WELLS FARGO CLEARING SERVICES, LLC v. BRIAN LEGGETT ( 2022 )

FOURTH DIVISION
DILLARD, P. J.,
MERCIER and MARKLE, JJ.
NOTICE: Motions for reconsideration must be
physically received in our clerk’s office within ten
days of the date of decision to be deemed timely filed.
https://www.gaappeals.us/rules
August 2, 2022
In the Court of Appeals of Georgia
A22A1149. WELLS FARGO CLEARING SERVICES, LLC et al.
v. LEGGETT et al.
MERCIER, Judge.
Alleging that their investments had been mismanaged, Brian Leggett and
Bryson Holdings, LLC (collectively, “the investors”) filed an arbitration claim against
Wells Fargo Clearing Services, LLC d/b/a Wells Fargo Advisors, LLC and Wells
Fargo broker Jay Windsor Pickett, III (collectively, “Wells Fargo”) before the
Financial Industry Regulatory Authority (“FINRA”).1 A three-judge panel of FINRA
arbitrators denied the claim and ordered Leggett to pay various costs and fees
associated with the arbitration. The investors subsequently petitioned the superior
1
FINRA “is a government-authorized not-for-profit organization that oversees
U.S. broker-dealers.” https://www.finra.org/about.
court to vacate the arbitration award. The superior court granted the petition, and
Wells Fargo appeals. For reasons that follow, we reverse.
This dispute arose after the investors allegedly lost over $1,000,000 between
2015 and 2016 on securities managed at different times by Pickett and Jacob
McKelvey, another Wells Fargo broker. The parties’ investment relationship was
governed by a Wells Fargo client agreement that required arbitration of any dispute
before a FINRA arbitration panel. The agreement further provided — and the parties
do not question — that such arbitration would proceed pursuant to the Federal
Arbitration Act, 9 USC § 1 et seq. (“FAA”). See also American Gen. Financial Svcs.
v. Jape, 291 Ga. 637, 638 (1) (732 SE2d 746) (2012) (“The FAA applies in state and
federal courts to all contracts containing an arbitration clause that involves or affects
interstate commerce.”).
In April 2017, the investors filed a claim for arbitration with FINRA, asserting,
among other things, that Wells Fargo failed to properly train and supervise its
brokers, who had mismanaged the investors’ accounts. The arbitration hearing was
conducted over nine days, four in September 2018, followed by five in June 2019.
After receiving testimony from numerous witnesses and reviewing thousands of
pages of exhibits, the arbitration panel denied the investors’ claims, assessed hearing
2
fees against investor Leggett, and ordered Leggett to reimburse Wells Fargo for
$51,000 in costs. In particular, the panel concluded:
Upon consideration of the full record of evidence, including documents
and testimony, the Panel finds that the claims asserted by [the investors]
against Respondent Pickett, and the allegations concerning Non-Party
McKelvey . . . are without merit and false. Specifically, the Panel finds
that the losses sustained by the [investors] were solely caused by the
trading strategy devised, implemented and undertaken by Claimant
Leggett. None of [the investors’] alleged losses were caused by
Respondent Pickett’s and/or Non-Party McKelvey’s action, inaction, or
advice. The Panel finds that neither Respondent Pickett nor Non-Party
McKelvey engaged in any wrongful conduct. Claimant Leggett alleges
that he was misled by both Respondent Pickett and Non-Party
McKelvey. The Panel finds that neither Respondent Pickett nor Non-
Party McKelvey misled Claimant Leggett in any way, and that these
allegations are without merit and false. Claimant Leggett’s testimony as
to these issues was not credible.
The investors petitioned the superior court to vacate the arbitration award, and
Wells Fargo moved to confirm it. Because the FAA “imposes a heavy presumption
in favor of confirming arbitration awards . . . confirmation of an arbitration award is
usually routine or summary.” Cat Charter, LLC v. Schurtenberger, 646 F3d 836, 842
3
(II) (A) (11th Cir. 2011) (citation and punctuation omitted);2 see also 9 USC § 9(arbitration award must be confirmed unless vacated, modified, or corrected under
specific provisions of the FAA). A trial court may not vacate an award absent “very
unusual circumstances” involving “corruption, fraud, evident partiality, misconduct,
misbehavior, [or] exceed[ed] powers.” Brown v. RAC Acceptance East, LLC, 303 Ga.
172, 177 (2) (c) (809 SE2d 801) (2018) (citations and punctuation omitted). More
specifically, the FAA authorizes a court to vacate an arbitration decision:
(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or
either of them;
(3) where the arbitrators were 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
misbehavior by which the rights of any party have been prejudiced; or
2
“[D]ecisions of the federal courts applying federal law are not binding on a
Georgia appellate court, but their reasoning is persuasive.” Archer Western
Contractors v. Holder Constr. Co., 325 Ga. App. 169, 175 (3) (751 SE2d 908) (2013)
(physical precedent only) (citation and punctuation omitted).
4
(4) where the arbitrators exceeded their powers, or so imperfectly
executed them that a mutual, final, and definite award upon the subject
matter submitted was not made.
9 USC § 10 (a).
Relying on 9 USC § 10 (a) (1), (3) and (4), the superior court vacated the
arbitration award, finding that: (1) FINRA and the arbitrators overstepped their
authority in selecting the arbitration panel; (2) the arbitrators engaged in misconduct
by refusing to postpone the arbitration hearing after the investors requested a
continuance; (3) the arbitrators engaged in misconduct by refusing to hear certain
evidence and limiting the investors’ cross-examination of a Wells Fargo witness; (4)
the award was procured by fraud; and (5) the arbitrators improperly assessed Leggett
with payment of costs and fees. On appeal, we review the superior court’s
conclusions of law de novo and its factual findings for clear error. See EGI-VSR, LLC
v. Coderch, 963 F3d 1112, 1121 (III) (11th Cir. 2020); see also Wells v. Wells-Wilson,
360 Ga. App. 646, 648 (860 SE2d 185) (2021).
5
1. Pursuant to FINRA’s Code of Arbitration Procedure for Customer Disputes
(“the Code”),3 parties choose a three-judge arbitration panel by striking and ranking
arbitrators from a list randomly generated by a computer program known as the
“Neutral List Selection System.” See FINRA Rule 12403; see also FINRA Rule
12400 (a) (describing the Neutral List Selection System). The Code imposes a
continuing duty on arbitrators to disclose “any circumstance which might preclude
the arbitrator from rendering an objective and impartial determination in the
proceeding,” and it sets forth a procedure for arbitrator recusal. FINRA Rule 12405
(a) & (b); FINRA Rule 12406. The Code also permits the Director of FINRA Dispute
Resolution Services (“the Director”) to remove an arbitrator for cause before an
arbitration hearing commences:
Before the first hearing session begins, the Director may remove
an arbitrator for conflict of interest or bias, either upon request of a party
or on the Director’s own initiative.
(1) The Director will grant a party’s request to remove an
arbitrator if it is reasonable to infer, based on information known at the
time of the request, that the arbitrator is biased, lacks impartiality, or has
3
The Code of Arbitration Procedure for Customer Disputes can be found at
https://www.finra.org/rules-guidance/rulebooks/finra-rules/12000.
6
a direct or indirect interest in the outcome of the arbitration. The interest
or bias must be definite and capable of reasonable demonstration, rather
than remote or speculative. Close questions regarding challenges to an
arbitrator by a customer under this rule will be resolved in favor of the
customer.
(2) The Director must first notify the parties before removing an
arbitrator on the Director’s own initiative. The Director may not remove
the arbitrator if the parties agree in writing to retain the arbitrator within
five days of receiving notice of the Director’s intent to remove the
arbitrator.
FINRA Rule 12407 (a). See also FINRA Rule 12100 (m) (full title of “Director”).
(a) The record shows that after FINRA provided the parties with a computer-
generated list of arbitrators for the selection process, Wells Fargo requested that the
Director remove arbitrator Fred Pinckney from the list. Wells Fargo asserted that a
serious and very public personal conflict had arisen between Wells Fargo counsel
Terry Weiss and Pinckney during a prior arbitration (the Postell arbitration), in which
Weiss challenged the conduct of Pinckney and the other Postell arbitrators. Claiming
that it was unlikely to receive fair and impartial treatment from Pinckney, Wells
Fargo asked that Pinckney be removed from the list for cause and replaced by another
arbitrator for the parties to consider and rank. When the investors objected to Wells
7
Fargo’s request, Weiss responded: “It [has been] made clear to me verbally that none
of the Postell arbitrators would have the opportunity to serve on any one of my cases
given the horrific circumstances surrounding the [Postell] case, the SEC
investigation, the publicity and the aftermath. It was a most unusual set of
circumstances.” The Director granted Wells Fargo’s request and removed Pinckney
from the pool.
In their petition to vacate the award, the investors argued that Wells Fargo
improperly “manipulated” the FINRA arbitrator selection system by having Pinckney
removed without using a strike. They further claimed that the incident “disclosed a
secret agreement between FINRA and [Weiss] pertaining to the pool of arbitrators
available to his clients in all of his cases.” The superior court adopted these
arguments, concluding that Wells Fargo manipulated the pool and that the arbitrators
acted outside of their authority by proceeding without a fully neutral panel selected
pursuant to FINRA’s rules.
We disagree. Nothing indicates that Wells Fargo “manipulated” the arbitrator
pool. It simply asked that Pinckney be removed under FINRA Rule 12407. We fail
to see how the Director’s decision to grant that request — which was made after all
parties had a chance to address the issue — constituted manipulation by Wells Fargo.
8
Although the investors claim that a “secret agreement” existed between FINRA and
Weiss to automatically exclude the Postell arbitrators from any arbitrator list
generated on a case involving Weiss, there is no evidence that such agreement was
at play here, given Pinckney’s inclusion on the initial list. Even if an agreement
exists, the investors have not shown that it impacted this arbitration.
The Code vests the Director with discretion to “make any decision that is
consistent with the purposes of the Code to facilitate the appointment of arbitrators
and the resolution of arbitrations,” FINRA Rule 12408, and Rule 12407 (a) explicitly
allows the Director to remove an arbitrator for cause. On appeal, the investors claim
that the Director can only dismiss an arbitrator from an appointed panel, not from the
arbitrator list used to select the panel. But nothing in the text of FINRA’s rules
supports that conclusion. Rule 12407 (a) authorizes removal of “an arbitrator” for
conflict of interest or bias “[b]efore the first hearing session begins.” FINRA Rule
12407 (a). The procedures for selecting a panel refer to individuals on the selection
list as “arbitrators.” FINRA Rule 12403. And the selection process reflects FINRA’s
desire to avoid conflicts of interest and bias among the listed arbitrators. See FINRA
Rule 12403 (a) (3) (“The Neutral List Selection System will exclude arbitrators from
9
the lists based upon current conflicts of interest identified within the Neutral List
Selection System.”).
The Director concluded that he had discretion to remove an arbitrator from the
selection list pursuant to Rule 12407 (a). Given the text of the rule, we cannot find
that he exceeded his authority in making that determination. See Inversiones y
Procesadora Tropical INPROTSA, S.A. v. Del Monte Intl. Gmbh, 921 F3d 1291, 1304
(III) (B) (11th Cir. 2019) (arbitration “tribunal did not exceed its power by reasonably
construing its own rules”); see also Grand Canyon Ed. v. Ward, 358 Ga. App. 412,
417 (855 SE2d 415) (2021) (“A regulation should be construed to give effect to the
natural and plain meaning of its words. In addition, we look to the stated purpose of
the regulation, as well as the broader regulatory . . . context of which it is a part.”)
(citation and punctuation omitted).
Similarly, in light of the information provided regarding the past history
between Pinckney and counsel for Wells Fargo, we cannot find that the Director
abused his discretion in inferring that Pinckney had a clear and definite bias here.
Neither the Director nor any arbitrator exceeded his or her authority by removing
Pinckney from the selection list and proceeding with the arbitration. See FINRA Rule
12407 (a); Peco Foods Inc. v. Retail Wholesale & Dept. Store Union Mid-South
10
Council, 727 Fed. Appx. 604, 609 (II) (B) (11th Cir. 2018) (arbitrator did not exceed
his authority by acting within broad discretion to resolve arbitration issue); Davis v.
Producers Agricultural Ins. Co., 762 F3d 1276, 1286 (II) (C) (1) (11th Cir. 2014)
(same).
(b) Following Pinckney’s removal, the parties selected a three-arbitrator panel
that included Kenneth Canfield. Wells Fargo subsequently requested that the Director
remove Canfield from the panel or that Canfield recuse himself, asserting as follows:
After the parties submitted their rankings and striking of arbitrators to
FINRA on July 27, 2017, Mr. Canfield’s law firm . . . of which Mr.
Canfield is a named partner, filed a lawsuit in Fulton County Superior
Court, seeking a recovery of damages against Respondent Wells Fargo
Advisors, styled Hubbard v. Wells Fargo Advisors. . . . On the face of
the Complaint it appears that the Hubbard matter has no direct
connection factually to [this] case. Moreover, Mr. Canfield is not a
signatory to the Hubbard Complaint and we do not know if he is
working on this other case or even if he has knowledge about it. The
problem right now is that presumably he, as a partner in his law firm,
has a beneficial interest in a matter adverse to Respondent Wells Fargo
Advisors. That fact alone presents a sufficient basis to conclude there is
a conflict that should require Mr. Canfield’s removal or recusal.
The investors objected to the request, but the Director removed Canfield and
appointed a replacement arbitrator. In vacating the arbitration award, the superior
11
court found that Canfield’s removal violated FINRA’s rules because Wells Fargo
knew prior to initially selecting Canfield that his law firm represented plaintiffs in
cases against financial institutions. The court thus concluded that the Hubbard case
“did not create any newly disclosed interest or bias against Wells Fargo.” Again,
however, the Director has discretion in determining whether an arbitrator should be
removed. See FINRA Rule 12408. And the Director may grant a request to remove
an arbitrator before the arbitration hearing “if it is reasonable to infer, based on
information known at the time of the request,” that the arbitrator is biased or has a
conflict of interest. FINRA Rule 12407 (a). The interest or bias at issue cannot be
“remote or speculative.” Id. But Wells Fargo pointed to a specific new development
— the filing of the Hubbard complaint — to raise concerns about Canfield’s
impartiality.
The superior court did not deem this new development worthy of Canfield’s
removal. We cannot conclude, however, that the Director abused his discretion by
reaching the opposite result and finding, based on the available information, a
reasonable inference of bias or conflicted interest. See generally Johnson v. Directory
Assistants Inc., 797 F3d 1294, 1302 (III) (D) (11th Cir. 2015) (“mere disagreement
with an arbitrator’s legal or factual determinations does not justify vacatur under §
12
10 (a) (4)”). It follows that the Director and other arbitrators did not act outside of
their authority in dismissing Canfield and moving forward without him. See Peco
Foods Inc., supra; Davis, supra.
2. Wells Fargo argues that the superior court improperly found the arbitrators
guilty of misconduct in failing to continue the September 2018 arbitration
proceedings. We agree.
An arbitration award entered under the FAA may be vacated if “the arbitrators
were guilty of misconduct in refusing to postpone the hearing.” 9 USC § 10 (a) (3).
A party moving to the vacate an award on this ground, however, “must show that
there was no reasonable basis for the [arbitrators’] refusal to postpone the hearing.”
CM South East Texas Houston, LLC v. CareMinders Home Care, Inc., 662 Fed.
Appx. 701, 704 (II) (11th Cir. 2016). In addressing the reasonableness of the
arbitrators’ decision, “we are mindful of federal policy favoring the ‘expeditious
handling’ of arbitration cases, and also that a rescheduled hearing would have to not
only ‘meet the convenience of both parties and their witnesses,’ but the convenience
of the arbitrator[s] as well.” Id. (citation and punctuation omitted). Moreover, a court
may “vacate an award on these grounds only if the arbitrator[s’] choice prejudiced the
13
rights of the parties and denied them a fair hearing.” Id. (citation and punctuation
omitted).
The FINRA rules require parties to exchange witness lists and not-yet-
produced documents that they intend to use at the arbitration hearing “[a]t least 20
days before the first scheduled hearing date.” FINRA Rule 12514 (a) & (b). In this
case, the 20-day schedule would have established September 4, 2018, as the deadline
for exchanging documents and witness lists. The parties, however, agreed to extend
the document exchange deadline to September 10, 2018. Pursuant to the agreement,
Wells Fargo provided the investors with approximately 1,800 pages of documents on
September 6, 2018. The investors turned over approximately 1,600 pages of material
on September 10, 2018. That same day, the investors moved to continue the hearing
until November or December 2018, asserting that they needed additional time to
review the new documents. The arbitrators denied the request.
In vacating the award, the superior court criticized the arbitrators for not
explaining why they denied the request for continuance. It also concluded that Wells
Fargo had violated FINRA’s rules by failing to meet the 20-day deadline for
exchanging documents. But we have found no rule or other authority requiring the
panel to detail its reasons for denying the investors’ continuance request. See FINRA
14
Rule 12601 (describing procedures for postponement of hearings); see generally
FINRA Rule 12904 (f) & (g) (FINRA arbitrators are not required to explain the basis
for an arbitration award unless all parties specifically request an explained decision).
And the parties agreed to extend the document exchange deadline through September
10, 2018. Both sides met the newly established time frame, with each producing over
1,600 documents.
By the time the investors requested a continuance on September 10, 2018, their
statement of claim had been pending for over 16 months, and the arbitration was
scheduled to start 14 days later. Wells Fargo, which also had to review a large number
of new documents, objected to delaying the multi-day hearing that involved numerous
witnesses, experts, and arbitrators. Given the investors’ consent to the delayed
document exchange, as well as the complexities inherent in rescheduling a lengthy
hearing with multiple parties and witnesses, the investors have not demonstrated that
the arbitrators lacked a reasonable basis for denying the continuance request.
Furthermore, the record shows that the proceedings were, in fact, continued
following a medical emergency on September 28, 2018, and the arbitration hearing
reconvened approximately nine months later for an additional five days. The
investors, therefore, had an extensive period before the conclusion of the arbitration
15
hearing to review the documents. Although they complain that they were required to
commence the arbitration “without sufficient time to digest the late produced
documents,” the investors have not explained how their strategy or presentation might
have changed had they been able to fully “digest” the material in September 2018.
Accordingly, because the investors have not shown that they were prejudiced by the
arbitrators’ initial refusal to continue the hearing, the trial court erred in vacating the
arbitration award on this ground. See CM South East Texas Houston, LLC, supra at
705 (II) (party failed to show that arbitrator’s refusal to continue hearing following
medical emergency in key witness’s family caused prejudice; the witness provided
hours of testimony, and although the party asserted that the witness “could have done
a much better job” if not involved in a family emergency, it “fail[ed] to explain how
he would have done so”).
3. The superior court also found the arbitrators guilty of misconduct in (a)
refusing to allow testimony from the investors’ rebuttal witness, and (b) limiting the
investors’ cross-examination of a Wells Fargo expert. An award may be vacated if an
arbitrator engages in misconduct by “refusing to hear evidence pertinent and material
to the controversy.” 9 USC § 10 (a) (3). This provision, however,
16
does not warrant vacatur where an arbitrator merely made an erroneous
discovery or evidentiary ruling; rather, a [claimant] must show that the
arbitrator’s handling of these matters was in bad faith or so gross as to
amount to affirmative misconduct, effectively depriving the [claimant]
of a fundamentally fair proceeding.
Pochat v. Merrill Lynch, Pierce, Fenner & Smith, 2013 U.S. Dist. LEXIS 119447,
*31 (C) (2) (S. D. Fla. 2013); see also Akpele v. Pacific Life Ins. Co., 646 Fed. Appx.
908, 913 (III) (A) (11th Cir. 2016) (“[R]eview of arbitral evidentiary rulings is
limited, but acting in bad faith, for example, may amount to misconduct under the
FAA.”); Fowler v. Ritz-Carlton Hotel Co., 579 Fed. Appx. 693, 698 (IV) (B) (11th
Cir. 2014) (“[A]n award is only vacated for refusing to consider evidence when an
arbitrator’s error is in bad faith or so gross as to amount to affirmative misconduct.”)
(citation and punctuation omitted).
(a) According to the superior court, the arbitrators engaged in misconduct by
refusing to allow the investors to call their current Charles Schwab stockbroker as a
rebuttal witness to address cross-examination testimony given by their own expert
regarding their recent stock trading activity. In requesting permission to present the
rebuttal witness, the investors argued that their Schwab broker was more familiar with
17
the trades than the expert and should be allowed to testify regarding the transactions.
The arbitrators denied the request, finding as follows:
Our impression is that there’s some desire on [the investors’] part to
rebut the — it wasn’t so much the testimony of the expert, but rather the
way the — the characterization of the information and the trade
confirmation. That’s our impression of what the goal is. And our belief
is that that can be accomplished by [the investors], by counsel, during
the argument. The trade confirms are in the record, and we would invite
you to address that. We don’t feel as if anything would be added by the
Schwab representative, and that’s our ruling.
The investors claim on appeal that the Schwab broker’s testimony would have
been relevant and non-cumulative. But they have pointed to no evidence that the
arbitrators acted in bad faith or committed a gross error in refusing to admit it.
Instead, after hearing argument and considering the matter, the arbitrators found the
requested rebuttal testimony unnecessary, given the other evidence in the record.
Although the investors disagree with this ruling, “a mere difference of opinion
between the arbitrators and the moving party as to the correct resolution of a
procedural problem will not support vacatur under section 10 (a) (3).” Pochat, supra
at 32 (c) (2) (citation and punctuation omitted). The superior court erred in finding
misconduct here.
18
(b) The superior court also concluded that the arbitrators improperly curtailed
the investors’ cross-examination of a “last minute” expert witness called by Wells
Fargo. We do not have a full transcript of the arbitration hearing. Record excerpts
cited by the investors, however, show that a dispute arose between counsel regarding
the scope of the expert’s testimony and whether he could answer questions about a
particular document. The excerpts further show that the arbitrators did not rule on this
dispute or restrict the investors’ cross-examination. They admitted into evidence a
document to which the investors objected. But they did not limit the investors’
questioning of the expert. The superior court, therefore, erred in finding that the
arbitrators “refus[ed] to permit counsel for the [i]nvestors to fully cross-examine” this
witness.
4. Citing 9 USC § 10 (a) (1), the superior court also vacated the award after
concluding that the award had been “procured by fraud.” Specifically, the court found
that Wells Fargo broker McKelvey, who was in the process of testifying when the
hearing was continued in September 2018, offered conflicting “perjured” testimony
when the hearing recommenced in July 2019; that counsel for Wells Fargo made
factual misstatements during the hearing; and that Wells Fargo failed to turn over a
19
specified document until after the close of evidence, despite being ordered to produce
the document by the arbitrators.
To show the fraud necessary to vacate an arbitration award: (1) “the movant
must establish fraud by clear and convincing evidence; (2) the fraud must not have
been discoverable upon the exercise of due diligence prior to or during the
arbitration; and (3) the fraud must have materially related to an issue in the
arbitration.” Floridians for Solar Choice v. Paparella, 802 Fed. Appx. 519, 523 (11th
Cir. 2020) (citation and punctuation omitted). The moving party must satisfy all three
prongs before a trial court can vacate an arbitration award for fraud under 9 USC §
10 (a) (1). See id.As an initial matter, we have not been able to locate any record evidence of
McKelvey’s testimony from the September 2018 proceeding, which evidently was
audio-recorded, but not officially transcribed. The audiotape is not in the appellate
record. And although the investors provided a recap in their brief of what they
contend the audiotape shows with respect to McKelvey’s September 2018 testimony,
“[s]tatements of fact in the briefs of the parties unsupported by evidence in the record
cannot be considered on appeal.” Beasley v. Wachovia Bank, 277 Ga. App. 698, 698
(627 SE2d 417) (2006).
20
It is clear, however, that counsel for the investors was aware of the purported
conflicts in McKelvey’s testimony when he cross-examined McKelvey in June 2019.
Counsel stated during a June 2019 arbitration session that he did not have a transcript
of the September testimony.4 But he asserted that he had “notes” and recalled the
prior testimony. Counsel cross-examined McKelvey about the alleged inconsistencies
and challenged statements by Wells Fargo’s counsel, who insisted that the testimony
was consistent. Because McKelvey’s allegedly inconsistent testimony was
discoverable — and was, in fact, discovered — by the investors during the arbitration,
it does not support a finding of fraud. See Freeman v. Citibank, N.A., 2015 U.S. Dist.
LEXIS 197610, *35 (II) (B) (1) (N. D. Ga. 2015) (no vacatur for fraud where
claimant was aware of alleged misconduct during arbitration, brought it to the
arbitrators’ attention and challenged it through objections).
The investors also complain that while their counsel was cross-examining a
Wells Fargo expert regarding a stock trade report, counsel for Wells Fargo made
factual misstatements about the meaning of certain dates on the report. We have not
been able to find a complete excerpt of this cross-examination in the record. The
4
Although the investors claim that the audiotape of the September 2018
proceedings were not available to the parties or the arbitrators at that point, they have
provided no authority or record cite to support that assertion.
21
available record shows, however, that when the investors’ counsel questioned the
accuracy of opposing counsel’s factual statements during the arbitration, opposing
counsel noted: “I was speaking as to my knowledge as to how they do their [report].
If you’ve got a question about a specific situation . . . [you can ask] the guy who did
[the report],” who was yet to testify. Opposing counsel’s allegedly inaccurate
statements, therefore, were either discovered or discoverable during the arbitration.
See Freeman, supra.
Similarly, the record shows that Wells Fargo produced the document it had
been ordered to produce before the arbitration concluded, and counsel for Wells
Fargo asked that it be made an exhibit to the arbitration. Like the other alleged
instances of fraud, the investors knew or should have known about the late production
before the hearing adjourned. Wells Fargo’s conduct provides no grounds for a fraud-
based vacatur. See generally Floridians for Solar Choice, supra; Freeman, supra.
5. Finally, the superior court vacated the arbitration award under 9 USC § 10(a) (3) after finding that the arbitrators improperly ordered Leggett to pay $32,200 in
hearing session fees and directed him to reimburse Wells Fargo for $51,000 in costs.
In the court’s view, the arbitrators ignored the parties’ arbitration agreement and
“dispens[ed] their own brand of industrial justice” in imposing these costs and fees.
22
Again, however, an arbitration award may only be vacated under 9 USC § 10 (a) (3)
when the arbitrators’ conduct “was in bad faith or so gross as to amount to affirmative
misconduct, effectively depriving the [claimant] of a fundamentally fair proceeding.”
Thames v. Woodmen of the World Life Ins. Society, 2013 U.S. Dist. LEXIS 114489at *15 (II) (B) (1) (S. D. Ala. 2013). Nothing indicates that the arbitrators engaged in
such misconduct or misbehavior.
(a) Costs. According to the superior court, “FINRA’s Code of Arbitration
Procedure . . . does not contain any provision granting arbitrators the authority to shift
the expenses of litigation [to the opposing party].” But the FINRA rules permit an
arbitration panel to impose monetary sanctions (including assessing costs and fees)
against a party that fails to comply with any provision of the Code. See FINRA Rule
12212 (a). Among other things, the Code requires witnesses to testify under oath. See
FINRA Rule 12605. The arbitrators specifically found that Leggett — the only
claimant against whom costs were assessed — had provided false testimony during
the arbitration.
In addition, FINRA’s procedures allow a panel to allocate costs “that are within
the scope of the [arbitration] agreement.” See FINRA Rule 12902 (c). Although
parties generally bear their own costs in litigation, judicial and quasi-judicial bodies
23
(including an arbitration panel operating under the FAA) are authorized to award
attorney fees and/or costs under the bad faith exception to this general rule. See
Marshall & Co. v. Duke, 114 F3d 188, 189-190 (2) (11th Cir. 1997). The broad
language of the parties’ arbitration agreement did not strip the panel of its ability to
award costs as a sanction for bad faith conduct. See ReliaStar Life Ins. Co. v. EMC
Nat. Life Co., 564 F3d 81, 87-88 (2) (C) (2d Cir. 2009) (language of parties’
arbitration agreement did not restrict arbitrator’s authority to impose sanction for bad
faith conduct). The arbitrators, therefore, had the authority to impose sanctions for
bad faith.5 See id.A witness testified that Wells Fargo had incurred costs of over $51,000 during
the arbitration process. Given this testimony, as well as the arbitrators’ conclusion
that Leggett presented false claims and untrue testimony during the arbitration, the
arbitrators did not engage in misconduct or misbehavior by ordering Legett to
5
The parties’ agreement provided that the arbitration would “be conducted
pursuant to the [FAA] and the Laws of the State of New York.” To the extent the
issue of costs was governed by New York law, we note that judicial bodies in New
York may impose costs as a sanction for “frivolous conduct,” which includes
assertions of “material factual statements that are false.” 22 NYCRR § 130-1.1 (c) (3).
24
reimburse Wells Fargo for $51,000 in costs.6 See, e.g., FINRA Rule 12212 (a);
Perichak v. Intl. Union of Electrical Radio & Machine Workers, Local 601, 715 F2d
78, 84 n.9 (III) (3d Cir. 1983) (claimant’s “materially false statements made under
oath are, having been critical to the success of his case, alone, enough to support a
finding of bad faith”) (citation and punctuation omitted).
(b) The Hearing Session Fees. The arbitrators further ordered Leggett to pay
the hearing session fees for the arbitration. See FINRA Rule 12902 (a) (1) (“In the
award, the panel will determine the amount of each hearing session fee that each party
must pay.”). Pursuant to FINRA Rule 12100 (p), a “hearing session” is “any meeting
between the parties and arbitrators of four hours or less, including a hearing or a
prehearing conference.” The arbitrators determined that the proceedings consisted of
23 total hearing sessions. Using guidelines set forth in FINRA Rule 12902 (a), the
6
The superior court vacated this portion of the arbitration award based on the
misconduct/misbehavior provision in 9 USC § 10 (a) (3). It did not rely on 9 USC §
10 (a) (4), which prohibits an arbitrator from exceeding his or her powers. Because
the arbitrators were authorized to impose costs as a sanction, however, 9 USC § 10(a) (4) also would provide no basis for vacatur.
25
arbitrators calculated the fee for each hearing session to be $1400, for a total fee of
$32,200.7
The investors do not question the arbitrators’ decision to assess Leggett with
the hearing session fees. Instead, they argue that the panel miscalculated the
appropriate fee. They claim that because the panel awarded Wells Fargo $51,000 in
costs, the fee per session should have been based on that amount under FINRA Rule
12902 (a) (4), which provides: “If hearing session fees are allocated against a
customer in connection with a claim filed by a member or associated person, the
amount of hearing session fees the customer must pay must be based on the amount
actually awarded to the member or associated person.” The investors assert that
because the proper fee for a $51,000 claim is $750 per session (not $1400 per
session), Leggett should have only been assessed with $17,250 in fees. See FINRA
Rule 12902 (a) (1). The superior court accepted this calculation, finding that the
arbitrators erroneously imposed fees “inconsistent with the FINRA Code of
Arbitration Procedure.”
7
As shown by current Rule 12902, the session fees have increased since this
arbitration award was issued in 2019.
26
We disagree. Wells Fargo did not file a claim for costs. And even if it did, the
arbitration panel properly assessed hearing fees based on the investors’ claim for
damages against Wells Fargo. Pursuant to FINRA Rule 12902 (a) (3), if a proceeding
involves more than one claim, “the amount of hearing session fees will be based on
the largest claim in the proceeding.” The largest claim in the proceeding — a claim
for more than $1.5 million against Wells Fargo — established $1400 as the proper fee
for each hearing session. See FINRA Rule 12902 (a) (1).
6. “As long as [an] arbitrator is even arguably construing or applying the
contract and acting within the scope of his authority, that a court is convinced he
committed serious error does not suffice to overturn his decision.” United
Paperworkers Intl. Union v. Misco, Inc., 484 U. S. 29, 38 (II) (A) (108 SCt 364, 98
LE2d 286) (1987). The superior court provided no proper basis for vacating the
arbitration award under 9 USC § 10. Accordingly, we reverse.
Judgment reversed. Dillard, P. J., and Markle, J., concur.
27