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Wells Fargo Advisors, LLC v. Sappington

United States District Court, S.D. New York

July 31, 2018




         Wells Fargo Advisors, LLC (“Wells Fargo” or “Petitioner”), like many other employers, has elected to require its employees to arbitrate their employment disputes. While there is nothing wrong with an employer making that decision, Wells Fargo appears to want it both ways: it wants to limit its employees to an arbitral forum, but then wants to be able to get a court to intervene when it disagrees with the outcome of the arbitration. In this instance, Wells Fargo has petitioned this Court to vacate an award resulting from an arbitration between Wells Fargo[1]and Respondents Livia Sappington, Ewa Kelly, and Patrick LaBorde. See Petition to Vacate in Part Clause Construction Award (“Petition”) [Dkt. 1]; Notice of Motion to Vacate in Part Clause Construction Award (“Notice of Mot.”) [Dkt. 4]. Specifically, Wells Fargo seeks vacatur of the portion of the award that construed Kelly's and LaBorde's contracts with Wells Fargo to permit class-wide arbitration of their claims. See Petition.

         Having opted to require its employees to arbitrate their disputes, Wells Fargo now has to live with the arbitrator's decision. For the reasons discussed below, Wells Fargo's request to vacate the arbitration award is DENIED.

         I. BACKGROUND

         All of the Respondents had employment agreements with Wells Fargo, and Kelly's and LaBorde's employment agreements (the “Agreements”), which were executed in 2012 and 2013, are identical. Award at 2-4. See also Kelly Agreement [Dkt. 5-1]; LaBorde Agreement [Dkt. 5-2]. Their agreements contain a lengthy dispute resolution provision that provides for arbitration of disputes, with carve-outs that exclude certain types of claims from mandatory arbitration. Award at 2-4. The dispute resolution provision requires disputes to be arbitrated either before the American Arbitration Association (“AAA”), pursuant to its May 1, 1993 rules, or before the Financial Industry Regulatory Authority (“FINRA”). Id. at 4. Sappington's agreement, executed later in time, contains a shorter dispute resolution provision that does not contain explicit carve-outs and requires covered disputes to be arbitrated before FINRA. Id. FINRA does not permit arbitration on a class basis. Id. at 5 and n.3 (citing FINRA Industry Code Rule 13204(a)).

         Respondents sought class-wide arbitration of their claims before the AAA and FINRA, [2]and Wells Fargo sought from this Court a stay of the class arbitration and to compel individual arbitration. Award at 1-2, 5; see Wells Fargo Advisors v. Sappington (“Sappington I”), 16-CV-878. This Court denied Wells Fargo's request to stay class-wide arbitration and, looking to its decision in an earlier related matter, [3] determined that it was up to the arbitrator to decide whether class arbitration was available under Respondents' contracts. Award at 2; Sappington I Order. Wells Fargo appealed that decision to the Second Circuit. See Sappington I [Dkts. 40, 41].

         While Wells Fargo's appeal was pending, the parties litigated the proper construction of the contracts before the AAA arbitrator (the “Arbitrator”). Award at 5. Ultimately, the Arbitrator determined that Kelly's and LaBorde's agreements permitted class arbitration of their claims, while Sappington's did not.[4] Award at 17-21.

         Wells Fargo seeks vacatur of the clause construction determination that the Agreements permit class arbitration, contending that the Arbitrator exceeded his powers both by making the determination that he should decide whether the Agreements permitted class arbitration and by looking beyond the four corners of the Agreements when deciding that they did. See Memorandum of Law in Support of Petition to Vacate in Part Clause Construction Award (“Pet.'s Mem.”) [Dkt. 6] at 1, 7-21. Wells Fargo also contends that the Arbitrator manifestly disregarded the law in reaching his decision. See id. at 1-2, 21-24.

         After Wells Fargo moved to vacate the Award, the Second Circuit affirmed this Court's determination in Sappington I that the Arbitrator should determine whether the employment agreements permitted class arbitration, holding that Kelly's, LaBorde's, and Sappington's agreements “clearly and unmistakably express[] [the parties'] intent to let an arbitrator decide whether they agreed to authorize class arbitration.” Wells Fargo Advisors, LLC v. Sappington (“Sappington I Appeal”), 884 F.3d 392, 394 (2d Cir. 2018).


         A. Legal Standard

         “Under the Federal Arbitration Act, a district court may vacate an arbitration award if: (1) the award was procured by corruption, fraud, or undue means; (2) the arbitrators exhibited evident partiality or corruption; (3) the arbitrators were guilty of misconduct such as refusing to hear evidence pertinent and material to the controversy or any other misbehavior that prejudiced the rights of any party; or (4) the arbitrators exceeded their powers.” Pfeffer v. Wells Fargo Advisors, LLC, 723 Fed.Appx. 45, 47 (2d Cir. 2018) (quoting 9 U.S.C. § 10(a)) (citation and internal quotation marks omitted). The “party moving to vacate an arbitration award has the burden of proof, and the showing required to avoid confirmation is very high.” STMicroelectronics, N.V. v. Credit Suisse Sec. (USA) LLC, 648 F.3d 68, 74 (2d Cir. 2011) (quoting D.H. Blair & Co. v. Gottdiener, 462 F.3d 95, 110 (2d Cir. 2006)) (internal quotation marks omitted).

         A challenge that an arbitrator has exceeded his powers falls under § 10(a)(4), which is “consistently accorded the narrowest of readings.” Anthony v. Affiliated Computer Servs., Inc., 621 Fed.Appx. 49, 50-51 (2d Cir. 2015) (citations and internal quotation marks omitted). “An arbitrator exceeds his authority only by (1) considering issues beyond those the parties have submitted for his consideration, or (2) reaching issues clearly prohibited by law or by the terms of the parties' agreement.” Id. at 51 (quoting Jock v. Sterling Jewelers, Inc., 646 F.3d 113, 122 (2d Cir. 2011)) (alteration and internal quotation marks omitted). “Under § 10(a)(4), [courts] do not consider whether the arbitrators correctly decided [an] issue.” Id. at 52 (citations and internal quotation marks omitted). See also DiRussa v. Dean Witter Reynolds, Inc., 121 F.3d 818, 824 (2d Cir. 1997) (“DiRussa's real objection appears to be that the arbitrators committed an obvious legal error in denying him attorney's fees. Section 10(a)(4) was not intended to apply to such a situation.”).

         The Second Circuit also permits vacatur if the award was rendered in manifest disregard of the law. Tully Constr. Co. v. Canam Steel Corp., 684 Fed.Appx. 24, 26 (2d Cir. 2017) (citation omitted). “A litigant seeking to vacate an arbitration award based on alleged manifest disregard of the law bears a heavy burden [and a court must find] both that (1) the arbitrator[] knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrator[] was well defined, explicit, and clearly applicable to the case.” Zurich Am. Ins. Co. v. Team Tankers A.S., 811 F.3d 584, 589 (2d Cir. 2016) (citations omitted). “The Second Circuit has emphasized that the doctrine requires more than error or misunderstanding with respect to the law.” PDV Sweeny, Inc. v. ConocoPhillips Co., No. 14-CV-5183 AJN, 2015 WL 5144023, at *7 (S.D.N.Y. Sept. 1, 2015) (quoting Wallace v. Buttar, 378 F.3d 182, 189-90 (2d Cir. 2004)) (internal quotation marks omitted), amended, No. 14-CV-5183 (AJN), 2015 WL 9413880 (S.D.N.Y. Dec. 21, 2015), aff'd, 670 Fed.Appx. 23 (2d Cir. 2016). “The party challenging an award for manifest disregard of the law must demonstrate that the arbitrator actually knew about the relevant rule of law.” D.H. Blair, 462 F.3d at 111 (citation omitted).

         More generally, “[a] federal court cannot vacate an arbitral award merely because it is convinced that the arbitration panel made the wrong call on the law. On the contrary, the award should be enforced, despite a court's disagreement with it on the merits, if there is a barely colorable justification for the outcome reached.” Wallace, 378 F.3d at 190 (citations and internal quotation marks omitted) (emphasis in original). “The arbitrator's rationale for an award need not be explained, and the award should be confirmed if a ground for the arbitrator's decision can be inferred from the facts of the case.” D.H. Blair, 462 F.3d at 110 (citation and internal quotation marks omitted). “It 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 S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 671 (2010) (citation, alterations, and internal quotation marks omitted).

         B. The Arbitrator Did Not Exceed His Powers

         i. The Authority to Construe the Agreements

         In the Award, the Arbitrator acknowledged this Court's ruling in Sappington I that he had the authority to determine whether the agreements permitted class arbitration, and, rather than reassess the basis for his ...

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