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February 10, 2000


The opinion of the court was delivered by: Greenaway, District Judge.


This matter comes before the Court on the motion of Jeeredi A. Prasad, M.D., Inc., Retirement Plan Trust Profit Sharing Plan ("Prasad Retirement Trust") and Jeeredi A. Prasad, M.D. (collectively, "Petitioners") to confirm and enter judgment upon an arbitration award issued in their favor on November 24, 1998. Respondents Investors Associates, Incorporated ("IAI"), Herman Epstein, and Lawrence Joseph Penna have filed a cross-motion for an Order vacating the arbitration award. For the following reasons, Petitioners' motion is granted and Respondents' motion is denied.


In or about 1996, Dr. Prasad, a California resident, opened several securities accounts with IAI, a securities brokerage firm, incorporated in New Jersey, with its principal place of business here. Dr. Prasad was a customer of IAI in both his individual capacity and as trustee of the Prasad Retirement Trust. During the relevant time, Respondent Epstein was President of IAI and Respondent Penna was the firm's Executive Vice-President. Both Epstein and Penna reside in New Jersey.

In opening the accounts, Dr. Prasad executed a "Client's Agreement" (the "agreement"). The agreement contained a choice-of-law clause, which provided for the contract to be governed by New York law. The agreement further provided that any controversy arising out of, or relating to, Petitioners' accounts would be submitted to binding arbitration before one of a number of self-regulatory organizations in the securities field. Under the agreement, any court of competent jurisdiction may enter judgment upon any award rendered by the arbitrators. See Affidavit of Lawrence R. Gelber, dated August 12, 1999 ("Gelber Aff."), Ex. A.

On or about November 26, 1997, Petitioners filed a demand for arbitration with the National Association of Securities Dealers ("NASD") in Los Angeles, alleging that Respondents had engaged in fraudulent and other wrongful activities in connection with the sale of securities to Petitioners.*fn1 The parties filed a Uniform Submission Agreement in which they agreed that the arbitration would be conducted under the Constitution, By-Laws, Rules, Regulations and/or Code of Arbitration Procedure of the NASD. See Affidavit of Jeffrey L. Squires, dated September 20, 1999 ("Squires Aff."), Ex. A.

The panel of arbitrators, Herbert Leslie Greenberg, Jeffrey E. Skogsbergh, and Susan Vernon Wood, held the arbitration hearing from August 11 through August 13, 1998. At that time, Wood served as Senior Corporations Counsel in the Securities Regulation Division of the California Department of Corporations. She had disclosed this fact in her Arbitration Disclosure provided to the parties in March 1998. See Squires Aff., Ex. D.*fn2 The parties did not lodge any objections to the panel members upon receiving the disclosures. Greenberg served as the panel's Chairman.

At the commencement of the hearing, Lawrence Gelber, Respondents' arbitration counsel, objected to both Greenberg's and Wood's presence on the arbitration panel. First, Gelber argued that Greenberg was biased. Earlier in the proceedings, Greenberg had sanctioned Respondents as a result of a discovery dispute. Gelber asserted that as a result of this ruling, Greenberg could not be impartial and was hostile to Respondents.

Gelber then expressed concern that Wood's presence on the panel would create the appearance of bias or partiality. In 1997, the California Department of Corporations had commenced an investigation of Respondents, which culminated in a consent decree. As a result, Respondents agreed to a revocation of their licenses to deal securities in that state. Gelber acknowledged that Wood's disclosure of her employer had "escaped [his] notice" and that he had waived any peremptory challenge by failing to challenge Wood earlier. See Squires Aff., Ex. I at 7, 10. He urged Wood to recuse herself because of the appearance of a conflict, though he stated that he believed "she has no actual conflict." See Squires Aff., Ex. I at 11.

After an off-the-record discussion among the panel members, both Greenberg and Wood declined to withdraw. See Squires Aff., Ex. I at 14.

On November 24, 1998, the arbitration panel entered an award in Petitioners' favor, awarding Dr. Prasad $84,108.00 in compensatory damages, and awarding the Prasad Retirement Trust $271,244.00 in compensatory damages. Each Respondent is jointly and severally liable for the entire award.*fn3 The panel denied Petitioners' request for punitive damages and required each side to bear its own costs and fees. See Squires Aff., Ex. B.

In the three months that followed, Respondents did not seek to vacate the award. Petitioners timely commenced the present action to confirm the award on June 1, 1999. See 9 U.S.C. § 9.*fn4 On August 13, 1999, nearly nine months after the award was issued and in response to Petitioners' application, Respondents filed the instant motion to vacate.


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