Sylver v. Regents Bank, N.A.

129 Nev., Advance Opinion 30
IN THE SUPREME COURT OF THE STATE OF NEVADA
MARSHALL SYLVER, AN No. 58869
INDIVIDUAL; MIND POWER, INC., A
NEVADA CORPORATION; CASA DE
MILLIONAIRE, LLC, A NEVADA
LIMITED LIABILITY COMPANY; AND
PROSPERITY CENTER, LLC, A
FILED
NEVADA LIMITED LIABILITY MAY 0 2 2013
COMPANY, TRACIE K LINDEMAN
CLEMOVUPREME,G0 4.1f2T
Appellants,
BY
vs. DEPUTY,
REGENTS BANK, N.A., A NATIONAL
ASSOCIATION,
Respondent.
MARSHALL SYLVER, AN No. 59683
INDIVIDUAL; MIND POWER, INC., A
NEVADA CORPORATION; CASA DE
MILLIONAIRE, LLC, A NEVADA
LIMITED LIABILITY COMPANY; AND
PROSPERITY CENTER, LLC, A
NEVADA LIMITED LIABILITY
COMPANY,
Appellants,
vs.
REGENTS BANK, N.A., A NATIONAL
ASSOCIATION,
Respondent.
Consolidated appeals from a district court order confirming an
arbitration award and an amended judgment and order of sale. Eighth
Judicial District Court, Clark County; Rob Bare, Judge.
Affirmed.
Kolesar & Leatham, Chtd., and Bart K. Larsen, Las Vegas,
for Appellants.
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Sullivan Hill Lewin Rez & Engel and Christine A. Roberts, Las Vegas;
Sullivan Hill Lewin Rez & Engel and James E. Drummond, San Diego,
California,
for Respondent.
BEFORE HARDESTY, PARRAGUIRRE and CHERRY, JJ.
OPINION
By the Court, PARRAGUIRRE, J.:
In this appeal, we consider whether an arbitration award was
obtained through undue means. In resolving this issue, we interpret the
meaning of "undue means" under NRS 38.241 in line with the
interpretation given by other state and federal courts, whereby the
challenging party has the burden of proving that the arbitration award
was secured through intentionally misleading conduct. Accordingly, we
conclude that the district court correctly refused to vacate the arbitration
award since the appellant did not satisfy his burden in showing by clear
and convincing evidence that the respondent secured the award through
intentionally misleading conduct.
We also consider whether the arbitrator's refusal to void a
loan in the underlying dispute constituted a manifest disregard of the law.
Because the arbitrator did not consciously disregard the applicable legal
standard, we conclude that there was no manifest disregard of the law.
FACTS AND PROCEDURAL HISTORY
In 2008, respondent Regents Bank, N.A., issued two loans to
appellant Marshall Sylver. The first loan, intended as a bridge loan to
purchase a residential property in Las Vegas, was partially secured by a
deed of trust in another residential property located in Las Vegas. Sylver
planned to sell the first property to pay off this loan. The second loan was
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proposed to obtain commercial take-out financing for the second loan with
Regents' assistance. With the exception of recordation of a deed of trust in
Nevada, all transactions took place in California, where Regents is
sitused. Throughout the process of obtaining the loans and seeking long-
term financing with Regents, James Hibert was Sylver's point of contact.
When financing failed to materialize, the parties twice
adjusted the terms of the second loan's maturity date. Still, Sylver did not
repay either loan.
Regents filed a complaint in district court for breach of
contract and judicial foreclosure. In his answer, Sylver alleged that
Regents breached certain fiduciary duties; that Regents made false
representations to Sylver regarding long-term financing; and that the first
loan was void because Regents engaged in mortgage banking activity in
Nevada without first seeking a certificate of exemption, as required by
NRS 645E.910. The district court stayed the proceedings and compelled
arbitration as provided in the loan documents.
Both Sylver and Regents designated witnesses who would
testify at the arbitration hearing. One witness, James Hibert, was
designated by both parties. Prior to arbitration, Regents informed the
arbitrator and Sylver that Hibert was unwilling to go to Las Vegas to
testify at the arbitration hearing. Regents had recently terminated Hibert
and could contact Hibert only through his attorney. Because Hibert's
counsel informed Regents that Hibert was unwilling to attend the
arbitration hearing in Las Vegas, Regents took Hibert's deposition and
used it instead of his live testimony at the hearing. Sylver cross-examined
Hibert for two hours during the deposition.
On the second day of the arbitration hearing, Sylver testified
that he had a phone conversation with Hibert that morning, wherein
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Hibert stated that he had never been asked to testify in Las Vegas but
would be willing to do so. Nevertheless, Sylver did not ask for a
continuance, and the arbitrator ultimately rejected Sylver's arguments
and ruled in Regents' favor.
Regents filed a motion to confirm the arbitration award with
the district court. Prior to the hearing on Regents' motion, Sylver filed a
declaration by Hibert that, contrary to his earlier deposition testimony,
supported allegations that Regents made false representations and failed
to help secure long-term financing, despite Sylver's diligence throughout
the process. In opposition to the motion, Sylver argued that Regents
employed undue means in procuring the award by misrepresenting that
Hibert was unavailable, and that the arbitrator had manifestly
disregarded the law in refusing to void one of the loans. The district court
confirmed the arbitration award and later entered an amended judgment
and order of sale. Sylver appealed from both orders.
DISCUSSION
On appeal, Sylver revives the contentions he made before the
district court. Specifically, he argues that (1) Regents employed undue
means in procuring the award, and (2) the arbitrator manifestly
disregarded the law in refusing to void one of the loans.
Standard of review
We review a district court's confirmation of an arbitration
award de novo. Thomas v. City of North Las Vegas, 122 Nev. 82, 97, 127
P.3d 1057, 1067 (2006). In so doing, we consider that "[s]trong public
policy favors arbitration because arbitration generally avoids the higher
costs and longer time periods associated with traditional litigation." D.R.
Horton, Inc. v. Green, 120 Nev. 549, 553, 96 P.3d 1159, 1162 (2004). We
apply a clear and convincing evidence standard when parties seek to
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vacate an arbitration award. Health Plan of Nevada v. Rainbow Med., 120
Nev. 689, 695, 100 P.3d 172, 178 (2004).
NRS 38.241 allows a court to vacate an arbitration award
procured by fraud, corruption, or undue means. A court may also vacate
an arbitration award under the common law ground that the arbitrator
"manifestly disregarded the law." Clark Cnty. Educ. Ass'n v. Clark Cnty.
Sch. Dist., 122 Nev. 337, 341, 131 P.3d 5, 8 (2006). Sylver challenges the
arbitration award on both grounds.
The arbitration award was not procured by undue means
Sylver argues that the arbitration award was obtained by
undue means as a result of Regents' misrepresentation regarding Hibert's
availability to testify at the arbitration hearing. Because we have never
addressed the definition of "undue means" under NRS 38.241, we begin by
reviewing and ultimately adopting the definition used by numerous state
and federal circuit courts. Applying this definition to the circumstances
raised here, we conclude that Sylver has not satisfied his burden for
vacating the arbitration award.
Definition of "undue means"
NRS Chapter 38 embodies Nevada's adoption of the Revised
Uniform Arbitration Act. Hearing on S.B. 336 Before the Assembly
Judiciary Comm., 71st Leg. (Nev., April 24, 2001). NRS 38.241(1)(a)
provides:
Upon motion to the court by a party to an arbitral
proceeding, the court shall vacate an award made
in the arbitral proceeding if. . . [t]he award was
procured by corruption, fraud or other undue
means.
The language of NRS 38.241 closely mirrors the language of 9
U.S.C. § 10(a)(1), which also addresses the standard for vacating an
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Numerous federal and state courts have addressed the
meaning of "undue means" as used in this context.' These jurisdictions, in
interpreting "undue means," begin with the principle of statutory
construction that "a word should be known by the company it keeps."
National Cas. Co., 430 F.3d at 499. Accordingly, "[t]he best reading of the
term 'undue means' under the maxim noscitur a sociis is that it describes
underhanded or conniving ways of procuring an award that are similar to
corruption or fraud, but do not precisely constitute either." Id.; see also
PaineWebber Group, 187 F.3d at 991 ("The term 'undue means' must be
read in conjunction with the words 'fraud' and 'corruption' that precede it
in the statute."); Amer. Postal Workers Union, 52 F.3d at 362 ("[U]ndue
means must be limited to an action by a party that is equivalent in gravity
to corruption or fraud, such as a physical threat to an arbitrator or other
improper influence."). Thus, "undue means' has generally been
interpreted to mean something like fraud or corruption." Three S
Delaware, 492 F.3d at 529; see also PaineWebber Group, 187 F.3d at 991
(citing Amer. Postal Workers Union, 52 F.3d at 362, and noting that courts
have "uniformly construed the term undue means as requiring proof of
intentional misconduct").
Typically, to prove that an award was procured by
undue means, the party seeking vacatur "must
show that the fraud [or corruption] was (1) not
1 See,e.g., MCI Constructors, LLC v. City of Greensboro, 610 F.3d 849(4th Cir. 2010); Three S Delaware v. Data Quick Information Systems, 492
F.3d 520 (4th Cir. 2007); National Gas. Co. v. First State Ins. Group, 430
F.3d 492 (1st Cir. 2005); PaineWebber Group v. Zinsmeyer Trusts
Partnership, 187 F.3d 988 (8th Cir. 1999); Amer. Postal Workers Union v.
U.S. Postal Service, 52 F.3d 359 (D.C. Cir. 1995); A.G. Edwards & Sons,
Inc. v. McCollough, 967 F.2d 1401 (9th Cir. 1992); Spiska Engineering v.
SPM Thermo-Shield, 678 N.W.2d 804 (S.D. 2004).
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discoverable upon the exercise of due diligence
prior to the arbitration, (2) materially related to
an issue in the arbitration, and (3) established by
clear and convincing evidence."
MCI Constructors, 610 F.3d 858 (alteration in original) (quoting A.G.
Edwards & Sons, 967 F.2d at 1404). MCI Constructors requires the party
seeking to vacate the award to prove a causal connection between the
undue means and the resulting arbitration award. Id.Sylver has not established by clear and convincing evidence that the
award was procured by undue means
Adopting the above interpretation of "undue means," we
conclude that Sylver has not met his burden for vacating the arbitration
award.
First, the conduct alleged by Sylver does not rise to the level of
intentional bad faith behavior equivalent in gravity to corruption or fraud.
See PaineWebber Group, 187 F.3d at 991; Amer. Postal Workers Union, 52
F.3d at 362. While Sylver claims that Regents was incorrect in its
representation that Hibert was unavailable, Sylver does not proffer any
specific evidence that Regents' conduct was intentional, stating only that
"[w]hether intentional or inadvertent, Regents' misrepresentations clearly
impaired [a]ppellants' ability to present relevant evidence before the
arbitrator." 2
Second, Hibert's availability to testify was discoverable
through due diligence. See MCI Constructors, 610 F.3d at 858. Sylver
2Sylver seems to insinuate that since Regents paid for Hibert to
have independent legal representation, there was collusion between
Regents and Hibert's attorney, despite Hibert's own willingness to testify.
However, Sylver points to no evidence of such collusion. We therefore do
not address this contention. See NRAP 28(a)(9)(A).
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relied on Regents' representation that Hibert was unavailable to testify,
despite Sylver listing Hibert as a witness and deposing him for two hours.
On the second day of the arbitration hearing, Sylver discovered Hibert was
willing and available to testify, yet Sylver did not seek a continuance of
the arbitration.
Third, Sylver has not shown any causal connection between
the arbitration award and the alleged misconduct. See id. Sylver had the
opportunity to cross-examine Hibert prior to the arbitration, and Sylver
himself admitted in district court that it was only after the arbitration
that Hibert's potential testimony became so critical to Sylver's case.
Accordingly, the district court correctly refused to vacate the
arbitration award based on undue means.
The arbitrator's refusal to void the loan was not a manifest disregard of
the law
Sylver argues that the district court erred in confirming the
arbitration award, asserting that the arbitrator manifestly disregarded
the law by enforcing the loan despite Regents' violation of NRS 645E.910,
which requires a national bank to seek a certificate of exemption before
engaging in mortgage banking activity in Nevada. 3
"[J]udicial inquiry under the manifest-disregard-of-the-law
standard is extremely limited.' A party seeking to vacate an arbitration
3 The arbitrator also found that Regents did not violate NRS
645E.900, which makes soliciting or conducting business as a mortgage
banker without a proper license or certificate of exemption unlawful. On
appeal, Sylver does not present any legal authority or factual basis for
challenging the arbitrator's decision besides a cursory statement alleging
that Regents clearly violated NRS 645E.900. Accordingly, we need not
address the arbitrator's decision regarding NRS 645E.900. NRAP
28(a)(9)(A).
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award based, on manifest disregard of the law may not merely object to the
results of the arbitration.' Clark Cnty. Educ. Ass'n, 122 Nev. at 342, 131
P.3d at 8 (quoting Bohlmann v. Printz, 120 Nev. 543, 547, 96 P.3d 1155,
1158 (2004), disapproved on other grounds by Bass-Davis v. Davis, 122
Nev. 442, 452 n.32, 134 P.3d 103, 109 n.32 (2006)). In analyzing whether
an arbitrator manifestly disregarded the law, "the issue is not whether
the arbitrator correctly interpreted the law, but whether the arbitrator,
knowing the law and recognizing that the law required a particular result,
simply disregarded the law." Id. (quoting Bohlmann, 120 Nev. at 547, 96
P.3d at 1158); see also Health Plan of Nevada, 120 Nev. at 699, 100 P.3d at
179 (stating that manifest disregard of the law requires a "conscious
disregard of applicable law").
NRS 645E.200 requires corporations to receive licenses from
the State of Nevada prior to engaging in mortgage banking activity in
Nevada. NRS 645E.150 exempts national banks (such as Regents) from
the licensing requirement, but NRS 645E.160 requires any such foreign
corporations to obtain a certificate of exemption prior to engaging in
certain mortgage banking activity in Nevada, and NRS 645E.910 makes it
unlawful for a foreign bank to engage in such banking activity if it fails to
obtain the certificate of exemption. 4
Because Regents is a national bank, the arbitrator determined
that Regents violated NRS 645E.910 by recording a deed of trust in
Nevada without a certificate of exemption. However, because no civil
remedy existed at the time for violations of NRS 645E.910, the arbitrator
4NRS 80.015(3)(d) limits the application of NRS 645E.910 to
noncommercial property. Thus, only the enforcement of the first loan,
secured by the deed of trust in the Las Vegas residential property, is at
issue.
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concluded that "the unintentional violation of Chapter 645E by Regents
had no materiality to the issues between the parties in the within action." 5
On appeal, Sylver argues that even though no statutory civil
remedy applies, Nevada courts have long refused to enforce contracts that
are illegal or contravene public policy. Sylver refers to other jurisdictions
that have found loans void and unenforceable following a lender's failure
to comply with licensing requirements. See, e.g., Klipping v. McCauley,
354 P.2d 167, 169 (Colo. 1960); Solomon v. Gilmore, 731 A.2d 280, 289
(Conn. 1999).
Sylver appears to suggest that loans made in violation of
licensing requirements are necessarily unenforceable. While we have
previously addressed whether a contract is unenforceable on public policy
grounds, we have never addressed whether failure to comply with a
licensing requirement necessarily renders a contract unenforceable. We
decline to do so now, as the operative standard of review in this case "does
not entail plenary judicial review. . . . The governing law alleged to have
been ignored must be well-defined, explicit, and clearly applicable."
Graber v. Comstock Bank, 111 Nev. 1421, 1428, 905 P.2d 1112, 1116
(1995). Accordingly, the issue before us on appeal is limited to whether
the arbitrator manifestly disregarded existing Nevada law, not whether
the common law in Nevada should be extended to conform to other states'
holdings.
5 Under NRS 645E.950, conducting the business of a mortgage
banker without a license or certificate of exemption is potentially a
misdemeanor. However, prior to 2009, no civil remedies existed for
violations of NRS 645E.910, and the current civil remedies were not given
retroactive effect. See 2009 Nev. Stat., ch. 200, §§ 20-21, at 747-48
(enacting NRS 645E.920 and NRS 645E.930, respectively); 2009 Nev.
Stat., ch. 474, § 84.7, at 2693 (amending NRS 645E.920).
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Under existing Nevada law, a contract is unenforceable on
public policy grounds where the policy against enforcement of a contract
clearly outweighs the interest in its enforcement. Picardi v. Eighth
Judicial Dist. Court, 127 Nev. „ 251 P.3d 723, 727 (2011) (citing
Restatement (Second) of Contracts § 178(1) (1981)). In applying this
balancing approach, we take account of "the seriousness of any misconduct
involved and the extent to which it was deliberate, and. . . the directness
of the connection between that misconduct and the term." Restatement
(Second) of Contracts § 178(3)(c)-(d) (1981).
On review, we begin by noting that the purpose behind NRS
645E.910 was to avoid predatory lending by out-of-state mortgage bankers
and brokers. Hearing on A.B. 490 Before the Assembly Commerce and
Labor Comm., 72d Leg. (Nev., April 4, 2003). Here, the record indicates
that Sylver solicited Regents' business, offering the Nevada property as
security. Regents did not engage in any other mortgage banking activity
in Nevada, and the property secured a loan that Sylver freely entered into
and later defaulted upon. The arbitrator found that Regents' violation of
the licensing statute was unintentional. Sylver does not assert that
Regents' failure to obtain a license or exemption to record the deed of trust
is in any way related to his failure to repay the loan. We conclude that the
public policy of the licensing requirement does not clearly outweigh the
interest in enforcing the loan.
Accordingly, Sylver has not overcome the very high hurdle for
showing that the arbitrator, "knowing the law and recognizing that the
law required a particular result, simply disregarded the law." Clark Cnty.
Educ. Ass'n, 122 Nev. at 342, 131 P.3d at 8 (quoting Bohlmann, 120 Nev.
at 547, 96 P.3d at 1158).
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CONCLUSION
NRS 38.241 provides for vacatur of arbitration awards
procured by corruption, fraud, or undue means. We conclude that to
vacate an arbitration award on a theory of "undue means" requires the
challenging party to prove by clear and convincing evidence that the
award was procured through intentionally misleading conduct. The
appellant has not satisfied his burden. We further conclude that the
arbitrator's refusal to void one of the loans was not a manifest disregard of
the law.
For the reasons stated above, we affirm the district court's
order confirming the arbitration award and judgment thereon.
Pai-raguirre
We concur:
I LA
Hardesty
fre-R-4:t\
CI
Cherry
Voirt
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