Opinion
A130643
10-07-2011
WELLS FARGO ADVISORS, LLC, Plaintiff and Appellant, v. STIFEL NICOLAUS, LLC, et al., Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(City & County of San Francisco Super. Ct. No. CPF -10-510489)
Plaintiff Wells Fargo Advisors (Wells Fargo) as successor in interest to Wachovia Securities, LLC (Wachovia) and A.G. Edwards & Sons, Inc. (A.G. Edwards) appeals from a judgment denying its petition to vacate and confirming an arbitration award in favor of defendants Stifel Nicolaus, LLC (Stifel) and Michael Chris Nielsen. We find no ground to vacate and therefore shall affirm the judgment.
Factual and Procedural Background
In May 2007, A.G. Edwards, a St. Louis, Missouri based securities firm, was purchased by Wachovia. At that time, Nielsen was working as a financial advisor for A.G. Edwards and was the manager of A.G. Edwards's office in Grass Valley, California. On October 1, 2007, Nielsen resigned from his job with A.G. Edwards to join Stifel's newly established Grass Valley office. Shortly thereafter, Nielsen's assistant and three other employees resigned from A.G. Edwards and joined Nielsen in the Grass Valley office.
On October 15, 2007, A.G. Edwards filed a complaint in federal district court seeking a temporary restraining order barring Nielson and Stifel from soliciting A.G. Edwards's personnel and using A.G. Edwards's confidential and proprietary business and customer information "pending resolution of [A.G.] Edwards's claims against defendants in the parallel arbitration proceeding." The complaint alleges that at Nielsen's direction, Stifel opened its new Grass Valley office with the intent to "confuse [A.G.] Edwards's clients and lead them to believe that [A.G.] Edwards's office was simply sold. As such, [Nielsen and Stifel] have destroyed Edward's Grass Valley branch office and are in the process of stealing and attempting to steal [A.G.] Edwards's clients." The complaint alleges further that "Nielsen has improperly solicited [A.G.] Edwards's personnel to join him at his new employer and . . . has assisted Stifel in hiring and recruiting other [A.G.] Edwards's employees and personnel. This solicitation has occurred in clear violation of Nielsen's common-law obligations and fiduciary duties to [A.G.] Edwards. The solicitation also represents unfair competition and misappropriation of trade secrets." The district court denied the restraining order and A.G. Edwards pursued its claims against Nielsen and Stifel in arbitration proceedings conducted pursuant to the arbitration agreements embodied in the parties' securities registrations with the Financial Industry Regulatory Authority.
A.G. Edwards's statement of claim prepared for the arbitration reiterates many of the same allegations—that Nielsen breached his contractual and fiduciary duties to A.G. Edwards, that Stifel induced Nielsen and other employees to breach employment agreements with A.G. Edwards, and that both Nielsen and Stifel misappropriated trade secrets, interfered with A.G. Edwards's actual and prospective economic advantage, converted A.G. Edwards's property and engaged in unfair competition.
The dispute was heard over 15 days before a panel of three arbitrators. The panel rejected all of A.G. Edwards's claims, awarded Stifel attorney fees in the amount of $632,748.14 "based on statute," and awarded Nielsen attorney fees in the amount of $282,143.57 "based on statute and contract."
Wells Fargo, as successor to Wachovia and A.G. Edwards, filed a petition in the San Francisco Superior Court to vacate the arbitration award on the ground that the arbitrators exceeded their authority and unfairly refused to receive material evidence that supported its claims. Its petition asserts: "The Panel's violations of the FAA resulted in an entirely unwarranted punitive award of $914,891.71 in attorney's fees against claimant [A.G.] Edwards and in favor of respondents Stifel and Nielsen. The FAA [(Federal Arbitration Act, 9 U.S.C.S. § 1 et seq.)] and California law requires that the award be vacated because the panel excluded from evidence significant material evidence offered by [A.G.] Edwards, disregarded undisputed evidence which contradicted their findings of 'bad faith,' and entirely failed to make the legally required allocation limiting respondents' attorney's fees to those relating to the misappropriation of trade secrets claim (instead of awarding respondents 100% of their defense fees and costs)." The court denied the petition, confirmed the award and entered judgment in favor of Stifel and Nielsen. Wells Fargo timely filed a notice of appeal.
Discussion
1. Standard Of Judicial Review—Choice of Law
We review de novo the trial court's order denying Wells Fargo's petition to vacate the arbitration award. (See Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 376, fn. 9; O'Flaherty v. Belgum (2004) 115 Cal.App.4th 1044, 1056.)
Initially, we must determine the scope of review that applies to the petition to vacate. Wells Fargo argues that because the arbitration agreement involves interstate commerce and is enforceable under the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.), the grounds for vacatur specified in section 10 of the FAA apply. Respondents contend that because the question is one of procedure, rather than substance, the FAA does not preempt state law and the grounds for review found in the California Arbitration Act (CAA) (Code Civ. Proc., § 1280 et seq.) apply.
Section 10, subdivision (a) of the FAA provides in relevant part, "In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration—[¶] (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." Section 11 specifies the grounds upon which an award may be modified or corrected.
Code of Civil Procedure section 1286.2, subdivision (a) provides in relevant part: "Subject to Section 1286.4, the court shall vacate the award if the court determines any of the following: [¶] (1) The award was procured by corruption, fraud or other undue means. [¶] (2) There was corruption in any of the arbitrators. [¶] (3) The rights of the party were substantially prejudiced by misconduct of a neutral arbitrator. [¶] (4) The arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted. [¶] (5) The rights of the party were substantially prejudiced by the refusal of the arbitrators to postpone the hearing upon sufficient cause being shown therefor or by the refusal of the arbitrators to hear evidence material to the controversy or by other conduct of the arbitrators contrary to the provisions of this title. [¶] (6) An arbitrator making the award either: (A) failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware; or (B) was subject to disqualification upon grounds specified in Section 1281.91 but failed upon receipt of timely demand to disqualify himself or herself as required by that provision. . . ." Section 1286.6 specifies grounds for correcting an award.
Although the federal and state provisions are very similar, the choice is potentially significant because "[i]t is established California law that under this state's arbitration act the merits of an arbitration award are not subject to judicial review." (Siegel v. Prudential Ins. Co. of America (1998) 67 Cal.App.4th 1270, 1279, citing Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 11.) The scope of review under the FAA is at least arguably more expansive. Some federal courts, although not all, allow challenges to arbitration awards for manifest disregard of the law. (See Hall Street Associates, L.L.C. v. Mattel, Inc. (2008) 552 U.S. 576, 584 (Hall Street) [grounds stated in section 10 of the FAA for vacating an arbitration award constitute the exclusive grounds for vacatur under the federal statute]; Lagstein v. Certain Underwriters at Lloyd's (9th Cir. 2010) 607 F3d 634, 641, fn. 5 ["manifest disregard" as an independent ground of vacatur survives Hall Street]; but see Citigroup Global Markets, Inc. v. Bacon (5th Cir. 2009) 562 F3d 349, 350 ["Hall Street restricts the grounds for vacatur to those set forth in § 10 of the [FAA], and consequently, manifest disregard of the law is no longer an independent ground for vacating arbitration awards under the FAA"]; see also Stolt-Nielsen S.A. v. Animal Feeds Int'l Corp. (2010) __ U.S. __ [130 S.Ct. 1758, 1768, fn. 3] [refusing to decide whether "manifest disregard" survives Hall Street as an independent ground for review or as a judicial gloss on the enumerated grounds for vacatur set forth in section 10 of the FAA].)
California courts have uniformly held that petitions to vacate arbitration awards filed in California courts are governed by the standards in the CAA, irrespective of whether the arbitration agreement was enforceable under the FAA. (SWAB Financial, LLC v. E*Trade Securities, LCC (2007) 150 Cal.App.4th 1181, 1195; Siegel v. Prudential Ins. Co. (1998) 67 Cal.App.4th 1270, 1290.) Appellant argues that the United States Supreme Court decision in Hall Street, supra, 552 U.S. 576, requires that the federal grounds for vacatur be applied in California courts when the underlying agreement is enforceable under the FAA. In Hall Street, the Supreme Court held that the grounds for vacatur found in section 10 are the exclusive grounds for proceedings under the FAA and when proceeding under the FAA may not be contractually expanded by agreement of the parties. (Id. at p. 585.) However, the Supreme Court also stated explicitly that proceedings under the FAA are not the exclusive means of enforcing an arbitration award, even if the agreement to arbitrate is enforceable under the FAA. "The FAA is not the only way into court for parties wanting review of arbitration awards: they may contemplate enforcement under state statutory or common law, for example, where judicial review of different scope is arguable." (Id. at p. 590.) Thus, Hall Street hardly supports Wells Fargo's argument for implied preemption and any such suggestion was soundly rejected by the California Supreme Court in Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334, 1344 (DIRECTV).
In DIRECTV, our Supreme Court confirmed that the FAA provisions for the review of arbitration awards are procedural rather than substantive and thus do not preempt state law. The court explained, "Section 2 of the FAA, declaring the enforceability of arbitration agreements, 'create[s] a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act.' [Citation.] The FAA governs agreements in contracts involving interstate commerce, like those in this case. [Citations.] The United States Supreme Court has frequently held that state laws invalidating arbitration agreements on grounds applicable only to arbitration provisions contravene the policy of enforceability established by section 2 of the FAA, and are therefore preempted. [Citation.] [¶] However, 'the United States Supreme Court does not read the FAA's procedural provisions to apply to state court proceedings.' [Citation.] Sections 3 and 4 of the FAA, governing stays of litigation and petitions to enforce arbitration agreements, do not apply in state court. [Citations.] As we have noted, the provisions for judicial review of arbitration awards in sections 10 and 11 of the FAA are directed to 'the United States court in and for the district wherein the award was made.' [Citation.] We have held that similar language in sections 3 and 4 of the FAA reflects Congress's intent to limit the application of those provisions to federal courts." (DIRECTV, supra, 44 Cal.4th at pp. 1350-1351.)
The court recognized that several California Courts of Appeal "have rejected claims that the FAA grounds for reviewing arbitration awards preempt their CAA counterparts" and concluded that the Court's decision in Hall Street did not alter this long standing rule. (DIRECTV, supra, 44 Cal.4th at pp. 1352-1353) The California Supreme Court observed that it did not "believe the Hall Street majority intended to declare a policy with preemptive effect in all cases involving interstate commerce. Hall Street was a federal case governed by federal law; the court considered no question of competing state law. It reviewed the application of FAA provisions for judicial review that speak only to the federal courts. The court unanimously left open other avenues for judicial review, including those provided by state statutory or common law. [Citations.] While the court, of course, decided nothing about the viability of these alternatives, their mention in the majority opinion indicates that Hall Street's holding on the effect of the FAA is a limited one." (Id. at pp. 1353-1354, fn. omitted.)
Wells Fargo's attempts to distinguish DIRECTV are not persuasive. First, it argues that DIRECTV is distinguishable because "the parties there proceeded under the CAA throughout the proceedings." In fact, the arbitration agreement in that case "directs the arbitrators to apply California substantive law, but specifies that the arbitration proceedings are to be governed by federal law and the rules of the American Arbitration Association (AAA)." (DIRECTV, supra, 44 Cal.4th at p. 1340.) As Wells Fargo notes, the present arbitration agreement similarly required the arbitrators to apply California substantive law and required that the proceedings be governed by the FAA.
Wells Fargo also argues DIRECTV is distinguishable because the decision rests on a finding that the parties had waived any claim that the FAA applied to their petition to vacate. It cites to footnote 12 in which the court notes the waiver: "DIRECTV's petition to vacate the award was filed, argued, and appealed in state court, and . . . both parties proceeded on the theory that the CAA was controlling. 'The rule is well settled that the theory upon which a case is tried must be adhered to on appeal. A party is not permitted to change his position and adopt a new and different theory on appeal. To permit him to do so would not only be unfair to the trial court, but manifestly unjust to the opposing litigant.' " (DIRECTV, supra, 44 Cal.4th at p. 1350, fn. 12.) This additional and alternative ground that the court noted would support its decision, discussed briefly in a footnote, does not diminish the explicit holding that the FAA does not preempt state procedures for the enforcement or vacation of arbitration awards.
Finally, DIRECTV cannot be distinguished on the ground that the parties in that case agreed to expand the scope of review to include the review of legal errors. While there was such an agreement in DIRECTV, that fact did not affect the court's analysis of whether the enforceability of that agreement was to be determined under the CAA or the FAA. Only after the court determined that the CAA governs did it go on to determine that the CAA permits the parties to enter an enforceable agreement to expand the scope of judicial review. As a result of the decision in Hall Street, such an agreement would not be enforceable if the post-arbitration provisions of the FAA were applicable. (See Countrywide Financial Corp. v. Bundy (2010) 187 Cal.App.4th 234, 249.)
The securities registration forms signed by the parties in this case constitute "an express agreement to arbitrate, enforceable under the FAA," as Wells Fargo argues. Wells Fargo does not suggest, however, that the agreement expressly provides that section 10 of the FAA will govern post-arbitration review of the arbitration award, or that the parties agreed to expand the scope of post-arbitration review to include review for manifest disregard of the law. Accordingly, the award may be vacated only on the limited grounds specified in Code of Civil Procedure section 1286.2 (Moncharsh v. Heily & Blase, supra, 3 Cal.4th 1.)
2. The exclusion of evidence does not provide a ground for vacating the arbitration award.
Under Code of Civil Procedure section 1286.2, subdivision (a)(5), the court shall vacate an arbitration award if "[t]he rights of the party were substantially prejudiced by . . . the refusal of the arbitrators to hear evidence material to the controversy. . . ." Wells Fargo contends that the award must be vacated under this provision because the arbitrators sustained objections to the introduction of certain email messages.
During the course of the arbitration hearing A.G. Edwards attempted to introduce into evidence excerpts from emails written by one John Lee. For 20 years Lee worked for A.G. Edwards as its Pacific Coast Regional Manager, but in August 2007 he was hired by Stifel as its Managing Director in charge of expansion in six western states, including California. In an email message written on July 15, 2007, while still at A.G. Edwards, Lee shared with other employees his thoughts about the Wachovia-A.G. Edwards merger. The email reads in relevant part: "This is a massive undertaking and I think they are all very excited about the opportunity and don't think they want to blow it. I felt they are being very diligent in their efforts to do this right. I guess that is what we are all waiting for. [¶] Several Managers in the meeting made it very clear to the panel they were looking at competition and had concerns about our future. I was impressed with the open candor I heard from the management panel regarding our choices. . . . [T]hey understand the onslaught from competitors soliciting us and asked us to be patient so they can earn the right to keep us. They said the retention package was designed to give us complete freedom to stick around and see how this develops. . . . [¶] . . . [¶] They know and understand we are all in the position to make 'our choice' on what to do. . . .We are very popular. [They] know we are shopping but are asking us to wait and compare before we decide. That is very fair. As management decisions are made, our choice will become clear. [¶] . . . We have already made our choice—we like working together. My primary focus is to keep us together and continue this fun ride. [¶] So, let's put all these 'deals' we are being offered in the drawer. There is no rush. My number one choice is to stay together. We have a great opportunity to do that with Wachovia if they do this right. If not, as management has invited us to do . . . We Ride. Please encourage your people not to do anything without talking to you and don't any of you do anything without talking to me. I remain hopeful. Please share with your people."
A second email written by Lee on July 25 reads in relevant part, "Danny [from Wachovia] is a likeable guy. I want to believe him. I told him if he can walk his talk, this merger will be a good thing. . . . [¶] . . . [¶] I have done my best to be as open as I can with all of you and I continue to encourage you to do th[e] same. . . . I see 4 competitors making the most penetration in our region: Morgan, Raymond James, RBC and Stifel. . . .
Remember it is now our time to make a choice. There is no rush or deadline to make that call. Aug 31 is the date you need to make your choice on the retention. I say take the money upfront. Why not? If any of you don't like what develops with this merger wherever you go will replace the money you take from [Wachovia] and then some. I also believe the longer it goes that [A.G. Edwards] people don't leave, the more aggressive competitors will get with their offers. So we still have the time to watch this unfold and perhaps benefit from the larger offers. Keep in mind [that] many competitors want revenge from the success [Wachovia] has had over the years stealing brokers from them. We remain the most coveted prize on Wall Street. Separate we are all valuable but together we are PRICELESS. Let's all stay close. [¶] I appreciate you sharing my email with all of your people."
The arbitrators excluded these emails on the ground that they were not relevant. The issue under section 1286.2, subdivision(a)(5) is not whether this ruling was correct, but whether the exclusion of the evidence substantially prejudiced the rights of Wells Fargo. As pointed out in Schlessinger v. Rosenfeld, Meyer & Susman (1995) 40 Cal.App.4th 1096, 1110, the contention that an arbitrator excluded material evidence is one that could be made in most cases and, if not properly limited, "this type of attack . . . could swallow the rule that arbitration awards are generally not reviewable on the merits." To address this concern, courts have required parties making such a contention to show at the outset a likelihood of prejudice as a result of the exclusion.
"In the typical arbitration, an arbitrator must make numerous decisions about admission of evidence and in doing so may exclude material evidence. No doubt there will often be aggrieved parties who believe they have been 'substantially prejudiced.' Decisions about materiality cannot be made without familiarity with the issues and evidence in the arbitration. If the superior court must, with or without a transcript of the arbitration, routinely review the arbitrator's decision on materiality before reaching the question of substantial prejudice, the legislative goal of arbitral finality will be unattainable. Instead of saving time and money, the arbitration will be supplemented by lengthy and costly judicial second-guessing of the arbitrator. [¶] . . . [¶] We do not accept the suggestion . . . that section 1286.2, subdivision [(a)(5)], provides a back door to Moncharsh through which parties may routinely test the validity of legal theories of arbitrators. Instead, we interpret section 1286.2, subdivision [(a)(5)], as a safety valve in private arbitration that permits a court to intercede when an arbitrator has prevented a party from fairly presenting its case. [¶] . . . Where, as here, a party complains of excluded material evidence, the reviewing court should generally focus first on prejudice, not materiality. To find substantial prejudice the court must accept, for purposes of analysis, the arbitrator's legal theory and conclude that the arbitrator might well have made a different award had the evidence been allowed." (Hall v. Superior Court (1993) 18 Cal.App.4th 427, 438-439; accord, Schlessinger v. Rosenfeld, Meyer & Susman, supra, 40 Cal.App.4th at pp. 1110-1111.)
Wells Fargo has not made the necessary showing of prejudice. Wells Fargo argues extensively that A.G. Edwards presented a viable claim for "raiding" and that these emails were crucial evidence in support of that claim. Whatever weight these email messages may have been thought to carry—an evaluation that is not for the court to make—the exclusion of this evidence did not prevent A.G. Edwards from "fairly presenting its case." (Schlessinger v. Rosenfeld, Meyer & Susman, supra, 40 Cal.App.4th at p. 1111.) There is no doubt that A.G. Edwards was given a full and fair opportunity to present its claim. A.G. Edwards explicitly confirmed as much before the panel rendered its decision. The email messages were only a small fraction of the extensive evidence Wells Fargo offered in support of its claim. The arbitrators did not refuse to permit Wells Fargo to offer the exhibits, nor did they fail to consider their possible relevance; rather, the arbitrators read and discussed the emails before concluding that they were not relevant to the issues they were called upon to decide. Even if the arbitrators had concluded that the messages were sufficiently related to Wells Fargo's claims to warrant admission, there is no likelihood that they would have attached such weight to them as to have produced a different result with respect to A.G. Edwards's claims.
At the conclusion of the hearing, the parties were each asked to state whether they had a full and fair opportunity to be heard and A.G. Edwards, like the others, confirmed that it had. We do not suggest that this answer waived Wells Fargo's right to challenge the award, but it does provide persuasive evidence that the proceedings were not so fundamentally unfair that the award should be vacated.
For this reason, Burlage v. Superior Court (2009) 178 Cal.App.4th 524, cited by Wells Fargo, is distinguishable. In that case, in which a home buyer sought substantial damages for the nondisclosure by the seller that the home's swimming pool and wrought iron fence encroached on the property of an adjacent country club, the arbitrator had excluded evidence that subsequent to the sale the title company had paid the country club for a lot line adjustment, eliminating all damages. The court considered it "self-evident that his ruling excluding evidence that the title company solved the problem through a modest payment to the country club was more than a mere erroneous evidentiary ruling. The trial court found on substantial evidence that the arbitrator's ruling substantially prejudiced [the seller] and undermined the fundamental principle embodied in section 1286.2 subdivision (a)(5) that an arbitrator must consider material evidence. [¶] . . . [¶] Without this crucial evidence, the arbitration assumed the nature of a default hearing in which the [buyers] were awarded $1.5 million in compensatory and punitive damages they may not have suffered. An arbitrator must consider this evidence to make an informed decision." (Burlage, at p. 530.) Wells Fargo's showing of prejudice in this case is not even remotely comparable.
3. Stifel's failure to disclose documents in discovery did not deprive A.G. Edwards of a fair hearing.
In August 2010, after the arbitration panel had rendered its decision but before the trial court ruled on the petition to vacate, Stifel delivered to Wells Fargo four pages of a "recruiting log" that were responsive to A.G. Edwards's discovery requests in the arbitration proceeding that had not been previously produced. The first entry in the log is for Nielsen and contains his contact information and a notation entered on November 1, 2007, that he "joined Stifel." The second entry also contains contact information, a notation entered on October 5, 2007, that the employee "came to STL with Herb Keyser" and a notation entered on November 1, 2007 that he "joined Stifel." The third entry includes contact information for Herb Keyser, a notation dated August 30, 2007 that he was "sent [a] full recruiting kit on 8/30/07 per Bob Hoekstra" and a notation dated November 1, 2007, that he "joined Stifel in Grass Valley." The last entry contains little more than contact information for a potential employee. Each entry indicates that John Lee was assigned to follow-up with the potential recruit.
Wells Fargo contends these documents and "the avenues of inquiry that they opened up was crucial to [A.G.] Edwards's raiding claim" and that Stifel's "concealment of these highly relevant documents . . . deprived [A.G.] Edwards of its right to a fair hearing." These documents, however, are at most cumulative of the vast amount of evidence and testimony presented at the arbitration hearing regarding Stifel's recruiting efforts.
It is unclear whether a party's failure to comply with a discovery order in the arbitration proceedings provides a basis for vacating the award under Code of Civil Procedure section 1286.2. We assume, without deciding, that the withholding of highly significant evidence may justify such relief under section 1286.2, subdivision (a)(1): "The award was procured by . . . fraud or other undue means."
Wells Fargo argues, without citation to the record, that "[i]n the Grass Valley arbitration, Stifel claimed that it did not actively 'recruit' the employees of [A.G.] Edwards' Grass Valley office, but these documents tend to show just the opposite." Wells Fargo also suggests that the "recruiting kit" referenced in the log "may have undermined Stifel's central contention that Nielsen and the financial advisors sought employment at Stifel rather than having been subjects of Stifel's recruiting efforts." Wells Fargo largely misstates the testimony at the hearing. Lee, who was primarily responsible for recruiting the A.G. Edwards employees, acknowledged that after the A.G. Edwards employees initiated contact with him, he actively recruited them for Stifel's Grass Valley office. He explained his personal relationships with the employees and the dates on which they spoke. For example, he testified that he held a meeting with five of the financial advisors on September 11 and told them that, if there was enough interest in joining Stifel, he could have the Grass Valley office open on October 1. Likewise, contrary to Wells Fargo's assertion, Stifel did not dispute that it provided recruiting material to the A.G. Edwards employees. Indeed, Lee testified that he gave the financial advisors material to look over and told them that if they were interested after they looked over the materials, they should give him a call.
Wells Fargo focuses much of its argument on the recruiting log for Keyser, suggesting that the arbitration panel was significantly misled regarding the events leading to his move to Stifel. Lee testified that he had known Keyser for 20 years and Keyser was one of the first call backs he made to A.G. Edwards Grass Valley advisors after going to work for Stifel. Lee testified that Keyser had called Stifel and left his cell phone number with his assistant and that he (Lee) returned the call on August 31, 2007. Wells Fargo emphasizes that the recruiting log indicates that Keyser was sent a recruiting kit on August 30, 2007, so that "the arbitration panel was led to believe that the first contact by Stifel with Keyser was later than in fact occurred." Wells Fargo fails to explain why this limited discrepancy was remotely prejudicial.
Finally, Wells Fargo speculates that "[t]he recruiting kits may have contained instructions on how to handle the client information taken from [A.G.] Edwards." However, Lee's testimony plainly disclosed that recruiting materials were given to the A.G. Edwards employees, so that the failure to disclose these logs did not preclude A.G. Edwards from inquiring as to the content of the recruiting information.
Wells Fargo also argues that the missing logs would have supported its argument that Stifel intended all the employees to start work on October 1, but later staggered the start dates to "avoid a claim of raiding by [A.G.] Edwards." This argument is premised on a mistaken reading of the log. The log entries indicating that the employees joined Stifel are dated November 1, rather than October 1, as suggested by Wells Fargo.
There is, thus, no showing that the facts disclosed by the missing pages of the recruiting log were previously unknown, significantly contradicted other evidence introduced at the hearing, or for any reason were likely to have affected the outcome of the proceedings. Wells Fargo has failed to demonstrate that A.G. Edwards was prejudiced by Stifel's failure to disclose the recruiting log pages sooner.
4. The errors asserted with respect to the award of attorney fees do not provide a ground for vacating the arbitration award.
In the arbitration proceeding, Stifel and Nielsen requested attorney fees under several statutory provisions, including Civil Code section 3426.4, which authorizes an award of attorney fees "[i]f a claim of misappropriation is made in bad faith." The arbitrators, like a trial court, have broad "factfinding power and [] discretionary power to award attorney fees and costs to curtail a bad faith claim of trade secret misappropriation." (FLIR Systems, Inc. v. Parrish (2009) 174 Cal.App.4th 1270, 1276.) Generally, on appeal from an order awarding fees under section 3426.4, "the appellant has an 'uphill battle' and must overcome both the 'sufficiency of evidence' rule and the 'abuse of discretion' rule." (Id. at p. 1275.) The arbitrators have similarly broad powers with respect to apportioning attorney fees between multiple claims. (See Akins v. Enterprise Rent-A-Car Co. of San Francisco (2000) 79 Cal.App.4th 1127, 1133 ["When the liability issues are so interrelated that it would have been impossible to separate them into claims for which attorney fees are properly awarded and claims for which they are not, then allocation is not required"].)
Stifel and Nielsen argue that the award also was proper under Code of Civil Procedure section 128.7, which authorizes attorney fees as a sanction for prosecuting a frivolous claim. Nielsen also requested and was awarded contractual attorney fees. We need not consider Wells Fargo's arguments as to the inapplicability of these other bases for the award since we conclude that the award was authorized by the misappropriation statute.
Because the CAA does not include manifest disregard of the law as a ground for vacating an arbitration award (Pearson Dental Supplies, Inc. v. Superior Court (2010) 48 Cal.4th 665, 679, fn. 3.), much of Wells Fargo's attack on the fee award—that the "arbitrators manifestly disregarded the law by finding that [A.G.] Edwards's trade secrets claims were brought in bad faith" and that "the arbitrators manifestly disregarded the law by failing to allocate attorneys' fees"—can be summarily rejected. Its attempt to bring its attack on the fee award within the parameters of section 1286.2 is equally unavailing.
Even if "manifest disregard" of the law were a ground for vacating the award, it is highly doubtful that Wells Fargo could successfully establish such in this case. "The most prevalent manifest disregard of the law test contains two elements. The first element is the arbitrator must know the governing rule of law and refuse to apply it or ignore it. The second element is that the law ignored by the arbitrator is well-defined, explicit, and clearly applicable to the case." (Countrywide Financial Corp. v. Bundy, supra, 187 Cal.App.4th at p. 253.) The test has been "characterized . . . as involving extreme situations. [Citation.] Mere factual or legal errors are insufficient to permit vacatur using the manifest disregard of the law standard; rather, there must be more than error or misunderstanding with respect to factual matters or the law." (Id. at p. 254.) In this case, the arbitrators were fully apprised of Edwards's claim that the fees should be apportioned and it was within their discretion to refuse to do so. (Akins v. Enterprise Rent-A-Car Co., supra, 79 Cal.App.4th 1127.) Wells Fargo's argument that the evidence does not support the arbitrators' implicit finding of bad faith is similarly insufficient to warrant vacating the award under the federal standard.
Wells Fargo argues that "[e]ven if this court concludes that the CAA applies, the award should be vacated because the arbitrators exceeded their authority." It suggests that the arbitrators exceeded their power because they "clearly did not comply with either of the statutes that respondents argue support the attorneys' fee awards." However, an arbitrator does not exceed his or her powers merely by assigning an erroneous reason for a decision. (Moncharsh, supra, 3 Cal.4th at p. 28.) Instead, "powers" refers to the authority "of the arbitrator to resolve the entire 'merits' of the 'controversy submitted' by the parties." (Ibid.) An arbitrator acts within his or her powers by deciding all the contested issues submitted for decision and determined by reference to the underlying contract. (Ibid.) The question of whether the prevailing parties are entitled to attorney fees was properly submitted to the arbitrators for decision. Indeed, all parties included a request for attorney fees in their Uniform Submission Agreements. At no time during the arbitration did Wells Fargo contend that the arbitrators did not have the authority to award attorney fees. As our Supreme Court observed in Moore v. First Bank of San Luis Obispo (2000) 22 Cal.4th 782, "[h]aving submitted the . . . issue to arbitration, plaintiffs cannot maintain the arbitrators exceeded their powers . . . by deciding it, even if they decided it incorrectly." (Id. at p. 787.)
Wells Fargo's suggestion that the respondents only "requested that 50% of the fees and costs be attributed to the misappropriation claim" is somewhat disingenuous. In fact, they argued that apportionment of the fees is not necessary or appropriate because "all of the factual allegations Wachovia made . . . relate to Wachovia's fee-bearing claims in one way or another" but as a fall-back stated that "if the panel nonetheless decides as an equitable matter to award . . . some but not all of [the] fees, . . . an equitable allocation would be 50-50."
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Disposition
The judgment is affirmed. Stifel and Nielsen are to recover their costs on appeal.
Pollak, J. We concur: McGuiness, P. J. Jenkins, J.