Hollern v. Wachovia Securities, Inc.

• Decision Date: 16 August 2006
• Docket Number: No. 05-1253.,No. 05-1300.,05-1253.,05-1300.
• Citation: 458 F.3d 1169
• Parties: Susan P. HOLLERN, as trustee of and on behalf of the other William H. Price, II Trust, Plaintiff-Appellee, v. WACHOVIA SECURITIES, INC.; Randy S. Russell, Defendants-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

458 F.3d 1169

Susan P. HOLLERN, as trustee of and on behalf of the other William H. Price, II Trust, Plaintiff-Appellee, v. WACHOVIA SECURITIES, INC.; Randy S. Russell, Defendants-Appellants.

No. 05-1253.

No. 05-1300.

United States Court of Appeals, Tenth Circuit.

August 16, 2006.

Michael N. Ungar (William D. Nelson, Craig R. Welling, Rothgerber, Johnson & Lyons, LLP, Denver, CO, with him on the briefs), Ulmer & Berne, LLP, Cleveland, OH, for Defendants-Appellants.

James D. Kilroy, Snell & Wilmer, L.L.P., Denver, CO, for Plaintiff-Appellee.

Before MURPHY, BALDOCK, and McCONNELL, Circuit Judges.

MURPHY, Circuit Judge.

I. Introduction

Plaintiff-Appellee Susan Hollern initiated arbitration proceedings against Defendants-Appellants Wachovia Securities, Inc. and its employee, Randy Russell (collectively "Wachovia"). Hollern claimed Wachovia was negligent and breached its fiduciary duty in managing the William H. Price, II Trust ("Trust"), for which Hollern acted as successor trustee. Both parties sought attorneys' fees in their arbitration pleadings and submitted motions requesting attorneys' fees at the conclusion of the arbitration hearing. The arbitrators denied Hollern's claims in their entirety and awarded attorneys' fees to Wachovia. Hollern subsequently sought to have the district court set aside the attorneys' fees' portion of the arbitral award. Concluding the parties did not expressly agree to submit the issue of attorneys' fees to arbitration and the arbitrators misapplied the relevant law, the district court vacated the attorneys' fees' portion of the award. Wachovia appeals. We have jurisdiction pursuant to 28 U.S.C. § 1291. Because the arbitrators did not exceed their powers or manifestly disregard the law in awarding attorneys' fees, we reverse and remand with instructions to reinstate the attorneys' fees' portion of the arbitration award.

II. Background

William H. Price, II created the Trust in 1987 and appointed himself sole trustee. The Trust maintained an account at Wachovia Securities, Inc. Randy Russell, a Senior Vice President at Wachovia, served as the Trust's primary broker. Price, however, exercised absolute control over the Trust's investments, often engaging in highly volatile and risky trading strategies. Price was hospitalized in early May 2002 due to complications from throat cancer. He passed away approximately six weeks later.

After Price's death, Hollern, Price's daughter and successor trustee of the Trust, entered into an Option Account Agreement with Wachovia. The Option Account Agreement contained an arbitration provision which provided, in relevant part:

it is agreed that all controversies or disputes which may arise between [Hollern] and [Wachovia] . . . concerning any transaction or the construction, performance or breach of this Agreement or any other agreement between us, whether entered into prior to, on, or subsequent to the date of this Agreement, including any controversy concerning whether an issue is arbitrable, shall be determined by arbitration conducted before, and only before, an arbitration panel set up by either the National Association of Securities Dealers, Inc. ("NASD") or the New York Stock Exchange, Inc. ("NYSE") in accordance with their respective arbitration procedures. Any of us may initiate arbitration by filing a written claim with the NASD or the NYSE. Any arbitration under this Agreement shall be conducted pursuant to the Federal Arbitration Act and the Laws of the Commonwealth of Virginia.

Appellants' App. at 14. Hollern subsequently sought arbitration before the National Association of Securities Dealers ("NASD"). Hollern claimed Wachovia was negligent and breached its fiduciary duty by not informing her or other members of Price's family of the volatile nature of the Trust's investments while Price was hospitalized. In her Statement of Claim, Hollern sought both compensatory damages for the decline in value of certain Trust investments and attorneys' fees and costs incurred in the arbitration proceeding. Hollern also signed a Claim Information Sheet, which indicated she was seeking attorneys' fees. In its answer to Hollern's Statement of Claim, Wachovia likewise sought reimbursement of attorneys' fees. Both parties also signed an NASD Arbitration Uniform Submission Agreement ("Uniform Submission Agreement") wherein they agreed to submit the issues identified in Hollern's Statement of Claim and Wachovia's Answer to arbitration in accordance with NASD arbitration procedures.¹

At the conclusion of the arbitration hearing, the arbitrators directed the parties to submit simultaneous affidavits of attorneys' fees. Hollern filed a motion for attorneys' fees and an accompanying affidavit. In her motion, she argued an award of attorneys' fees was permitted pursuant to NASD Code of Arbitration Procedure ("NASD Code") Rule 10215. Rule 10215 states, "arbitrator(s) shall have the authority to provide for reasonable attorney fee reimbursements, in whole or in part, as part of the remedy in accordance with applicable law." Hollern contended Colorado law was applicable. She urged the arbitrators to award her attorneys' fees pursuant to Colo.Rev.Stat. § 13-17-102(4), which requires Colorado courts to award reasonable attorneys' fees in any civil action where a party brings or defends a frivolous, groundless, or vexatious claim. The same day, Wachovia filed an affidavit detailing the attorneys' fees it had incurred in the arbitration proceeding. Wachovia subsequently filed a motion in support of its request for attorneys' fees relying, as Hollern had, on § 13-17-102(4).

The arbitrators issued an award denying Hollern's claims in their entirety and awarding Wachovia $193,526.84 in attorneys' fees, pursuant to § 13-17-102. Hollern then filed a motion in district court seeking to have the attorneys' fees' portion of the arbitration award set aside. She asserted the arbitrators had exceeded their powers and acted in manifest disregard of the law in awarding attorneys' fees. The district court agreed and vacated the attorneys' fees' portion of the award. Wachovia filed a motion pursuant to Rule 60(b) of the Federal Rules of Civil Procedure, which the district court summarily denied. Wachovia appeals both the district court's decision to vacate the attorneys' fees' portion of the arbitral award (Case No. 05-1253) and its denial of Wachovia's Rule 60(b) motion (Case No. 05-1300).

III. Discussion

In reviewing a district court order vacating an arbitration award, we review factual findings for clear error and legal determinations de novo. Sheldon v. Vermonty, 269 F.3d 1202, 1206 (10th Cir.2001). We must nevertheless "give extreme deference to the determination of the arbitration panel for the standard of review of arbitral awards is among the narrowest known to law." Brown v. Coleman Co., 220 F.3d 1180, 1182 (10th Cir.2000) (quotation omitted). "Once an arbitration award is entered, the finality of arbitration weighs heavily in its favor and cannot be upset except under exceptional circumstances." Ormsbee Dev. Co. v. Grace, 668 F.2d 1140, 1146-47 (10th Cir.1982). A district court may vacate an arbitral award only for reasons enumerated in the Federal Arbitration Act ("FAA"), 9 U.S.C. § 10,² or for "a handful of judicially-created reasons." Sheldon, 269 F.3d at 1206 (observing an arbitration award may be set aside because of a violation of public policy, manifest disregard of the law, or denial of a fundamentally fair hearing). Errors in an arbitration panel's factual findings, or its interpretation and application of the law, do not justify vacating an award. Denver & Rio Grande W. R.R. v. Union Pac. R.R., 119 F.3d 847, 849 (10th Cir.1997).

Hollern advanced two grounds in the district court for vacating the attorneys' fees' portion of the arbitral award. Hollern first argued Virginia law governed the issue of attorneys' fees and claimed the arbitrators exceeded their powers because the parties did not expressly authorize an award of attorneys' fees as required by Virginia law. Alternatively, Hollern contended, if Colorado law governed the issue of attorneys' fees, the arbitrators manifestly disregarded the law in their application of Colo.Rev.Stat. § 13-17-102. Because we conclude both of these grounds are without merit, we need not decide whether Virginia or Colorado law should have governed the issue of attorneys' fees in this case.

A. Arbitrators Exceeded Their Powers Under Virginia Law

In her motion to vacate the attorneys' fees' portion of the arbitral award, Hollern first argued the arbitrators lacked authority to award attorneys' fees. See 9 U.S.C. § 10(4). She claimed the arbitrators erred in relying on Colorado law to support the award of attorneys' fees. Instead, Hollern contended the arbitration should have been governed by Virginia law in accordance with the terms of the Option Account Agreement she entered into with Wachovia. Virginia has adopted the Uniform Arbitration Act ("UAA"), which contains the following provision regarding attorneys' fees:

Unless otherwise provided in the agreement to arbitrate, the arbitrator's expenses and fees incurred in the conduct of the arbitration, and all other expenses, not including counsel fees, incurred in the conduct of the arbitration shall be paid as provided in the award.

Va.Code Ann. § 8.01-581.07. Although Virginia state courts have not yet interpreted or applied this provision, Hollern argued it prohibits an arbitral award of attorneys' fees unless the parties expressly provide for such an award in their arbitration agreement. Hollern contended the Option Account Agreement did not expressly authorize an award of attorneys' fees, and thus, the arbitrators exceeded their authority in awarding such fees. The district court agreed that Virginia law, not Colorado law, governed the arbitration proceeding. Further, it determined Virginia law prevented an award of attorneys' fees under the facts...