Iii v. Ubs Financial Serv. Inc, 20080950-CA.

Decision Date04 February 2010
Docket NumberNo. 20080950-CA.,20080950-CA.
Citation226 P.3d 762,2010 UT App 26
PartiesThomas G. HICKS III, Plaintiff and Appellee,v.UBS FINANCIAL SERVICES, INC., Defendant and Appellant.
CourtUtah Court of Appeals

Thomas R. Karrenberg and Stephen P. Horvat, Salt Lake City; and Anthony J. Borrelli, Morristown, New Jersey, for Appellant.

Greggory J. Savage and Matthew N. Evans, Salt Lake City, for Appellee.

Before Judges THORNE, BENCH, and GREENWOOD.1

OPINION

GREENWOOD, Senior Judge:

¶ 1 UBS Financial Services, Inc. (UBS), appeals from the district court's order granting Thomas G. Hicks III's motion to vacate and simultaneously denying UBS's motion to confirm the arbitration award that resolved claims between UBS and Hicks. More specifically, UBS asserts that discovery decisions are particularly and exclusively within the discretion of arbitrators and, accordingly, alleges that the district court incorrectly exercised its authority in vacating the arbitration award based on the district court's disagreement as to the arbitrators' discovery decisions. After briefing was completed, this court sua sponte raised a question about our jurisdiction and at oral argument requested the parties to submit additional briefs on that question. Both parties filed additional briefs, and we have reviewed and considered those briefs in this opinion. For reasons discussed more thoroughly below, we conclude we have jurisdiction and reverse the decision of the district court.

BACKGROUND 2

¶ 2 In September 2000, UBS hired Hicks as a financial advisor in its Salt Lake City, Utah branch office. In connection with this employment, UBS gave Hicks what he characterizes as a “signing bonus” totaling approximately $1.2 million. This bonus was paid in the form of two Employee Forgivable Loans (the EFLs) which were each memorialized in a promissory note signed by Hicks. The promissory notes provided, among other things, that the EFLs would be forgiven in equal annual installments so long as Hicks remained employed with UBS, and that the EFLs would be completely forgiven after ten years of employment. The promissory notes further required that Hicks immediately repay any unforgiven amounts upon termination, voluntary or involuntary, of his employment. In addition, Hicks signed a Form U-4, wherein he “agree[d] to arbitrate any dispute, claim or controversy that may arise between [himself] and [UBS].” The Form U-4 also provided that any arbitration would be subject to “the rules, constitutions, or by-laws of the [self-regulatory organizations].” Hicks was also provided with the following required disclosure:

Arbitration awards are generally final and binding; a party's ability to have a court reverse or modify an arbitration award is very limited.
The ability of the parties to obtain documents, witness statements and other discovery is generally more limited in arbitration than in court proceedings.

¶ 3 Approximately six and one-half years later, Hicks resigned from UBS. UBS sent Hicks a letter demanding repayment of the unforgiven amounts secured by the promissory notes-said to be $647,362.56 in principal-and alerting Hicks of UBS's intention to arbitrate this claim should Hicks refuse or fail to comply. UBS then filed a claim with the Financial Industry Regulatory Authority (FINRA) 3 seeking to recover these unforgiven amounts from Hicks. Hicks answered, asserting counterclaims for allegedly unpaid commissions related to his referral to UBS of two companies, Extra Space Storage and Infinite Energy.4 Both parties then signed a Uniform Submission Agreement (the Agreement), voluntarily submitting the entire controversy to arbitration subject to FINRA's arbitration rules and regulations, including limited discovery rules. In particular, the FINRA rules and regulations state that [t]he arbitrators shall determine the materiality and relevance of any evidence proffered and shall not be bound by rules governing the admissibility of evidence.” National Ass'n of Sec. Dealers, Code of Arbitration Procedure for Cases Filed Prior to April 16, 2007 [hereinafter Code of Arbitration Procedure], 10323 available at http:// www. finra. org/ Arbitration Mediation/ Rules/ index. htm (last visited Jan. 21, 2010). The FINRA guidelines also provide that [t]he effective use of discovery tools such as depositions rests in the careful exercise of judgment by the arbitrators,” with the arbitrators ever mindful of the goal “to avoid unnecessary expense or burdens to the parties and to avoid unnecessary delay.” Sec. Indus. Conference on Arbitration, The Arbitrator's Manual 12 (2007). The FINRA guidelines further state that, when deciding whether to grant a deposition request, [i]t is appropriate for arbitrators to consider whether the witness will be able to appear at the arbitration hearing, the necessity of preserving the witness's testimony, and other factors that bear on the efficiency and fairness of the proceeding.” See id.

¶ 4 FINRA appointed three attorneys to serve as the arbitration panel for this dispute. Both parties agreed to the panel. Both Hicks and UBS submitted various discovery requests to the arbitration panel, many of which were decided in a discovery order entered in March 2007. In that order, the arbitration panel granted Hicks's request to depose David Reynolds, a former UBS employee whom Hicks believed had personal knowledge of potential referral fees to which Hicks was entitled.5 In addition, the order denied Hicks's request to depose UBS's custodian of records, and further denied Hicks's request to depose Virginia Weisman, a UBS employee whose responsibilities included “administering referral fee payments to UBS['s] financial advisors who referred investment banking deals to UBS.” Despite denying Hicks's request to depose Weisman, the arbitration panel directed Weisman “to appear and give testimony ... at the evidentiary hearing in this matter, and to produce at the hearing all documents, in her custody or to which she has access, pertaining to the counterclaim for allegedly unpaid commissions due and owing to Hicks.”

¶ 5 In a further attempt to allow Hicks to discover information necessary to present his counterclaim, the arbitration panel later granted Hicks permission to serve subpoenas upon both Extra Space Storage and Infinite Energy requesting production of any documents relevant to business deals, if any, between UBS and each company. Sometime in early September 2007, Hicks received a document from Infinite Energy entitled “Term Loan Facility Commitment Letter” (the Infinite Letter), which was signed by two UBS employees and the president of Infinite Energy. In the Infinite Letter, UBS agreed to provide $75 million in financing in order to facilitate Infinite Energy's potential acquisition of another company. Weisman, as instructed by the arbitration panel, submitted an affirmation in October 2007 (the Affirmation) stating, among other things, that she had conducted a physical search and had discovered that “no responsive documents exist with respect to any deal involving UBS and Infinite Energy because no such deal was ever completed.”

¶ 6 After nearly eighteen months of extended discovery, the arbitration panel held a three-day evidentiary hearing in early November 2007. Several UBS employees, including Weisman, were ordered to appear either telephonically or in person and, if necessary, to give testimony at the hearing. Hicks presented Weisman as a witness in his direct case regarding referral fees and questioned her about the Affirmation. Despite requesting and being granted the presence of other UBS employees at the hearing, Hicks questioned only some of these employees. The arbitration panel was also presented with documents produced during discovery, including several documents produced by UBS relating to deals consummated between it and Extra Space Storage. Other than the Infinite Letter, no evidence was presented at the evidentiary hearing respecting any purported deal consummated between Infinite Energy and UBS.

¶ 7 After hearing the evidence and considering the parties' arguments, the arbitration panel awarded UBS approximately $647,000, representing the unforgiven principal amounts due and owing under the promissory notes securing the EFLs.6 The arbitration panel also awarded Hicks approximately $161,000 in unpaid referral fees related to deals consummated between UBS and Extra Space Storage, plus accrued and future interest. In an amended order, the arbitration panel further determined that “the amounts that UBS was directed to pay Hicks shall be set-off against the amounts Hicks shall pay to UBS.”

¶ 8 Subsequently, Hicks filed a motion in the district court seeking to vacate the arbitration award based on what Hicks contended were erroneous discovery decisions that substantially prejudiced his rights to participate fully in the arbitration. Independently and almost immediately thereafter, UBS filed a motion to confirm the arbitration award, arguing in part that discovery decisions cannot, as a matter of law, provide a district court with grounds to vacate an otherwise legitimate arbitration award. These motions were consolidated and each was fully briefed and argued before the district court.

¶ 9 After noting its limited role in reviewing an arbitration award, the district court disagreed with UBS's assertion that discovery decisions cannot, as a matter of law, properly justify vacation of an arbitration award. Then, in light of the arbitration panel's discovery decisions, the district court stated in its first memorandum decision that “the [arbitration] panel conducted the arbitration hearing in a manner contrary to Utah Code section [78B-11-116],[ 7] so as to substantially prejudice [Hicks]'s ability to fairly present his case.” After some differences arose about the wording of the final order and judgment, the district court entered its Order and Judgment Vacating Arbitration Award and Directing Rehearing, in which it concluded “Hicks was...

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