Wachovia Sec., LLC v. Brand

• Decision Date: 16 February 2012
• Docket Number: No. 10–2111.,10–2111.
• Citation: 671 F.3d 472,33 IER Cases 679
• Parties: WACHOVIA SECURITIES, LLC, a Delaware Corporation and successor in interest to AG Edwards & Sons, Inc., Plaintiff–Appellant, v. Frank J. BRAND, II, individual; Marvin Slaughter, individual; Stephen N. Jones, individual; George W. Stukes, individual, Defendants–Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

33 IER Cases 679

671 F.3d 472

WACHOVIA SECURITIES, LLC, a Delaware Corporation and successor in interest to AG Edwards & Sons, Inc., Plaintiff–Appellant,

v.Frank J. BRAND, II, individual; Marvin Slaughter, individual; Stephen N. Jones, individual; George W. Stukes, individual, Defendants–Appellees.

No. 10–2111.

United States Court of Appeals, Fourth Circuit.

Argued: Dec. 8, 2011.Decided: Feb. 16, 2012.

ARGUED: Stephen Montgomery Cox, Robinson, Brad–Shaw & Hinson P.A., Rock Hill, South Carolina, for Appellant. Joseph A. Dougherty, Buchanan, Ingersoll & Rooney, PC, Philadelphia, Pennsylvania, for Appellees. ON BRIEF: J. Rene Josey, Turner Padget Graham & Laney, P.A., Florence, South Carolina; Andrew J. Shapren, Buchanan, Ingersoll & Rooney, PC, Philadelphia, Pennsylvania, for Appellees.

Before DUNCAN, DAVIS, and WYNN, Circuit Judges.

Affirmed by published opinion. Judge DUNCAN wrote the opinion, in which Judge DAVIS and Judge WYNN joined.

OPINION

DUNCAN, Circuit Judge:

Wachovia Securities, LLC (“Wachovia”) ¹ appeals from the district court's refusal to vacate an arbitration award entered against it after it sued several former employees on what the arbitrators determined were frivolous claims. Wachovia argues that the arbitrators (the “Panel”) violated § 10(a)(3) of the Federal Arbitration Act (the “FAA”) and “manifestly disregarded” the law when they awarded $1.1 million in attorneys' fees and costs under the South Carolina Frivolous Civil Proceedings Act (the “FCPA”), codified at S.C.Code Ann. § 15–36–10. For the reasons that follow, we affirm.

I.

A.

Wachovia initiated an arbitration proceeding by filing a Statement of Claim with the Financial Industry Regulatory Authority (“FINRA”) ² against four former employees—Frank J. Brand, Stephen N. Jones, Marvin E. Slaughter, and George W. Stukes (collectively, the “Former Employees”)—on June 27, 2008. The Former Employees, all individual financial advisors, were previously employees of A.G. Edwards & Sons, Inc. (“A.G. Edwards”), which merged with Wachovia on October 1, 2007. After the merger, the Former Employees became employees of Wachovia's Florence, South Carolina branch office. Wachovia terminated their employment on June 26, 2008. Following their termination by Wachovia, the Former Employees went to work for a competitor brokerage firm, Stifel Nicolaus & Co., Inc. (“Stifel”).

In the arbitration proceeding, Wachovia alleged that the Former Employees had violated their contractual and common law obligations when they joined Stifel. ³ Specifically, Wachovia claimed that the Former Employees conspired with Stifel to open a competitor office in Florence, South Carolina, and that they had misappropriated confidential and proprietary information in the process. Wachovia further complained that the Former Employees were soliciting current Wachovia clients and employees to join their new firm. In addition, Wachovia sought a permanent injunction, the return of records, and an award of costs and attorneys' fees associated with the arbitration. It repeated these requests in its amended Statement of Claim filed on July 23, 2008.

The Former Employees' Answer described this dispute as “meritless” and an effort “to punish former [A.G. Edwards] employees for leaving in the wake of Wachovia's acquisition of A.G. Edwards, to intimidate and deter its current employees from making similar decisions, to prevent customers from obtaining information necessary to make an informed decision as to whether the customer wishes to do business, and to otherwise stifle legitimate competition.” J.A. 460. The Former Employees requested that the Panel award them attorneys' fees and costs incurred in defending themselves “from Wachovia's baseless and unwarranted claims.” J.A. 461. They also asserted counterclaims under the South Carolina Wage Payment Act (“Wage Act”), codified at S.C.Code Ann. § 41–10–80, and the common law doctrines of unjust enrichment and conversion. They did not assert any claims under the FCPA.

The arbitration proceeded before a panel of three arbitrators in accordance with FINRA's rules for “industry disputes.” See FINRA R. 13000. The first month of arbitration proceedings, during which both sides presented evidence, was unremarkable. Then, on October 22, 2009, the panel asked the parties to submit accountings or proposals regarding requested attorneys' fees, forum fees, expert fees and any costs or expenses during the final two days of hearings, scheduled for November 23 and 24, 2009. Wachovia requested that the parties brief the fees issues and the Panel agreed, asking that the parties submit their briefs by November 23. There was no discussion of response briefs.

Despite the deadline, Wachovia was unprepared to submit its brief on fees on November 23, 2009 and requested a one-day extension.⁴ The Panel permitted the extension, and the parties therefore submitted their briefs on November 24, 2009, the last planned day of hearings. Both parties' briefs contained new arguments regarding attorneys' fees. Wachovia argued, despite its own request for attorneys' fees in its Statement of Claim, that under the South Carolina Arbitration Act, neither party was entitled to attorneys' fees. The Former Employees argued for the first time that they were entitled to attorneys' fees under the FCPA.

As its name suggests, the Frivolous Civil Proceeding Act provides a mechanism for litigants to seek sanctions against attorneys who file frivolous claims. It contains a number of procedural safeguards for litigants facing sanctions. Significantly for our purposes, the statute provides for a notice period affording the accused 30 days to respond to a request for sanctions and a separate hearing on sanctions after the verdict. S.C.Code Ann. § 15–36–10(C)(1). No such procedures were followed here.

Upon learning that the Former Employees were seeking sanctions under the FCPA, Wachovia expressed concern that the arbitrators were not affording them 30 days' response time or a post-verdict hearing on the issue of fees. Toward the end of the hearing on November 24, the chairman of the Panel asked Wachovia if “you have been given a fair opportunity to present your case in its entirety in these proceedings.” J.A. 201. Wachovia responded that it had not been given a fair opportunity with respect to “the issues raised and argued as to attorneys' fees.” J.A. 201–02. The Panel then asked whether additional briefing would cure the concerns. Wachovia replied:

I don't know. Because the standard and the [FCPA] from what I saw, there's notice and opportunity to be heard. So that means in other words, we need some evidence. That's why I don't think it's appropriate at the end, after our record is closed, that new issues have been injected. The statute is not referred to in the pleadings. So it's not just the element of surprise. It's a complete surprise.

J.A. 202–B.

After listening to Wachovia's objections to the Panel reaching any decision on the issue of attorneys' fees, the Panel stated: “The issue on attorneys' fees, I'm sure there will be something that will occur to the panel where we need to seek clarification from parties. And if that becomes necessary, be assured we will be in touch with you.” J.A. 203–B. The Panel subsequently asked the parties for an accounting of their November fees but did not hold any additional hearings or request additional briefing. Nor, however, did Wachovia request additional briefing.

On December 18, 2009, the Panel issued an award in which it denied all of Wachovia's claims. It awarded the Former Employees $15,080.67 in treble damages on their Wage Act claims, as well as $1,111,553.85 for attorneys' fees under the FCPA. Although the Former Employees had also sought attorneys' fees under several South Carolina statutes, the Panel awarded them fees only under the FCPA and indicated that “any and all claims not specifically addressed herein” were denied. J.A. 86.

B.

Following arbitration, the Former Employees filed a motion to confirm the Panel's award in the District of South Carolina. Wachovia filed its own motion to vacate that portion of the Panel's award granting relief to the Former Employees on January 19, 2010. It argued for vacatur on two grounds. First, it contended that the Panel exceeded its authority and manifestly disregarded the law under 9 U.S.C. § 10(a)(4) by awarding sanctions under the FCPA, for, inter alia, ignoring the FCPA's conditions precedent. To further support its argument that the Panel violated § 10(a)(4), Wachovia argued that the FCPA authorized a “court” to award fees after a “verdict” in a “trial” and was therefore inapplicable in arbitration proceedings since there is no “court” or “trial.” Second, it contended that the Panel “deprived Wachovia of a fundamentally fair hearing, by denying [it] the procedural safeguards guaranteed by the FCPA and by not allowing [it] to review (much less rebut) critical evidence that [the Former Employees] submitted to the Panel in support of their fee claim.” J.A. 94. Wachovia claimed that this denial provided grounds for vacatur under § 10(a)(3). The district court considered these claims in turn.

The district court began by rejecting Wachovia's argument that the arbitrators violated § 10(a)(4), which allows a district court to vacate an arbitration award “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 U.S.C. § 10(a)(4). It reasoned that arbitrators violate this provision when they decide issues not properly before them. Since the record supported the conclusion that the question of fees was properly before the Panel, the district court held that they had not violated § 10(a)(4).

The district court also disagreed with Wachovia's argument that a statute must mention arbitration in order to be applicable in arbitration. It further rejected Wachovia's claim that the language...