. As discussed previously, this issue constitutes an area of clear public policy, and the allegation of a violation of such a policy carries with it the right to judicial review, notwithstanding an unrestricted referral to arbitration. In this case, however, the court has very little to review based upon the arbitration award itself. The court is therefore placed in the position of speculating as to some possible rationale for the arbitrator's decision that might manifest a disregard for the law and result in a violation of public policy. Where no specific findings or rationale are given by an arbitrator for a decision, meaningful judicial review of an arbitration award involving this important area of public policy, however, is not possible.
If, for purposes of an example only, the denial of Messier's counterclaim was based upon the expectation in the financial services industry that earned commissions and bonuses shall not be paid according to law upon termination of employment, then vacating the award would be proper in the court's view because it would be in manifest disregard for the law. The doctrine of manifest disregard of the law may be encompassed by the existing statutory scheme for judicial review of arbitration in General Statute § 52-418(a)(4). Garrity v. McCaskey, supra, 223 Conn. at 7.
The court now turns to the third exception involving the contravention of General Statutes § 52-418, which has been very narrowly construed by our courts. Of the four reasons permitted in this statutory provision for vacating arbitration awards, only one is arguably applicable in the present case. General Statutes § 52-418(a)(4) provides that an arbitration award shall be vacated " if the arbitrators have exceeded their powers or so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not made."
General Statutes § 52-418(a) provides, " Upon the application of any party to an arbitration, the superior court for the judicial district in which one of the parties resides or, in a controversy concerning land, for the judicial district in which the land is situated or, when the court is not in session, any judge thereof, shall make an order vacating the award if it finds any of the following defects: (1) If the award has been procured by corruption, fraud or undue means; (2) if there has been evident partiality or corruption on the part of any arbitrator; (3) if the arbitrators have been guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown or in refusing to hear evidence pertinent and material to the controversy or of any other action by which the rights of any party have been prejudiced; or (4) if the arbitrators have exceeded their powers or so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not made."
In Garrity v. McCaskey, supra, 223 Conn. at 1, our Supreme Court adopted the test enunciated by the United States Court of Appeals for the Second Circuit in interpreting the federal equivalent of § 52-418(a)(4). " The test consists of the following three elements, all of which must be satisfied in order for a court to vacate an arbitration award on the ground that the arbitration panel manifestly disregarded the law: (1) the error was obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator; (2) the arbitration panel appreciated the existence of a clearly governing legal principle but decided to ignore it; and (3) the governing law alleged to have been ignored by the arbitration panel is well defined, explicit, and clearly applicable." (Internal quotation marks omitted.) Cheverie v. Ashcraft & Gerel, supra, 65 Conn.App. at 438-39.
The test under this statute has generally been applied to two scenarios. The first involves a determination as to whether arbitrators have exceeded their powers and have acted beyond the arbitration submission. This first scenario is unrelated to the present case. The issues resolved by the FINRA arbitration appear to be confined to the issues submitted by the parties. Also in its construction of § 52-418(a)(4), the Supreme Court has " recognized ... that an arbitrator's egregious misperformance of duty may warrant rejection of the resulting award." (Internal quotation marks omitted.) Blakeslee Arpaia Chapman, Inc. v. Dept. of Transportation, supra 273 Conn. at 756. The court emphasized, however, " that the manifest disregard of the law ground for vacating an arbitration award is narrow and should be reserved for circumstances of an arbitrator's extraordinary lack of fidelity to established legal principles." (Internal quotation marks omitted.) Id., at 757. Although it has been humorously suggested that this ground would apply to a finding that the arbitrator " reached his decision by consulting a ouija board"; Darien Education Assn. v. Board of Education, 172 Conn. 434, 437-38, 374 A.2d 1081 (1977); it may also apply to cases in which there is a manifest disregard of the law. This doctrine of manifest disregard of the law may be encompassed by the existing statutory scheme for judicial review of arbitration in General Statute § 52-418(a)(4). Garrity v.. McCaskey, supra, 223 at Conn. 7.
In response to these claims, Merrill Lynch very simply relies upon the unrestricted nature of the arbitration submission to FINRA, without addressing the exceptions for judicial review of colorable public policy violations. Absent any articulated reason for the denial of Messier's counterclaim in the arbitrator's decision, the impression left is that there may, in fact, be a colorable claim of a clear public policy violation in Merrill Lynch's failure to pay Messier's wages due at the time of his separation from employment. However, in exploring the exhibits in Merrill Lynch's Cross Motion to Confirm, there is also a colorable claim that Messier received all his net wages pursuant to his contract of employment. Before reaching this conclusion or, alternatively, holding a de novo hearing, the court remands the matter to the arbitrator for an articulation of basis for his rejection of Messier's claims for wages.
Remanding this matter for articulation is compelled by the nature of the claim in this case, involving an alleged violation of a clear and important public policy. Colorable claims of unpaid wages may lead to de novo review which should not be undertaken needlessly. The arbitrator in this case had the opportunity to review all of the evidence and to determine whether Messier received his entire, regular salary, as claimed by Merrill Lynch. In addition, the arbitrator reviewed the evidence and Messier's evolving employment contract, and he is in the best position to determine whether it provided for a market error policy for the deduction of losses from his incentive income, provided for the proration of monthly incentive earnings upon termination, and, somewhat inconsistently, for the vesting of bonus payments only at end of a month, as claimed by Merrill Lynch. If there is a factual and legal basis for such a netting process prior to the vesting incentive payments and paying a commission or a bonus, then there may be no colorable claim in this case for a manifest disregard for the law.
III
CONCLUSION
The matter is remanded to the arbitrator for an articulation of the basis for the denial of the plaintiff's counterclaim. The court notes that the FINRA arbitration proceedings are not reopened for the purpose of the consideration of additional evidence or argument, unless authorized and requested by the arbitrator.