Barrett v. Investment Management Consults.

• Decision Date: 12 June 2008
• Docket Number: No. 07CA0337.,07CA0337.
• Citation: 190 P.3d 800
• Parties: David D. BARRETT, individually and on behalf of his individual retirement accounts, Petitioner-Appellee, v. INVESTMENT MANAGEMENT CONSULTANTS, LTD., and Richard L. Behr, Jr., Respondents-Appellants.
• Court: Colorado Court of Appeals

190 P.3d 800

David D. BARRETT, individually and on behalf of his individual retirement accounts, Petitioner-Appellee, v. INVESTMENT MANAGEMENT CONSULTANTS, LTD., and Richard L. Behr, Jr., Respondents-Appellants.

No. 07CA0337.

Colorado Court of Appeals, Div. V.

June 12, 2008.

Pendleton, Friedberg, Wilson & Hennessey, P.C., Alan C. Friedberg, Denver, Colorado, for Petitioner-Appellee.

Davis Graham & Stubbs, LLP, Victoria V. Johnson, Rudy E. Verner, Denver, Colorado, for Respondents-Appellants.

Opinion by Judge VOGT.

Respondents, Investment Management Consultants, Ltd., and Richard L. Behr, Jr., appeal the district court judgment confirming an arbitration award in favor of petitioner, David D. Barrett. We affirm and remand for an award of attorney fees to Barrett.

In 2000, Barrett engaged respondents to provide investment advice and manage his individual retirement accounts. The parties' investment management agreement set forth respondents' duties and provided that any disputes between the parties would be settled by arbitration. While the agreement included a paragraph stating that it was to be interpreted in accordance with Colorado law, the arbitration provision of the agreement stated: "This arbitration agreement shall be enforced and interpreted exclusively in accordance with applicable federal law, including the Federal Arbitration Act." The agreement contained no provision regarding an award of attorney fees in the event of arbitration.

A dispute arose between the parties after the value of Barrett's portfolio declined significantly. In 2004, the parties submitted the dispute to a National Association of Securities Dealers (NASD) arbitration panel in accordance with their agreement. Barrett asserted claims for violation of the Colorado Securities Act (CSA), section 11-51-501(1)(b), C.R.S.2007; breach of fiduciary duty; and breach of contract. In addition to compensation for his financial losses, Barrett sought recovery of his attorney fees on his CSA claim. Respondents denied liability and asked for an award of their attorney fees and costs incurred in defending against Barrett's claims.

Following a hearing, the arbitration panel ordered respondents to pay Barrett $221,100, with interest at eight percent per annum from the date of the award, as compensatory damages. They also awarded Barrett attorney fees in the amount of $187,000. Barrett then filed a motion in the district court to confirm the arbitration award. Respondents objected and filed a motion to vacate the award, arguing, as relevant here, that the arbitration panel exceeded its power when it awarded attorney fees because the parties had not agreed to allow the arbitrators to make such award. Respondents also contended that Barrett was not entitled to eight percent per annum postjudgment interest on the attorney fee portion of the arbitration award.

The trial court granted Barrett's motion to confirm the arbitration award and entered judgment against respondents for $408,121, "plus interest at the rate of 8% per annum on $221,121.00 from August 8, 2006 [the date of the arbitration award], to the date of this judgment in the amount of $3,877.19, for a total of $411,998.19." The court further ordered: "Post-judgment interest shall accrue on any unpaid amount of the judgment at the statutory rate from this date until paid."

I.

Respondents contend the district court erred in confirming the arbitration award because the arbitration panel exceeded its authority by awarding attorney fees to Barrett. We disagree.

Under both the Federal Arbitration Act (FAA) and the version of the Uniform Arbitration Act (UAA) in effect in Colorado at the time of the proceedings here, a court may decline to confirm an arbitration award only in limited circumstances — including, as relevant here, where the arbitrators "exceeded their powers." See 9 U.S.C. § 10(a)(4) (2000 & Supp. II 2003); Ch. 154, sec. 1, § 13-22-214(1)(a)(III), 1975 Colo. Sess. Laws 576; Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. ___, ___, 128 S.Ct. 1396, 1402-03, 170 L.Ed.2d 254 (2008); State Farm Mutual Automobile Insurance Co. v. Cabs, Inc., 751 P.2d 61, 66 (Colo.1988).

We review de novo the district court's legal conclusions on a motion to confirm or vacate an arbitration award. Rocha v. Financial Indemnity Corp., 155 P.3d 602, 604 (Colo.App.2006); see also Hollern v. Wachovia Securities, Inc., 458 F.3d 1169, 1172 (10th Cir.2006) (in reviewing district court order vacating arbitration award, appellate court reviews factual findings for clear error and legal determinations de novo; however, court must nevertheless give extreme deference to arbitration panel's determination, "for the standard of review of arbitral awards is among the narrowest known to law" (quoting Brown v. Coleman Co., 220 F.3d 1180, 1182 (10th Cir.2000))). Under the FAA, errors in an arbitration panel's interpretation or application of the law are generally not reversible absent a showing that the arbitrators acted in "manifest disregard of the law." Hollern, 458 F.3d at 1176.

We conclude the arbitrators did not exceed their authority in awarding attorney fees to Barrett.

Although respondents argue that it is "unclear" whether the fee award was based on Barrett's securities act claim or on his common law claims, the record shows that Barrett requested such fees only on his CSA claim. Section 11-51-604(3) & (5), C.R.S. 2007, of the CSA permits an assessment of attorney fees against one who "recklessly, knowingly, or with an intent to defraud . . . provides investment advisory services to another person in violation of section 11-51-501(5) or (6)." Thus, attorney fees were available under this section if the requisite factual showing was made.

The fact that the arbitrators mistakenly referenced an inapplicable UAA provision section 13-22-221, C.R.S.2007 (permitting attorney fee award in UAA arbitrations after the statute's August 4, 2004, effective date), did not require the district court to vacate the award, because such fees could properly be awarded under federal law, which governed the arbitration proceedings. See Pyle v. Securities U.S.A., Inc., 758 F.Supp. 638, 640 (D.Colo.1991) (arbitrators were authorized to award attorney fees under CSA in arbitration proceeding governed by FAA).

In arguing for a contrary conclusion, respondents point out that they had not agreed that attorney fees could be awarded, and they rely on Colorado cases holding that attorney fees may not be awarded in arbitration proceedings absent such agreement. See Carson v. PaineWebber, Inc., 62 P.3d 996, 1000-01 (Colo.App.2002); Camelot Investments, LLC v. LANDesign, LLC, 973 P.2d 1279, 1281 (Colo.App.1999); Compton v. Lemon Ranches, Ltd., 972 P.2d 1078, 1079-80 (Colo.App.1999).

These cases were decided under the pre-2004 version of the Colorado UAA. See Ch. 154, sec. 1, § 13-22-212, 1975 Colo. Sess. Laws 575 ("Unless otherwise provided in the agreement to arbitrate, the arbitrators' expenses and fees, together with other expenses, not including counsel fees, incurred in the conduct of the arbitration shall be paid as provided in the award." (emphasis added)). None indicate that they involved arbitrations governed by the FAA. Thus, the cases are inapplicable here, where the arbitration is governed by "applicable federal law, including" the FAA. See Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University, 489 U.S. 468, 479, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989) (parties are free to choose in their arbitration agreement whether federal law or state law will apply in the arbitration proceedings).

The parties' choice of the law that will apply to the arbitration proceeding controls the arbitration even where, as here, the agreement provides that a different law will govern the substantive rights and duties of the parties. See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 64, 115 S.Ct. 1212, 131 L.Ed.2d 76 (1995) ("[T]he choice-of-law provision covers the rights and duties of the parties, while the arbitration clause covers arbitration . . . ."); see also 1745 Wazee LLC v. Castle Builders Inc., 89 P.3d 422, 424 (Colo.App.2003) (as in Mastrobuono, choice-of-law clause in parties' contract related only to Colorado substantive law; FAA applied with respect to arbitration procedures); Padilla v. D.E. Frey & Co., 939 P.2d 475, 478 (Colo.App.1997) (relying on Mastrobuono to conclude that arbitrators could award punitive damages even though Colorado substantive law would not allow such damages, where parties agreed that arbitration proceedings would be conducted in accordance with NASD code, which permitted arbitrators to award such damages).

Under federal law, arbitrators may award attorney fees even absent an express agreement by the parties. See PaineWebber Inc. v. Bybyk, 81 F.3d 1193, 1202 (2d Cir. 1996) (although agreement provided that it would be governed by New York law, under which claim for attorney fees could not be submitted to arbitrator "unless expressly provided," that choice of law provision would "not be construed to impose substantive restrictions on the parties' rights under the Federal Arbitration Act, including the right to arbitrate claims for attorneys' fees"; thus, investor's claim against brokerage firm for attorney fees was subject to arbitration); Intercity Co. Establishment v. Ahto, 13 F.Supp.2d 253, 263-64 (D.Conn.1998) (in proceeding under FAA, "[a]bsent a provision in the arbitration agreement foreclosing attorney's fees as a remedy, respondents were not precluded from seeking fees and there was nothing improper in their award"); Porush v. Lemire, 6 F.Supp.2d 178, 186 (E.D.N.Y.1998) (arbitrators in NASD arbitration governed by FAA did not exceed their authority by awarding attorney fees, even though New York law barred arbitrators from awarding such fees); Mutual Service Corp. v. Spaulding, 972 F.Supp. 1126, 1127 (N.D.Ill.1997) (arbitrators' attorney...