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Avelino Cortina Iii v. Citigroup Global Markets

August 19, 2011


The opinion of the court was delivered by: M. James Lorenz United States District Court Judge


The parties arbitrated their disputes before the Financial Industry Regulatory Authority ("FINRA") which rendered an award in favor of Respondent on its claim to enforce a promissory note and against Petitioner on his counterclaim for discrimination and harassment under California Fair Employment and Housing Act, California Government Code Section 12900 et seq. ("FEHA"), and other claims. Petitioner filed in state court a petition to vacate the arbitration award. Respondent removed the petition to this court based on diversity and filed a cross-petition to confirm it. For the reasons which follow, Petitioner's petition to vacate is DENIED and Respondent's cross-petition to confirm the award is GRANTED.

The parties appear to disagree whether the Federal Arbitration Act, 9 U.S.C. § 1 et seq. ("FAA"), or California Code of Civil Procedure Sections 1280 et seq. ("CAA") apply in this case. "The CAA and the FAA provide different grounds for vacatur of an arbitration award."

Johnson v.Gruma Corp., 614 F.3d 1062, 1065 (9th Cir. 2010). "[T]here is a strong default presumption that the [FAA], not state law, supplies the rules for arbitration." New Regency Productions, Inc. v. Nippon Herald Films, Inc., 501 F.3d 1101, 1104 (9th Cir. 2007) (internal quotation marks and citation omitted).

The FAA "is based upon and confined to the incontestable federal foundations of control over interstate commerce . . ." Allied-Bruce Terminix Companies v. Dobson, 513 U.S. 265, 271 (1995). The term "involving commerce" in section 2 of the FAA, its "coverage provision," New Regency Productions, 501 F.3d at 1104, is interpreted to "signal the broadest permissible exercise of Congress' Commerce Clause power." The Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56 (2003). "Because the statute provides for enforcement of arbitration agreements within the full reach of the Commerce Clause, it is perfectly clear that the FAA encompasses a wider range of transactions than those actually 'in commerce' -- that is 'within the flow of interstate commerce.'" Id. (internal quotation marks and citations omitted). The application of the FAA is not defeated where the individual transaction at issue, taken alone, does not have a "substantial effect on interstate commerce:" Congress' Commerce clause power may be exercised in individual cases without showing any specific effect upon interstate commerce if in the aggregate the economic activity in question would represent a general practice subject to federal control. Only that general practice need bear on interstate commerce in a substantial way. . at 56-57 (internal quotation marks, ellipsis and citations omitted).

The transaction at issue in the underlying dispute was a promissory note between Petitioner and Respondent's predecessor Salomon Smith Barney Holdings, Inc. The promissory note was related to a signing bonus Petitioner received at the beginning of his employment as a financial advisor pursuant to a Special Compensation Agreement.*fn1 (Lansverk Decl. Exh. A.) The promissory note and the related agreement contain identical arbitration clauses, which provide that disputes would be "submitted to and settled by arbitration pursuant to the constitution, by-laws, rules and regulations . . . of the New York Stock Exchange, Inc. or the National Association of Securities Dealers, Inc." There is no question the financial industry bears on interstate commerce in a substantial way. Accordingly, the agreements in this case "evidenc[e] a transaction involving commerce" that comes withing the purview of the FAA.

The FAA, while it does not itself create independent federal jurisdiction, creates a body of federal substantive law establishing and regulating arbitration agreements that come within the FAA's purview. When an agreement falls within the purview of the FAA, there is a strong default presumption that the FAA, not state law, supplies the rules for arbitration. To overcome that presumption, parties to an arbitration agreement must evidence a "clear intent" to incorporate state law rules for arbitration.

Johnson, 614 F.3d at 1066 (internal quotation marks, ellipsis and citations omitted).

The parties' agreements have a choice of law provision electing to proceed under New York, not California, law. Either way, "[a] general choice-of-law clause within an arbitration provision does not trump the presumption that the FAA supplies the rules for arbitration." Johnson, 614 F.3d at 1066 (internal quotation marks and citations omitted). However, an arbitration clause requiring the arbitration to be "conducted and subject to enforcement pursuant to the provisions of California Code of Civil Procedure section 1280 though 1295, or other applicable law," was held to evidence "clear intent" that the CAA rather than the FAA apply to the arbitration. Id. at 1067. No such explicit provision was included in the parties' arbitration clause. With respect to his counterclaim, Petitioner executed the Uniform Submission Agreement, agreeing to arbitrate it under FINRA's "Constitution, By-Laws, Rules, Regulations and/or Code of Arbitration Procedure." (Lansverk Decl. Exh. C (emphasis in original).) No clear intent to apply the CAA is therefore evident in this case. The FAA rather than the CAA applies to the arbitration.

When an arbitration is governed by the FAA, the FAA provides "a substantive rule applicable in state as well as federal courts." Southland Corp. v. Keating, 465 U.S. 1, 16 (1984). The FAA applies to pre-dispute arbitration agreements as well as agreements made after the dispute has arisen. New Regency Production, 501 F.3d at 1104. Furthermore, "where the FAA rules control arbitration proceedings, a reviewing court must also apply the FAA standard for vacatur." Johnson, 614 F.3d at 1067.

Under the FAA, an arbitration award is presumed final and valid "unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11" of the FAA. 9 U.S.C. § 9; Hall Street Assoc., LLC v. Mattel, Inc., 552 U.S. 576, 582, 587 (2008). The scope of judicial review of arbitration award is extremely limited. Schoenduve Corp. v. Lucent Tech., Inc., 442 F.3d 727, 735 (9th Cir. 2006). "Neither erroneous legal conclusions nor unsubstantiated 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). Petitioners seeking to vacate an arbitration award under the FAA "must clear a high hurdle." Stolt-Nielsen S.A. v. AnimalfeedsInt'l Corp., __ U.S. __; 130 S.Ct. 1758, 1767 (2010).

Under the FAA, and arbitration award may be vacated (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 submitted was not made. 9 U.S.C. § 10.

Petitioner first argues that the award should be vacated because the arbitration panel did not provide a reasoned decision. This argument is based on the fact that his counterclaim contained a statutory employment discrimination claim. Generally "arbitrators are not required to state the reasons for their decisions." A.G. Edwards & Sons, Inc. v. McCollough, 967 F.2d 1401, 1403 (9th Cir. 1992). Furthermore, under the FAA, "by agreeing to arbitrate a statutory claim, a party does not forego the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial forum." Gilmer v. Interstate/Johnson Lane ., 500 U.S. 20, 26 (1991) (internal quotation marks and citation omitted) (arbitration of ADEA claim pursuant to arbitration clause in securities registration application). Petitioner has not articulated any argument or cited any legal authority for the proposition that a requirement of a reasoned arbitration decision is a "substantive right afforded by [FEHA]." Petitioner's request to vacate the award for lack of a reasoned decision is therefore denied.

Petitioner relies on Armendariz v. Foundation Health Psychcare Serv., Inc., 24 Cal.4th 83 (2000), and Pearson Dental Supplies, Inc. v. Super. Ct. (Turcios), 48 Cal.4th 665 (2010), which respectively addressed the validity of mandatory arbitration of statutory employment claims and the appropriate scope of judicial review of arbitration awards ...

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