Credit Suisse Sec. (U.S.), LLC v. Galli

• Decision Date: 11 August 2022
• Docket Number: 21-P-486
• Parties: CREDIT SUISSE SECURITIES (USA) LLC v. JONATHAN J. GALLI & others.[1]
• Court: Appeals Court of Massachusetts

CREDIT SUISSE SECURITIES (USA) LLC v. JONATHAN J. GALLI & others.^[1]

No. 21-P-486

Appeals Court of Massachusetts

August 11, 2022

NOTICE: Summary decisions issued by the Appeals Court pursuant to M.A.C. Rule 23.0, as appearing in 97 Mass.App.Ct 1017 (2020) (formerly known as rule 1:28, as amended by 73 Mass.App.Ct. 1001 [2009]), are primarily directed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover such decisions are not circulated to the entire court and therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 23.0 or rule 1:28 issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above not as binding precedent. See Chace v. Curran, 71 Mass.App.Ct. 258, 260 n.4 (2008).

MEMORANDUM AND ORDER PURSUANT TO RULE 2 3.0

The plaintiff, Credit Suisse Securities (USA) LLC (employer), appeals from a judgment of the Superior Court affirming, and denying a petition to vacate or modify, an arbitration award issued by a panel of the Financial Industry Regulatory Authority (panel). The parties dispute whether the panel had the authority to award attorney's fees to the defendants, Jonathan J. Galli, Paul T. Connolly, Christopher L. Herlihy, and Alexander V. Martinelli (collectively, employees).^[2]We conclude that the authority of the arbitrators did not include an award of attorney's fees except upon a finding of a violation of the Massachusetts Wage Act, G. L. c. 149, § 150 (wage act). The panel explicitly based the award of attorney's fees on other grounds, which were outside its authority. The award of attorney's fees, however, could be supported by a violation of the wage act, and the panel's decision is silent concerning this ground. Accordingly, we remand the matter for further proceedings.

1. Judicial review of arbitration award.

"[A]n arbitration award is subject to a narrow scope of review." Springfield v. United Pub. Serv. Employees Union, 8 9 Mass.App.Ct. 255, 257 (2016), quoting Lynn v. Lynn Police Ass'n, 455 Mass. 590, 596 (2010). See American Fed'n of State, County, and Mun. Employees, Council 93, AFL-CIO v. School Pep't of Burlington, 462 Mass. 1009, 1010 (2012). Under G. L. c. 251, §§ 12-13, a court may vacate, modify, or correct an arbitration award in limited circumstances. See Katz, Nannis & Solomon, P.C. v. Levine, 473 Mass. 784, 793 (2016) (Katz), quoting G. L. c. 251, § 11. One of those limited circumstances, "whether an arbitrator acted in excess of his authority[,] is always open for judicial review." Northern Assur. Co. of Am. v. Payzant, 80 Mass.App.Ct. 223, 226 (2011), quoting Boston Hous. Auth. v. National Conference of Firemen & Oilers, Local 3, 458 Mass. 155, 161 (2010). See Beacon Towers Condominium Trust v. Alex, 473 Mass. 472, 475 (2016), quoting Superadio Ltd. Partnership v. Winstar Radio Prods., LLC, 446 Mass. 330, 334 (2006). "An arbitrator exceeds his or her authority by granting relief that is beyond the scope of the arbitration agreement, beyond that to which the parties bound themselves, or prohibited by law." Katz, supra at 795. Under G. L. c. 251, § 13, the court may modify or correct an arbitration award if "the arbitrators have awarded upon a matter not submitted to them and the award may be corrected without affecting the merits of the decision upon the issues submitted." See Katz, supra at 790 n.9.

2. Arbitration award of attorney's fees.

a. Overview.

"[A]ttorneys' fees are unavailable in arbitration save under limited circumstances." Matza v. Oshman, Helfenstein & Matza, 823 N.Y.S.2d 47, 48-49 (N.Y.App.Div. 2006). See Beacon Towers Condominium Trust, 473 Mass. at 475 (G. L. c. 251, § 10, prohibits attorney's fees "unless the parties have entered into an agreement authorizing the award of such fees" or "a party prevails on a statutory claim in which the statute mandates the recovery of attorney's fees by the prevailing party"). Contrast Central Ceilings, Inc. v. Suffolk Constr. Co., 93 Mass.App.Ct. 207, 214 (2018) (arbitrator did not exceed his authority in calculating pre-award interest below statutory rate because "arbitrators are authorized to grant pre-award interest" and "have substantial discretion" in fashioning remedies). Under New York law, by which the parties agreed to be bound, an arbitrator may award attorney's fees if (1) "it was authorized by an express provision in the agreement," (2) "it is 'unmistakably clear' that both parties intended such an award," or (3) "a statute provides for such an award." Steyn v. CRTV, LLC, 103 N.Y.S.3d 415, 420 (N.Y.App.Div. 2019).

b. Contract.

"[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he [or she] has not agreed so to submit." Monarch Consulting, Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, 26 N.Y.3d 659, 674 (2016), quoting AT&T Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 648 (1986). "When deciding whether the parties agreed to arbitrate a certain matter . . . courts generally . . . should apply ordinary state-law principles that govern the formation of contracts." Monarch Consulting, Inc., supra at 675, quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995).

Here, the underlying contract (the employer's "Employment Dispute Resolution Program" manual) states, "The law applied by a mediator or arbitrator(s) will be the laws of the State of New York." The contract further provides that arbitrators must adhere to the applicable law concerning attorney's fees and other remedies, and that the arbitrators "will have no authority either to abridge or to enlarge substantive rights available under existing law." In their submission agreement, the parties submitted the instant matter, including the "statement of claim, answers, and all related cross claims, counterclaims and/or third-party claims which may be asserted, to arbitration." They did not, however, submit the issue of attorney's fees to arbitration. Accordingly, the panel's award cannot be justified by the language in the contract or the submission agreement. Cf. Katz, 473 Mass. at 797 (motion judge did not err in awarding attorney's fees where "agreement provided that 'the cost of enforcing any judgment entered by the arbitrator [including reasonable attorney's fees] shall be borne by the party against whom such award was made'").

c. Unmistakably clear agreement to arbitrate.

i. Arbitration of arbitrability.

"[T]he general presumption is that the issue of arbitrability should be resolved by the courts." Alliance Bernstein Inv. Research & Mgt., Inc. v. Schaffran, 445 F.3d 121, 125 (2d Cir. 2006) (Alliance Bernstein). Parties may, however, "agree to arbitrate 'gateway' questions of 'arbitrability,' such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy." Revis v. Schwartz, 140 N.Y.S.3d 68, 74-75 (N.Y.App.Div. 2020), quoting Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 68-69 (2010). To do so, the parties must "'clearly and unmistakably' agree[] to arbitrate arbitrability." Monarch Consulting, Inc., 26 N.Y.3d at 676, quoting AT&T Techs., Inc., 475 U.S. at 649. Accord Boursiquot v. United Healthcare Servs. of Delaware, Inc., 98 Mass.App.Ct. 624, 627 (2020). "[A]bsent an express agreement" to this effect, questions of arbitrability are for judicial determination. John Hancock Life Ins. Co. v. Wilson, 254 F.3d 48, 57 (2d Cir. 2001).

In their opposition to the employer's motion to vacate, the employees argued that the panel "had exclusive authority under the [Financial Industry Regulatory Authority (FINRA)] Rules both to determine 'any dispute, claim or controversy' between [the employees] and Credit Suisse and to interpret the scope of its own authority." The employees cited FINRA rules 13200 and 13413 for support. At the motion hearing, the employees restated this argument, citing FINRA rule 13200. The employees then reiterated this argument in their sur-reply, citing these two rules and FINRA rule IM-13000.

On appeal, the employees argue in passing that the parties submitted the question of arbitrability to the panel by agreeing to be bound by the FINRA rules, and thus we must defer to the panel's determination that the parties agreed to submit the award of attorney's fees to the panel, even if plainly erroneous. Relying on an unpublished case, the employees claim that the FINRA rules establish a clear and unmistakable agreement to arbitrate arbitrability. The employees do not point to a specific rule for support.^[3]

We are not aware of any New York or Second Circuit case stating that incorporation of the FINRA rules provides clear and unmistakable intent to arbitrate questions of arbitrability. Moreover, the FINRA rules that the employees cited in the Superior Court do not support this claim. FINRA rule 13200(a) states, "Except as otherwise provided in the Code, a dispute must be arbitrated under the Code if the dispute arises out of the business activities of a member or an associated person and is between or among: Members; Members and Associated Persons; or Associated Persons."^[4] FINRA rule IM-13000(a) states that a violation of this rule is "inconsistent with just and equitable principles of trade." FINRA rule 13413 states, "The panel has the authority to interpret and determine the applicability of all provisions under the Code. Such interpretations are final and binding upon the parties." These provisions do not suggest, let alone clearly and unmistakably show, that questions of arbitrability are for the arbitrator, rather than the court, to decide.

This conclusion is unaltered by New York case law...