Barbee v. Wma Securities, Inc.

• Decision Date: 29 September 2006
• Docket Number: No. 30131/31298.,30131/31298.
• Court: Idaho Supreme Court
• Parties: James K. BARBEE, as assignee of Patricia and John Bentley, Plaintiff-Appellant, and John & Patricia Bentley, husband and wife, Diane Golbeck, Mark Roth, Arian Colachis and the law firm of Golbeck, Roth & Colachis, PLLC, Assignees, Plaintiffs, v. WMA SECURITIES, INC. and John Allen Kenas, Defendants-Respondents. James K. Barbee, as assignee of Patricia and John Bentley, Plaintiff-Appellant-Cross Respondent, and John & Patricia Bentley, husband and wife, Diane Golbeck, Mark Roth, Arian Colachis and the law firm of Golbeck, Roth & Colachis, PLLC, Assignees, Plaintiffs, v. WMA SECURITIES, INC. and John Allen Kenas, Defendants-Respondents-Cross Appellants.

Page 657

146 P.3d 657

143 Idaho 391

James K. BARBEE, as assignee of Patricia and John Bentley, Plaintiff-Appellant, and John & Patricia Bentley, husband and wife, Diane Golbeck, Mark Roth, Arian Colachis and the law firm of Golbeck, Roth & Colachis, PLLC, Assignees, Plaintiffs, v. WMA SECURITIES, INC. and John Allen Kenas, Defendants-Respondents. James K. Barbee, as assignee of Patricia and John Bentley, Plaintiff-Appellant-Cross Respondent, and John & Patricia Bentley, husband and wife, Diane Golbeck, Mark Roth, Arian Colachis and the law firm of Golbeck, Roth & Colachis, PLLC, Assignees, Plaintiffs, v. WMA SECURITIES, INC. and John Allen Kenas, Defendants-Respondents-Cross Appellants.

No. 30131/31298.

Supreme Court of Idaho, Lewiston, April 2006 Term.

September 29, 2006.

James K. Barbee, Seattle, for appellant.

Evans, Craven & Lackie, P.S., Spokane, for respondents. Amy C. Clemmons argued.

TROUT, Justice.

This is a dispute about a claim for attorney fees incurred in arbitration. It is a consolidated action involving (1) an award confirmation proceeding, which included a request for attorney fees; and (2) a subsequent court action filed solely to obtain attorney fees under the Idaho Securities Act (ISA). The main issue is whether a pre-arbitration lawsuit must be filed to obtain attorney fees under I.C. § 30-1446.¹

I. FACTUAL AND PROCEDURAL BACKGROUND

This dispute arose after two Idaho residents, John and Patricia Bentley (the Bentleys), were convinced by WMA Securities, Inc., a securities broker-dealer, and James Kenas, one of its brokers (collectively, WMA), to mortgage their home to purchase what were later alleged to be unsuitable investments. The arbitration provision in the contract between the Bentleys and WMA directs as follows:

[T]hat unless unenforceable due to federal or state law, any controversy arising out of or related to ... the transactions with WMA ... shall be settled by arbitration in accordance with [NASD rules]. Such arbitration shall follow the procedures as set forth by a national arbitration committee of the NASD.

The arbitration provision makes no mention of attorney fees or Idaho law.

Pursuant to the contract, the Bentleys filed a statement of claim with the National Association of Securities Dealers, Inc. (NASD) against WMA, seeking approximately $2 million in damages for violations of federal and Idaho securities laws, emotional distress, breach of promise, breach of fiduciary duty, and a violation of the Idaho Racketeering Act. The Bentleys did not initiate any litigation prior to their commencement of arbitration.

The Bentley's sought attorney fees in their claim statement. In the proceedings before the NASD, however, the Bentleys apparently withdrew their attorney fees request. Likewise, WMA asserted the panel was not authorized to award attorney fees absent an express provision in the arbitration agreement to the contrary. WMA therefore withdrew its claim for attorney fees because it believed such a claim was precluded under Idaho law and neither the NASD submission agreements nor the applicable NASD code provisions specifically provided for the recovery of attorney fees.

The NASD proceedings took place in Oregon. The arbitrators awarded $42,000 in damages to the Bentleys, summarizing the Bentley's claims as "all in violation of the Idaho Securities Law and analogous federal provisions." Damages were awarded against WMA "on [the Bentley's] unsuitability claims." Addressing the attorney fee issue, the arbitration panel noted neither party was seeking an award of attorney fees. Under the heading "Award" in the arbitration award, the panel directed, "Each party shall bear its own litigation costs, including attorneys' fees." WMA timely paid the amount of the award.

The first appeal: The award confirmation proceedings

The Bentleys sought fees and costs in the district court through a motion for confirmation of the arbitration award. They asked the district court to modify the award with respect to attorney fees, claiming that because the issue had not been presented to the panel, it was improper for them to direct each party to bear their own attorney fees. The Bentleys argued that though the NASD panel did not have the power to award attorney fees, I.C. § 30-1446 authorized the recovery of fees and costs through an award confirmation proceeding.

In its order, the district court concluded the arbitrators did not have the authority to award or deny attorney fees due to I.C. § 7-910.² Consequently, the court deleted the words "including attorney's fees" from the award pursuant to I.C. § 7-913(2). The district court determined the panel did have the authority to award or deny costs, however, and there were not sufficient grounds to change that portion of the arbitrators' decision. Citing Wolfe v. Farm Bureau Ins. Co., 128 Idaho 398, 913 P.2d 1168 (1996), the district court concluded attorney fees could not be awarded through a motion to confirm an arbitration award. The Bentleys timely appealed.

The second appeal: The separate court action

The Bentleys proceeded to file a separate court action solely to obtain attorney fees under I.C. § 30-1446. WMA argued Idaho case law prohibits an action for attorney fees after arbitration is concluded. Both parties filed summary judgment motions.

In ruling on those motions, the district court noted the issue of attorney fees was not barred by res judicata because that issue was not, and could not have been, litigated by the panel. The district court ruled, however, that the gravamen of the Bentleys' claims for violations of the ISA were resolved in arbitration such that the commencement of an action for attorney fees after the arbitration was no longer supported by the ISA. As a result, the district court granted WMA's motion for summary judgment.

The Bentleys then assigned their rights in connection with their claims against WMA to their attorneys.³ The Bentleys appealed, arguing they were entitled to bring a separate action for attorney fees under I.C. § 30-1446. The two appeals have been consolidated.

II. STANDARD OF REVIEW

The standard of review of the district court's ruling on summary judgment motions is the same as that of the district court when ruling on the motions. American Foreign Insurance Co. v. Reichert, 140 Idaho 394, 398, 94 P.3d 699, 703 (2004). Summary judgment is proper "if the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." I.R.C.P. 56(c).

When reviewing the district court's decision to vacate or modify an award, this Court is limited to determining whether any grounds for relief stated in the Idaho Uniform Arbitration Act exist. Moore v. Omnicare, Inc., 141 Idaho 809, 813, 118 P.3d 141, 146 (2005); I.C. § 7-912 (vacating an award); I.C. § 7-913 (modifying an award). "An arbitrator's rulings on questions of law and fact are binding, even where erroneous, unless one of the enumerated statutory grounds is present." Moore, 141 Idaho at 815, 118 P.3d at 147.

The issue of whether I.C. § 30-1446 allows for an award of attorney fees in an award confirmation proceeding or a separate court action where no pre-arbitration suit was filed involves a question of statutory interpretation. "An interpretation of a statute is a question of law over which the Court exercises free review." State v. Quick Transport, Inc., 134 Idaho 240, 244, 999 P.2d 895, 899 (2000). "If the statutory language is clear and unambiguous, the Court need merely apply the statute without engaging in any statutory construction." Id. If, however, it is necessary for the Court to interpret a statute, then it will attempt to ascertain legislative intent. Id. In construing a statute, this Court may examine the language used, the reasonableness of the proposed interpretations, and the policy behind the statute. Id.

III. DISCUSSION

The principal issues on appeal include (1) whether attorney fees may be awarded in an award confirmation proceeding; and (2) whether an action may be filed without any claim for damages, simply to assert a request for attorney fees. We will also consider whether the district court properly refused to modify the award with respect to costs. Lastly, we will address attorney fees incurred in the district court proceedings and on appeal.

A. Attorney fees incurred in arbitration

At the outset, we note that both parties address the issue of whether the arbitrators found the Bentleys prevailed on their ISA claims as opposed to their common law claims. The ISA provides a basis for the award of attorney fees in certain circumstances, while there may be no basis for such an award for the common law claims. While the district court determined the Bentleys prevailed on their ISA claims before the arbitrators, given our interpretation of the ISA, we need not resolve the issue. As will be discussed below, even if the Bentleys prevailed on their ISA claims, the district court correctly ruled the Bentleys were not entitled to pursue fees in either the award confirmation proceedings or the subsequent court action.

1. Award confirmation proceedings

The district court determined attorney fees for ISA violations could not be awarded in confirmation proceedings absent an underlying action before the court. Idaho Code section 30-1446 addresses the civil liability of an ISA violator as follows:

Any person who [violates certain ISA provisions] is liable to the person buying the security from him, who shall be entitled to sue either at law or in equity to recover the consideration paid for the security, together with interest at six percent (6%) per annum from the date of payment, costs and reasonable attorneys' fees, less the amount of any income received on the security, upon the tender of the security, or for damages if he no longer owns the security....

I.C. §...