Opinion
No. 1-764 / 00-1226.
Filed April 10, 2002.
Appeal from the Iowa District Court for Polk County, LINDA R. READE, Judge.
Defendants appeal a district court ruling that confirmed a New York Stock Exchange arbitration award. AFFIRMED.
William B. Serangeli of Smith, Schneider, Stiles Serangeli, P.C., Des Moines, and Jeffrey J. Kalinowski and Richard H. Kuhlman of Blackwell Sanders Peper Martin, LLP, St. Louis, Missouri, for appellants.
H. Richard Smith and Steven L. Serck of Ahlers, Cooney, Dorweiler, Haynie, Smith Allbee, P.C., Des Moines, and Christopher J. Barber, Nancy L. Hendrickson, and Kenneth L. Schmetterer of Piper Marbury Rudnick Wolfe, Chicago, Illinois, for appellees.
Heard by HUITINK, P.J., and MAHAN and EISENHAUER, JJ.
Raymond James Associates, Inc., and certain officers and employees, appeal from a district court decision confirming a New York Stock Exchange arbitration award. We affirm.
Background Facts and Proceedings . Shortly after Principal Financial Securities, Inc. was acquired by Everen Capital Corporation (hereinafter referred to collectively as Principal), Raymond James Associates, Inc., an unsuccessful bidder for Principal, hired nine of Principal's employees, including Steven Hayes, the vice president and branch manager for Principal's West Des Moines office. Principal filed suit against Raymond James; its chairman and chief executive officer, Thomas James; its national sales manager, Thomas Hudson; Hayes; and the eight other former Principal employees. It sought relief on a number of theories, including misappropriation of confidential information and breach of fiduciary duty.
After imposing some forms of injunctive relief, the district court stayed the litigation so that the parties might proceed with arbitration before the New York Stock Exchange (NYSE). In relevant part, the arbitration decision ordered Raymond James Associates, Inc. to pay Principal $650,000 in attorney fees and recommended that Hudson and Hayes be referred to the NYSE for consideration of disciplinary action. Principal moved the district court to confirm the arbitration award, while Raymond James Associates, Inc. and the eleven individual defendants (hereinafter referred to collectively as Raymond James) moved to have the award vacated. The district court confirmed the award, and Raymond James appeals.
Standard of Review . A district court decision confirming an arbitration award is appealed as a civil action, Iowa Code § 679A.17(2) (1999), and our review is for errors at law. Iowa R. App. P. 6.4. This review is constricted, however, and "[o]ur law . . . indulges every reasonable presumption in favor of the legality of an arbitration award." $99 Down Payment, Inc. v. Garard, 592 N.W.2d 691, 694 (Iowa 1999) (citation omitted). An arbitration award is not vacated merely because the court could not or would not have granted the same form of relief. Iowa Code § 679A.12(2). By submitting to arbitration, parties accede to the arbitrator becoming the "the final judge of the facts and law," and assume the risk that the arbitrator may make a mistake of fact or law. Humphreys v. Joe Johnston Law Firm, P.C., 491 N.W.2d 513, 516 (Iowa 1992).
Vacation of an arbitration decision is appropriate in only a limited number of circumstances. Iowa Code § 679A.12(1). The two relevant to this case are where an arbitrator has exceeded his or her powers, or where the record as a whole does not contain substantial evidence in support of an award. Id. Evidence is considered substantial if a reasonable person would find it sufficient to reach the same conclusion as the arbitrator. Humphreys, 491 N.W.2d at 516.
Although Principal appears to argue the substantial evidence standard cannot be applied in the face of the Federal Arbitration Act, this matter has already been decided by the Iowa Supreme Court. See Humphreys, 491 N.W.2d at 515-16 (recognizing the distinctions between the federal act and the Iowa Code, but finding an award must nevertheless be vacated if unsupported by substantial evidence).
Attorney Fees . Raymond James argues there was insufficient evidence in the record before the NYSE arbitration panel from which a $650,000 attorney fee award could be made. It correctly points out the only evidence introduced during the hearing was in relation to its own legal fees. Exhibit 61, containing income statements for Raymond James's Des Moines office, included generalized month-to-date and year-to-date totals of the branch's legal expenses. Although the statements did not provide any detail as to the nature of the services provided, Thomas Hudson conceded on cross-examination that Raymond James had incurred approximately $400,000 to $425,000 in attorney fees in relation to Principal's lawsuit.
Raymond James initially forwarded two other grounds on appeal of this issue, claiming there was no statutory or other authority for an attorney fee award, and that its due process rights had been violated. We consider neither contention. As to the authority argument, Raymond James has conceded it does not challenge an arbitration panel's ability to award attorney fees. See also NYSE Arbitration Rule 629(d) ("In addition to forum fees, the arbitrator(s) may determine in the award . . ., unless applicable law directs otherwise, other costs and expenses of the parties. The arbitrator(s) shall determine by whom such costs shall be borne."). We also decline to address the due process claim, as Raymond James failed to raise this argument before the district court. The claim is therefore waived on review. Garwick v. Iowa Dep't of Transp., Motor Vehicle Div., 611 N.W.2d 286, 288 (Iowa 2000).
Principal never offered any direct evidence as to its own attorney fees, but argued during its closing statement that it should be awarded fees comparable to those incurred by Raymond James. Pointing to the legal fees contained in Exhibit 61, counsel suggested Raymond James would spend an additional fifty percent of that amount to bring the case to completion. He then requested Principal be awarded at least the $425,000 in fees Raymond James had already incurred, if not the $650,000 he estimated Raymond James would spend for the entire process.
Focusing on the lack of positive evidence, Raymond James challenges the $650,000 award as mere speculation based upon an unsupported contention during closing arguments. However, any decision by the panel must be viewed in light of the liberal rules governing an arbitration award. Significantly, the panel was charged with determinations as to the materiality and relevance of any and all evidence before it, and in doing so was not bound by the rules governing admissibility. NYSE Arbitration Rule 620. It was therefore free to treat the evidence of Raymond James's legal fees as relevant to a fee award determination. See Murray v. Stuckey's, Inc., 153 F.R.D. 151, 153 (N.D.Iowa 1993) (finding that evidence of one party's legal fees may be relevant to the issue of the reasonableness of the other party's fees).
While we are mindful of the fact only $400,000 to $425,000 in fees were actually established during the arbitration hearing, we find the total award can stand, given our deferential standard of review. Inasmuch as we defer to the district court's expertise in making attorney fee awards, Equity Control Assocs., Ltd. v. Root, 638 N.W.2d 664, 674 (Iowa 2001), we recognize the arbitration panel was possessed of similar specialized knowledge. We further recognize the panel could, "in the absence of other restrictions or controlling evidence, rely wholly or partially on their own knowledge, or on information acquired through a proper use of such knowledge and personal observation or investigation." LCI, Inc. v. Chipman, 572 N.W.2d 158, 162 (Iowa 1997) (quoting 4 Am. Jur. 2d Alternative Dispute Resolution § 169, at 197 (1995) (footnotes omitted)). Given the role and position of the arbitration panel, and the evidence of Raymond James's fees introduced at hearing, we find there was substantial evidence from which the panel could reach its award decision.
Disciplinary Referral . Raymond James argues it was error to refer Hudson and Hayes for disciplinary action as part of the arbitration decision, as the referrals were beyond the scope of relief requested by Principal, and the arbitration panel had no independent authority to make such referrals in the award. While it is clear securities arbitrators are encouraged to make a disciplinary referral if they perceive a rule or statute has been violated, the question before this court is whether they are allowed to do so as an element of relief in an arbitration decision. Since no independent NYSE Arbitration Rule expressly provides for a disciplinary referral as part of an arbitration award, we look to see whether the issue was one submitted for the panel's determination. LCI, Inc., 572 N.W.2d at 160 ("[t]he threshold question in reviewing an arbitrator's award is to determine whether the issue in dispute is one which the parties had agreed to settle by arbitration") (citations omitted).
According to the Securities Arbitration Manual compiled by the members of the Securities Industry Conference on Arbitration (SICA), if "[d]uring the course of an arbitration hearing, the arbitrators . . . infer that a rule or statute has been violated . . . the arbitrators may refer the matter for disciplinary action at the SRO." However, nothing in the manual indicates the referral should be made part of the arbitration award, and its principles are nonbinding:
This manual has been compiled . . . as a guide for arbitrators. It is designed to supplement and explain the Uniform Code of Arbitration as developed by the SICA. The procedures and policies in this manual may be altered by the arbitrators and should not be used to restrict a panel's discretion.
The Uniform Submission Agreement requested arbitration of "the present matter in controversy, as set forth in the attached Statement of Claim, Answers, and all related Counterclaims, and/or Third-Party Claims which may be asserted. . . ." It is undisputed the disciplinary referrals were not specifically requested by Principal, either in the statement of its claim or during the arbitration hearing. However, the pleadings of both sides sought, in addition to specific requests for relief, any other from of relief the panel deemed "just" or "fair and equitable."
In Iowa, arbitration under chapter 679A includes not only those issues specifically raised by the pleadings, but also any issues "tried by express or implied consent of the parties. . . ." Id. at 160 (citation omitted); see also NYSE Arbitration Rule 627(e) (requiring an arbitration award contain not only the relief requested by the parties, but a statement of "any other issued resolved" by the panel). This is a liberal standard, and any doubts should be resolved in favor of coverage. Id. Applying such standard to the facts of this case, we find the mutual request for any other just or equitable relief is fairly susceptible to the interpretation afforded by the panel in making the disciplinary referrals.
AFFIRMED.