Royal Alliance Assocs., Inc. v. Mora
| Decision Date | 10 March 2016 |
| Docket Number | Case No. 3:15-cv-03706-JST |
| Court | U.S. District Court — Northern District of California |
| Parties | ROYAL ALLIANCE ASSOCIATES, INC., Plaintiff, v. HENRY T. MORA, et al., Respondents. |
Petitioner Royal Alliance Associates, Inc. ("Royal Alliance") moves to vacate an arbitration award on the ground that the arbitration panel exceeded its authority under 9 U.S.C. § 10(a)(4). ECF No. 19. Respondents oppose the motion and have filed a cross-motion to confirm the arbitration award. ECF No. 23. For the reasons stated below, Royal Alliance's motion to vacate is denied, and Respondents' motion to confirm is granted.
Respondents have also moved for attorneys' fees. ECF No. 30. For the reasons stated below, this motion is granted.
This case concerns two joined disputes between Royal Alliance, a brokerage firm, and its former clients Michele R. Lewis ("Lewis"), Henry T. Mora ("Mora"), and Lionel Gonzalez ("Gonzalez" collectively with Lewis and Mora "Respondents"), for breach of fiduciary duty and negligent supervision. Pursuant to Royal Alliance's customer agreements, the disputes were required to be submitted to arbitration before a FINRA (The Financial Industry Regulatory Authority) panel. ECF No. 25 at 6. Royal Alliance alleges that Lewis filed the first claim against Royal Alliance on July 3, 2013. ECF No. 1 at ¶ 6. Two weeks later, Mora and Gonzalez filed the second claim on July 18, 2013. Id. at ¶ 8. In their claims, Respondents, inter alia, alleged: (1) Royal Alliance's registered representatives recommended unsuitable securities investments for Respondents, and (2) Royal Alliance breached its contracts with Respondents ("Customer Agreements") by failing to properly supervise its representatives. Id. at ¶ 6, 8. Respondents sought attorneys' fees in both claims. Id.
On September 5, 2014, Respondents filed a motion before the Mora/Gonzalez panel, requesting to join the Lewis Arbitration to the Mora/Gonzalez Arbitration. ECF No. 1 at ¶ 11. Royal Alliance opposed the motion. Id. at ¶ 12. On October 21, 2014, the Mora/Gonzalez panel granted Respondents' motion, and consolidated both arbitrations before the Mora/Gonzalez panel. Id. at ¶ 14.
Royal Alliance then filed a Motion to Vacate the Order of Consolidation before the Director of FINRA Dispute Resolution (the "Director"). Id. at ¶ 16. Royal Alliance asserted that the cases should have been consolidated in front of the Lewis panel because Lewis was the "lower-numbered" case and that Respondent's Motion to Join was "blatant 'forum shopping.'" Id.
After Royal Alliance filed its motion but before the Director ruled on it, FINRA issued a document called "The Neutral Corner," which provided a "'refresher' on FINRA Rule 12312"— the FINRA rule governing joinder of claims. Id. at ¶ 17. In addition to addressing FINRA rules on multiple claimants and multiple respondents, the refresher contained the following: "If a party files a motion to consolidate or sever, the panel in the lower-numbered case will decide the motion, unless the parties agree otherwise." Id.
On December 24, 2014, the Director denied Royal Alliance's motion because "at the time of the original consolidation motion, [Royal Alliance] never requested that FINRA assign the motion to the lower-numbered panel." Id. at ¶ 18. In response, Royal Alliance sent a letter to the Director requesting that the Director reconsider its motion, which was also denied by the Director. Id. at ¶ 19-20.
Royal Alliance filed another motion for reconsideration of joinder, but this time with the Mora/Gonzalez panel. Id. at ¶ 22. The Mora/Gonzalez panel also denied Royal Alliance's motion, finding among other things that the "Neutral Corner" release was "issued after the panel's Order and that '[n]othing in the guidance indicated that it was to apply retroactively.'" Id. at ¶ 23.
On July 15, 2015, the Mora/Gonzalez panel awarded Respondents compensatory damages of $1,085,456, punitive damages of $75,000, attorneys' fees of $184,000, and costs of $57,231.05. Id. at ¶ 26.
Royal Alliance filed their petition in this Court on August 13, 2015. ECF No. 1. They challenge the decision to consolidate the Lewis arbitration before the higher-numbered Mora/Gonzalez panel rather than the lower-number Lewis panel, and also challenge the award of attorneys' fees. Id. at ¶¶ 28-29. Accordingly, they request that the Court vacate the award to Lewis but not to Mora and Gonzalez, as well as vacate all awarded attorneys' fees. Id. at 9-10.
A court's review of an arbitration award under the Federal Arbitration Act ("FAA") is "both limited and highly deferential." Coutee v. Barington Capital Group, L.P., 336 F.3d 1128, 1132 (9th Cir. 2003) (citations and internal quotation marks omitted). The party seeking to vacate the award has the burden of proving that vacatur is appropriate under § 10(a)(4). U.S. Life Ins. v. Superior Nat'l Ins. Co., 591 F.3d 1167, 1173 (9th Cir. 2010).
A court may vacate an arbitration award only "if that award is completely irrational, exhibits a manifest disregard of the law," or otherwise violates the Federal Arbitration Act ("FAA)". Id. at 1133. The FAA allows for vacatur of an arbitration award under only four circumstances:
(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 was not made.
9 U.S.C § 10(a).
"This is a high standard for vacatur; [i]t is not enough . . . to show that the [arbitrator] committed an error—or even a serious error." Lagstein v. Certain Underwriters at Lloyd's, London, 607 F.3d 634, 641 (9th Cir. 2010) (citations and internal quotation marks omitted).Indeed, "[n]either erroneous legal conclusion nor substantiated factual findings justify federal court review of an arbitral award under the statute, which is unambiguous in this regard." Bosack v. Soward, 586 F.3d 1096, 1102 (9th Cir. 2009) (citations and internal quotation marks omitted).
"Manifest disregard of the law" means "something more than just an error in the law or a failure on the part of the arbitrators to understand or apply the law." Mich. Mut. Ins. Co. v. Unigard Sec. Ins. Co., 44 F.3d 826, 832 (9th Cir. 1995) (citations omitted). To vacate an arbitration award on this ground, "[i]t must be clear from the record that the arbitrators recognized the applicable law and then ignored it." Id. Thus, "to demonstrated manifest disregard, the moving party must show that the arbitrator 'underst[oo]d and correctly state[d] the law, but proceed[ed] to disregard the same." Collins v. D.R. Horton, Inc., 505 F.3d 874, 879 (9th Cir. 2007) (quoting San Martine Compania De Navegacion, 293 F.2d 796, 801 (9th Cir. 1961)).
"An award is completely irrational only where the arbitration decision fails to draw its essence from the agreement." Lagstein, 607 F.3d at 642 (citation and internal quotation marks omitted). This standard is "extremely narrow." Bosack, 586 F.3d at 1106 (citations omitted). "An arbitration award draws its essence from the agreement if the award is derived from the agreement, viewed in light of the agreement's language and context, as well as other indications of the parties' intentions." Lagstein, 607 F.3d at 642 (citation and internal quotation marks omitted). "[T]he question is whether the award is 'irrational' with respect to the contract, not whether the panel's findings of fact are correct." Id. (citation omitted). Further, "[courts] do not decide the rightness or wrongness of the arbitrators' contract interpretation, only whether the [arbitrator]'s decision 'draws its essence' from the contract." Bosack, 586 F.3d at 1106 (citation omitted).
Royal Alliance moves this Court to vacate the entire arbitration award to Respondent Lewis, and to vacate the award of attorneys' fees. Respondents oppose Royal Alliance's motion, cross-petition to confirm the FINRA arbitration Award, and also seek attorneys' fees for defending against Royal Alliance's petition to vacate. The Court discusses each of these issues in turn.
Royal Alliance argues that the order granting consolidation of the two arbitrations into asingle matter before the Mora/Gonzalez panel "exceeded the scope of the arbitrators' powers under FINRA Rules" because "FINRA's procedural rule provides that only an arbitration panel in a 'lower-numbered' case has the power to decide a motion to consolidate unless the parties agree otherwise."1 ECF No. 19 at 16. It further argues that, by allowing the case to nevertheless proceed before the higher-numbered Mora/Gonzalez panel, the arbitration panel "allowed the Respondent and their counsel to engage in a blatant act of 'arbitrator shopping,' in violation of FINRA's Rules and established procedures." Id.
FINRA Code Rule 12312 titled "Multiple Claimants" provides:
(a) One or more parties may join multiple claims together in the same arbitration if the claims contain common questions of law or fact and:
(b) After all responsive pleadings have been served, claims joined under paragraph (a) of this rule may be separated into two or more arbitrations by the Director...
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