Christopher Caputo v. Wells Fargo Advisors LLC

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
__________
No. 20-3059
__________
CHRISTOPHER N. CAPUTO,
Appellant
v.
WELLS FARGO ADVISORS, LLC
__________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 3:19-cv-17204)
Honorable Freda L. Wolfson, Chief District Judge
__________
Argued: November 17, 2021
Before: CHAGARES, Chief Judge, BIBAS and FUENTES, Circuit Judges
(Opinion filed: May 9, 2022)
__________
Timothy W. Bergin [ARGUED]
Potomac Law Group
1300 Pennsylvania Ave., N.W.
Suite 700
Washington, D.C. 20004
Mark A. Kriegel
1479 Pennington Road
Ewing, NJ 08618
Counsel for Appellant
Megan M. Christensen
Yio Kyung Lee
Jonathan A. Scobie [ARGUED]
Stevens & Lee
Princeton Pike Corporate Center
100 Lenox Drive
Suite 200
Lawrenceville, NJ 08648
Counsel for Appellee
__________
OPINION*
__________
FUENTES, Circuit Judge.
Petitioner-Appellant Christopher N. Caputo appeals the District Court’s order
denying his motion to vacate an arbitration award issued in favor of Respondent-Appellee
Wells Fargo Advisors, LLC (“Wells Fargo”) and granting Wells Fargo’s cross-motion to
confirm the award. Caputo argues that the award should be vacated because it violates
public policy and is in manifest disregard of law. He also argues that it should be vacated
because the arbitration panel exceeded its authority and excluded certain evidence. For
the following reasons, we will affirm the District Court’s order.
I.
Wells Fargo hired Caputo as a financial advisor in February 2011. Under the
terms of his employment offer, Caputo became eligible for certain bonuses and awards
upon meeting particular performance-based benchmarks. Specifically, Caputo qualified
to receive a Transitional Bonus of $1,202,294, paid in monthly installments of $12,833
*
This disposition is not an opinion of the full Court and under I.O.P. 5.7 does not
constitute binding precedent.
2
from 2011 to 2021. He also qualified to receive three separate Production Bonuses of
$240,459, as well as a Best Practice Award of $240,459, which were to be paid in
monthly installments over approximately ten years.
Caputo could choose to get cash for his bonuses and awards upfront in the form of
a loan. So from 2011 to 2014, Wells Fargo and Caputo executed five Promissory Notes,
each for a principal sum of each bonus and award amount—one for $1,202,294 and four
for $240,459—totaling over two million dollars. In other words, rather than waiting to
receive the bonuses and awards in monthly installments over ten years, Caputo elected to
receive them in an upfront lump sum.
Each of the Promissory Notes set forth a schedule of debt obligations under which
Caputo was “unconditionally” obligated to pay Wells Fargo back in full.1 Critically,
Caputo’s decision to execute the Promissory Notes did not alter Wells Fargo’s payment
of the bonuses or awards. Rather, while Wells Fargo employed Caputo, it still paid him
his bonuses and awards in monthly installments, which in turn offset Caputo’s debt
obligations under the Promissory Notes. Most importantly, under the Promissory Notes,
if Caputo were ever terminated, Wells Fargo was entitled to “declare the entire unpaid
principal balance of [each] Note immediately due and payable.”2
Wells Fargo terminated Caputo’s employment in December 2014 after conducting
an internal investigation and determining that he had engaged in inappropriate practices.
Wells Fargo found that Caputo had traded certain clients’ long-term investments for other
1
See, e.g., App. 199.
2
See, e.g., id.
3
long-term investments to the clients’ detriment, resulting in multiple violations of
company policy. At the time of his termination, Caputo had repaid Wells Fargo around
$300,000 through his monthly bonus and award installments. Wells Fargo sent Caputo a
notice of demand for the outstanding amount due under the Promissory Notes (about $1.7
million) and advised Caputo that it had placed an administrative hold on his Wells Fargo
brokerage accounts. When Caputo failed to pay, Wells Fargo commenced a Financial
Industry Regulatory Authority (“FINRA”) arbitration, asserting claims for breach of
contract against Caputo. Caputo asserted multiple counterclaims, including for breach of
contract, unconscionability based on fraudulent inducement, unjust enrichment, breach of
implied duty of good faith and fair dealing, defamation, fraudulent inducement to accept
employment, expungement, and breach of New Jersey employment law.
In July 2019, after multiple days of hearings, the FINRA arbitration panel issued
an award in favor of Wells Fargo, concluding that Caputo was liable to Wells Fargo for
the entire balance owed under the Promissory Notes. The arbitration panel also denied
Caputo’s counterclaims in their entirety. Caputo then moved to vacate the arbitration
award in the U.S. District Court for the District of New Jersey. Wells Fargo opposed the
motion and filed a cross-motion to confirm the award. In May 2020, the District Court
denied Caputo’s motion and granted Wells Fargo’s. Caputo then filed a motion for
4
reconsideration, which the District Court denied in September 2020. Caputo filed a
timely notice of appeal.3
II.4
The District Court had jurisdiction under 9 U.S.C. §§ 9 and 10 and 28 U.S.C.
§ 1332. We have jurisdiction under 28 U.S.C. § 1291 and 9 U.S.C. § 16(a).5 “When
reviewing a district court’s denial of a motion to vacate an arbitration award, we review
its legal conclusions de novo and its factual findings for clear error.”6 “[T]he correlative
grant of a motion to confirm” an arbitration award is also reviewed de novo.7 Given the
3
Caputo simultaneously moved for a stay of the District Court’s judgment before the
District Court, which the District Court denied. He then filed the same motion before this
Court, which we also denied on October 29, 2020. That same day, Caputo filed for
Chapter 7 bankruptcy in the U.S. Bankruptcy Court for the District of New Jersey
(“Bankruptcy Court”). The Bankruptcy Court ultimately discharged Caputo’s debts,
including the approximately $1.7 million he owed to Wells Fargo under the District Court
judgment, and ordered the bankruptcy case closed.
4
Wells Fargo asserts that the instant appeal is moot given that Caputo’s debt to Wells
Fargo pursuant to the District Court’s judgment was discharged in bankruptcy. We
disagree. Assuming that Caputo could prevail in this appeal, we could fashion
“meaningful relief.” See In re Surrick, 338 F.3d 224, 230 (3d Cir. 2003) (internal
quotation marks omitted). A reversal of the District Court’s decision and (eventual)
vacatur of the arbitration award could result in Caputo receiving the money from his
Wells Fargo brokerage accounts, which were placed on administrative hold after Caputo
failed to pay Wells Fargo the amount he owed under the Promissory Notes. Thus,
Caputo’s appeal is not moot.
5
Hamilton Park Health Care Ctr. Ltd. v. 1199 SEIU United Healthcare Workers E., 817
F.3d 857, 861 (3d Cir. 2016).
6
Whitehead v. Pullman Grp., LLC, 811 F.3d 116, 119 n.23 (3d Cir. 2016) (citing Sutter
v. Oxford Health Plans LLC, 675 F.3d 215, 219 (3d Cir. 2012), aff’d, 569 U.S. 564(2013)).
7
First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 941, 949 (1995).
5
“strong federal policy in favor of commercial arbitration, we begin with the presumption
that the award is enforceable.”8
Under the Federal Arbitration Act (“FAA”), four narrow grounds exist for
vacating an arbitration award.9 Even so, “a reviewing court will decline to sustain an
award ‘only in the rarest case.’”10 Caputo challenges the award on two vacatur grounds
not enumerated in the FAA: (1) that the arbitration award violated public policy, and
(2) that the award was in manifest disregard of law.11 He also challenges the award on
two of the four grounds enumerated in the FAA: (1) that the arbitration panel exceeded
its authority under § 10(a)(4), and (2) that the panel excluded pertinent and material
evidence under § 10(a)(3).12 We address each vacatur ground in turn.13
8
Sutter, 675 F.3d at 219 (citing Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp.,
460 U.S. 1, 24–25 (1983)).
9
9 U.S.C. § 10(a).
10
Newark Morning Ledger Co. v. Newark Typographical Union Loc. 103, 797 F.2d 162,
165 (3d Cir. 1986) (internal citation omitted).
11
As the District Court correctly noted, we have recognized these grounds as additional
bases for vacatur. See, e.g., Dluhos v. Strasberg, 321 F.3d 365, 370 (3d Cir. 2003)
(manifest disregard); Serv. Emps. Int’l Union Loc. 36 v. City Cleaning Co., 982 F.2d 89,
92 (3d Cir. 1992) (public policy). That said, we have not yet weighed in on whether
these grounds for vacatur survive the Supreme Court’s decision in Hall Street Associates,
L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008). Like the District Court, we will presume, for
the purposes of this appeal, that these grounds “continue to exist as a basis for vacatur
after Hall Street.” App. 10.
12
See 9 U.S.C. § 10(a)(3)–(4).
13
We will address Caputo’s arguments regarding manifest disregard of law and
§ 10(a)(4) together, as the basis for both is that the arbitration panel ignored state labor
laws.
6
III.
A.
First, Caputo argues that the arbitration award should be vacated for violating
dominant public policy because (1) it enforced contract provisions prohibited by state
labor statutes and designed to evade taxes; and (2) Caputo was discharged without just
cause. We disagree.
An arbitration award may be vacated when enforcing it violates explicit public
policy.14 However, “the public policy must be well defined and dominant, and is to be
ascertained by reference to the laws and legal precedents and not from general
considerations of supposed public interests.”15 We must use “common sense” to
determine “whether a public policy exists[,] . . . keeping in mind that a formulation of
public policy based only on general considerations of supposed public interests is not the
sort that permits [us] to set aside an arbitration award.”16 We have characterized this
exception as “slim.”17 Indeed, it “is available only when the arbitration decision and
award create an explicit conflict with an explicit public policy.”18
Caputo asserts that enforcing the contractual provisions at issue would violate
state labor laws, and that “[a]n express statutory override of particular types of
14
W.R. Grace & Co. v. Loc. Union 759, 461 U.S. 757, 766 (1983); United Paperworkers
Int’l Union v. Misco, Inc., 484 U.S. 29, 42–43 (1987).
15
United Transp. Union Loc. 1589 v. Suburban Transit Corp., 51 F.3d 376, 381 (3d Cir.
1995) (internal citation and quotation marks omitted).
16
Id. at 381–82 (internal citation and quotation marks omitted).
17
Id. at 382 (internal citation and quotation marks omitted).
18
Id. (emphasis added) (internal citation and quotation marks omitted).
7
contractual provisions . . . is by definition an expression of dominant public policy.”19
And, he adds, the Promissory Notes run afoul of “law[s] condemning tax evasion,” so
they are unenforceable for that reason too.20 The case law that Caputo cites in support of
these propositions is inapposite.21 In fact, these arguments improperly conflate the
manifest disregard and public policy doctrines.22 Even if these laws articulated some
public policy, it would not be “well defined [or] dominant.”23 Caputo identifies no other
explicit public policy that the arbitration award violates.
Caputo also argues that the arbitration award is contrary to public policy because
he was terminated without cause. Yet besides “general considerations of supposed public
interests,” Caputo does not explain how being fired without cause violates public policy.
And it is hard to see how that could be true here, given that Caputo’s employment was at-
will.
19
Caputo Opening Br. at 14.
20
Id. at 26.
21
Along with the case law cited in his briefing, Caputo submitted several Rule 28(j)
letters containing mostly out-of-circuit case law purporting to support his public policy
arguments. Rule 28(j) Letter (filed March 13, 2022); Rule 28(j) Letter (filed Dec. 1,
2021). These cases are distinguishable and do not persuade us that the arbitration award
issued in favor of Wells Fargo (or the contract provisions at issue in this case) violates
public policy.
22
Cf. Seneca Nation of Indians v. New York, 988 F.3d 618, 628 (2d Cir. 2021) (stating in
dicta that “a court could certainly vacate an arbitration award that interpreted an
agreement to require something expressly prohibited by law or statute, insofar as that
would show that the arbitrators willfully flouted the governing law by refusing to apply
it” or, in other words, manifestly disregarded the law (internal citation and quotation
marks omitted)).
23
United Transp. Union Loc. 1589, 51 F.3d at 381.
8
B.
Second, Caputo argues that the arbitration award should be vacated for being in
manifest disregard of law for ignoring state labor statutes. This argument also fails.
“The manifest disregard standard requires more than legal error.”24 “Rather, the
arbitrators’ decision must fly in the face of clearly established legal precedent, such as
where an arbitrator appreciates the existence of a clearly governing legal principle but
decides to ignore or pay no attention to it.”25 It is an “extremely deferential” standard.26
Caputo also argues that the award should be vacated for exceeding the arbitrator’s
authority under § 10(a)(4) on the same basis. Caputo asserts that Wells Fargo invited the
arbitration panel to disregard the law and that they did so, as evidenced by the panel
restricting Caputo’s cross-examination of certain witnesses and granting an arbitration
award in favor of Wells Fargo. As the District Court recognized, “[u]nder § 10(a)(4) of
the FAA, a court cannot examine the merits of an arbitrator’s decision, correct factual or
legal errors, or overrule an award based on a mere disagreement with the arbitrator’s
interpretation of a contract.”27 Simply put, “we must enforce an arbitration award if it is
based on an arguable interpretation of” the contract.28 The terms of an award may not be
revised “unless they are completely irrational.”29 As we have explained, “[s]o deferential
24
Whitehead, 811 F.3d at 121.
25
Id. (internal citations and quotation marks omitted).
26
Id. (internal citation and quotation marks omitted).
27
App. 15 (internal citations omitted).
28
Exxon Shipping Co. v. Exxon Seamen’s Union, 73 F.3d 1287, 1291 (3d Cir. 1996).
29
Ario v. Underwriting Members of Syndicate 53 at Lloyds for 1998 Year of Acct., 618
F.3d 277, 295 (3d Cir. 2010) (internal citation and quotation marks omitted).
9
is the ‘irrationality’ standard under the FAA that we ‘may not overrule an arbitrator
simply because [we] disagree . . . . [T]here must be absolutely no support at all in the
record justifying the arbitrator’s determinations for a court to deny enforcement of an
award.’”30
Even if the FINRA arbitration panel got it wrong, it is hard to see how this would
be more than legal error, as required to vacate an arbitration award under the manifest
disregard doctrine. Further, despite Caputo’s assertions to the contrary, there is no
evidence in the record that Wells Fargo urged the FINRA arbitration panel to disregard
the law. The arbitrators’ decisions to cut off the cross-examination of certain witnesses
and rule in favor of Wells Fargo do not support the inference that the FINRA arbitration
panel disregarded the law such that they exceeded their authority. Unlike the Supreme
Court’s decision in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., which Caputo
cites in support of his arguments, the FINRA arbitration panel did not impose its own
“policy choice” in making its decision.31 Instead, the arbitral panel “rationally derived”
the arbitration award in favor of Wells Fargo “from the agreement between the parties.”32
C.
Lastly, Caputo asserts that the arbitration award should be vacated because the
arbitrators excluded evidence showing that Wells Fargo discharged him without just
30
Id. at 295–96 (quoting United Transp. Union Loc. 1589, 51 F.3d at 379); see also
Sutter, 675 F.3d at 220 (“In other words, the task of an arbitrator is to interpret and
enforce a contract. When he makes a good faith attempt to do so, even serious errors of
law or fact will not subject his award to vacatur.” (citation omitted)).
31
559 U.S. 662, 677 (2010).
32
Ario, 618 F.3d at 295.
10
cause. We are not persuaded. The FAA permits district courts to vacate arbitration
awards “where the arbitrators were guilty of misconduct . . . in refusing to hear evidence
pertinent and material to the controversy.”33 But we have cautioned that § 10(a)(3)
“cannot be read . . . to intend that every failure to receive relevant evidence constitutes
misconduct which will require the [vacatur] of an arbitrator’s award.”34 Vacatur under
§ 10(a)(3) is “warranted only where the arbitrator’s refusal to hear proffered testimony so
affects the rights of a party that it may be said that he was deprived of a fair hearing.”35
Like the manifest disregard of law standard, this is an “extremely deferential standard”
and typically results in confirmation of an arbitration award.36
We are not convinced that the arbitrators’ decision to exclude evidence of
Caputo’s discharge deprived him of a fair hearing. Given that Caputo was an at-will
employee who signed Promissory Notes promising that he would pay Wells Fargo back
in full, we are skeptical that excluding the evidence at issue resulted in an unfair hearing.
IV.
For these reasons, we will affirm the District Court’s order denying Caputo’s
motion to vacate the arbitration award and granting Wells Fargo’s motion to confirm the
arbitration award.
33
9 U.S.C. § 10(a)(3).
34
Century Indem. Co. v. Certain Underwriters at Lloyd’s, London, Subscribing to
Retrocessional Agreement Nos. 950548, 950549 & 950646, 584 F.3d 513, 557 (3d Cir.
2009) (internal citation and quotation marks omitted).
35
Id. (internal citations and quotation marks omitted).
36
Id. (internal citation and quotation marks omitted).
11