Move, Inc. v. Citigroup Global Markets, Inc. , 840 F.3d 1152 ( 2016 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
MOVE, INC., No. 14-56650
Plaintiff-Appellant,
D.C. No.
v. 2:14-cv-04418-JFW-E
CITIGROUP GLOBAL
MARKETS, INC., OPINION
Defendant-Appellee.
Appeal from the United States District Court
for the Central District of California
John F. Walter, District Judge, Presiding
Argued and Submitted October 4, 2016
Pasadena, California
Filed November 4, 2016
Before: Dorothy W. Nelson and Richard A. Paez, Circuit
Judges, and Elaine E. Bucklo,* Senior District Judge.
Opinion by Judge D.W. Nelson
*
The Honorable Elaine E. Bucklo, Senior United States District Judge
for the Northern District of Illinois, sitting by designation.
2 MOVE V. CITIGROUP GLOBAL MARKETS
SUMMARY**
Arbitration
The panel reversed in part the district court’s judgment
dismissing an action and denying a motion to vacate an
arbitration award pursuant to the Federal Arbitration Act.
The plaintiff sought to vacate an arbitration award by a
Financial Industry Regulatory Authority (FINRA) panel. The
court of appeals panel held that the plaintiff’s motion was not
untimely because the Federal Arbitration Act is subject to
equitable tolling. The panel also held that the plaintiff’s right
to a fundamentally fair hearing was prejudiced by the
fraudulent misrepresentations of the arbitration panel’s
chairperson, resulting in proceedings led by an arbitrator who
should have been disqualified from the dispute under the
rules and regulations of FINRA.
The panel reversed the district court’s judgment in part
and remanded for entry of judgment in favor of the plaintiff.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
MOVE V. CITIGROUP GLOBAL MARKETS 3
COUNSEL
Susan J. Williams (argued), Hennelly & Grossfeld LLP,
Marina del Rey, California, for Plaintiff-Appellant.
Fred Anthony Rowley, Jr. (argued) and Marc T.G. Dworsky,
Munger Tolles & Olson LLP, Los Angeles, California;
Achyut J. Phadke, Munger Tolles & Olson LLP, San
Francisco, California; for Defendant-Appellee.
OPINION
D.W. NELSON, Senior Circuit Judge:
Move, Inc. (Move) appeals the district court’s order
dismissing its action and denying its motion to vacate an
arbitration award pursuant to the Federal Arbitration Act
(FAA), 9 U.S.C. § 1 et seq. We have jurisdiction pursuant to
9 U.S.C. § 16(a)(3) and 28 U.S.C. § 1291. We hold that
Move’s motion was not untimely because the FAA is subject
to equitable tolling. We also hold that Move’s right to a
fundamentally fair hearing was prejudiced by the fraudulent
misrepresentations of the arbitration panel’s chairperson,
resulting in proceedings led by an arbitrator who should have
been disqualified from the dispute under the rules and
regulations of the Financial Industry Regulatory Authority
(FINRA). Accordingly, we REVERSE the district court’s
judgment in part and REMAND the case for entry of
judgment in favor of Move.
4 MOVE V. CITIGROUP GLOBAL MARKETS
BACKGROUND
Move maintained an investment account with Citigroup
Global Markets, Inc. (Citigroup). In connection with its
investments, Move entered into a “Client Agreement” with
Citigroup stating, in relevant part, that “all claims or
controversies . . . shall be determined by arbitration before,
and only before, any self-regulatory organization or exchange
of which [Citigroup] is a member.”
On September 16, 2008, Move commenced arbitration
proceedings before a three-member FINRA panel, alleging
that Citigroup mismanaged $131 million of Move’s funds by
investing in speculative auction rate securities. Before
initiating the proceedings, FINRA required Move and
Citigroup to sign a “Uniform Submission Agreement,” which
stated that the dispute was submitted to arbitration “in
accordance with the Constitution, By-Laws, Rules,
Regulations, and/or Code of Arbitration Procedure of
[FINRA].” FINRA’s Code of Arbitration Procedure for
Customer Disputes, found in FINRA Rules 12000–12905,
includes Rule 12401(c), which required Move’s claims to be
arbitrated by a panel of three arbitrators.
Pursuant to Rule 12403, FINRA provided the parties with
a list of thirty proposed arbitrators and their employment
histories, including ten proposed arbitrators from FINRA’s
chairperson roster. Because the dispute involved a complex
securities issue, it was important to Move that the person
selected as chairperson be an experienced attorney. Move
ranked “James H. Frank” first who, according to the FINRA
Arbitrator Disclosure Report (ADR), received a law degree
from Southwestern University in 1975 and was licensed to
practice law in California, New York, and Florida. Pursuant
MOVE V. CITIGROUP GLOBAL MARKETS 5
to FINRA rules and regulations, arbitrators must affirm that
their ADR is accurate and up to date. FINRA also informs
arbitrators that a failure to disclose material information in
the arbitrator profile may result in permanent disqualification.
Mr. Frank subsequently served as the chairperson of the
panel along with Arthur T. Berggren, a licensed attorney, and
Daniel R. Brush, a Certified Public Accountant and Certified
Financial Planner. On December 8, 2009, after conducting
six pre-hearing conferences and twenty hearing sessions, the
FINRA panel issued a unanimous award denying Move’s
claims.
Over four years later, on March 26, 2014, Move learned
from an article in The AmLaw Litigation Daily that Mr. Frank
had lied about being a licensed attorney. It is now undisputed
that Mr. Frank, who is “James Hamilton Hardy Frank,” was
impersonating retired California attorney “James Hamilton
Frank.” FINRA later confirmed that Mr. Frank lied about his
qualifications in his ADR and subsequently removed him
from all cases and from its roster.
Move filed a complaint on June 9, 2014, and a motion to
vacate the arbitration award on June 17, 2014. Move argued
that vacatur was warranted under 9 U.S.C. § 10(a)(3) and (4)
of the FAA because of Mr. Frank’s misrepresentations.
Although 9 U.S.C. § 12 provides that notice of a motion to
vacate an arbitration award must be served within three
months after the award is delivered, Move argued the
deadline should be equitably tolled. Citigroup moved to
dismiss, arguing that equitable tolling is unavailable under the
FAA and that, even if it were, Move failed to demonstrate
tolling was justified. Citigroup further argued that, even if
6 MOVE V. CITIGROUP GLOBAL MARKETS
the limitations period were tolled, vacatur was unjustified on
the merits.
The district court denied Move’s motion to vacate and
granted Citigroup’s motion to dismiss. Noting that equitable
tolling under the FAA presented an “unsettled question of
law” in this circuit, the court ruled that equitable tolling is
available, but that Move failed to demonstrate an adequate
ground for vacatur under the FAA. Specifically, the court
explained that (1) Mr. Frank’s misbehavior did not prejudice
Move’s rights to a fundamentally fair hearing as required by
§ 10(a)(3); and (2) the panel did not exceed its powers in
violation of § 10(a)(4) because Mr. Frank’s deceit, if
cognizable at all under that section, did not violate Move’s
contractual rights under its Client Agreement with Citigroup.
Move timely appealed.
STANDARD OF REVIEW
We review de novo a district court’s denial of a motion to
vacate an arbitration award. See, e.g., United States v. Park
Place Assocs., 563 F.3d 907, 918 (9th Cir. 2009). We also
review de novo a district court’s dismissal of a complaint for
failure to state a claim under Federal Rule of Civil Procedure
12(b)(6). See, e.g., N.M. State Inv. Council v. Ernst & Young
LLP, 641 F.3d 1089, 1094 (9th Cir. 2011).
ANALYSIS
The FAA requires that notice of a motion to vacate an
arbitration award must be served within three months after
the award is filed or delivered. 10 U.S.C. § 12. Because
Move’s motion to vacate was filed over four years after the
three month statutory window closed, we must first determine
MOVE V. CITIGROUP GLOBAL MARKETS 7
whether the doctrine of equitable tolling applies to the FAA,
such that the motion is not time-barred. We hold that it does.
We also hold that Move’s right to a fundamentally fair
hearing under § 10(a)(3) was prejudiced by the arbitral
misconduct of the panel’s chairperson, Mr. Frank. The
district court therefore erred in denying Move’s motion to
vacate the award.
A. Equitable Tolling
Although this Court has not yet decided whether equitable
tolling applies to the FAA, the district court held that it does.
We agree.
The closest we have come to deciding this issue was in
Lafarge Conseils et Etudes, S.A. v. Kaiser Cement & Gypsum
Corp., 791 F.2d 1334 (9th Cir. 1986). There, we were
presented with the narrow question of whether Kaiser could
revive an unsuccessful motion to vacate an arbitration award
“by way of a Rule 60(b) motion with a claim of newly
discovered evidence.” Id. at 1338. In affirming the denial of
Kaiser’s motion, we observed that “the three-month notice
requirement of section 12 . . . would be meaningless if a party
to the arbitration proceeding could bring an independent
action asserting such claims outside of the statutory time
period provided in section 12.” Id. (emphasis added)
(internal citations, brackets, and quotation marks omitted).
However, equitable tolling was neither raised nor specifically
addressed in that case. Accordingly, Lafarge does not govern
the outcome of the case now before us.
Furthermore, as the district court noted, the case law from
other circuits is conflicting and most circuits—including this
circuit—have declined to definitively rule on whether
8 MOVE V. CITIGROUP GLOBAL MARKETS
equitable tolling applies to the FAA. See Garrett v. Merrill
Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 882, 883 n.1 (9th
Cir. 1993) (“[Petitioner] asks that we permit his late petition
under the doctrine of equitable tolling. Because we find that
the district court correctly dismissed the petition on a
jurisdictional basis, we need not reach this issue.”); see also
Fradella v. Petricca, 183 F.3d 17, 21 (1st Cir. 1999); Taylor
v. Nelson, 788 F.2d 220, 225–26 (4th Cir. 1986); Piccolo v.
Dain, Kalman & Quail, Inc., 641 F.2d 598, 601 (8th Cir.
1981) (declining to decide if equitable tolling applies to the
FAA); Pfannenstiel v. Merrill Lynch, Pierce, Fenner &
Smith, 477 F.3d 1155, 1158 (10th Cir. 2007) (stating that
equitable tolling suspends the running of a statute, unless
Congress provides to the contrary, but finding equitable
tolling inapplicable under the facts of the case); but see Cigna
Ins. Co. v. Huddleston, No. 92-1252, 1993 WL 58742, at *11
(5th Cir. Feb. 16, 1993) (per curiam) (unpublished) (holding
that equitable tolling does not apply to the FAA). Deciding
this question as a matter of first impression in this circuit, we
now hold that the FAA is subject to equitable tolling.
“It is hornbook law that limitations periods are
customarily subject to equitable tolling . . . unless tolling
would be inconsistent with the text of the relevant statute.”
Young v. United States, 535 U.S. 43, 49 (2002) (internal
citations and quotation marks omitted). Accordingly,
“Congress must be presumed to draft limitations periods in
light of this background principle,” id. at 49–50, and the
rebuttable presumption that limitations periods are subject to
equitable tolling must be overcome by the text or purpose of
a statute, see, e.g., Irwin v. Dep’t of Veterans Affairs,
498 U.S. 89, 95–96 (1990); John R. Sand & Gravel Co. v.
United States, 552 U.S. 130, 138 (2008). We agree with the
district court and conclude that neither the text, nor the
MOVE V. CITIGROUP GLOBAL MARKETS 9
structure, nor the purpose of the FAA is inconsistent with
equitable tolling.
First, the Supreme Court has instructed lower courts to
consider several textual factors to determine whether
Congress intended for tolling not to apply to a given statute.
This includes whether a limitations period is set forth in
“unusually emphatic form,” is “unusually generous,” or uses
“highly detailed” and “technical” language, and whether the
statute “reiterat[ed] the limitations period several times in
several different ways.” Holland v. Florida, 560 U.S. 631,
646–47 (2010) (internal quotation marks omitted). None of
these factors weigh in favor of foreclosing equitable tolling
under the FAA.
Here, the FAA’s instruction that notice of a motion to
vacate “must be served” within three months is neither
“unusually generous” nor “unusually emphatic.” See Socop-
Gonzalez v. I.N.S., 272 F.3d 1176, 1191 (9th Cir. 2001)
(recognizing that 8 C.F.R. § 3.2(c)(2) requiring a motion to
reopen immigration proceedings “be filed no later than 90
days” after a rendered decision is not unusually generous or
emphatic); Kwai Fun Wong v. Beebe, 732 F.3d 1030, 1038
(9th Cir. 2013) (holding that the phrase “forever barred” is
not “unusually emphatic”); cf. United States v. Beggerly,
524 U.S. 38, 48–49 (1998) (holding that a twelve-year
limitations period is unusually generous).1 Furthermore, the
1
Citigroup makes an inapposite comparison to Hall Street Associates
v. Mattel, Inc., where the Supreme Court explained that § 9 of the
FAA—which states that a court “must grant” a motion to confirm an
award within one year after the award is made—“carries no hint of
flexibility.” 552 U.S. 576, 587 (2008). However, the equitable tolling of
a limitations period was not at issue in that case. The Court only decided
10 MOVE V. CITIGROUP GLOBAL MARKETS
FAA’s limitations period is neither detailed nor technical and
is not reiterated elsewhere in the statute. Accordingly, the
text of the statute does not preclude equitable tolling.
Second, the FAA’s structure is not incompatible with
equitable tolling. Citigroup argues that the “interlocking
structure” of the FAA precludes tolling, pointing to § 9 of the
FAA, which provides one year for a party to file a motion to
confirm an award. According to Citigroup, allowing vacatur
more than a year after an award is issued would upset the
statutory scheme by overturning a court’s decision to confirm
that award. However, as the district court emphasized, a
moving party would still need to meet the heavy burden of
establishing its entitlement to equitable tolling for a court to
vacate an award, and it would only be the rare case in which
the three-month deadline for a motion to vacate would not
apply. We therefore find that the structure of the FAA is
compatible with equitable tolling.
Finally, equitable tolling would not undermine the basic
purpose of the FAA, which was enacted to make “valid and
enforceable written provisions or agreements for arbitration
of disputes.” 68 Cong. Ch. 213, 43 Stat. 883 (1925). While
the FAA reflects the “national policy favoring arbitration with
just the limited review” necessary to maintain finality in
arbitral proceedings, Hall Street, 552 U.S. at 581, “[t]he
general pro-arbitration policy relies on the assumption that
the forum is fair, and therefore cannot justify special
deference to arbitration outcomes in the face of a colorable
claim that the forum was unfair in a particular case.” Merrill
Lynch, Pierce, Fenner & Smith, Inc. v. Berry, 92 Fed. Appx.
whether a confirming court has the discretion to set aside an award for
grounds outside of those enumerated in § 10 or § 11.
MOVE V. CITIGROUP GLOBAL MARKETS 11
243, 246 (6th Cir. 2004) (unpublished). Thus, although
Citigroup argues that equitable tolling would undermine the
FAA’s goal of finality, § 10’s limited grounds for review
were still “designed to preserve due process,” Kyocera Corp.
v. Prudential-Bache Trade Servs., Inc., 341 F.3d 987, 998
(9th Cir. 2003). Balancing the needs for both finality and due
process, the arbitral process will not be disrupted if parties are
permitted to satisfy the high bar of equitable tolling in limited
circumstances. More importantly, permitting equitable
tolling will enhance both the accuracy and fairness of arbitral
outcomes.
Accordingly, we hold that the FAA is subject to the
established doctrine of equitable tolling. Because neither
Move nor Citigroup addressed on appeal the separate
question of whether Move satisfied the substantive
requirements of equitable tolling, that issue has been waived.
See, e.g., Edwards v. Marin Park, Inc., 356 F.3d 1058, 1066
(9th Cir. 2004) (issue waived if not addressed in opening
briefs). Regardless, we agree with the district court’s
findings that (1) Move acted with due diligence in pursuing
its claim, as it justifiably relied on the information provided
by FINRA; and that (2) tolling would not prejudice Citigroup
under the circumstances. We therefore conclude that Move
is entitled to equitable tolling.
B. Vacatur Under the FAA
Because we find that Move’s motion is not time-barred,
we turn to the merits of Move’s vacatur claim. Under
§ 10(a)(3) of the FAA, courts may vacate an arbitration award
upon finding that “the arbitrators were guilty of . . . any . . .
misbehavior by which the rights of any party have been
prejudiced.” The district court held that Move failed to
12 MOVE V. CITIGROUP GLOBAL MARKETS
demonstrate its rights were prejudiced as a result of Mr.
Frank’s deceit. We disagree.
In determining whether an arbitrator’s misbehavior or
misconduct prejudiced the rights of the parties, we ask
whether the parties received a fundamentally fair hearing.
See, e.g., U.S. Life Ins. Co. v. Superior Nat. Ins. Co., 591 F.3d
1167, 1177 (9th Cir. 2010) (“In short, perhaps [U.S. Life] did
not enjoy a perfect hearing; but it did receive a fair hearing.
It had notice, it had the opportunity to be heard and to present
relevant and material evidence, and the decisionmakers were
not infected with bias.”) (internal quotation marks omitted).
For example, vacatur may be proper under § 10(a)(3) where
an arbitrator’s ex parte receipt of evidence affected the
outcome of the proceedings, Totem Marine Tug & Barge, Inc.
v. N. Am. Towing, Inc., 607 F.2d 649, 653 (5th Cir. 1979), or
where an arbitrator’s post-hearing consultation with an
outside expert “tainted” the panel’s decision, M & A Elec.
Power Co-op. v. Local Union No. 702, Int’l Bhd. of Elec.
Workers, AFL-CIO, 977 F.2d 1235, 1237–38 (8th Cir. 1992).
Although neither this Court nor our sister circuits have
addressed whether vacatur is proper where an arbitrator’s
purposeful and material deception resulted in his selection as
chairperson of a panel, we agree with Move that such
misbehavior constitutes grounds for vacatur under § 10(a)(3).
Based on the facts of the case before us, we simply cannot
conclude that Move received a fundamentally fair hearing.
Upon submitting its claim to arbitration before a FINRA
panel, Move made clear throughout the panel selection
process that it was critical for an attorney to chair the
proceedings. Specifically, Move believed that arbitration of
a complex securities claim required a chairperson with the
requisite experience to understand and interpret sophisticated
MOVE V. CITIGROUP GLOBAL MARKETS 13
legal concepts. As a result, Move struck FINRA candidates
from the proposed roster who were not experienced attorneys.
Move then ranked Mr. Frank first on its chairperson list,
relying on the ADR in which Mr. Frank falsified his
credentials.
Citigroup argues that there is no evidence that Mr. Frank
influenced other members of the panel or that the outcome of
the arbitration was affected by his participation. But there is
simply no way to determine whether that was the case. Cf.
Stivers v. Pierce, 71 F.3d 732, 747 (9th Cir. 1995)
(“Particularly on a small board, . . . it is difficult if not
impossible to measure the impact that one member’s views
have on the process of collective deliberation. Each member
contributes not only his vote but also his voice to the
deliberative process.”) (citation omitted). In any event, Mr.
Frank’s participation was itself prejudicial to Move. Under
FINRA rules and regulations, such deceit would have
permanently disqualified Mr. Frank from serving as a FINRA
arbitrator. Indeed, once Mr. Frank’s lies were revealed,
FINRA immediately removed him from its roster. However,
because Mr. Frank’s fraudulent conduct was revealed only
after the arbitration panel issued its award in favor of
Citigroup, the parties received a hearing chaired by an
imposter. Because Move and Citigroup agreed to arbitrate
their multi-million dollar dispute before a panel of three
qualified arbitrators as provided by FINRA’s rules and
regulations, the parties’ rights to such a proceeding were
prejudiced by the inclusion of an arbitrator as chairperson
who should have been disqualified from arbitrating the
dispute in the first place.
Accordingly, under the unique set of facts of this case, we
hold that Move was deprived of a fundamentally fair hearing
14 MOVE V. CITIGROUP GLOBAL MARKETS
and therefore was prejudiced by the fraudulent conduct of the
panel’s chairperson, Mr. Frank. Because Move is entitled to
vacatur under § 10(a)(3), we need not address the second
question of whether vacatur is also warranted under
§ 10(a)(4).
CONCLUSION
We REVERSE the district court’s judgment in part and
REMAND the case for entry of judgment in favor of Move.