Bear Stearns & Co. v. Fulco
| Decision Date | 23 September 2008 |
| Citation | 939 N.Y.S.2d 790,21 Misc.3d 823,2008 N.Y. Slip Op. 28379 |
| Parties | BEAR STEARNS & CO., INC., Petitioner, v. Christopher A. FULCO, Respondent. |
| Court | New York Supreme Court |
OPINION TEXT STARTS HERE
Kramer Levin Naftalis & Frankel LLP, New York City (Kevin B. Leblang of counsel), for petitioner.
Rich & Intelisano, LLP, New York City (Ross B. Intelisano of counsel), for respondent.
Petitioner Bear Stearns & Co. (“Bear Stearns”) moves pursuant to Section 10 of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 10, and CPLR 7511 to vacate an arbitration award of the Financial Industry Regulatory Authority (“FINRA”) formerly the National Association of Securities Dealers (“NASD”), 1 or, in the alternative, to modify the award to the extent it grants respondent $250,000 in attorneys' fees. Respondent Christopher A. Fulco (“Fulco”) opposes the motion and cross moves to confirm the Award.
Fulco is a former employee of Bear Stearns, a broker-dealer and a member of the New York Stock Exchange (“NYSE”) and the NASD. On November 9, 1992, Fulco signed an arbitration agreement that provides, in relevant part, that:
In consideration of employment with Bear Stearns, all employees hereby agreement to submit to final and binding arbitration of any and all claims, controversies of any nature whatsoever and disputes arising out of or related in any way to their employment at Bear Stearns, including by way of employment, cessation of employment....Said arbitration shall be conducted only by a panel of the New York Stock Exchange, Inc., American Stock Exchange, or that National Association of Securities Dealers, Inc., as Bear Stearns' in its sole discretion shall elect....”
The underlying arbitration arises out of Bear Stearns' allegedly wrongful termination of Fulco from his position as a relationship manager in Bear Stearns' Global Clearing Services Department where he earned approximately $100,000 per year. In late 2003, various regulatory authorities began investigating Bear Stearns' involvement with certain clients who were allegedly market-timing mutual funds and making trades after market hours. In February 2004, Fulco was fired for his asserted failure to follow “Firm policy” related to mutual fund trading.
On November 1, 2005, Fulco commenced an arbitration proceeding before the NASD, by filing a Statement of Claim and a Uniform Submission Agreement, under which he agreed to conduct the arbitration in accordance with the rules of the NASD. The Statement of Claim alleged that Bear Stearns terminated Fulco's employment for illegitimate reasons, and that there was no “Firm policy” regarding mutual fund trading, that all trading was approved by senior management, that Bear Stearns marked up Fulco's NYSE Form RE–3 (hereinafter “Form RE–3”) with false and defamatory statements and that, as a result, since his termination he was unable to secure a job on Wall Street. The Statement of Claim alleged that Bear Stearns' improper conduct constituted defamation, tortious interference with business relationships, breach of contract, and breach of securities rules and regulations, and sought compensatory and punitive damages and costs and attorneys' fees, as well as an order that Bear Stearns file an amended Form RE–3, and that the Form RE–3 be expunged from the records of the NYSE.
On February 17, 2006, Bear Sterns filed Uniform Submissions Agreement, agreeing to arbitrate in accordance with the rules of the NASD, and an Answer in which it asserted that it fired Fulco based on his violation of the Firm's policy that broker-dealer clearing clients comply and that Bear Stearns cooperate with requests by mutual funds to discontinue market timing trading, and that Fulco misled lawyers retained by Bear Stearns who were investigating market timing allegations. Bear Stearns' Answer sought dismissal of Fulco's claims and requested costs incurred in defending against that Statement of Claim, including attorneys' fees.
The NASD appointed three neutral arbitrators to hear and decide the dispute. The arbitration included six pre-hearing sessions and seven days of 13 sessions of arbitration hearings over a four month period between April and July 2007. During his opening statement Fulco's counsel specifically requested attorneys' fees. In his opening statement, Bear Stearns' counsel did not withdraw its request for attorneys' fees and told the Panel the case was so flawed that it never should have been brought.2 Bear Stearns filed a motion to dismiss dated April 5, 2007, in which Bear Stearns did not mention its request for attorneys' fees or withdraw such request. Fulco filed his response to the motion on July 13, 2007 and against requested attorneys' fees. By email dated July 20, 2007, counsel to Fulco informed counsel to Bear Stearns that he was (Respondents' Answer to the Petition, Exh. H).
At the July 23, 2007 hearing, Fulco reserved his entire closing argument for rebuttal and thus, Bear Stearns presented its argument first. During closing argument, the only reference to attorneys' fees made by Bear Stearns' counsel was as follows:
I know that [Fulco's attorney] is going to hand up a claim for attorneys' fees. He's going to hand up his cost to the retainer agreement or an affidavit which is fine. Under the law, this Panel can only award attorneys' fees if the underlying claim gives a right to attorneys' fees, and it's the Claimant's responsibility and burden to prove it. But once again, none of these statutes and none of the common law claims even allow attorneys' fees. Again they ask you to ignore the law, and that would leave employers with no guidance whatsoever. So on legal grounds alone, all of these claims have to be dismissed.
In rebuttal, Fulco's attorney asserted that Fulco was entitled to attorneys' fees as New York law provides that if the parties include a demand for attorneys' fees in their submissions to the arbitrators, the parties place the issue of attorneys' fees before the arbitrators and the arbitrators have authority to award such fees. In support of its position, Fulco handed the Panel a copy of Silvester Tafuro Design, Inc. v. Sachs, 1996 WL 257668 (S.D.N.Y.1996), and pointed out that Fulco requested attorneys' fees in its Statement of Claim and Bear Stearns requested attorneys' fees in its Answer. In addition, during closing argument, James McCaffrey, the securities industry member of the Panel, referenced the case of PaineWebber, Inc. v. Bybyk, 81 F.3d 1193, 1202 (2d Cir.1996), as giving the Panel authority to award attorneys' fees.
Fulco also provided the Panel with a summary of the total monetary damages he was requesting and an affirmation by Ross B. Intelisano, Esq., in support of Fulco's application for attorneys' fees and costs. The Intelisano affirmation indicates that Fulco had paid Rich & Intelisano $27,500 in legal fees to date, was responsible for an additional 20% of the first $150,000 awarded, plus 33 1/3% of all sums over $150,000, and that Fulco had incurred $14,271.51 in out-of-pocket expenses and prior legal fees to another law firm in connection with his claims against Bear Stearns.
After Fulco's rebuttal, Bear Stearns' counsel informed the Panel that Bear Stearns was withdrawing its request for attorneys' fees, and handed two cases to the Panel, Matza v. Oshman, Helfenstein & Matza, 33 A.D.3d 493, 823 N.Y.S.2d 47 (1st Dept. 2006), and Stewart Tabori & Chang, Inc. v. Stewart, 282 A.D.2d 385, 723 N.Y.S.2d 492 (1st Dept.), lv. denied, 96 N.Y.2d 718, 730 N.Y.S.2d 791, 756 N.E.2d 79 (2001), and argued that based on these cases, once Bear Stearns withdraws its request for attorneys' fees, the Panel no longer has the authority to award such fees.
The Panel reserved decision on the issue of attorneys' fees including whether to grant Bear Stearns' request to withdraw its claim for such fees.
On October 1, 2007, the Panel issued the Award which directed Bear Stearns “to take all reasonable steps necessary to withdraw its filing of [Fulco's] Form RE3 with the New York Stock Exchange,” awarded Fulco $250,000 in attorneys' fees, and denied all other requests for relief. With respect the award of attorneys' fees, the Award states that The Award further states that “the Panel is awarding attorneys' fees pursuant to case law where the Panel is authorized to grant attorneys' fees when both sides made the request.”
On October 10, 2007, Bear Stearns filed a motion for reconsideration to the Panel seeking to modify the Award on the grounds that Fulco's attorneys did not request $250,000 in fees and therefore the award of this amount was illogical and without basis, or in the alternative, to correct the typographical error in the Award.
In response, Fulco argued that unless the amount of attorneys' fees awarded was a typographical error, Bear Stearns' request to modify the Award must be made to the court and not the Panel. Fulco also asserted that as the matter before the Panel was heavily litigated over a four month period during which the parties engaged in motion practice, extensive document production and participated in six pre-hearing sessions and seven days of arbitration hearings, and as his attorneys had expended 480 hours of legal time, the award of $250,000 for attorneys' fees was logical, reasonable and supportable.
In its reply, Bear Stearns argued that since its request for legal fees was “boilerplate” and as it sought to withdraw its request during closing arguments, it did not acquiesce to the Panel's consideration of attorneys' fees. In his sur-reply, Fulco argued, ...
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