Attorneys – Fees – S.C. Statute – Frivolous Lawsuits – Arbitration – Securities – Labor & Employment

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Wachovia Securities LLC v. Brand (Lawyers Weekly No. 001-049-12, 18 pp.) (Duncan, J.) No. 10-2111, Feb. 16, 2012; USDC at Florence, S.C. (Wooten, J.) 4th Cir. Full-text opinion.

Holding: A securities firm that lost its FINRA arbitration proceeding against former employees who left to work for a competitor winds up paying over $1 million in attorney’s fees under a South Carolina statute that penalizes frivolous lawsuits; the 4th Circuit affirms the district court order refusing to vacate the arbitration award in favor of the former employees and upholding the award of $15,080 in treble damages and $1.1 million in attorney’s fees under the South Carolina Frivolous Civil Proceedings Act.

Wachovia Securities LLC appeals the district court holding that the arbitrators who heard the proceeding under the Financial Industry Regulatory Authority (FINRA) against the four former employees neither violated § 10(a)(3) of the Federal Arbitration Act nor manifestly disregarded the law.

Wachovia argues the panel of arbitrators was guilty of misconduct in refusing to postpone the hearing or in refusing to hear evidence, in violation of § 10(a)(3), when it failed to hold a separate hearing on the issue of attorney’s fees. Wachovia complains the state statute, the FCPA, provides for certain procedural safeguards, which the panel did not follow, and that it was denied the opportunity to present evidence on this issue. This argument fails. Wachovia has cited no authority for the proposition that state procedural requirements must be imported into arbitration. Parties may consent to particular procedures in arbitration, but it is inconsistent with the FAA for one party to demand ex post particular procedural requirements from state law. We conclude the panel was not compelled to follow the FCPA’s procedural mandates insofar as Wachovia attempts to import them into this arbitration.

Also, even if we were to hold that FCPA procedures do apply in arbitration, Wachovia’s challenge to the panel’s procedure would fail anyway because it does not allege misconduct. We find that Wachovia is the architect of its own misfortune. Wachovia, not the arbitrators, cut short the hearing on the issue of attorney’s fees.

We will not overturn an award for violating § 10(a)(3)’s protection against “any other misbehavior by which the rights of any party have been prejudiced” where the arbitrators attempted to address one party’s unhappiness with the fairness of the hearing and that party refused to take advantage of the opportunity provided.

Nor is Wachovia entitled to vacatur under its argument that the panel “manifestly disregarded” the law when it refused to import the FCPA’s procedural requirements into the arbitration. The Supreme Court decision in Hall Street Assocs. v. Mattel Inc., 522 U.S. 576 (2008), has been widely viewed as injecting uncertainty into the status of “manifest disregard” as a basis for vacatur. This circuit has not yet interpreted manifest disregard in light of Hall Street, although it has acknowledged the uncertainty surrounding the continuing viability of extra-statutory grounds for vacating arbitration awards.

We find the more recent decision in Stolt-Nielsen v. AnimalFeeds, 130 S. Ct. 1758 (2010), sheds further light on the operation of manifest disregard. The reasoning in the newer opinion indicates manifest disregard continues to exist either as an independent ground for review or as a judicial gloss on the enumerated grounds for vacatur set forth at 9 U.S.C. § 10. We therefore decline to adopt the position of the 5th and 11th Circuits that manifest disregard no longer exists. However, we need not decide which of the two approaches to apply here, as Wachovia’s claim fails under both. We cannot hold the arbitrators manifestly disregarded the law when they awarded appellees $1.1 million in attorney’s fees and costs under the FCPA.

Judgment affirmed.