Raymond James Financial Serv. Inc. v. Honea

Decision Date13 August 2010
Docket Number1081688.
Citation55 So.3d 1161
PartiesRAYMOND JAMES FINANCIAL SERVICES, INC., and Bernard Michaudv.Kathryn L. HONEA.
CourtAlabama Supreme Court


A. Inge Selden III, Andrea M. Greene, and Prim Formby of Maynard, Cooper & Gale, P.C., Birmingham, for appellants.James L. North and J. Timothy Francis of James L. North & Associates, Birmingham, for appellee.STUART, Justice.

Raymond James Financial Services, Inc. (Raymond James), and Bernard Michaud, a securities broker at Raymond James (hereinafter referred to collectively as “RJFS”), appeal the judgment of the Jefferson Circuit Court vacating an arbitration award entered in their favor and against Kathryn L. Honea, a former client. We reverse and remand.


Beginning in May 1997, Honea opened multiple investment accounts at a branch office of Raymond James in Birmingham. In conjunction with the opening of the accounts, Honea signed a client agreement with Raymond James containing the following provision, entitled “Arbitration and Dispute Resolution”:

(a) In a dispute or controversy, either arising in the future or in existence now, between me and you (including your officers, directors, employees or agents and the introducing broker, if applicable) we agree to first endeavor to settle the dispute in an amicable manner by mediation at the request of either party. Thereafter, any unsettled dispute or controversy will be resolved by arbitration conducted before the New York Stock Exchange, Inc., the National Association of Securities Dealers, Inc., or the American Stock Exchange, Inc., or other self-regulatory organizations (SRO) subject to the jurisdiction of the Securities and Exchange Commission (SEC) pursuant to the arbitration rules of the Exchange or SRO, and in accordance with the United States Arbitration Act (Title 9 of the United States Code).

(b) We agree that in any arbitration the arbitrators will resolve the dispute in accordance with applicable law and will be required to furnish us with a written decision which must explain the reasons for their decision....

(c) A court of competent jurisdiction may enter judgment based on the award rendered by the arbitrators. We agree that both parties will have a right to appeal the decision of the arbitrators if the arbitrators award damages that exceed $100,000; the arbitrators do not award damages and the amount of my loss of principal exceeds $100,000; or the arbitrators award punitive damages. In each of the foregoing cases, a court having jurisdiction will conduct a ‘de novo’ review of the transcript and exhibits of the arbitration hearing.”

Honea alleges that, between May 1997 and 2000, she deposited over $1,200,000 into her accounts and that the accounts decreased in value by approximately $1,050,000. On March 30, 2006, Honea sued RJFS in the Jefferson Circuit Court, alleging that her losses were the result of abusive brokerage practices, which practices, she alleges, violated the Alabama Securities Act, § 8–6–1 et seq., Ala.Code 1975, and asserting claims of breach of contract, breach of fiduciary duty, negligence, wantonness, and fraud. RJFS subsequently moved the trial court to compel arbitration pursuant to the arbitration provision in the client agreement Honea had signed, noting that the client agreement was “a contract evidencing transactions involving interstate commerce and [that those transactions] therefore are subject to the provisions of the Federal Arbitration Act, 9 U.S.C. section 1, et seq. The trial court granted the motion, and Honea thereafter pursued her claims in arbitration.

The final arbitration hearing was conducted over three days beginning on December 18, 2007. On January 3, 2008, the three-member arbitration panel unanimously entered an award in favor of RJFS, dismissing Honea's breach-of-fiduciary-duty, negligence, wantonness, fraud, and Alabama Securities Act claims with prejudice, and denying her breach-of-contract claim based on the statute of limitations. On January 14, 2008, Honea filed a motion in the Jefferson Circuit Court seeking to vacate the decision of the arbitrators, i.e., the arbitration award, arguing that the arbitrators had manifestly disregarded the law and that one of the arbitrators was biased in favor of RJFS, because, Honea alleged, his law firm did substantial work for another financial institution alleged to be in merger negotiations with Raymond James. RJFS opposed Honea's motion, arguing that the arbitration award was supported by both the law and the evidence and that there was no evidence of bias on the part of the one arbitrator because the speculative allegation regarding merger negotiations was wholly untrue.

The trial court originally scheduled a hearing for Honea's motion to vacate the arbitration award for March 28, 2008; however, for reasons including the difficulty the parties had in obtaining a transcript of the arbitration proceedings, that hearing was repeatedly continued. On October 17, 2008, Honea filed an additional motion with the trial court asking it to conduct a de novo review of the arbitration award pursuant to paragraph (c) of the arbitration provision in the client agreement, quoted supra, which specifically authorized such a review by the trial court if “the arbitrators do not award damages and the amount of [the client's] loss of principal exceeds $100,000.” On October 31, 2008, RJFS filed its response, citing Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008), for the propositions (1) that manifest disregard of the law is not a valid ground for seeking the vacatur of an arbitration award; and (2) that the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (“the FAA”), provides the exclusive grounds for seeking judicial review of arbitration awards in Alabama and parties may not expand those grounds by contract to provide for de novo judicial review of such awards. RJFS also repeated its argument that there was no evidence indicating that any of the arbitrators were biased in favor of RJFS.

On November 7, 2008, the trial court held a hearing on Honea's motion to vacate the arbitration award. At that hearing, Honea reasserted the arguments she had previously made and also argued that the arbitration award should be vacated because, she alleged, the three-member arbitration panel consisted of two “non-public” arbitrators, in violation of the specific arbitration rules of the National Association of Securities Dealers (“NASD”), which governed the arbitration proceedings.1 On July 20, 2009, the trial court issued an order concluding that Honea was entitled to a de novo review of the arbitration award and that the arbitration proceeding had not been conducted pursuant to NASD rules. The trial court accordingly vacated the award that had been entered in favor of RJFS and scheduled a future status conference for the purpose of setting the matter for trial. On August 27, 2009, RJFS filed this appeal. See Rule 71B(g), Ala. R. Civ. P.


In Hereford v. D.R. Horton, Inc., 13 So.3d 375, 378 (Ala.2009), this Court described the standard of review applicable to an order confirming or vacating an arbitration award as follows:

“The standard by which an appellate court reviews a trial court's order confirming [or vacating] an arbitration award under the Federal Arbitration Act is that questions of law are reviewed de novo and findings of fact are reviewed only for clear error. See Riccard v. Prudential Ins. Co., 307 F.3d 1277, 1289 (11th Cir.2002).”


The gravamen of RJFS's argument on appeal is that an Alabama court can vacate an arbitration award deciding a dispute involving interstate commerce and subject to the FAA only if one of the following grounds for vacatur enumerated in § 10(a) of the FAA is clearly established:

(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.”

In support of this argument, RJFS cites Hall Street, in which the Supreme Court of the United States considered the issue whether parties could, consistent with the FAA, expand by contract the grounds for judicial review of an arbitration award beyond those enumerated in § 10 of the FAA and answered that question in the negative. Honea, however, argues that the holding of Hall Street does not apply to this case.

Hall Street involved a lease dispute between a landlord and tenant. While that dispute was being litigated in the United States District Court for the District of Oregon, the parties entered into an agreement to instead resolve their dispute in arbitration, but, as part of that agreement, they also agreed that the federal district court then hearing their case could vacate the resulting arbitration award if it found that the arbitrator's findings of fact were not supported by substantial evidence or if the arbitrator's conclusions of law were erroneous. 552 U.S. at 579. After the arbitrator entered an award in favor of the tenant, the landlord moved the trial court to vacate the award, and the trial court did so, citing legal error on the part of the arbitrator. 552 U.S. at 580. After the case was returned to arbitration and the arbitrator entered a new award in favor of the landlord, and after the trial court denied the tenant's subsequent request to modify the award, the tenant appealed to the United States Court of Appeals for the Ninth Circuit, arguing that the provision in the arbitration agreement...

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