Wells Fargo Advisors LLC v. Tucker

• Decision Date: 02 January 2019
• Docket Number: 18 Civ. 6757 (PAE)
• Parties: WELLS FARGO ADVISORS LLC, Petitioner, v. Reagan TUCKER, Benjamin Dooley, and Marvin Glasgold, Respondents.
• Court: U.S. District Court — Southern District of New York

373 F.Supp.3d 418

WELLS FARGO ADVISORS LLC, Petitioner,

v.Reagan TUCKER, Benjamin Dooley, and Marvin Glasgold, Respondents.

18 Civ. 6757 (PAE)

United States District Court, S.D. New York.

Signed January 2, 2019

Ashley Jean Hale, Peter Nariman Shadzik, Kenneth Joseph Turnbull, Morgan, Lewis & Bockius LLP, New York, NY, for Petitioner.

Paul W. Mollica, Outten & Golden LLP, Chicago, IL, Justin Mitchell Swartz, Outten & Golden, LLP, New York, NY, Paolo Chagas Meireles, Shavitz Law Group, P.A., Boca Raton, FL, for Respondents.

OPINION & ORDER

PAUL A. ENGELMAYER, District Judge:

Before the Court is a petition by Wells Fargo Advisors LLC ("Wells Fargo") to vacate an arbitrator's partial final clause construction arbitral award (the "Award"), which held that the parties to an arbitration agreement consented there to class-wide arbitration. Dkt. 1.

The Award arises out of a dispute in which three former Wells Fargo financial advisors—Reagan Tucker, Benjamin Dooley, and Marvin Glasgold (collectively "Respondents")—claim that Wells Fargo failed to pay them, and a putative class and collective, overtime pay required by the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 201 et seq. , and New York Labor Law ("NYLL"), Art. 6, § 190 et seq. , Art. 9, § 650 et seq.¹ See Turnbull Decl. Ex. 4 ("Statement of Claim"). Each Respondent is party to a "New Financial Advisor Training Agreement" (the "Agreement") which, with limited exceptions, provides for the arbitration of disputes. See Turnbull Decl. Ex. 1 ("Agreement" or "Tucker Agreement").²

Having failed in its chosen arbitral forum to limit the scope of the arbitral proceedings authorized by the Agreement to individual (non-class) proceedings, Wells Fargo now asks this Court to intervene. It asks, inter alia , that the Court vacate the arbitrator's construction of the Agreement and "[i]ssue an Order directing Respondents that they must arbitrate their claims" individually, on a non-class basis. Dkt. 1.

For the reasons that follow, the Court denies Wells Fargo's petition.

I. Background³

A. Factual Background and Procedural History

Respondents were all financial advisors working at Wells Fargo branch offices in either New York or Texas. See Dkt. 3 at 2 ("Pet'r Mem."); Dkt. 20 at 2 ("Resp't Mem."). In 2011 and 2013, Respondents and Wells Fargo entered into employment agreements. See Award at 1. Each Agreement contains an alternate dispute resolution provision that requires the parties to resolve any dispute, with certain exceptions, through arbitration. See Tucker Agreement ¶ 14. Each Agreement provides for mandatory arbitration before either the Financial Industry Regulatory Authority ("FINRA") or the American Arbitration Association ("AAA"), pursuant to its May 1, 1993 rules. See id.

Respondents claim that Wells Fargo, in violation of the FLSA and NYLL, failed to pay them for overtime work. See Award at 2. Respondents assert that Wells Fargo, per policy, did not correctly tabulate the hours worked by employees like Respondents in its Financial Advisor Training Program, in that it "fail[ed] to use appropriate forms of wage statements for such employees" and "misclassif[ied] ... employees in the ‘Apprentice Phase’ of the Program as [being] exempt from overtime requirements." See id.

Respondents sought to pursue their claims on a class-wide basis before FINRA. Award at 2; see Tucker , 195 F.Supp.3d at 545. Rule 13204 of the FINRA Code of Arbitration Procedure for Industry Disputes, however, prohibits FINRA from presiding over class arbitration actions. For that reason, FINRA declined to hear this dispute. The arbitration, therefore, has proceeded before the AAA. See Award at 2; see also Tucker , 195 F.Supp.3d at 546.

On September 30, 2015, Wells Fargo filed an action in this District seeking a stay of the arbitration to the extent brought on a class basis and an order compelling arbitration to proceed on an individual basis. In Tucker , Judge Caproni, to whom that action was assigned, denied Wells Fargo's application. She held that, under the Agreement, it was for the arbitrator, not a court, to decide whether the Agreement provided for class arbitration. See Tucker , 195 F.Supp.3d at 553 ; Award at 2. Wells Fargo appealed that decision.

On March 7, 2018, the Second Circuit affirmed. It held that the Agreement "clearly and unmistakably expresses [the parties'] intent to let an arbitrator decide whether they agreed to authorize class arbitration." Sappington I , 884 F.3d at 394 ; Award at 4.

On June 28, 2018, the arbitrator assigned to the Tucker arbitration, Edith N. Dineen (the "Arbitrator"), issued a Partial Final Clause Construction Award, the decision at issue here. She construed the Agreement to allow Respondents "to pursue class claims in this arbitration." Award at 21.

On July 27, 2018, Wells Fargo filed a petition in this Court to vacate the Arbitrator's clause construction award insofar as it construed the Agreement to allow Respondents to permit class arbitration, Dkt. 1, and an accompanying memorandum of law, Pet'r Mem. On August 23, 2018, Respondents filed a memorandum of law in opposition to the motion to vacate. Resp't Mem. On September 6, 2018, Wells Fargo filed a reply. Dkt. 21 ("Pet'r Reply").

II. Applicable Legal Standards

The Federal Arbitration Act ("FAA") authorizes a district court to review an arbitral award and to "confirm and/or vacate the award, either in whole or in part." D.H. Blair & Co. v. Gottdiener , 462 F.3d 95, 104 (2d Cir. 2006). Specifically, the FAA permits any party to an arbitration to seek vacatur of an award where the arbitrator, inter alia , "exceeded [her] powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made." 9 U.S.C. § 10(a)(4). The moving party bears "the burden of proof, and the showing required to avoid confirmation is very high." Wells Fargo Advisors, LLC v. Sappington , 328 F.Supp.3d 317, 322 (S.D.N.Y. 2018) (" Sappington II ") (quoting STMicroelectronics, N. V. v. Credit Suisse Sec. (USA) LLC , 648 F.3d 68, 74 (2d Cir. 2011) ). The Court's review is "severely limited, so as not to frustrate the twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation." Scandinavian Reins. Co. v. Saint Paul Fire & Marine Ins. Co. , 668 F.3d 60, 71–72 (2d Cir. 2012) (internal citations omitted). Accordingly, the Court owes "strong deference" to "arbitral awards and the arbitral process." Porzig v. Dresdner, Kleinwort, Benson, N. Am. LLC , 497 F.3d 133, 138 (2d Cir. 2007).

The Second Circuit has held that "[a]n arbitrator exceeds [her] authority only by (1) ‘considering issues beyond those the parties have submitted for [her] consideration,’ or (2) ‘reaching issues clearly prohibited by law or by the terms of the parties' agreement.’ " Anthony v. Affiliated Computer Servs., Inc. , 621 F. App'x 49, 51 (2d Cir. 2015) (quoting Jock v. Sterling Jewelers, Inc. , 646 F.3d 113, 122 (2d Cir. 2011), cert. denied , 565 U.S. 1259, 132 S.Ct. 1742, 182 L.Ed.2d 529 (2012) (" Jock IV ") ). The Second Circuit has "consistently accorded [ Section 10(a)(4) ] the narrowest of readings." Anthony , 621 F. App'x at 50–51. Whether the arbitrator correctly decided an issue is not the question before the reviewing court. See id. at 52.

An arbitral award may also be vacated if it exhibits a "manifest disregard" of the law. Tully Constr. Co. v. Canam Steel Corp. , 684 F. App'x 24, 26 (2d Cir. 2017) (citation omitted). "The manifest disregard standard, rather than substantially broadening the grounds for vacatur, largely operates as a judicial gloss on the specific grounds for vacatur enumerated in section 10 of the FAA." Benihana, Inc. v. Benihana of Tokyo, LLC , 15 Civ. 7428 (PAE), 2016 WL 3913599, at *10 (S.D.N.Y. July 15, 2016) (citation and internal quotation marks omitted). The moving party bears the heavy burden of showing that (1) "the law that was allegedly ignored was clear, and in fact explicitly applicable to the matter before the arbitrators," (2) "the law was in fact improperly applied, leading to an erroneous outcome," and (3) "the arbitrator ... kn[ew] of its existence, and its applicability to the problem before him." Duferco Int'l Steel Trading v. T. Klaveness Shipping A/S , 333 F.3d 383, 390 (2d Cir. 2003). The Second Circuit has emphasized that vacating an arbitral award for manifest disregard of the law "is a doctrine of last resort," reserved for "those exceedingly rare instances where some egregious impropriety on the part of the arbitrators is apparent but where none of the provisions of the FAA apply." Id. at 389. Accordingly, manifest disregard of the law "means more than error or misunderstanding with respect to the law." Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bobker , 808 F.2d 930, 933 (2d Cir. 1986).

Under either standard, the petitioner must do more than show "that the [arbitrator] committed an error—or even a serious error." Id. Instead, under the FAA, "[i]f there is ‘even a barely colorable justification for the outcome reached,’ the court must confirm the arbitration award." Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp. , 103 F.3d 9, 13 (2d Cir. 1997) (quoting Matter of Andros Compania Maritima, S.A. , 579 F.2d 691, 704 (2d Cir. 1978) ).

This case calls for application of these principles in the context of a contract dispute. In this context, the Supreme Court has instructed, "[i]t is only when an arbitrator strays from interpretation and application of the agreement and effectively dispenses his own brand of industrial justice that his decision may be unenforceable." Stolt-Nielsen , 559 U.S. at 671, 130 S.Ct. 1758 (2010) (alterations, citations, and internal quotation marks omitted). The Court, therefore, must confirm arbitration awards despite "serious reservations about the soundness of the arbitrator's reading of th[e] contract." Westerbeke Corp. v. Daihatsu Motor Co. , 304 F.3d 200, 216 n.10 (2d Cir. 20...