FOURTH D I VI SI ON

DI L LA RD, P. J.

, M ERCI ER and M A RKLE, JJ.

N O T IC E : M otions for r e c ons i de r a tion m us t be

ph y sic a l ly r e ce iv ed i n our c le r k ’s offic e w ithin te n

da y s of the da te of de c is ion to be de e m ed tim e ly file d.

https ://w w w

. ga a ppe a ls .us /r ule s

A u gust 2, 2022



# I n th e Co u r t o f

A p p eals o f

G eo r g ia

A2 2 A1 14 9

. W ELLS FARGO CLEARING SERVICES, LLC et al

.

v . LEGGETT et

al

.

M E R C I E R , J u dg e.

Al l eg i n g t h at t h ei r i nv es t m en t s h ad b een m i s m an ag ed

, Bri an Leg g et t an d

B r y son H oldings, L LC (co l l ect iv el y

, “ t h e i n v es t o rs ”) fi l ed an arb i trat i on c la im a ga inst

W el l s Farg o Cl eari n g Serv i ces

, LLC d / b / a W el l s Farg o Ad v i s o r s

, L LC an d W el l s

Farg o b ro ker J ay W i n d s or Pi ck et t

, III (co l l ect i vel y

, “ W e l l s F a r g o ”) b efo re t h e

Fi n an ci al In d us t ry Reg ul at o ry Au t h o ri t y (“ FINRA”). 1 A th ree-ju dg e p an el o f FINRA

arb i t rat o rs d en i ed t h e cl ai m an d o rd ered L eg g et t to p ay v a r i o u s c o st s an d fees

as s o ci at ed wi t h t h e arb i t rat i on

. Th e i n ves t o rs s u bs eq u en t l y p et it i o n ed t h e s u p eri o r

1 FINRA “ i s a g o v ern m en t -au t h o ri zed n o t -fo r-p ro fi t o rg an i zat i on t h at o v ers ees

U.S. b ro k er-d eal ers

. ” h t t p s : / / www.fi n ra.o rg / ab o u t

.co u rt t o v acat e t h e arb i trat i o n a w a r d

. Th e su p eri o r co u rt g ran ted t he p et i ti o n

, an d

W el l s Farg o ap p eal s . Fo r reas o n s t h at fo l l o w, we rev ers e.

Th i s d i s p ut e aro s e aft er t h e i n ves t o rs al l eg ed l y l o s t o v er $ 1 ,0 0 0 ,0 00 b et ween

2 0 1 5 an d 2 0 1 6 o n secu ri ti es m an a g ed at d i fferen t t i m es b y Pi ck et t an d J aco b

M cKel v ey

, an o t h er W el l s Farg o b ro k er. Th e p art i es ’ i n v e s t m en t rel at i o n s h i p was

g o v ern ed b y a W el ls Farg o cl i en t ag reem en t t h at req u i red arb i t rat i on o f an y d i s p u t e

b efo re a FINRA arb i trat io n p an el

. Th e ag reem en t fu rt h er p ro v i ded

— an d t he p art i es

d o n o t q u es t i o n

— t h at s u ch arb i t rat i o n wo u l d p ro ceed p urs u an t t o t h e Fed eral

Arb it rat io n Act

, 9 USC § 1 et s eq

. (“ FAA”). See al so Amer i ca n Gen

. Fi n a n ci a l S vcs

.

v. Ja pe

, 2 9 1 Ga. 6 3 7

, 6 3 8 (1 ) (7 3 2 SE2 d 7 4 6 ) (2 0 1 2) (“ Th e FAA ap p l i es i n s t at e an d

fed eral co u rt s t o al l co nt ract s co n t ai n i n g an arb it rat i o n cl au s e t hat i n v o lv es o r affect s

i n t ers t at e co m

m erce.”).

In Ap ri l 2 0 17

, t h e i n v es t o rs fi l ed a cl ai m fo r arb i t rat i o n wi t h FINRA, as s ert i n g,

am on g ot h er t h i n g s, t hat W el l s Farg o f a i l e d t o pro p erl y t rai n an d s u p erv i s e i t s

b ro k ers

, wh o h ad m i s m an ag ed t h e i n v es t o rs ’ acco u nt s

. Th e arb it rat i o n h eari n g was

co n du ct ed o v er n i n e d ay s

, fo ur i n Sep t em b er 20 1 8, fo l l o wed b y fi v e i n J u n e 2 0 1 9.

Aft er recei v i n g t es t i m o n y fro m n u m ero u s wi t n es s es an d rev i ewi n g t h ou s an d s o f

p ag es o f ex h ib i t s

, t he arb i t rat i o n p an el d en ied t h e i n v es t o rs ’ cl ai m s

, as s es s ed h eari n g

2fees ag ai n s t i n v es t o r L eg g et t, a n d o rd ered Leg g et t t o rei m b u rs e W el l s Farg o fo r

$ 5 1 ,0 0 0 i n co s ts . In p art i cu l ar, t h e p an el co ncl u d ed :

Up o n co n si d erat i o n of t h e fu l l reco rd o f ev id en ce, i n cl u d i n g d o cu m en t s

an d t es t i m o n y

, t h e Pan el fi n ds t h at th e cl ai m s as s ert ed b y [t h e i n v es t ors ]

ag ai ns t Res p o nd en t Pi ck et t

, an d t h e al leg at io n s co n cern in g No n -Part y

M cKel v ey

. . . are wi t h ou t m eri t an d fal s e. Sp eci fi cal l y

, t h e Pan el fi n d s

t h at t h e l o s ses s u st ai n ed b y t h e [i n ves t o rs ] were s o l el y cau s ed b y th e

t rad i n g s t rat eg y dev is ed

, i m p l em en t ed an d un d ert ak en b y Cl ai m an t

L e g g et t

. No n e o f [t h e i n v es t ors ’ ] al l eg ed l os s es w ere cau s ed b y

Res p o n d en t Pi ck et t ’ s an d / o r No n -Part y M cKel v ey ’ s act i o n

, i nact i o n

, o r

ad v i ce. Th e Pan el fi n d s t h at n ei t h er Res p o n d en t Pi ck et t n o r No n -Part y

M cKel v ey en g ag ed i n an y wro ng fu l co nd u ct

. Cl ai m an t Leg g et t al l eg es

t h at h e w as m i s l ed b y b o t h Res p o n d en t Pi ck et t an d N o n -Part y

M c Kel v ey

. Th e Pan el fi n d s t h at n ei t her Res p o nd en t Pi ck et t n o r N o n

Part y M cKel v ey m i s l ed Cl ai m an t Leg g et t i n an y way

, an d th at t hes e

al l eg at i o n s are wi t h o u t m eri t an d fal s e. Cl ai m an t L eg g et t ’ s t es t i m on y as

t o t h es e i s s u es was n o t cred i b l e.

Th e in v es t o rs p et i t i o ned t h e s u p eri o r co u rt t o vacat e t h e arb it rat i o n award

, an d

W el l s Farg o m o v ed t o co n fi rm i t

. Becau s e t h e FAA “ i m p o s es a h eav y p res u m

p t i o n

i n fav o r o f co n fi rm i n g arb i t rat i o n award s

. . . co nfi rm at i o n o f an arb i t rat i o n award i s

u s u al l y ro u t i n e or s u m

m ary .” Ca t Ch a rt er

, LLC v. S ch ur t en ber

g er

, 6 4 6 F3 d 8 3 6

, 8 4 2

3(II) (A) (1 1 t h Ci r. 2 0 1 1 ) (ci t at i o n an d p u n ct u at i o n om i t t ed ); 2 s ee al so 9 USC § 9

(arb it rat io n award m

u s t b e co n fi rm ed un l es s vacat ed

, m o d i fi ed

, o r co rrect ed u n d er

s p eci fi c p ro v i s i o n s o f t h e FAA). A t ri al co u rt m ay n o t v acat e an award ab s en t “ v ery

u n u s ual ci rcu m s tan ces ” i n v ol v i n g “ co rru p ti o n

, frau d

, ev i d en t part ial i t y

, m i sco n d u ct

,

m i s b eh av i o r, [o r] ex ceed [ed ] p owers .” Br o wn v. RAC Accep t a n ce Ea st

, LLC

, 3 0 3 Ga.

1 7 2

, 1 77 (2 ) (c) (8 0 9 S E 2 d 8 0 1 ) (2 0 1 8 ) (ci t at i o ns an d p u n ct u at i o n o m i t t ed ). M o re

s p eci fi cal l y , t h e FAA au t h o ri zes a co u rt t o v acat e an arb i t rat i o n d eci s i o n:

(1 ) wh ere t h e award was p ro cu red b y co rru p t i o n

, frau d

, o r u n d ue m ean s ;

(2 ) wh ere t here w as ev i d en t p art i al i t y o r co rru p ti o n i n t h e arb i t rat ors

, o r

ei t h er o f t h em ;

( 3 ) w h ere t h e arb i t rat o rs w ere g u il t y o f m i s co n du ct i n refu si n g t o

p o s t p o ne th e h eari n g

, u po n s uffi ci en t cau s e s h o wn

, o r i n refu s i n g t o h ear

ev i d en ce p ert i n en t an d m at eri al t o t he co n t ro v ers y ; o r o f an y o t h er

m i s b eh av i o r b y

wh i ch t h e ri g h t s o f an y

p art y h av e b een p reju d i ced ; o r

2 “ [D] eci s io n s o f t h e fed eral co u rt s ap p ly i n g fed eral l aw are n o t b i n d i n g o n a

G e o rg i a ap p el l at e co u rt

, b ut t h ei r reas o n i n g i s p ers u as i v e.” Ar ch er W es ter n

Co n t ra ct o r

s v. H o ld er Co n s t r

. Co

. , 3 2 5 Ga. Ap p. 1 6 9

, 1 7 5 (3 ) (7 5 1 SE2 d 9 0 8 ) (2 0 1 3 )

(p h y s i cal p reced en t o n l y ) (ci t at i o n an d p u n ct u at i o n o m i t t ed ).

4(4 ) wh ere t h e arb i t rat o rs ex ceed ed t hei r p owers

, o r so i m p erfect l y

ex ecu t ed th em t h at a m

u t u al

, fi n al

, an d d efi n it e award u p o n t h e s u b ject

m at t er s u bm i t t ed w as n o t m ad e.

9 USC § 1 0 (a).

Rel y i n g o n 9 USC § 1 0 (a) (1 ), (3 ) an d (4 ), t h e s u p eri o r co u rt v acat ed t h e

arb i t rat i on award

, fi n d in g t h at : (1 ) FINRA an d t h e arb i t rat o rs o v ers t e p p ed t h ei r

au t h o ri t y i n s el ect i n g t h e arb i t rat i o n p an el ; (2 ) t h e arb i t rat o rs en g ag ed i n m i s co n d u ct

b y refu s i n g t o p o s t p o n e t h e a r b i t rat i o n heari n g aft er t h e i n ves t o rs req ues t ed a

co n t i n u a nce; (3 ) t h e arb i t rat o rs en g ag ed i n m i s co n du ct b y refu s in g t o hear cert ai n

ev i d en ce an d l i m i t i n g t h e in v es t o rs ’ cro s s -ex am i n at i o n of a W el ls Farg o wi t n es s ; (4 )

t h e award was pro cu red b y frau d ; an d (5 ) t h e arb i trat o rs im p ro p erl y as s es s ed Leg g et t

wi t h p ay m en t o f co s t s an d fees

. On ap p eal

, we rev i ew t h e su p e r i o r c o u r t ’ s

co n cl u s i o n s o f l aw d e n o v o an d i t s fact ual fi n d i n gs fo r cl ear erro r. See EGI-VS R, LLC

v. Co d er ch

, 9 6 3 F3 d 1 1 1 2

, 1 1 2 1 (III) (1 1 t h Ci r. 20 2 0 ); s ee al s o W el l s v. W el l s -W i l s o n

,

3 6 0 Ga. Ap p . 6 4 6 , 6 4 8 (8 6 0 SE2 d 1 8 5 ) (2 0 21 ).

51

. Pu rs u an t t o FINRA’ s Co d e o f A rb i t rat i o n Pro ced ure fo r Cu s t om er Di s p u t es

(“ t h e Co d e”), 3 p art i es ch o o s e a t h ree-ju d ge arb it rat i o n p an el b y s t ri k i n g an d ran k i n g

ar b i t r at ors fro m a li s t ran d o m l y g en erat ed b y a co m pu t er p ro g ram k n o wn as t h e

“ Neu tral Li s t Sel ect i o n Sy s t em .” See FINRA Ru l e 1 2 4 0 3 ; s ee al s o FINRA Ru l e

1 2 4 0 0 (a) (d es cri b i n g t h e Neu t ral Li st Sel ect i o n Sy s t em ). Th e Co d e im p o s es a

co n ti n u i n g d u t y o n arb i trat ors t o d i s cl o s e “ an y ci rcu m s t an ce wh i c h m i g h t p recl u d e

t h e arb i t rat o r fro m r e n d e r i ng an o bject i ve an d im part i al d et erm i n at io n i n t h e

p ro ceed in g ,” an d it s et s fo rt h a p ro ced u re fo r arb i t rat o r recu s al

. FINRA Ru le 1 2 4 0 5

(a) & (b ); FINRA Ru l e 1 2 4 0 6

. Th e Co d e al s o p erm i t s th e Di rect o r o f FINRA Di s p u t e

Res ol u t i o n Serv i ces (“ t h e D i rect o r”) t o rem o v e an arb i t rat or fo r cau se b efo r e an

arb i t rat i on h eari n g co m

m en ces :

Befo re t he fi rs t h eari n g s es s i o n b eg i ns

, t h e Di rect o r m ay rem o ve

an arb i t rat o r fo r co n fl i ct of i n t eres t o r bi as

, ei t h er u po n req u es t o f a p art y

o r o n t h e Di rect o r’ s o wn i n i t i at i v e.

( 1 ) T h e Di rect o r wi l l g ran t a p art y ’ s req u es t t o rem o v e an

arb i t rat or i f i t i s reas o n ab l e t o i n fer, b as ed o n i n fo rm at i on k n o wn at th e

t i m e o f t h e req u es t

, t h at t h e arb i t rat o r i s b ias ed

, l ack s im part i al i t y

, o r h as

3 Th e Co d e o f Arb it rat i o n Pro ced ure fo r Cu s t o m er Di s p u t es can b e fo u n d at

h t t p s : // www.fi n ra.o rg / ru l es -g u i d an ce/ ru l eb o ok s /fi n ra-ru l es / 1 2 0 0 0

.

6a di rect o r i n d i rect i n t eres t i n t h e ou t co m e o f t h e arb i trat i o n. Th e i n t eres t

o r b i as m u s t b e d efi n it e an d cap ab l e o f reas o n ab l e d em on s trat i o n, rat h er

t h an rem o t e o r s p ecu l at i ve. Cl o s e q u es t i o n s reg ard i n g ch al l en g es t o an

arb i t rat or b y a cu s t o m er u n d er t h i s ru l e w i l l be res ol v ed i n fav or o f th e

cu s t om er.

(2 ) Th e Di rect o r m

u s t fi rs t n o t i fy t h e p art ies b efo re rem ov i n g an

arb i t rat or on th e Di rect or’ s o wn i n i ti at iv e. Th e Di rect or m ay n ot rem o ve

t h e arb it rat o r i f t he part i es ag ree i n wri t i n g t o ret ai n t h e arb i t rat or wi t h i n

fi ve d ay s o f recei v i n g n o t ice o f t he Di rect o r’ s i n t en t t o rem o v e th e

arb i t rat or.

FINRA Ru l e 1 2 4 07 (a). See al s o FINRA Ru l e 1 2 1 0 0 (m ) (fu l l t i t l e o f “ Di rect o r”).

(a) Th e reco rd s h o ws t h at aft er FINRA p ro v i d ed th e p art i es wi t h a co m p u terg en erat ed l i s t o f arb i t rat o rs fo r t h e s el ect i o n p ro ces s

, W el l s Farg o req u es t ed t h at t h e

Di r e c t o r r e m o ve arb i t rat o r Fred Pi n ck ney fro m t he l i s t

. W el l s Farg o as sert ed t h at a

s eri ou s an d v ery p u b l i c p ers o n al co n fl i ct h ad ari s en b et w een W el l s Farg o co u n s el

Terry W ei s s an d Pi n ck ney d u ri n g a p ri o r arb i t rat i o n (t h e Po s t el l arb i t rat io n ), i n wh i ch

W ei s s ch al len g ed t h e co n d u ct o f Pi n ck n ey an d t h e o t h er Po s t el l arb it rat o rs

. Cl ai m i n g

t h at i t was u n l i kel y t o recei v e fai r an d i m p art i al t reat m en t fro m Pi n ck n ey

, We l l s

Farg o as k ed t h at Pi n ck n ey b e rem o v ed fro m t h e l i st fo r cau s e an d rep l aced b y an o t h er

arb i t rat o r fo r t h e p art ies t o co n s i d er an d ran k

. W h en t he in v es to rs o bject ed t o W el l s

7Farg o ’ s req u es t

, W ei s s res p o nd ed : “ It [h as been ] m ad e cl ear t o m e v erb al l y t h at n o n e

o f t he Po s t el l arb i trat ors wo u l d h av e t h e o p p ort u n i t y t o serv e o n an y o n e o f m y cas es

g i v en t h e h o rri fi c ci rcu m s t an ces s u rro u n d i ng t h e [ Po s t el l ] cas e, th e S E C

i n v e s t i g a t i on

, t he p u bl i ci t y an d t h e aft erm at h

. It was a m o s t u n u s u al s et o f

ci rcu m s t an ces

. ” Th e Di rect o r g ran t ed W el l s Farg o ’ s req u es t an d rem o v ed Pi n ck n ey

fro m t h e p o o l

.

In t h ei r pet i t i o n t o v acat e t h e award

, th e i n v es t ors arg u ed t h a t W el l s Farg o

i m p ro p erl y “ m an i pu l at ed ” t h e FINRA arb i t rat o r s el ect i on s y s t em b y h av i ng Pi n ck n ey

rem o v ed wi t h o u t u s i n g a s t ri k e. Th ey fu rt h er cl ai m ed t h at t he i n ci d en t “ d is cl o s ed a

s e c ret ag reem en t bet ween FINRA an d [W ei ss ] p ert ai n i n g t o t h e p o o l o f arb i t ra t o r s

av ai l a b l e t o h i s cl i en t s in al l o f h i s cas es .” Th e s u p eri or co u rt ad o p t ed t h es e

arg u m en t s

, co n cl u d i n g t h at W el l s Farg o m an ip u l at ed t h e p o o l an d th at t h e arb i t rat o rs

act ed o u ts i d e o f t h ei r au t h o ri t y b y p ro ceed i ng w i th o u t a fu ll y n eu t ral p an el s el ect ed

p u rs u an t t o FINRA’ s ru l es

.

W e d i sag ree. No t h i n g i n d i cat es t h at W el l s Farg o “ m an i p u l at ed ” t h e arb i t rat o r

p o o l

. It s i m

p l y as k ed t h at Pi n ck n ey b e rem o v ed u n d er FINRA Ru l e 1 2 4 0 7 . W e fai l

t o see ho w t h e Di rect o r’ s deci s i o n t o g ran t t h at req u es t

— wh i ch was m ad e aft er al l

p art i es h ad a ch an ce t o ad d res s th e is s u e

— co n s t i t u t ed m an i p u l at i o n by W el l s Farg o.

8Al t h o u g h t h e i nv es t o rs cl ai m t hat a “ s ecret ag reem en t ” ex is ted b et w een FINRA an d

W ei s s t o au t o m at i cal l y ex cl u d e t h e Po s t el l arb i t rat o rs fro m an y arb i t r a t o r l i s t

g en erat ed o n a cas e i n v o l v i n g W ei s s

, t h ere i s n o ev i d en ce t hat su ch ag reem en t was

at p l ay h ere, gi ven Pi n ck n ey ’ s i n cl us i o n o n t h e i ni t ia l l i s t

. E v e n i f an ag reem en t

ex i s t s, t h e i n v es t o rs h av e n o t s h o wn t h at i t i m p act ed t hi s arb i t rat i o n

.

Th e Co d e ves ts t h e D i rect o r wi t h d i scret i o n t o “ m ak e an y d ec i s i o n t h a t i s

co n si s t en t wi t h t h e p u rp o s es o f t h e Co d e t o faci l i t at e t h e ap p o i n t m en t o f arb i t rat o rs

an d t he res o l u t i o n o f arb it rat i o n s ,” FINRA Ru l e 12 4 0 8

, an d Ru l e 1 2 4 0 7 (a) ex p l i ci t l y

al l o ws t he D i rect o r t o rem o v e an arb i t rat o r fo r cau s e. On ap p eal

, t h e in v es to rs cl ai m

t h at t h e D i rect or can on l y di s m is s an arb i t rat or fro m an ap p o i nt ed pan el

, n o t fro m t h e

arb i t r a t o r l i s t u sed t o s el ect t h e p an el

. Bu t n o t h in g i n t h e t ex t of FINRA’ s ru l es

s u p p ort s t h at co n cl u si o n

. Ru l e 1 2 4 0 7 ( a ) au th ori zes rem o v al o f “ an arb i t rat o r” fo r

co n fl i ct o f i n t eres t or b i a s “ [ b ] efo re t h e fi rs t h eari n g s es s io n b eg i n s .” FINRA Ru l e

1 2 4 0 7 (a). Th e p ro ced u res fo r s el ect i ng a pan el refer t o i n di v i d u al s o n t h e s el ect i o n

l i st as “ arb i t rat o rs

. ” FINRA Ru le 1 2 4 0 3

. An d t h e sel ect i on p ro ces s refl ect s FINRA’ s

d es i re to av o i d co n fl i ct s of i n teres t an d b i as am o n g t he l i s t ed arb i t rat o rs

. See FINRA

Ru l e 12 4 0 3 (a) (3 ) (“ Th e Neu tral Li s t Sel ect i o n Sy st em wi l l ex cl u d e arb i t rat o rs fro m

9t h e l i s t s b as ed u p o n cu rren t co n fl i ct s o f i n teres t i d en t ifi ed wi t h i n t he Neu t ral Li s t

Sel ect i on Sy s t em

. ”).

Th e D i rect o r co n cl u d ed th at h e h ad d i s cret i o n t o rem o v e an arb i t rat o r fro m t h e

s el ect i o n l i s t p urs u an t t o Ru l e 1 2 4 0 7 (a). Gi v en t h e t e x t o f t h e ru l e, we can n o t fi n d

t h at h e ex ceed ed h i s au t ho ri t y i n m ak i n g t hat d et erm i n a t i o n

. S ee In ver s i o n es y

Pr o ces ad o ra Tr o p i ca l INPROTS

A, S .A. v. D el Mo nt e In t l

. Gmb h

, 9 2 1 F3 d 12 9 1

, 1 3 0 4

(III) (B) (1 1 t h Ci r. 2 0 1 9 ) (arb i t rat i o n “ t ri b u n al di d n o t ex ceed it s p o w er b y reas o n ab l y

co n st ru i n g i t s o wn ru l es ”); s ee al s o Gr a n d Ca n yo n Ed . v. W a r d , 3 5 8 Ga. Ap p

. 4 1 2,

4 1 7 (8 5 5 SE2 d 4 15 ) (2 0 2 1 ) (“ A reg u l at i o n s h ou l d b e co n s t ru ed t o g i v e effect t o t h e

n at u ral an d p lai n m ean i n g of it s wo rd s

. In ad d i t i o n

, we l o o k to t h e s t at ed p u rp o s e o f

t h e reg ul at io n

, as wel l as t h e b ro ad er r eg u l at ory

. . . co n t ex t of wh ich i t i s a p art .”)

(ci t at i o n an d p u nct u at io n o m i t ted ).

Si m i l arl y

, i n l ig h t o f t h e i n fo rm at i o n p ro vi d ed reg ard i n g t h e p as t h i s t o ry

b et ween Pi n ck n ey an d co u n s e l f o r W el l s Farg o

, we can n o t fi n d t h at t h e Di rect o r

ab u sed h is d i s cret i o n in i n ferri n g th at Pi n ck n ey h ad a cl ear an d d efi n i t e b i a s h ere.

Nei t h er t h e Di rect o r n o r an y arb i t rat o r ex ceed ed h i s o r h er au t h o ri t y b y rem o v i n g

Pi n ck n ey fro m t h e s el ect i o n l is t an d p ro ceed i n g wi t h t h e arb i t rat i o n

. See FINRA Ru l e

1 2 4 0 7 (a); Peco Fo o d

s In c. v. Ret a i l W

h o l e s al e & D ep t

. S t o r e Un i o n Mi d -S o u th

10Co u n ci l

, 7 27 Fed

. Ap p x

. 6 0 4

, 6 0 9 (II) (B) (1 1 t h Ci r. 2 0 1 8 ) (arb i t rat or d i d n o t ex ceed

h i s au t h ori t y b y act i n g wi t h i n b ro ad d i s cret i o n t o res o l v e arb i t rat io n i ss u e); Da vi s v.

Pr o du cer s Ag r i cu l tu ra l In s

. Co

. , 7 6 2 F3 d 1 27 6

, 1 2 8 6 ( I I ) (C) (1 ) (1 1t h Ci r. 2 0 1 4 )

(s am e).

(b ) Fo l lo wi n g Pi n ck n ey ’ s rem o v al

, th e p art i es sel ect ed a t h ree-arb i t rat o r p an el

t h at i n cl u d ed Ken n et h Can fi el d

. W el l s Fa r go subse qu en t ly req u es t ed t h at t he Di rect o r

rem o v e Can fi el d fro m t h e p an el o r t h at Can fi el d recu s e h i m s el f, as s ert i ng as fo l l o w s :

Aft er th e part i es s u b m i t t e d t h ei r ran ki n g s an d s t ri k i n g of arb i t rat o rs t o

FINRA o n J u l y 2 7

, 2 0 1 7

, M r. Can fi el d ’ s l aw fi r m

. . . o f wh i ch Mr.

Can fi el d i s a n am ed p art n er, fi l ed a l aws u i t i n Fu lt o n C o u nt y Su p eri o r

Co u rt

, s eek i ng a reco v ery o f d am ag es ag ai n s t Res p o nd en t W el l s Farg o

Ad v is o rs

, s t y l ed Hu b b a rd v. W el l s Fa r g o Ad vi s o r s

. . . . On t h e f

a c e o f

t h e Co m p l a i n t i t ap p ears t h at t h e H u b ba r d m at t er h as n o d irect

co n n ect i o n fact u al ly t o [t h i s] cas e. M o reo v er, M r. Can fi el d is n o t a

s i gn at o ry t o t h e Hu b b a r d Co m p l ai n t an d we d o n o t k n o w i f h e i s

wo rk i n g on t h i s o t h e r cas e o r ev en i f he h as k n o w l ed g e ab o u t it

. T he

p ro b l em ri g h t n o w i s t h at p res u m ab l y h e, a s a p art n er i n h i s l aw fi rm

,

h as a b en efi ci al in t eres t i n a m at t er ad vers e t o Res p o n d en t W el l s Farg o

Ad v is o rs

. Th at fact al o n e p res en t s a s u ffi ci en t b as i s t o co ncl u d e th ere i s

a co n fl i ct t h at s h o ul d req u i re M r. Can fi el d ’ s rem o v al o r recu sal

.

Th e i n ves t o rs o b

ject ed t o t h e req u es t

, b u t t h e Di rect o r rem o v ed Can fi el d an d

ap p oi n t ed a rep lacem en t arb i t rat o r. In v acat i n g t h e arb i t rat i o n award

, t h e s u p eri o r

11co u rt fo u n d t h at Can fi el d ’ s rem o v al v i ol at ed FINRA ’s ru les b ecau s e W el l s Farg o

k n ew p ri o r t o in i t i al l y s el ect i n g Can fi el d t h at h i s l aw fi rm rep res en t ed pl ai n t i f f s in

cas es ag ai n s t fi n an ci al i ns t i t u t i o n s

. Th e co u rt t h us co n cl u d ed t h at t h e Hu b b a r d cas e

“ d i d n o t creat e an y newl y d i s cl o s ed i n t eres t o r bi as ag ai n st W el l s Farg o .” Ag ai n,

h o wev er, t h e Di rect o r h as d i s cret i on i n d et erm i n i ng wh et h er an arb i t rat o r s ho u l d b e

rem o v ed . See FINRA Ru le 1 2 4 0 8

. An d t h e Di rect o r m ay gran t a req u es t t o rem o v e

an arb it rat o r b efo re th e arb it rat i o n h eari n g “ i f i t i s reas o na b l e t o i n fer, b as ed o n

i n fo rm at i o n k n o wn at t h e t im e o f t h e req u es t ,” t h at th e arb i t rat or i s b ias ed o r h as a

co n fl i ct o f i nt eres t. FINRA Ru l e 1 2 4 0 7 (a). Th e i n teres t o r b i as at i s s u e can n o t b e

“ rem o t e o r s p ecu l at i v e.” Id

. Bu t W el l s Farg o p o i n t ed t o a s p eci fi c n ew d ev el o p m en t

— th e fi l i n g of t h e Hu b b a rd co m p l ai n t

— t o rai se co n cern s a b o u t C a n f i el d ’ s

i m p art i al i t y

.

Th e s up e r i o r co urt di d no t d eem t h i s n ew d ev el op m en t wo rt h y o f Can fi el d ’ s

rem o v al

. W e can no t co n cl u d e, h o wev er, t h at t h e Di rec t o r ab us ed h i s d i s cret i o n by

r e a c h i ng t h e o p p o si t e res ul t an d fi n d i n g

, bas ed o n t h e av ai lab l e i n fo rm at i o n

, a

reas on ab l e i n feren ce o f b i as o r co n fl i ct ed i n t eres t

. See gen eral l y Jo h ns o n v. Di r ect o r y

As s i s t a n t s In c ., 7 9 7 F3 d 1 29 4 , 1 3 02 (III) (D) (1 1 t h Ci r. 2 0 15 ) (“ m ere d i sag reem en t

wi t h an arb i trat o r’ s l eg al o r fact u al d et erm i n at i o n s d oes n o t j u s t ify v acat u r u n d er §

121 0 (a) (4 )”). It fo l l o ws th at t he Di rect or a n d o th er arb it rat o rs d i d no t act o u t s i d e o f

t h ei r au t ho ri t y i n d is m i s s in g Can fi el d an d m o v i n g fo rward wi t h o u t h i m

. See Peco

Fo o ds In c.

, s u p ra; D a vi s , s u p ra.

2

. W el ls Farg o arg u es th at t h e s u p eri o r co urt i m p ro perl y fo u n d t he arb i t rat o rs

g u i l t y of m is co n d u ct in fai l i n g t o co nt i n u e t h e S ep t em b er 2 0 1 8 arb i t rat i o n

p ro ceed in g s . W e ag ree.

An arb i t rat i o n award en t ered un d er t h e FAA m ay b e v acat ed if “ t h e arb i t rat o rs

were g u i lt y

o f m i sco nd u ct i n refu s i n g t o p o s t po n e t h e h eari n g.” 9 USC § 1 0 (a) (3 ).

A p art y m o v in g t o t h e v acat e an award o n t h i s g ro u n d

, h o we v e r

, “ m u s t s h o w t h at

t h ere was n o reas on ab l e b as i s fo r t h e [arb i t rat ors ’ ] refu s al t o po s tp o n e t h e heari n g.”

CM So u t h Ea s t Texa s Ho u s to n

, LLC v. Ca reMi n d e r s H o me Ca r e, In c.

, 6 6 2 Fed

.

Ap p x

. 7 0 1

, 7 0 4 (II) (1 1 t h Ci r. 2 01 6 ). In ad d res s i n g t h e reas o n ab len es s o f t h e

arb i t rat o rs ’ d eci s i o n

, “ we are m i n dfu l o f fed eral po l i cy fav o r i n g t he ‘ ex p ed i t i ou s

h an dl i n g ’ o f arb i t rat i o n cas es

, an d al s o t h at a res ch ed ul ed h eari n g wo u l d h av e t o n ot

o n l y ‘ m eet t h e co n v en i en ce o f b o t h p art ies an d t h ei r wi t n es s es

, ’ b u t t h e co n v en i en ce

o f t h e arb i t rat o r[s ] as wel l

. ” Id

. (ci t at i o n an d p un ct u at io n o m i t t ed ). M o reo v er, a co u rt

m ay “ v acat e an award o n t hes e g ro u n d s on l y i f t he arb i trat o r[s ’ ] ch o i ce preju d i ced t h e

13ri gh t s of t h e p a r t i e s an d den i ed t h em a fai r h eari n g .” Id

. (ci t at i o n an d pu n ct u at i o n

o m it t ed ).

Th e FINRA ru les req u i re p art ies to ex ch an g e wi t n es s li s t s an d n o t -y et

p r o d u c ed d o cu m en t s t h at t h ey i n t en d t o u s e at t h e arb i t rat i o n h eari n g “ [a] t l eas t 2 0

d a y s b e fo re t h e fi rs t s ch ed u l ed h eari n g d at e.” FINRA Ru l e 1 2 5 1 4 (a) & (b ). In t hi s

cas e, t h e 2 0 -d ay sch ed u l e wo u l d h av e es t ab l is h ed Sep tem b er 4

, 20 1 8

, as t h e d ead l i n e

fo r ex ch an gi n g do cu m en t s an d wi t n es s l is ts

. Th e p art i es

, h owev er, ag reed t o ex t en d

t h e do cu m en t ex ch an g e dead l i n e t o Sep t em b er 1 0, 2 01 8

. Pu rs u an t t o t h e ag reem en t

,

W el l s Farg o p ro vi d ed t h e i n v es t o rs wi th ap p ro x i m at el y 1 ,8 0 0 p ag es o f do cu m en t s o n

Sep tem b er 6

, 2 0 1 8. Th e i n ves t o rs t urn ed o ver ap p ro x i m at el y 1

, 6 0 0 p ag es o f m at eri al

o n Sep tem

b er 1 0

, 2 0 1 8

. Th at s am e d ay

, th e i n v es t o rs m o ved t o co n t i n u e th e h eari n g

u n t i l N o v em

b er or Dece m

b e r 2 0 1 8

, as s ert in g th at t h ey n eed ed ad d i t i o nal t i m e to

rev i ew t h e n ew d o cu m en t s . Th e arb i t rat o rs d en ied t h e req u es t

.

In v acat i ng t h e award

, t h e s u p eri o r co urt cri t i ci zed t h e arb i trat o rs fo r n ot

ex p lai n i n g wh y t h ey d en i ed t h e req u es t fo r co nt i n uan ce. It al s o co n cl u d ed th at W el l s

Farg o h ad v i o l at ed F I N R A’s ru l es by fai l i ng t o m eet th e 2 0-d ay d ead l i n e fo r

ex ch an g i n g d o cu m en t s

. Bu t we h av e fo u n d n o ru l e o r o t h er au t ho ri t y req u i ri n g t h e

p an el t o d et ai l i t s reas o n s fo r den y i n g t h e i n v es t o rs ’ co nt i n u an ce req u es t

. See FINRA

14Ru l e 12 6 0 1 (d es cri b i n g p ro ced u res fo r p o s t p o n em en t o f h e a ri n gs ); s ee g en eral l y

FINRA Ru le 1 2 90 4 (f) & (g ) (FINRA arb i t rat o rs are n o t req u i red t o ex p l ai n t h e b as i s

fo r an arb i t rat i on award u n l es s al l p art i es s p eci fi cal l y req u es t an ex p l ai n ed d eci s i o n ).

An d t h e p art i es a g r eed t o ex t en d t h e d o cu m en t ex ch an g e d ead l i n e t h ro u gh Sep t em b er

1 0

, 2 0 1 8

. Bo t h s id es m et t h e n ewl y es t ab l i s h ed t i m e fram e, wi t h each p ro d u ci n g o v er

1 ,6 00 d o cu m en t s

.

By t h e t i m e t h e i n v es t o rs req u es ted a co n t i n u an ce o n Sep t em b er 1 0

, 2 0 1 8

, t h ei r

s t at em en t o f cl ai m h ad been p en d i n g fo r o v er 16 m o n t h s

, an d t h e arb it rat i o n was

s ch ed u l ed to st art 1 4 d ay s l at er. W el l s Farg o

, wh i ch al s o had t o rev iew a l arg e n u m b er

o f n ew d oc um e nts, obj e c ted t o d el ay i n g t h e m u l t i -d ay h eari n g th at i n v o l v ed nu m ero u s

wi t n es s es

, ex p ert s

, an d arb i t r a t o rs

. Gi v en t h e i n ves t o rs ’ co n s en t t o t h e d el ay ed

d o cu m en t e x c h a n g e, as wel l as t h e co m p l ex i ti es i n heren t i n res ch ed ul i n g a l en g t hy

h eari n g wi t h m

u l t i p l e p art i es an d wi t n es s es

, t h e i n v es t o rs hav e n o t d em o ns t rat ed t h at

t h e arb i t rat o rs l ack ed a reas o nab l e b as i s fo r d en y in g t h e co n t i n uan ce req u es t

.

Fu rt herm o re, t h e reco rd s h o ws t h at t h e pro ceed i n gs w ere, i n fact

, co n t i n u ed

fo l l o w i n g a m ed i cal em erg en cy o n Sep t em

b er 2 8 , 2 0 1 8 , an d t h e arb i t rat i o n h eari n g

r eco n v en ed ap p ro x i m at el y n i n e m o n th s lat er fo r an ad d i t i o n al fi v e d ays

. T h e

i n v es t o rs

, t h erefo re, h ad an ex t en s i v e p eri od b efo re t h e co ncl u s io n o f t h e arb i t rat i o n

15h eari n g t o rev i ew t h e d o cu m en t s

. Al t h o ug h th ey co m p lai n t h at t h ey were req u i red to

co m m en ce t h e arb i t rat io n “ wi t h o u t s u f f i ci en t t i m e t o d i g es t t he l at e p ro d u ced

d o cu m en t s ,” t h e i n v es t o rs h av e n ot e xpla ine d how t hei r s t rat eg y o r p res en t at i o n m i g ht

h av e ch an g ed had t h ey b een ab l e t o fu l l y “ d i g es t ” th e m at eri al i n Sep t em b er 2 0 1 8.

Acco rd in g ly

, becau s e t h e i n v es t o rs h av e n o t s h o wn t h at t h ey w ere p reju d i ced b y t h e

arb i t rat o rs ’ i n i ti al refu s al to co n t i n u e t h e h eari n g

, t h e t ri al co u rt erred in v acat i n g t h e

arb i t rat i on award o n t hi s g ro u n d

. See CM S ou t h Ea s t Texa s Ho u s t o n , LLC , s u p ra at

7 0 5 (II) (p art y fai led t o s h o w t h at arb i t rat o r’ s refu s al t o co n t i n u e h eari n g fo l l o wi n g

m ed i cal em erg en cy i n k ey wi t n es s ’ s fam i l y c a u s ed p reju d i ce; t he wi t n es s p ro v i d ed

h o u rs o f t es t i m o n y

, an d al th o u g h t h e p art y as s ert ed t h at t h e wi t n es s “ co u ld hav e d o n e

a m u ch b et t er j o b ” i f no t i n vo l v ed i n a fam i l y em erg en cy

, i t “ fai l [ed ] t o ex p l ai n h o w

h e wo u l d h av e d o n e s o ”).

3

. Th e s u peri o r co urt al s o fo un d t h e a r bi t rat o rs g ui l t y o f m i s co n d uct i n (a)

refu si n g t o al l o w tes t im o n y fro m t h e i n v es t o rs ’ reb u t t al wi t n es s

, an d (b ) l i m i t i n g t h e

i n v es t o rs ’ cro s s -ex am i nat i o n o f a W el l s Farg o ex p ert

. An award m ay b e vacat ed i f an

arb i t rat o r en g ag es i n m i s co n d u ct b y “ refu s i ng t o h ear ev i d en ce pert i nen t an d m at eri al

t o t he co n t ro v ers y .” 9 USC § 1 0 (a) (3 ). Th i s p ro v i si o n , h owev er,

16d o es n o t w arran t v acat u r wh ere an arb it rat o r m erel y m ad e an erro n eo u s

d i s co v ery o r ev i d en t i ary ru l i n g ; rat h er, a [cl ai m an t ] m u s t s h o w t h at th e

arb i t rat or’ s h an d l i n g o f t h es e m at t ers was i n b ad fai t h o r s o g ro s s as t o

am o u nt to affi rm at i v e m is co n d u ct

, effect i v el y d ep ri v i n g t h e [cl ai m an t ]

o f a fu n d am en tal l y fai r p ro ceed i n g

.

Po ch a t v. Mer r i l l Lyn ch

, P i e r c e

, Fen ner & S mi th

, 2 0 1 3 U.S. Di s t

. L EXIS 1 1 9 4 4 7,

* 3 1 (C) (2 ) (S. D. Fl a. 20 1 3 ); s ee al s o Akp el e v. Pa ci f i c Li f e In s. Co

. , 6 46 Fed

. Ap p x.

9 0 8

, 9 1 3 (III) (A) (1 1 t h Ci r. 2 0 1 6 ) (“ [R] ev i ew o f arb i t ral ev i d en ti a r y r u l i n g s i s

l i m i ted

, b u t act i n g i n b ad fai t h

, fo r ex am p l e, m ay am o u nt t o m i s co n d uct un d er t h e

FAA.”); Fo wl er

v. Ri t z -Ca r l to n Ho t el Co

. , 5 79 Fed

. Ap p x

. 69 3

, 6 9 8 (IV) (B) (1 1 th

C i r

. 2 0 1 4 ) (“ [A] n award i s o n l y v acat ed fo r refu s i n g t o co n s i d er ev i d en ce wh en a n

arb i t rat o r’ s erro r i s i n b ad fai t h o r s o g ro s s as to am o u n t t o affi rm at i ve m i s co n d u ct .”)

(ci t at i o n an d p u nct u at io n o m i t ted ).

(a) Acco rd i n g t o th e s u p eri o r co u rt , t h e arb it rat o rs en g ag ed i n m i s co n d u ct by

refu si n g t o al lo w t h e i n v es t ors t o cal l t h ei r cu rren t Ch arl es Sch wab st o ck bro k er as a

reb u t t al wi t n es s t o ad dres s cro ss -ex am i n at i o n t es t i m o n y gi v en b y t hei r o wn ex p ert

reg ard i n g t h ei r recen t s t o ck trad i n g act i v it y

. In req u es t i n g p erm i s s io n t o p res en t t h e

reb u t t al wi t n es s

, t he i n v es t o rs a r gue d th at th ei r Sch w ab b ro k er was m o re fam i l i ar wi th

17t h e t rad es t han t h e ex p ert an d s h o u l d b e al l o wed t o tes t ify reg ard i ng th e t ran s act i o n s

.

Th e arb i t rat o rs d en ied t h e req ues t

, fi n d i n g as fo l lo ws :

Ou r i m p res s io n i s t h at t h ere’ s s o m e d es i re o n [t he i n v es t o r s ’] p art t o

reb u t th e — i t was n ’ t s o m u ch t h e t es t i m o n y o f t he ex p ert

, b u t rat h er th e

way t h e

— t h e ch aract eri zat i o n o f t h e i n fo r m a t i on an d t h e t rad e

co n fi rm at i o n

. Th at ’ s o u r i m p res s i o n o f wh at th e g oal i s

. An d o u r b el i ef

i s t h at t h at can b e acco m

p l i s h ed b y [t h e i n v es t o rs ]

, b y co u n s el

, du ri n g

t h e arg u m en t

. Th e t rad e co n fi rm s are i n t he reco rd

, an d w e wo u ld i n v i t e

y o u t o ad d res s t h at

. W e d o n ’ t feel as if an y t h i n g w o u l d b e ad d ed b y th e

Sch wab rep res en t at i v e, an d t h at ’ s o ur ru li n g

.

Th e i n v es to rs cl ai m o n ap p eal t h at th e Sch wab b ro k er’ s tes t im o n y wo u l d h av e

b een r e l e v a n t a n d no n -cu m u l at i v e. Bu t t h ey h av e p o i n ted t o n o ev i d en ce t h at t h e

arb i t rat o rs act ed i n bad fai t h o r co m m it t ed a g ro s s erro r i n refu s i n g t o ad m i t i t

.

In s t ead

, aft er h eari n g arg um en t an d co n s i deri n g t h e m at t er, t h e arb i trat o rs fo u n d t h e

r eq u es t ed reb u t t al t es t i m o n y un n eces s ary

, gi v en t h e o t h er ev i d en ce i n t h e rec o r d

.

Al t h o u g h t h e i n v es t o rs d i s ag ree wi t h t h i s ru l i n g

, “ a m ere d i fferen ce o f o p i n i o n

b et ween t h e arb i t rat o r s a n d t h e m ov i n g p art y as t o t h e co rrect res o l u t i o n o f a

p ro ced ural p ro b l em wi ll n o t s u pp o rt v acat u r u nd er s ect i on 1 0 (a) (3 ).” Po ch a t

, s u p ra

at 3 2 ( c ) ( 2 ) (ci t at i o n an d p u n ct u at i o n o m i t t ed ). T h e s u p eri o r co urt erred i n fi n d i n g

m i s co n du ct h ere.

18(b ) Th e s u p eri o r co u rt al so co n cl u d ed t h at t h e arb i t rat o rs i m pro p erl y cu rt ai l ed

t h e i n v e s t o rs ’ cro s s -ex am in at i o n o f a “ l as t m i n u te” ex p ert wi tn es s cal l ed b y W el l s

F a r g o

. We d o n o t h av e a fu l l t ran s cri p t o f t h e arb i t rat i o n h eari ng

. Reco rd ex cerp t s

ci t ed b y t he i n v es t o rs

, h o wev er, s h o w t h at a d i s pu t e aro s e b et ween co un s el reg ard i n g

t h e s co p e o f t h e ex p ert ’ s tes t im o n y an d w h et her h e co u l d an s wer qu es t io n s ab o u t a

p art i cu l ar d o cu m en t

. Th e ex cerp t s fu rt h er sh o w t h at t h e arb i t rat o rs di d n o t ru le o n t h i s

d i s p u t e o r res t ri c t t he i n v es t ors ’ cro s s -ex am i n at io n

. Th ey ad m i t t ed in t o ev i d en ce a

d o cu m en t t o wh i ch t h e i n v es t o rs o b ject ed

. Bu t th ey d i d n o t l i m i t t h e i n v es to rs ’

q u es ti o n i n g o f t h e ex pert

. Th e s u p eri o r co urt

, th erefo re, erred i n f i n d i n g t h at t h e

arb i t rat o rs “ refu s [ed ] t o p erm it co u n s el fo r th e [i ] n v es t o rs t o fu l l y cro s s-ex am i n e” t h i s

wi t n es s

.

4

. C i t i n g 9 U S C § 1 0 (a) (1 ), t h e s u p eri o r co u rt al s o v acat ed t h e award aft er

co n cl u d in g t h at t h e award had b een “ pro cu red b y frau d .” Sp eci fi cal l y

, th e co u rt fo u n d

t h at W el l s Farg o b ro k er M cKel v ey

, w ho wa s i n t he p ro ces s o f tes t ify i n g wh en t h e

h eari n g w as co n t in ued i n Sep t em b er 2 0 1 8

, o ffered co n fl i ct i n g “ p erju red ” t es t i m o ny

wh en th e h eari n g rec o m m e n c e d i n J u ly 2 01 9 ; t h at co u n s el fo r W el l s Farg o m ad e

fact ual m i s s t at em en t s du ri n g t h e h eari n g ; an d t h at W el l s Farg o fai l ed t o t u rn o v er a

19s p eci fi ed d ocu m en t u nt i l aft er t h e cl o s e o f ev i d en ce, d es pi t e b ei n g o rd ered t o p ro d uce

t h e d o cu m en t b y

t h e arb i trat o rs

.

To s h o w t h e frau d neces s ary t o v acat e an arb i t rat i o n award : ( 1 ) “ t h e m o v an t

m u st es t ab l i sh frau d by cl ear an d co nv i n ci n g ev i den ce; ( 2 ) t h e frau d m us t n o t h av e

b een d i s co v erab l e u p o n t h e ex erci s e o f du e d i l i g en ce pri o r t o o r d u ri n g t h e

arb i t rat i on ; an d ( 3 ) t he frau d m u st h av e m at eri al ly rel at ed t o an i s su e i n t h e

arb i t rat i on .” Fl o r i di a n s fo r S o l ar Ch o i ce v. Pa

p a r el l a

, 80 2 Fed

. Ap p x

. 51 9

, 52 3 (1 1 th

Ci r. 2 02 0 ) (ci t at io n an d p u n ct u at i o n o m i t t ed ). Th e m ov i n g p art y m u s t s at i s fy al l t h ree

p ro n gs b efo re a t ri al co u rt can v acat e an arb i t rat io n award fo r frau d u n d er 9 USC §

1 0 (a) (1 ). See i d.

As an i ni ti al m at t e r

, w e h a v e n o t b een ab l e to l o cat e an y reco rd ev i d en ce o f

M cKel v ey ’ s t es t i m on y fro m t h e Sep t em b er 2 0 18 p ro ceed i n g

, w h i ch e v i d en t l y was

au d io -reco rd ed

, b u t n o t o ffi ci al l y t ran s cri b ed

. T h e a u d io t ap e i s n o t i n t h e ap p el l at e

reco rd

. An d al t h o u g h t h e i n v es t o rs p r o v i d e d a recap in t h ei r b ri ef o f wh at t h ey

co n ten d t h e au d i o t ap e sh o ws wi t h res p ect t o M cKel v ey ’ s Sep t em b er 20 1 8 t es t i m o n y

,

“ [s ] t at em en t s o f fact in t h e b ri efs o f t h e p art i es un s u p p o rt ed b y ev i d en ce i n t h e reco rd

can n ot be co ns i d ered o n ap p eal .” Bea s l ey v. W a ch o vi a Ba n k

, 2 77 Ga. Ap p

. 6 9 8

, 6 9 8

(6 2 7 SE2 d 4 1 7 ) (2 0 0 6 ).

20It i s cl ear, h o wev er, t h at co u n s el fo r t h e i n v es t o rs w as aware o f t h e pu rp o rt ed

co n fl i ct s i n M cKel v ey ’ s t es t i m on y wh en h e cro s s-ex am i n ed M cKel v ey i n J u n e 2 0 1 9.

Co u n s el st at ed d u ri n g a Ju n e 2 0 1 9 arb i t rat i o n ses s i o n t h at h e d i d n o t h av e a tran s cri pt

o f t h e S e p t em

b er t es t i m o n y

. 4 Bu t h e as s ert ed t h at he h ad “ no t es ” an d recal l ed t h e

pr ior te stim ony

. C ounse l c r oss- e x am i ned McKel vey ab o u t t he al l eg ed i n co n s i s t en ci es

an d ch al l en g ed s t at em en ts b y W el l s Farg o ’ s co u n s el

, wh o i n s is t ed t h at t he t es t i m o ny

was co n s i s t en t

. Becau s e M cKel v ey ’ s al l eg ed l y i n co n s i s ten t t e s t i m on y was

d i s co v erab l e

— an d was

, in fact

, d i s co v ered

— b y t h e i n v es t o rs d u ri n g t h e arb i t rat i o n,

i t d oes no t s u p p o rt a fi n d i n g of frau d

. See Fr eema n v. Ci t ib a n k, N.A.

, 2 0 15 U.S. Di s t

.

LEXIS 1 9 76 1 0

, *3 5 (II) (B) ( 1 ) ( N

. D. Ga. 2 0 1 5) (n o vacat u r fo r frau d wh ere

cl ai m an t was aware o f al l eg ed m i s co n d u ct du ri n g arb i t rat i o n

, b r o u g h t i t t o t h e

arb i t rat o rs ’ at t en t i o n an d ch al l en g ed i t t h ro u g h o b ject i on s ).

Th e i n ves to rs a l s o co m

pl ai n t h at wh i l e t h ei r co u n s el was cro s s -ex am i n i n g a

W el l s Farg o ex pert reg ard i n g a s to ck t r a d e r e p o rt

, co u n s el fo r W el l s Farg o m ad e

fact ual m i s s t at em en t s ab o u t t h e m ean i n g o f cert ai n dat es o n t h e rep o rt

. W e h av e n ot

b een ab l e t o fi n d a co m

p let e ex cerp t of t h i s cro s s

- ex am i nat i o n in t h e reco rd

. Th e

4 Al t h o u g h t h e i n v es t o rs cl a i m t h at t h e au d i o t ap e o f t h e Sep tem ber 2 0 1 8

p ro ceed in g s were n o t av ai l ab l e t o t h e p art i es o r t h e arb i t rat o rs at t h at p o i n t

, th ey h av e

p ro v id ed n o au t ho ri t y

o r reco rd ci t e t o s u p p o rt t h at as s ert i o n

.

21av ai l ab l e r e c o rd sh o ws

, h o wev er, t h at w h en t h e in ves t o rs ’ co u n s el q ues t i o n ed t h e

accu racy o f op p o s i n g co u n sel ’ s fact u al s t at em en t s d u ri n g t h e arb it rat i o n

, o p p o s i n g

co u ns el n o t ed : “ I was s p eak i n g as t o m y k n o wl ed g e as to h o w t h ey d o t h ei r [rep o rt ]

.

If y o u ’ v e g o t a q u es t io n ab o u t a s p eci fi c s i t u at i o n

. . . [y o u can as k ] t he g uy wh o d id

[t he rep o rt ] ,” wh o was y et t o t es t i fy

. Op p o s i ng co u n s e l ’ s al leg ed l y i n accu rat e

s t at em en t s

, t h erefo re, were ei t h er d is co v ered o r d i s co v erab l e d uri n g t h e arb i t rat i o n.

See Fr eema n , s u p ra.

Si m i l arl y

, t h e reco rd s h o w s t h a t W el l s Farg o pro d u ced t h e d o cu m en t i t h ad

b een ord er e d t o p r od u ce b efo re t h e arb i t rat i o n co n cl ud ed

, an d co u n s el fo r W el l s

Farg o as k ed t h at i t b e m ad e an ex h i b it t o t h e arb i t rat io n

. Li ke t h e o t h er al l eg ed

i n s t an ces o f frau d

, t h e i n ves to rs k n ew o r s h o u l d h av e k n o wn ab o u t t h e l at e p ro d u ct i o n

b efo re t h e h eari n g ad

jo u rn ed

. W el l s Farg o’ s co n d u ct pro v i des n o g ro u n ds fo r a frau d

b as ed v acat u r. See g en eral l y Fl o r i di a n s f o r S o l a r Ch oi ce , s up ra; Fr eema n , s u p ra.

5

. Fi n al l y

, t h e s u p eri o r co u rt v acat ed t h e arb i t rat i o n award u n d er 9 USC § 1 0

(a) (3 ) aft er fi n d i n g th at t h e arb i t rat o rs i m p ro perl y ord ered Leg g et t t o p ay $ 3 2 ,2 0 0 in

h eari n g s es s i o n fees an d d i rect ed h im t o rei m b u rs e W el l s Farg o fo r $ 5 1,0 0 0 i n co s t s

.

In t h e co u rt ’ s v i e w, t h e arb i t rat o rs i g n o red t he part ies ’ arb i trat i o n ag reem en t an d

“ d i sp en s [ed ] t hei r o wn b ran d o f i n d u s t ri al ju s t i ce” i n i m p o si n g t h es e co s t s an d fees

.

22Ag ai n

, h owev er, an arb i trat io n award m ay o n l y b e v acat ed u nd er 9 USC § 1 0 (a) (3 )

wh en t h e arb i t rat o rs ’ co nd uct “ was i n b ad fai t h o r so g ro s s as t o am o u n t t o affi rm at i v e

m i s co n du ct

, effect i v el y dep ri v i n g t h e [cl ai m an t ] o f a fu n dam en t al l y fai r p ro ceed i n g.”

Th a mes v. W

o o d men o f t h e W o r l d Li fe In s . S o ci et y , 2 01 3 U.S. Di s t . LEXIS 1 1 4 4 8 9

at * 1 5 (II) (B) (1 ) (S. D. Al a. 2 0 1 3 ). No t h i n g i n d icat es t hat t h e arb i t rat o rs en g ag ed in

s u ch m i sco n d u ct o r m i s b eh av i o r.

(a) Co s t s

. A cc o r d i n g to t h e s u p eri o r co u rt

, “ FINRA’ s Co d e o f A rb i t rat i o n

Pro ced ure

. . . d o es n o t co n t ai n an y p ro v i si o n g ran t i n g arb i trat o rs t h e au t h o ri t y t o s hi ft

t h e ex p en s es o f l i t ig at i o n [t o t h e op p o s i n g p art y ] .” Bu t t h e FINRA ru l es p erm i t an

arb i t rat i on p an el t o i m

p o se m o net ary

s an ct io n s (i n cl u d i n g as s es s in g co s t s an d fees )

ag ai n s t a p art y t h at fai l s t o co m p l y w i t h an y p ro v i s i o n o f t h e Co d e. See FINRA Ru l e

1 2 2 1 2 (a). Am o n g o t h er th i n g s

, t h e Co d e req u ires wi t n es s es t o t es t i fy u n d er oat h

. See

FINRA Ru l e 1 2 6 0 5

. Th e arb i t rat ors s peci fi cal l y fo u nd t h at L eg g et t

— t h e o n l y

cl ai m an t ag ai n s t wh o m co s t s were as ses s ed

— had p ro v i d ed fal s e t es t i m o n y d u ri n g

t h e arb i t rat i o n

.

In ad d i t i o n

, FINRA’ s p ro ced u res al l o w a pan el t o al l o cat e co st s “ t hat are wi t h in

t h e s co p e of t he [arb i trat io n ] ag reem en t .” See FINRA Ru l e 1 29 0 2 ( c )

. Al t h o u g h

p art i es gen eral l y b ear th ei r o w n co st s in l i t i g at i o n

, j u d ici al an d q u as i-ju di ci al b o d i es

23(i ncl ud i ng a n arb i t rat i o n p an el o p erat i n g u n d er t h e FAA) are au t h o ri zed t o award

a t t o r n e y fees an d / o r co s t s un d er th e b ad fai t h ex cep t io n t o t h i s g en eral ru l e. S e e

Ma r s h a ll & Co

. v. Du ke

, 1 1 4 F3 d 1 8 8

, 18 9 -1 9 0 (2 ) (1 1 t h Ci r. 1 9 9 7). Th e b ro ad

l an g u ag e o f t h e part i es ’ arb i t rat i o n ag reem en t d i d n o t s t ri p t h e p an el o f i t s ab i l i t y to

award co s t s as a s an ct io n fo r b ad fai t h co n d uct

. See Rel i a S ta r Li fe In s

. Co

. v. EMC

Na t

. Li f e Co

. , 5 6 4 F3 d 8 1

, 87 -8 8 (2 ) (C) (2 d Ci r. 2 0 0 9 ) ( l a n g u ag e o f p art i es ’

arb i t rat i on ag reem en t d i d no t res t ri ct arb i t rat o r’ s au t h o ri t y t o im po s e s an ct io n fo r b ad

fai t h co n d u ct ). Th e arb i t rat o rs

, t h erefo re, h a d t h e au t h o ri t y t o i m p os e s an ct i o n s fo r

b ad fai t h

. 5 See i d.

A wi t n es s t es t i fi ed t h at W el l s Farg o h ad i n cu rred co s t s o f o v er $ 5 1,0 00 d u ri n g

t h e arb it rat i o n p r o c e s s

. G i v en th i s tes t i m o n y

, as wel l as t he arb i t rat o rs ’ co n cl u s i o n

t h at L e g g e t t p res en t ed fal s e cl ai m s an d u n t ru e t es t i m o n y d uri n g t h e arb i t rat i o n

, t h e

arb i t rat o rs d i d n o t en g ag e i n m i s co n d uct o r m i s b eh av i o r b y o rd eri ng Leg et t to

5 T h e p art i es ’ a g r e em en t p ro v i d ed t h at t h e arb i trat i o n wo ul d “ be co n d u ct ed

p u r s u a n t t o t h e [FAA] an d t h e Laws o f t h e St at e o f N ew Yo rk .” T o th e ex t en t t h e

i s su e o f co s t s w as g o v ern ed by New Yo rk l aw, we n o te t h at ju di ci al b o d i es i n New

Yo rk m ay i m

po s e co s t s as a s an ct i o n fo r “ fri v o l o u s co n du ct ,” w h i ch i n cl u d es

as s ert i o n s o f “ m at eri al fact u al s t at em en t s t h at are fal se.” 2 2 NYCRR § 1 30 -1

. 1 (c) (3 ).

24rei m

b u rs e W el l s Farg o fo r $5 1 ,0 0 0 i n co s ts

. 6 See, e.g

., FINRA Ru l e 1 2 2 1 2 ( a ) ;

Per i ch a k v. In t l

. Un i o n o

f El ect r i ca l Ra d io & Ma ch i n e W o r ker s

, Lo ca l 6 0 1

, 7 1 5 F2 d

7 8

, 8 4 n .9 (III) (3 d Ci r. 1 9 83 ) (cl ai m an t ’ s “ m at eri al l y fal se s t at em en t s m ad e u n d er

o at h are, h av i ng b een cri t i cal t o t h e s u cces s o f h i s c a s e, al o ne, en o u g h t o s u p p ort a

fi nd i ng o f b ad fai t h ”) (ci t at i o n an d p u n ct u at i on o m i t ted ).

(b ) Th e Hea r i n g

S es si o n Fees

. Th e arb i t rat o rs fu rt her o rd ered Leg g et t t o p ay

t h e h eari n g ses s i o n fees fo r t h e arb i trat i o n

. See FINRA Ru le 1 2 9 0 2 (a) (1 ) (“ In t h e

award

, t he p an el wi l l det erm i n e t h e am o u n t o f each h eari n g s es s i o n fee th at each p art y

m u st p ay .”). Pu rs u an t t o FINRA Ru l e 1 21 0 0 (p ), a “ heari n g s es s io n ” is “ an y m eet i n g

b et ween t h e part i es an d arb i trat o rs o f fo u r h o u rs o r l es s

, i ncl u d i n g a h eari n g o r a

p reh eari n g co n feren ce.” T h e arb i t rat o rs d et erm i n ed t h at t h e p ro ceed i n g s co n s i s t ed o f

2 3 t ot al h eari n g s es s io n s

. Us in g g u i d e l i n e s s et fo rt h i n FINRA Ru l e 1 2 9 0 2 (a), t h e

6 Th e s up eri o r co u rt v acat ed t h i s p o rt i o n o f t h e arb i t rat i o n award b as ed o n t h e

m i s co n du ct / m i s b eh av i o r p ro v i s i o n i n 9 USC § 1 0 (a) (3 ). It d i d n ot rel y o n 9 USC §

1 0 (a) (4 ), wh i ch p ro h ib it s an arb i trat o r fro m ex ceed i n g h i s o r h er p o w ers . Becau s e

t h e arb i t rat o rs were au t h o ri zed t o i m p o s e co s t s as a s an ct i o n, h o w ev er, 9 USC § 1 0

(a) (4 ) al s o wo u ld p ro v i d e n o b as i s fo r v acat u r.

25arb i t rat o rs cal cu l at ed t h e fee fo r each h eari n g s es si o n t o b e $ 1 4 00 , fo r a t o t al fee o f

$ 3 2 ,2 0 0

. 7

Th e i n ves t o rs d o n o t qu es t i o n t h e arb i t rat o rs ’ d eci s i o n t o as s es s Leg g et t wi th

t h e h eari n g s e s s i o n f

e e s. In s t ead

, t h ey arg u e th at th e p an el m is cal cu l at ed t h e

ap p ro p ri at e fee. Th ey cl ai m t h at b ecau s e t h e p an el award ed W el l s Farg o $ 5 1 ,0 0 0 in

co s t s

, t h e fee p er s es s i o n sh o u l d h av e b een b as ed o n t h at am o u n t u n d er FINRA Ru l e

1 2 9 0 2 (a) (4 ), w h i c h p ro v i d es : “ If h eari n g s es s i o n fees are al l ocat ed ag ai n s t a

cu s t o m er i n co n n ect i o n wi t h a cl ai m fi l ed b y a m em b e r o r as s o ci at ed p ers o n

, t h e

am ou n t o f heari n g s es si o n fees t h e cu s t om er m u s t p ay m u s t b e b as ed o n t h e am o u nt

act u al l y award ed t o t h e m em b er or as s o ci at ed p e r s o n .” Th e in v es t o rs as s ert t h at

b ecau s e t h e p ro p er fee fo r a $ 5 1 ,0 0 0 c l a i m is $7 5 0 p er s es si on (n o t $ 1 4 0 0 p er

s es s i on ), Leg g et t s h o ul d h av e o n l y b een as s es s ed wi t h $ 17 ,2 5 0 i n fees . See FINRA

Ru l e 1 2 9 0 2 (a) (1 ). Th e s u p eri o r co u rt accep t ed th i s cal cu l a t i o n

, fi nd i ng t h at t h e

arb i t rat o rs erro n eo u s l y i m p o sed fees “ i nco n s i s t en t wi t h th e FI NRA Co d e o f

Arb it rat io n Pro ced u re.”

7 As s h o wn b y

cu rren t Ru l e 1 2 9 0 2, t he s es s i o n fees h av e i ncreas ed s i n ce t h i s

arb i t rat i on award was i s s u ed i n 2 0 1 9

.

26W e d i s ag ree. W el ls Farg o d id n o t fi l e a cl ai m fo r co st s

. An d ev en i f i t d i d

, t h e

a r b i t r at i on p an el pro p erl y as s es s ed h eari n g fees b as ed o n th e i n ves t o r s ’ cl ai m f o r

d am ag es ag ai n s t W el l s Farg o

. Pu rs u an t t o FINRA Ru l e 1 29 0 2 (a) (3 ), i f a pro ceed i n g

i n v o l v es m o re t h an o n e cl ai m

, “ t h e am o u n t of h eari n g s es s i o n fees wi l l b e b as ed o n

t h e l arg es t cl ai m

i n t he p ro ceed i n g .” Th e larg es t cl ai m i n t h e p ro ceed i n g —

a cl ai m

fo r m ore th an $ 1 .5 m i ll i o n ag ai n s t W el l s Farg o

— es t ab l i s h ed $ 1 40 0 as th e p ro p er fee

fo r each h eari n g s es s i on

. See FINRA Ru le 1 29 0 2 (a) (1 ).

6

. “ As l o n g as [an ] arb i t rat o r i s ev en arg u ab l y co n s t r u i n g o r ap p l y i n g t h e

co n tract an d act in g wi t h i n t he s co p e o f h i s au t ho ri t y

, t h at a co u rt i s c o n v i n c ed h e

co m m i t t e d s e r i o us erro r d o es n o t s uffi ce t o o v ert u rn h i s d eci si o n .” Un i t ed

Pa p er wo r ker s In t l

. U n io n v. Mi s co , In c. , 4 84 U. S. 2 9 , 3 8 (II) (A) (1 0 8 SCt 3 6 4

, 9 8

LE2 d 2 8 6) (1 9 8 7 ). Th e s u p e r i o r co u rt p ro v i d ed n o p ro p er b as i s fo r v acat i n g t h e

arb i t rat i on award u nd er 9 USC § 1 0 . Acco rd i n gl y , we rev ers e.

Ju d g men t r ever sed . Di l l a r d

, P. J., a n d

Ma r kl e, J., co n cu r

.

27