Rosen Capital Partners v. Merrill Lynch
Professional Clearing Corp.



























Filed 2/5/13 Rosen Capital Partners v. Merrill Lynch
Professional Clearing Corp. CA2/8

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>NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

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California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115>.





IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA



SECOND
APPELLATE DISTRICT



DIVISION
EIGHT




>

ROSEN CAPITAL PARTNERS, LP et al., Plaintiffs and Respondents, v. MERRILL LYNCH PROFESSIONAL CLEARING CORP., Defendant and Appellant.

B239404 (Los Angeles County Super. Ct. No. BS132957)

APPEAL
from a judgment of the Superior Court of href="http://www.adrservices.org/neutrals/frederick-mandabach.php">Los Angeles
County, Daniel J. Buckley, Judge.
Affirmed.



Greenberg
Traurig, Karin Leeann Bohmholdt, Paul Julien Schumacher, Terry R. Weiss; Wilmer
Cutler Pickering Hale and Dorr and Matthew Donald Benedetto for Defendant and
Appellant.



Quinn,
Emanuel, Urquhart & Sullivan, Harold Barza, Harry A. Olivar, Jr., Valerie
Roddy and Jason F. Lake for Plaintiffs and Respondents.



* * *
* * *



In this case, appellant
Merrill Lynch Professional Clearing Corp. (Merrill), challenges a judgment
confirming an arbitration award against
it. Appellant argues that the award must
be vacated because the arbitrators failed to make necessary disclosures and
because they exceeded their powers.
Respondents are hedge funds Rosen Capital Partners, LP and Rosen Capital
Institutional LP (the Funds). We
affirm.

>FACTS AND PROCEDURE

According
to appellant, “Kyle Rosen is the president and portfolio manager of Rosen
Capital Management LLC . . . , the SEC registered investment adviser that
managed the . . . Funds . . . .”
Further, according to appellant:
“Mr. Rosen’s strategy for the Funds involved capitalizing on
inefficiencies in the options market by earning the excess premium that
resulted from those inefficiencies. Mr.
Rosen sought to keep the Funds ‘market neutral’ by selling both puts and calls
on the S&P 500 Index, while earning premium payments on each
transaction.” (Fn. omitted.)href="#_ftn1" name="_ftnref1" title="">>[1] A call option is “an option in the holder to
purchase specified securities at a specified price for a specified period of
time.” (Bloomenthal & Wolff, 3 Securities
and Federal Corporate Law, § 2:91 (accessible on Westlaw, database updated
Dec. 2012).) A put (the converse of a
call) gives the holder “the right to require the purchase of a security at a
specified price for a specified period of time.” (Ibid.)

Appellant
served as a prime broker for the Funds and describes its role as follows: “The prime broker ‘clears and executes trades
[and] is responsible for margin requirements for the customer.’ [Citation.]
Because prime brokers permit margin trading ‘[t]he brokerage bears the
risk that its customers default on margin loans that could become undersecured
due, for example, to a precipitous decline in the value of the posted
collateral.’” “‘The prime broker’s role
is usually ministerial ‑‑ it allows the customer to open an account
with it, and allows the executing broker to make trades for the benefit of the
customer in the prime broker’s name.’ (>SFM Holdings, Ltd. v. Banc of America
Securities, LLC (11th Cir. 2010) 600 F.3d 1334, 1338.)” (Boldface omitted.)

Rosen’s
due diligence questionnaire provided to appellant before Rosen transferred the
Funds to it described the Funds’ strategy as “equally effective in a bull or
bear market. However, when the market is
volatile, significantly more trading is required in order to maintain our
pre-determined level of desired exposure.”
Appellant became Rosen’s prime broker in September 2008. Rosen and appellant executed agreements containing
an arbitration provision. According to
Rosen, he agreed to move the Funds to appellant based on its representations
that the Funds would be governed only by Regulation T (Reg. T) -- a regulation
issued by the Board of Governors of the Federal Reserve System, which imposes
“initial margin requirements and payment rules on certain securities
transactions.” (12 C.F.R.
§ 220.1(a) (2012).)

This
case is about losses the Funds suffered between October 6 and October 8,
2008. Rosen claimed the losses were due
to misconduct of appellant, and
appellant claimed the losses were due to market movements. In May 2009, Rosen initiated an arbitration
with the Financial Industry Regulatory Authority (FINRA), alleging causes of
action for breach of contract; breach of the covenant of good faith and fair
dealing; breach of commercial standards of fair dealing under the New York
Uniform Commercial Code; fraud; and negligence.

The
arbitration was conducted by three arbitrators -- Arthur Berggren, Katharine
Coleman, and Holly Banafsheh. The arbitrators
provided the parties disclosures and a summary of their background, and the
parties agreed to the composition of the panel.
Under FINRA’s Code of Arbitration for Customer Disputes, an arbitrator
has a continuing duty to disclose “interests, relationships, or circumstances
that might preclude an arbitrator from rendering an objective and impartial
determination” in the proceeding. (FINRA
rule 12405(b).) Berggren’s and Coleman’s
disclosures, which appellant contends were insufficient, are described more
fully in the Discussion.

In
the arbitration proceeding, the Funds’ principal claim was that their October 6
through October 8 losses were caused by appellant’s requirements that they
comply with margins other than Reg. T and that they refrain from opening any
new positions in the market. Appellant
vigorously disputed the claims, arguing it never promised to apply only Reg.
T. It argued that it instead had its own
risk policies contained within its contracts with Rosen. Appellant further argued that Rosen
“jettisoned his ‘market neutral’ strategy for an unhedged bet that the market
would rebound.” Appellant argued that
its agreements with Rosen prohibit the Funds from recovering damages based on
market movements. Appellant also argued
that Rosen could have changed prime brokers or liquidated his positions even if
he had been prohibited from opening new positions.

The
following evidence is included in the excerpts of the arbitration in the
appellate record. Prior to moving the
Funds to appellant, Rosen had accounts governed by Reg. T at Bear Stearns. Rosen briefly traded at Goldman Sachs but
left the day after he was told a margin other than Reg. T would be applied to
the Funds. Rosen moved the Funds to
appellant only after securing its promise that his Funds would be governed only
by Reg. T and no other margin requirements.


On
October 6, 2008, appellant’s employee Randall Chalfin issued a “risk call” to
Rosen requiring him to reduce his margin even though Rosen was in compliance
with Reg. T. Appellant defines a
risk call as a “directive[] from a prime broker to an investor to reduce risk
either by depositing cash or closing positions.” Later that date, Chalfin prohibited Rosen
from opening any new positions, warning him that they could “only wire in funds
or reduce [their] positions.” According
to Rosen, the instruction was “very clear” that he could take no new positions,
which effectively meant he could not follow his strategy for the Funds. To comply with Chalfin’s order, Rosen was
forced to reverse trades he had made earlier that day.

John
Bell, appellant’s employee and the person who persuaded Rosen to move the Funds
to appellant, called Rosen that evening and said he would “fix” the situation
so Rosen could trade the following day.
The next day, Bell again called Rosen and said he had not been able to
speak to all the necessary people, apologized, and promised “it [would] be his
top priority. . . .” This exchange
continued, but appellant never lifted the trading restriction imposed on
October 6, 2008. Then, on October 8 and
October 9, 2008, Rosen was told that appellant’s “risk team want[ed] this
entire position liquidated.” Appellant
threatened to liquidate the Funds if Rosen did not.

Appellant’s
employees denied or at least could not remember prohibiting Rosen from opening
new positions. Appellant acknowledged
that it would be a violation of its risk policy if its representatives told
Rosen that he could only add cash or reduce positions but prohibited him from opening
on new positions. An email among
appellant’s employees indicated that the Funds were “on Reg. T margin.” Appellant’s employees questioned why they
“agreed to back off of [different] margin treatment. . . .” Another email showed appellant would begin
“implement[ing] new increased margins . . .” on October 6,
2008.

The
arbitrators must have credited Rosen’s testimony that the losses were due to
appellant’s conduct and rejected appellant’s argument that the losses were due
to market movements as the arbitration panel awarded the Funds $63,665,202 in
compensatory damages. On July 15, 2011,
the Funds petitioned to confirm the arbitration award. On August 4, 2011, appellant cross-petitioned
to vacate the arbitration award.
Appellant argued the arbitrators failed to make required disclosures,
and the award is irrational and outside the arbitrators’ powers.

The
trial court rejected appellant’s arguments and entered judgment confirming the
arbitration award.

DISCUSSION

There
are limited grounds upon which a court may vacate an arbitration award. (Cable
Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334, 1340.) Code of Civil Procedure section 1286.2,
subdivision (a)(6) describes these limited grounds and includes circumstances
when an arbitrator “failed to disclose within the time required for disclosure
a ground for disqualification of which the arbitrator was then aware” and when
“the arbitrators exceeded their powers and the award cannot be corrected
without affecting the merits of the decision upon the controversy submitted” (>id., subd. (a)(4)).href="#_ftn2" name="_ftnref2" title="">>[2]> If
either of the foregoing grounds is demonstrated, the arbitration award must be
vacated. (Ovitz v. Schulman (2005) 133 Cal.App.4th 830, 844-845.)

We
review de novo the trial court’s conclusions that the arbitrators did not
exceed their powers and that they did not fail to make necessary
disclosures. (Haworth v. Superior Court (2010) 50 Cal.4th 372, 383 (>Haworth).) As we explain, appellant fails to show the
arbitration award must be vacated.

>1.
Appellant Does Not Show Arbitrator Coleman or Berggren Failed to Make a
Required Disclosure

Appellant
argues that Arbitrators Coleman and Berggren failed to disclose numerous
required disclosures.href="#_ftn3"
name="_ftnref3" title="">>[3]

>Haworth, supra, 50 Cal.4th 372 is
instructive on the relevant standard to evaluate appellant’s argument. In Haworth,
our Supreme Court considered whether a former judge, serving as an arbitrator,
was required to disclose that 10 years earlier he had been publicly censured
based on his statements to court employees.
The high court applied the test that an arbitrator must disclose “all
matters that could cause a person aware of the facts to reasonably entertain a
doubt that the proposed neutral arbitrator would be able to be impartial.” (§ 1281.9, subd. (a).) Then, borrowing from discussions of judicial
ethics, Haworth explained arbitral
impartiality as follows: “‘Impartiality’
entails the ‘absence of bias or prejudice in favor of, or against, particular
parties or classes of parties, as well as maintenance of an open mind.’ (ABA Model Code Jud. Conduct (2007),
Terminology, at p. 4.) In the context of
judicial recusal, ‘[p]otential bias and prejudice must clearly be established
by an objective standard.’
[Citations.] ‘Judges, like all
human beings, have widely varying experiences and backgrounds. Except perhaps in extreme circumstances,
those not directly related to the case or the parties do not disqualify
them.’ [Citation.]” (Haworth,
supra, at p. 389.)

As
relevant here, the high court further explained that: “‘The “reasonable person” is not someone who
is “hypersensitive or unduly suspicious,” but rather is a “well-informed,
thoughtful observer.”’ [Citation.] ‘[T]he partisan litigant emotionally involved
in the controversy underlying the lawsuit is not the disinterested objective observer whose doubts concerning the
judge’s impartiality provide the governing standard.’ [Citations.]”
(Haworth, supra, 50 Cal.4th at p. 389.) “‘An impression of possible bias in the
arbitration context means that one could reasonably form a belief that an
arbitrator was biased for or against a
party for a particular reason.’
[Citation.]” (>Ibid.)

Applying
that standard, none of the alleged nondisclosures require vacating the
arbitration award. We discuss each
separately, providing additional background when necessary.

A. >Class Action Settlement

Appellant
argues that the arbitration award must be vacated because Arbitrator Coleman
failed to disclose that she invested in “a Merrill Lynch-sponsored partnership”
that resulted in a class action settlement.
According to appellant, “a person could reasonably doubt the
impartiality of Arbitrator Coleman when she had already been involved in a
dispute with a Merrill Lynch affiliate, especially in a case in which the . . .
Funds sought over $77 million.” We first
provide additional background and then discuss appellant’s argument.

In
2001, Arbitrator Coleman and approximately 700 other investors
participated in a class action settlement of a lawsuit naming ML/EQ Real Estate
Portfolio, L.P. (ML/EQ) as a defendant and alleging causes of action for breach
of fiduciary duty and breach of contract.
ML/EQ held income-producing real properties and mortgage loans secured
by commercial, industrial and residential properties. According to the second amended class action
complaint, ML/EQ is a Delaware public registered limited partnership. MLH Real Estate Associates, a “subsidiary of
Merrill Lynch & Company, is the Associate General Partner of the ML/EQ
Partnership. Its duties are primarily
investor relations and servicing. MLH .
. . is not named as a Defendant herein.”
Merrill Lynch, Pierce, Fenner & Smith, Inc., was a “selling agent” and
received commissions on the investment.


The
key issue as framed by the operative pleading in the ML/EQ class action
litigation was whether ML/EQ followed a partnership agreement in distributing
moneys to members of the class.
According to the operative pleading, “[d]efendants have failed to
distribute millions of dollars of ‘distributable cash’ to the Limited Partner,
as required by ML/EQ’s Partnership Agreement.
Defendants have been improperly retaining distributable cash in the
Joint Venture and have been accumulating interest thereon. They have done so to maintain a ‘private
reserve’ for themselves, ready to be tapped when Defendants’ obligation under
their investment guarantee comes due. In
addition, Defendants have mischaracterized much of the cash they have
distributed to the Limited Partners as distributions of ‘sale or financing
proceeds,’ rather than as distributions of ‘distributable cash.’” The lawsuit was settled for $1.4 million
of which $754,306 was distributed to the class.

Contrary
to appellant’s argument, no reasonable person could question Arbitrator Coleman’s
impartiality in the current dispute based on her participation as an unnamed
class member in the dispute with ML/EQ.href="#_ftn4" name="_ftnref4" title="">>[4] The 2001 lawsuit did not involve appellant,
the only defendant involved in the current proceeding. Moreover, the Merrill entity involved in the
ML/EQ litigation -- MLH Real Estate Associates -- was not named as a
defendant. The lawsuit settled over a
decade ago, for a relatively small amount due to each claimant. The issues involved in the ML/EQ litigation
concerned a partnership distribution of money, which differ from the claims
against appellant in the current case.
Under these circumstances, a reasonable person aware of these facts
would not question Coleman’s impartiality based on her receipt of funds from
the class action settlement in the ML/EQ litigation.

Contrary
to appellant’s argument Benjamin, Weill
& Mazer v. Kors (2011) 195 Cal.App.4th 40 does not compel a different
conclusion. In that case, the
“arbitrator was contemporaneously engaged in the private representation of
lawyers and law firms on issues of professional responsibility and representing
a law firm in a case involving an attorney fee dispute.” (Id.
at p. 66.) Here, Arbitrator Coleman was
not contemporaneously engaged in litigation.
Nor did the litigation resulting in the class action settlement involve
the same type of claims as the present litigation. The former involved allegations that a
partnership failed to distribute cash as called for in the agreements, and the
latter involved a claim that appellant prohibited Rosen from following his
investment strategy by imposing improper margin requirements and prohibiting
him from opening new positions. In
short, Coleman’s failure to disclose the class action settlement does not
require vacating the arbitration award.href="#_ftn5" name="_ftnref5" title="">>[5]

B. Arbitrator Coleman’s Former Spouse’s
Employment

Arbitrator
Coleman divorced in May 2001. A record
of a political donation on Watchdog.net indicates that Coleman’s former spouse
was employed by Merrill Lynch Realty in November 1986. An electronic profile indicated Coleman’s
former spouse was an associate broker at companies including Merrill Lynch
Realty. Appellant represents that
Merrill Lynch Realty was an affiliate of Merrill in 1987, and we assume that to
be true for purposes of this appeal.

Based
on Arbitrator Coleman’s former spouse’s employment at Merrill Lynch Realty,
appellant argues Coleman failed to make a timely disclosure of her former
spouse’s affiliation with Merrill and, as a result, the arbitration award must
be vacated. Appellant relies on section
1281.9, subdivision (a)(6), which provides that an “[a]rbitrator shall
disclose . . . . [¶] . . .
[¶] . . . ‘[a]ny professional . .
. relationship the . . . arbitrator or his or her spouse or minor child living
in the household has or has had with any party to the arbitration
proceeding.” Appellant further argues
that under FINRA rules, an arbitrator must disclose an immediate family
member’s employment with a company that is “‘affiliated with an entity that is
engaged in the securities business.’”

Neither
section 1281.9 nor FINRA rule 12405 requires the disclosure of a >former spouse’s employment. Arbitrator Coleman’s former spouse’s
employment was not a substantial business relationship between an arbitrator
and a party. (Casden Park La Brea Retail LLC v. Ross Dress for Less, Inc. (2008)
162 Cal.App.4th 468, 476-477 [“Only ‘significant or substantial business
relationships between the neutral arbitrator and a party or his representative
must be disclosed to the other party, to avoid the appearance of
impropriety’”].) Moreover, Coleman’s
ex-spouse’s employment was so long ago and was not even remotely proximate in
time to the current proceeding. It
cannot support the conclusion a reasonable person would find Coleman biased.

C. >Arbitrator Coleman’s Experience in the
Securities Industry

Appellant
argues the arbitration award must be vacated because Arbitrator Coleman did not
disclose her background in the securities industry, which included knowledge of
prime brokerage arrangements. As we
explain, an informed, objective person would not reasonably entertain a doubt
as to Coleman’s impartiality based on her knowledge of the securities industry.

Arbitrator
Coleman revised her FINRA disclosure during the pendency of this arbitration,
but her updated disclosures were not provided to the parties. Whereas her initial disclosure indicated she
possessed securities 7, 27, and 63 licenses, her amended disclosures expanded
on her experience in the securities industry explaining: “While at Magnus Capital[,] I held 7, 27, and
63 licenses. In my duties at Magnus I
had occasion to develop skills in controversy regarding earn-out and retention
agreements, promissory notes, supervision, suitability, selling away, wrongful
and constructive termination, sexual harassment, elder abuse, punitive damages,
breach of contract, fraud, prime broker agreements, shorting and purchasing
options and other securities, stocks, REITs, sale of mortgage portfolios,
insurance, suitability, margin/risk calls and trade executions.” Coleman was at Magnus Capital from 1993 to
2000.

Appellant
argues that Arbitrator Coleman’s experience with prime brokers and hedge
funds created a potential for bias because Coleman was familiar with the
issues raised in this case. Appellant
further argues that Coleman’s failure to disclose her experience with prime
broker agreements, options trading, margin risk calls, and hedge funds could
cause a person to reasonably entertain a doubt that she would be impartial. We disagree.


“The
disclosure requirements were intended to ensure the impartiality of the
arbitrator, not to mandate disclosure of ‘all matters that a party might wish
to consider in deciding whether to oppose or accept the selection of an
arbitrator.’ [Citation.]” (Nemecek
& Cole v. Horn (2012) 208 Cal.App.4th 641, 646.) Here, the parties were aware that Arbitrator
Coleman was a securities industry arbitrator and that she held the same
licenses as Rosen. The additional
information that she had experience with prime broker agreements, options
trading, and risk calls indicates that she had knowledge of the subject matter
of the Funds’ claims but does not suggest Coleman lacked impartiality. There was no evidence Coleman had personal
knowledge of disputed facts or misconceptions of the facts of this case. (Cf. STMicroelectronics,
N.V. v. Credit Suisse, supra, 648
F.3d at p. 77 [alleged nondisclosure that arbitrator served as expert on
legal issues did not require vacating arbitration award].) Experience alone does not demonstrate
partiality. Appellant does not show
objectively a person aware of these facts would reasonably entertain a doubt
that Coleman would be able to be impartial in this case.

>D.
Arbitrator Coleman’s Loss of Money in an Investment

Appellant
argues that Arbitrator Coleman improperly failed to disclose that she lost
$1.4 million in her investment in “R.E. Loans, a private investment that
was limited only to certain qualified investors, and that was devastated by the
same 2008 crisis that impacted the . . . Funds. . . .” Assuming Coleman lost this money, that does
not support an inference she was biased in this case. There is no connection between R.E. Loans and
the Funds. The record reveals no
similarity between R.E. Loans and the Funds.
No reasonable person could doubt Coleman’s impartiality in this case
because her unrelated investment lost money.


In its prehearing
arbitration brief, appellant argued “[t]he Fall of 2008 witnessed one of the
greatest declines in U.S. stock market history.
The retirement savings of a generation of Americans were wiped out and
countless experienced investors lost everything.” That Arbitrator Coleman was among these
investors who lost money does not demonstrate a reasonable person could reasonably
form a belief Coleman was biased. Appellant
fails to show vacatur is warranted on this ground.

>E.
Arbitrators Coleman and Berggren Jointly Serving on an Arbitration Panel

Appellant
argues that the award must be vacated because Arbitrators Coleman and Berggren
failed to disclose that in mid-2010, they began serving together in another
FINRA arbitration. Question No. 18 on
the FINRA disclosure form asked the prospective arbitrator: “Have you had a social or professional
relationship with any other arbitrator assigned to this case?” Appellant does not dispute that Coleman
initially answered this question correctly, but argues she was required to
update her disclosures. Appellant
argues, “Because the arbitrators served together without revealing this fact to
the parties, a person could reasonably entertain a doubt that the arbitrators
would be able to be impartial because the arbitrators may receive information
from each other that influences each others’ thinking on the issues presented
in the Arbitration.”

That
Arbitrators Coleman and Berggren were subsequently appointed as arbitrators in
another case is not a fact that would cause a reasonable person to “entertain a
doubt that the proposed neutral arbitrator would be able to be impartial.” (§ 1281.9, subd. (a).) “An impression of possible bias in the
arbitration context means that one could reasonably form a belief that an
arbitrator was biased for or against a party for a particular reason.” (Haworth,
supra, 50 Cal.4th at p. 389.) As one
court explained: “[W]e do not think that
the fact that two arbitrators served together in one arbitration at the same
time that they served together in another is, without more, evidence they were
predisposed to favor one party over another in either arbitration.” (Scandinavian
Reinsurance Co. Ltd. v. Saint Paul (2d Cir. 2012) 668 F.3d 60, 74.)

F. Arbitrators Coleman’s and Berggren’s Service
in Cases Involving Appellant’s Affiliates

In November
2009, Arbitrators Coleman and Berggren were assigned to the current case. Then on June 23, 2010, Coleman was assigned
to a case between Merrill Lynch, Pierce, Fenner & Smith, Inc., and Paul G.
Gomez. On October 8, 2010, Berggren
completed an oath in another case naming Merrill Lynch, Pierce, Fenner &
Smith, Inc., as the defendant.

Appellant
argues that the arbitration award must be vacated because both Arbitrators
Coleman and Berggren served concurrently in other arbitrations involving
Merrill affiliates. Appellant relies on
section 1281.9, subdivision (a)(4), which requires an arbitrator to disclose
“[t]he names of the parties to all prior or pending noncollective bargaining
cases involving any party to the arbitration or lawyer for a party for which
the proposed neutral arbitrator served or is serving as neutral arbitrator, and
the results of each case arbitrated to conclusion, including the date of the
arbitration award, identification of the prevailing party, the names of the
parties’ attorneys and the amount of monetary damages awarded, if any. In order to preserve confidentiality, it
shall be sufficient to give the name of any party not a party to the pending
arbitration as ‘claimant’ or ‘respondent’ if the party is an individual and not
a business or corporate entity.”

That
appellant’s affiliates were parties in other arbitrations does not show
section 1281.9 was violated. (>Hayden v. Robertson Stephens Inc. (2007)
150 Cal.App.4th 360, 367.) In this
context, an affiliate is included in the definition of party “only if the
affiliate is involved in the transaction, contract, or facts that gave rise to
the issues subject to the proceeding.” (>Ibid.)
Here, there was no evidence that any Merrill entity other than appellant
was involved in the transaction, contract, or facts that gave rise to the
issues in this proceeding.

>2. Appellant Does Not Show the Arbitrators
Exceeded Their Powers

Appellant
argues that the award was irrational and exceeded the arbitrators’ powers
because appellant did not cause the $63,665,202 losses, which were instead
caused by the market. Appellant claims
that because Rosen was permitted to liquidate the options held by the Funds,
damages cannot be awarded against it based on the Funds’ losses from
maintaining those options. Appellant
further argues that the remedy ‑‑ compensatory damages of over $63
million ‑‑ is not rationally related to the parties’ contract,
emphasizing that the agreements prohibited calculating damages based on market
losses.href="#_ftn6" name="_ftnref6" title="">>[6]

Although
appellant correctly argues that an arbitrator exceeds his power if he fashions
a remedy not rationally related to the contract or arbitrarily remakes a
contract, the award in this case did neither.
(O’Flaherty v. Belgum (2004)
115 Cal.App.4th 1044, 1055-1056.) The
award shows the arbitrators must have credited Rosen’s theory that the Funds’
losses resulted from appellant’s imposition of an improper margin requirement
and an improper prohibition on trading.
Rosen’s theory was supported by his testimony. That the arbitrators did not credit
appellant’s alternative theory ‑‑ that the losses were caused by
market movements ‑‑ does not show the award was irrational or
exceeded the arbitrators’ powers.href="#_ftn7"
name="_ftnref7" title="">>[7] Even if Rosen could have closed-out of his
preexisting options, the arbitrators may have concluded Rosen’s decision to retain
those options was due to appellant’s instruction prohibiting him from
purchasing new options. The contractual
provision prohibiting calculating damages based on market losses is not
relevant as there is no indication that is what the arbitrators did.

>DISPOSITION

The
judgment is affirmed. Respondents are
entitled to costs on appeal.





FLIER,
J.



We concur:



BIGELOW,
P. J.





RUBIN,
J.