Citibank v. Crowell, Weedon & Co.

Opinion

ASHBY, J.

Appellant Citibank, N.A. (Citibank), petitioned the superior court to vacate or correct an arbitration award in favor of respondents Crowell, Weedon & Co. (Crowell), Clifford Drake & Co., Inc. (Drake) and others. (Code Civ. Proc., §§ 1285,1286.2.) The court denied the petition and entered judgment confirming the award. (Code Civ. Proc., §§ 1286, 1287.4.) Citibank appeals. (Code Civ. Proc., § 1294, subd. (d).)

The underlying dispute is among various municipal securities broker/ dealers concerning their relative liabilities, under the rules of their organization, the Municipal Securities Rulemaking Board (MSRB), for the sale of bonds which had been stolen.

The rules of the municipal securities industry provide for the “reclamation” of bonds which have previously been accepted for delivery, if some defect in the original delivery is subsequently discovered. A subsequent discovery that delivered bonds were stolen allows for such reclamation by the purchasing party back to the selling party. The reclamation procedure allows the purchasing party to return the bonds to the last seller, which may then reclaim the bonds back to the party which sold to that seller, and so on up the chain.

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A thief stole 225 Los Angeles Airport improvement coupon bearer bonds. Appellant Citibank, without knowledge the bonds were stolen, purchased

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them. On January 6, 1983, Citibank sold them to R. L. Crary & Co., Inc. (Crary), who sold them on the same day to Helm, Naborí & Perry (Helm),

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who sold them the same day to respondent Crowell, who then sold them to other broker/dealers or customers.

In March 1983 the 225 bonds were reported stolen. In the fall of 1983, 55 of the bonds were reclaimed to Crowell, which were then reclaimed to Helm and Crary and Citibank pursuant to the reclamation procedure.

In September 1988 another 15 stolen bonds were reclaimed to Crowell by one of its broker/dealer customers. When Crowell attempted to reclaim the 15 bonds to Drake, as Helm’s successor, Drake refused, on February 6,1989. Pursuant to the MSRB’s Arbitration Code (rule G-35) which required member dealers to arbitrate their disputes, Crowell filed a statement of claim against Drake on March 31, 1989. Crowell’s statement of claim involved the 15 bonds recently reclaimed to Crowell and a request to establish a contingent liability to cover the 155 remaining bonds still outstanding. Drake filed a statement of answer denying liability and filed third party claims against Crary and Citibank, alleging that if Crowell was entitled to reclaim the bonds to Drake, then Drake was entitled to reclaim them to Crary and (on information that Crary was no longer in business) to Citibank. Citibank filed its statement of answer. The parties submitted to arbitration before a three-person arbitration board of the MSRB. By the time of the arbitration hearing an additional 15 bonds had been reclaimed to Crowell. The arbitrators permitted Crowell to amend its claim to include these 15 bonds, making a total of 30.