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Wachovia Securities, LLC v. Brand, et al.

Issue Discussed: Judicial Review/Manifest Disregard

Submitted by Robert W. DiUbaldo

Date Promulgated: February 16, 2012

 

Wachovia Securities, LLC v. Brand, et al., 671 F.3d 472 (4th Cir. 2012)

Court: U.S. Court of Appeals for the Fourth Circuit

Issues Decided:  (1) Whether a panel’s award of attorneys’ fees under a state statute warranted vacatur under Section 10 of the Federal Arbitration Act where the panel did not adhere to certain procedural requirements of the statute; and (2) whether manifest disregard of the law remains an independent basis to challenge an arbitral award in an arbitration governed by the FAA.

Wachovia Securities, LLC (“Wachovia”) commenced an arbitration with the Financial Industry Regulatory Authority (“FINRA”) against four former employees who, after being terminated, went to work for a competitor brokerage firm.  In the arbitration, Wachovia alleged that the employees violated contractual and common law obligations owed to Wachovia by conspiring with their current employer to open a competing office in the same region, misappropriating certain confidential and proprietary information in the process, and soliciting current Wachovia clients and employees to join their new firm.  The parties submitted briefing to the arbitration panel on the issues in dispute and held a hearing at which both sides presented evidence in support of their claims and defenses.  Ultimately, the panel denied Wachovia’s claims in their entirety and awarded the former employees attorneys’ fees and costs under the South Carolina Frivolous Civil Proceedings Act (“FCPA”).

The former employees moved to confirm the panel’s award in the U.S. District Court for the District of South Carolina.  Wachovia moved to vacate a portion of the panel’s award on two grounds.  First, it argued that the panel exceeded its authority under Section 10(a)(4) of the Federal Arbitration Act and manifestly disregarded the law by awarding sanctions under the FCPA.  Second, Wachovia argued that it was deprived of a fundamentally fair hearing, pursuant to Section 10(a)(3) of the FAA, because the panel did not adhere to certain procedural requirements of the FCPA or allow Wachovia to review and rebut the evidence submitted by the employers in support of their FCPA claim.  In Wachovia’s view, the panel was required under the FCPA to hold a separate hearing on the issue of attorneys’ fees, and Wachovia was denied this procedural safeguard.

The district court confirmed the award, and Wachovia appealed to the U.S. Court of Appeals for the Fourth Circuit.  On appeal, Wachovia did not directly challenge the district court’s finding that vacatur under Section 10(a)(4) of the FAA was not warranted.  Rather, Wachovia argued that the award should be vacated under Section 10(a)(3) or, alternatively, under the doctrine of manifest disregard of the law, which it characterized as a “judicial gloss” encompassing the grounds for vacatur set forth in Section 10 of the FAA.

As to Wachovia’s first argument, the Fourth Circuit held that the panel was not required to adhere to the procedural requirements of the FCPA in awarding the former employees attorneys’ fees and costs under that statute, consistent with the broad discretion given to arbitrators on procedural matters.  But even if the panel were so required, the Fourth Circuit held that the panel was not guilty of misconduct under Section 10(a)(3) because Wachovia missed the briefing deadline set by the panel on the attorneys’ fee issue and then refused the panel’s invitation to submit post-deadline briefing on the same.  With respect to Wachovia’s challenge to the award based on manifest disregard of the law, the Fourth Circuit found that while this doctrine remains an independent basis to challenge an arbitral award, even after the U.S. Supreme Court’s decision in Hall Street Assocs. v. Mattel, Inc., 552 U.S. 576 (2008), the doctrine was not implicated in this case because the panel’s decision did not violate any clearly accepted legal principle.

 

 

[1] Rob DiUbaldo is a Partner at Carlton Fields Jorden Burt, whose practices focuses on insurance, reinsurance and commercial litigation and arbitration.