Berger v. Welsh

• Decision Date: 17 March 2014
• Docket Number: No. A13A1782.,A13A1782.
• Citation: 326 Ga.App. 290,756 S.E.2d 545
• Court: Georgia Court of Appeals
• Parties: BERGER v. WELSH.

326 Ga.App. 290

756 S.E.2d 545

BERGER

v.WELSH.

No. A13A1782.

Court of Appeals of Georgia.

March 17, 2014.

Smith, Horvath, John Da Grosa Smith, Atlanta, Matthew Alexander Horvath, for Appellant.

Robinson & Blazer, Gregory Huson Blazer, John E. Robinson, Decatur, for Appellee.

RAY, Judge.

Floyd K. Berger appeals from a trial court order vacating an arbitration award in his favor after an evidentiary hearing before a Financial Industry Regulatory Authority (“FINRA”) arbitrator. He contends that the superior court erred in (1) applying state law, rather than federal law, in its review of the award; (2) vacating the award on the grounds that the arbitrator overstepped his authority and manifestly disregarded the law; (3) ordering a rehearing on the issue of attorney fees and expenses; and (4) denying his cross-motion to confirm the award. For the reasons that follow, we reverse the superior court's decision and remand with instruction that the court confirm the award.

Berger was an employee of Bear Stearns & Co. in Atlanta who held a primarily administrative position with fixed compensation, but also worked on client accounts where compensation was commission-based. He alleged that because he was salaried, the firm's payroll system did not offer a convenient way for him also to receive commissions. With the firm's agreement, he and a Bear Stearns' commission-based financial advisor, John Welsh, agreed that Berger would enter his commission-based production information under Welsh's representative number. Berger alleged that for several years, as per their agreement, Welsh transferred the appropriate portion of commissions to him, but then began to skip payments. In June 2011, after both men had left their jobs at Bear Stearns, Berger filed a statement of claim against Welsh with FINRA's dispute resolution division, alleging, inter alia, breach of contract and unjust enrichment, and seeking attorney fees and an award of approximately $55,000 exclusive of interest, attorney fees, and costs.

During a hearing before a FINRA arbitrator, Welsh moved to dismiss, arguing that the claims had been released in a severance agreement Berger signed with Bear Stearns, in which Berger agreed to release Bear Stearns and its current and former employees from claims arising prior to the date of the release agreements. He further argued that any award would give Berger double recovery, because Berger received severance pay in consideration for signing the releases. The arbitrator denied the motion, and after the hearing, ruled in Berger's favor, finding that Welsh owed him $98,575, which included pre-judgment interest. The arbitrator did not award attorney fees. Welsh filed a motion in the Superior Court of Cobb County to vacate or modify the award, and after a hearing, the superior court vacated the award and ordered a rehearing on Welsh's claim for attorney fees. Berger appeals.

1. Berger first contends that the superior court erred in applying state law, rather than federal law, in its review of his case.

At the outset of the order being appealed, the superior court states that it must determine whether to apply the Georgia Arbitration Code (“GAC”), OCGA § 9–9–1 et seq., or the Federal Arbitration Act (“FAA”), 9 USC § 1 et seq., to the parties' cross motions to vacate or confirm the award. On appeal, Welsh argues that the superior court was correct in deciding the case under the GAC; Berger counters that because this was a FINRA arbitration and involved interstate commerce, the FAA applies. Without deciding whether the underlying dispute involved interstate commerce, the trial court determined that, regardless, the GAC still would apply. We need not engage in a choice of law analysis, however, because under either the FAA or the GAC, the trial court erred in vacating the arbitration award.

“It is well established under both federal and Georgia law that judicial review of an arbitration is among the narrowest known to the law.” (Citations and punctuation omitted.) Malice v. Coloplast Corp., 278 Ga.App. 395, 397, 629 S.E.2d 95 (2006), superseded by statute on other grounds as noted in Murphree v. Yancey Bros. Co., 311 Ga.App. 744, 747 n. 10, 716 S.E.2d 824 (2011). Further, “[b]ecause our state arbitration code closely tracks federal arbitration law, we look to federal cases for guidance in construing our own statutes.” (Citation and punctuation omitted.) Brookfield Country Club, Inc. v. St. James–Brookfield, LLC, 287 Ga. 408, 412(1), 696 S.E.2d 663 (2010) ( Brookfield II ).

The GAC, by its enactment, “repealed common law arbitration in its entirety, and it must, therefore, be strictly construed.” (Footnotes omitted.) Greene v. Hundley, 266 Ga. 592, 594(1), 468 S.E.2d 350 (1996). Thus, it strictly limits the scope of a superior court's review of an arbitrator's award and limits any subsequent appellate review. Id. at 597(3), 468 S.E.2d 350. These limits on a court's power to vacate an arbitration award exist “in order not to frustrate the legislative purpose of avoiding litigation by resort to arbitration. Hence, the [GAC] demands that courts give extraordinary deference to the arbitration process and awards so that the trial court cannot alter the award.” (Citations and punctuation omitted.) Patterson v. Long, 321 Ga.App. 157, 159–160(1), 741 S.E.2d 242 (2013). The GAC provides five exclusive statutory bases for vacatur. Phan v. Andre & Blaustein, LLP, 309 Ga.App. 191, 193(1), 709 S.E.2d 863 (2011). OCGA § 9–9–13(b) provides:

The award shall be vacated on the application of a party who ... participated in the arbitration ... if the [reviewing] court finds that the rights of the party were prejudiced by: (1) Corruption, fraud, or misconduct in procuring the award; (2) Partiality of an arbitrator appointed as a neutral; (3) An overstepping by the arbitrators of their authority or such imperfect execution of it that a final and definite award upon the subject matter submitted was not made; (4) A failure to follow the procedure of this part, unless the party applying to vacate the award continued with the arbitration with notice of this failure and without objection; or (5) The arbitrator's manifest disregard of the law.

The superior court vacated the arbitrator's decision pursuant to the third and fifth factors, finding that the arbitrator overstepped his authority and manifestly disregarded the law.

As under the GAC, the FAA likewise “imposes a heavy presumption in favor of confirming arbitration awards.” (Citation omitted.) Riccard v. Prudential Ins. Co., 307 F.3d 1277, 1288(II)(B) (11th Cir.2002). The grounds for vacatur pertinent to this appeal are defined in 9 USC § 10(a), which provides, in pertinent part, that an award may be vacated

(1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators, or either of them; (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or (4) 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.

“The burden is on the party requesting vacatur of the award to prove one of these four [grounds].” (Citation omitted.) Riccard, supra at 1289(II)(B). As crafted, this appeal involves only the fourth factor of [9 USC] § 10, that is, whether the arbitrator exceeded his powers.

2. Berger argues that the superior court erred in vacating the arbitration award on the grounds that the arbitrator overstepped his authority. The superior court found that the arbitrator overstepped his authority by entering an award in favor of Berger on claims that, according to Welsh, Berger had previously released.

“Overstepping” like the other grounds for vacating arbitration awards is very limited in scope. “Overstepping” has been described as “addressing issues not properly before the arbitrator.” Thus, this ground does not apply where an issue is properly raised before the arbitrator. The limits of an arbitrator's authority are defined by the parties' arbitration agreement.

(Citations and punctuation omitted.) Henderson v. Millner Dev., LLC, 259 Ga.App. 709, 711(1), 578 S.E.2d 289 (2003). Likewise, under the FAA, “arbitrators may exceed their power within the meaning of § 10(a)(4) if they fail to comply with mutually agreed-upon contractual provisions in an agreement to arbitrate.” (Citation and footnote omitted.) Cat Charter, LLC v. Schurtenberger, 646 F.3d 836, 843(II)(A) (2011) (11th Cir.2011). This Court has determined that “[u]nder both federal and Georgia law, arbitration is a matter of contract, meaning that arbitrators derive their authority to resolve disputes only from the parties' agreement.” (Footnote omitted.) Barge v. St. Paul Fire & Marine Ins. Co., 245 Ga.App. 112, 113(1), 535 S.E.2d 837 (2000).

Here, Berger and Welsh apparently had no written agreement that would have provided for arbitration of their dispute over the payment of the commissions. However, after Berger filed his statement of claim with FINRA, Welsh and Berger both signed an agreement to submit the issues in the statement of claim, as well as any answers, cross-claims or counterclaims, to arbitration in accordance with FINRA procedures. The parties' filings addressed, inter alia, breach of contract, unjust enrichment, money had and received, and attorney fees. Welsh specifically raised the defense of release of claims in his answer, and at the arbitration hearing, his counsel moved to dismiss the action based on the existence of the release agreements. FINRA Rule 13504(a)(6)(A) gives an arbitrator the authority to determine whether claims have been released.

The superior court did not find, nor did either side argue,...