Scott A. Miller v. Jeremy J. Walker, D/B/A Maverick Wealth Management ( 2018 )


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  •                           COURT OF APPEALS
    SECOND DISTRICT OF TEXAS
    FORT WORTH
    NO. 02-17-00035-CV
    SCOTT A. MILLER                                                         APPELLANT
    V.
    JEREMY J. WALKER, D/B/A                                                  APPELLEE
    MAVERICK WEALTH
    MANAGEMENT
    ----------
    FROM THE 236TH DISTRICT COURT OF TARRANT COUNTY
    TRIAL COURT NO. 236-281183-15
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    OPINION
    ----------
    I. INTRODUCTION
    Appellee Jeremy J. Walker, d/b/a Maverick Wealth Management petitioned
    the trial court to vacate the attorneys’-fees portion of an arbitration award in favor
    of Appellant Scott A. Miller, arguing that the panel had exceeded its authority by
    awarding attorneys’ fees that were not recoverable under an arbitration
    agreement or pursuant to Texas law. In response, Miller moved the trial court to
    confirm the arbitration award and to sanction Walker for filing a frivolous petition
    to vacate. The trial court vacated the attorneys’ fees and declined to sanction
    Miller. In two issues, Miller challenges both rulings. We hold that the panel was
    authorized to award Miller attorneys’ fees in light of the parties’ submissions
    requesting attorneys’ fees and Walker’s failure to advise the panel that it lacked
    the authority to award Miller attorneys’ fees. We also conclude, however, that
    the trial court did not abuse its discretion by denying Miller’s motion for sanctions.
    Therefore, we will affirm the trial court’s judgment insofar as it denied Miller’s
    motion for sanctions, but we will reverse the trial court’s judgment vacating the
    attorneys’ fees and render judgment confirming the arbitration award.
    II. BACKGROUND
    Miller operates a financial-advisory practice as an independent affiliate of
    Ameriprise Financial Services, Inc. Walker joined the practice in 2009 as an
    Associate Financial Advisor and signed an “Ameriprise Financial Services, Inc.
    Associate Financial Advisor Agreement” (AFA Agreement), which among other
    employment terms, contained a section providing for arbitration of certain claims.
    Both Miller and Walker are “registered” with—or are considered “Associated
    Persons” by—the Financial Industry Regulatory Authority (FINRA).
    In May 2015, Walker resigned as an Associate Financial Advisor and,
    according to Miller, “started a competing business two miles away.” Believing
    2
    that Walker was using confidential information taken from his practice to gain a
    competitive advantage for his new business in violation of several written
    agreements, and concluding that FINRA Rule 13200 required the dispute to be
    arbitrated through FINRA, Miller obtained a temporary restraining order against
    Walker in state court and concurrently filed a statement of claim with FINRA
    Dispute Resolution. In his statement of claim, Miller averred that Walker had
    breached contracts, breached fiduciary duties, and misappropriated trade
    secrets, and he sought permanent injunctive relief and attorneys’ fees. Walker
    filed an answering statement that contained general and specific denials,
    affirmative defenses, and his own request for attorneys’ fees. Both sides also
    signed a FINRA Arbitration Submission Agreement, agreeing to “submit the
    present matter in controversy, as set forth in the attached statement of claim,
    answers, and all related [other claims], to arbitration in accordance with the
    FINRA By-Laws, Rules, and Code of Arbitration Procedure.” Miller nonsuited his
    state-court action after a FINRA arbitration panel was selected.
    After a hearing on June 22, 2015, the panel issued an order granting in
    part Miller’s request for a permanent injunction. Later, on August 11, 2015, the
    panel held a full-day evidentiary hearing on damages, costs, and attorneys’ fees.
    In addition to some testimonial evidence about attorneys’ fees, both sides
    submitted an affidavit or declaration in support of attorneys’ fees and costs.
    Miller’s attorney’s declaration sought reasonable attorneys’ fees in the amount of
    3
    $95,965.90, and Walker’s attorney’s affidavit sought attorneys’ fees and costs in
    the amount of $150,025.00.
    The panel issued its award on September 1, 2015, awarding Miller
    compensatory damages in the amount of $76,238.49 and attorneys’ fees and
    costs in the amount of $95,965.50. The award stated that Walker was liable for
    the attorneys’ fees “pursuant to Texas Civil Practice and Remedies Code Section
    38.001.” Walker paid the compensatory-damages portion of the award but filed a
    petition in state court, pursuant to the Federal Arbitration Act (FAA), to vacate or,
    alternatively, to modify or correct the attorneys’-fees portion of the award.
    In his petition to vacate, Walker argued that in awarding Miller attorneys’
    fees, the panel had exceeded its authority under section IX(7) of the AFA
    Agreement because that provision permitted attorneys’ fees incurred in an
    arbitration to be awarded to Walker or to Ameriprise but not to Miller.1 According
    to Walker, “There was simply no authority in the AFA Agreement for the Panel to
    require Mr. Walker to pay Mr. Miller’s attorneys’ fees.” Citing a choice-of-law
    provision, Walker alternatively argued that the panel had exceeded its authority
    under the AFA Agreement by basing its attorneys’-fees award on a Texas statute
    (civil practice and remedies code section 38.001) instead of on Minnesota law,
    1
    Section IX(7) states in relevant part, “You [Walker] and Ameriprise
    Financial shall each be responsible for their own costs of legal representation, if
    any[,] except where such costs of legal representation may be awarded as a
    statutory remedy by the arbitrator.”
    4
    which does not contain a statute like section 38.001. In his petition to modify or
    correct the attorneys’-fees portion of the award, Walker argued that the award
    should be reduced by $17,400.50 because there was an evident, material
    miscalculation of figures.
    Miller responded to each of Walker’s arguments and additionally asked the
    trial court to sanction Walker under rule of civil procedure 13 and civil practice
    and remedies code chapter 10 for filing a frivolous petition to vacate the
    attorneys’ fees. The trial court vacated the attorneys’-fees portion of the award
    and denied all other relief, including Miller’s motion for sanctions and
    accompanying request for attorneys’ fees incurred as a result of Walker’s petition
    to vacate.
    III. AUTHORITY TO AWARD ATTORNEYS’ FEES
    In his first issue, Miller argues that the panel did not exceed its authority by
    awarding him attorneys’ fees because the arbitration was conducted under
    FINRA rules, which allow an award of attorneys’ fees, not pursuant to the AFA
    Agreement, which expressly excluded from arbitration the claims that Miller
    alleged against Walker.      Alternatively, Miller contends that even if the AFA
    Agreement and its section IX(7) controlled, the parties authorized the panel to
    award him attorneys’ fees because both sides submitted requests for attorneys’
    fees and Walker neither objected to Miller’s request for attorneys’ fees nor
    claimed that the panel lacked the authority to award Miller attorneys’ fees. Miller
    5
    argues that having obtained an unfavorable result, Walker cannot now complain
    that the panel exceeded its authority.
    Walker responds that although the arbitration was brought under the
    FINRA rules, the AFA Agreement nevertheless controlled whether the panel
    could award attorneys’ fees. Walker argues that the panel had no authority to
    award Miller attorneys’ fees because he is not mentioned under the AFA
    Agreement’s section IX(7) and because Miller was not a signatory to the AFA
    Agreement. Walker further contends that he did not authorize the panel to award
    Miller attorneys’ fees by requesting that the panel award him attorneys’ fees and
    that he challenged Miller’s entitlement to an award of attorneys’ fees.
    We agree with Miller that the panel had the authority to award him
    attorneys’ fees because (1) the parties submitted requests for attorneys’ fees and
    (2) Walker never advised the panel that it lacked the authority to award Miller
    attorneys’ fees.
    A.    Standard of review
    Walker filed his petition under the FAA, and there is no dispute that it
    applies here.      An appellate court reviews de novo a trial court’s decision to
    vacate an arbitration award under the FAA. White v. Siemens, 
    369 S.W.3d 911
    ,
    914 (Tex. App.—Dallas 2012, no pet.). However, because of the strong policy
    favoring arbitration, judicial review of an arbitration award is “exceedingly
    6
    deferential.” BNSF Ry. Co. v. Alstom Transp., Inc., 
    777 F.3d 785
    , 787 (5th Cir.
    2015).
    B.    Vacatur for exceeding authority
    An arbitration award must be confirmed unless it is vacated, modified, or
    corrected pursuant to one of the limited grounds set forth in sections 10 and 11 of
    the FAA. See 9 U.S.C. § 9 (West 2009); Hall St. Assocs., L.L.C. v. Mattel, Inc.,
    
    552 U.S. 576
    , 586, 
    128 S. Ct. 1396
    , 1404 (2008). One ground for vacatur is
    “where the arbitrators exceeded their powers.” 9 U.S.C. § 10(a)(4) (West 2009).
    It is well settled that arbitration is a “matter of contract” and that “the power
    and authority of arbitrators in an arbitration proceeding is dependent on the
    provisions under which the arbitrators were appointed.” BNSF Ry. 
    Co., 777 F.3d at 787
    ‒88 (quoting Brook v. Peak Int’l, Ltd., 
    294 F.3d 668
    , 672 (5th Cir. 2002)).
    Thus, generally, an arbitrator exceeds his powers if he acts contrary to express
    contractual provisions. Rain CII Carbon, LLC v. ConocoPhillips Co., 
    674 F.3d 469
    , 472 (5th Cir. 2012).
    But it is equally settled that parties may expand an arbitrator’s authority
    beyond that provided by their written agreement.            OMG, L.P. v. Heritage
    Auctions, Inc., 612 F. App’x 207, 208 (5th Cir.), cert. denied, 
    1365 S. Ct. 503
    (2015). By submitting issues for an arbitrator’s consideration, parties may agree
    to arbitrate disputes that they were not otherwise contractually compelled to
    arbitrate. 
    Id. at 210
    (citing Executone Info. Sys., Inc. v. Davis, 
    26 F.3d 1314
    ,
    7
    1323 (5th Cir. 1994)); see Wells Fargo Bank, N.A. v. WMR e-PIN, LLC, 
    653 F.3d 702
    , 711 (8th Cir. 2011) (“[T]he arbitrator may expand the scope of its review
    based on the issues the parties submit or the arguments they advance in the
    proceedings.”); Am. Postal Workers Union, AFL-CIO, Milwaukee Local v.
    Runyon, 
    185 F.3d 832
    , 835 (7th Cir. 1999) (“[A]n arbitrator’s authority is also
    limited by the actual issue submitted by the parties.”); DiRussa v. Dean Witter
    Reynolds Inc., 
    121 F.3d 818
    , 824 (2nd Cir. 1997), cert. denied, 
    522 U.S. 1049
    (1998) (“Our inquiry under § 10(a)(4) thus focuses on whether the arbitrators had
    the power, based on the parties’ submissions or the arbitration agreement, to
    reach a certain issue, not whether the arbitrators correctly decided that issue.”).
    Attorneys’ fees are no exception to this rule.         See, e.g., Hollern v.
    Wachovia Sec., Inc., 
    458 F.3d 1169
    , 1173‒74 (10th Cir. 2006) (holding that
    district court erred by vacating attorneys’-fees portion of arbitration award
    because parties submitted issue of attorneys’ fees to arbitrators and did not
    challenge arbitrators’ authority to award attorneys’ fees); Thomas v. Prudential
    Sec., Inc., 
    921 S.W.2d 847
    , 851 (Tex. App.—Austin 1996, no writ) (holding that
    “both parties’ claims for attorney fees reflect their unified intention to authorize
    the panel’s award of attorney fees”).
    C.    The panel had the authority to award Miller attorneys’ fees
    The record demonstrates that both sides submitted written requests for
    attorneys’ fees. Miller sought attorneys’ fees in his statement of claim, as did
    8
    Walker in his answering statement.      Both sides also submitted a submission
    agreement, in which they each agreed to submit the matters contained in their
    pleadings to the arbitration panel. At the August 11, 2015 hearing, both sides
    submitted a written declaration or affidavit proving up their respective requests
    for attorneys’ fees. In his affidavit, Walker’s attorney not only acknowledged that
    both sides had requested attorneys’ fees, but he even stated that the panel was
    authorized to award attorneys’ fees:
    Respondent requests recovery of reasonable and necessary
    attorneys’ fees in accordance with the FINRA Dispute Resolution
    Arbitrator’s Guide, page 67, which states if all parties request or
    agree to such fees, then the Panel may award attorneys’ fees. Both
    parties requested attorneys’ fees in this dispute, therefore this
    burden is met. [Emphasis added.]
    And under the heading “Relief Requested,” the panel’s award states that both
    sides requested attorneys’ fees.
    Further, before raising the matter in his petition to vacate, Walker never
    objected or otherwise advised the panel that it did not have the authority to award
    Miller attorneys’ fees, either in his FINRA pleadings or before the panel.
    Regarding his pleadings, Walker contends that he “consistently argued during
    the arbitration that Miller had no right to any recovery.” As support, he directs us
    to his first amended answering statement, in which he argued that “Miller has No
    Legal Right to Recover Any Damages,” and to his prehearing brief, in which he
    asked the panel to “deny all of [Miller’s] damages claims, deny [Miller’s] request
    for attorneys’ [f]ees, and award [him] damages.” But Walker improperly conflates
    9
    his arguments and defenses challenging Miller’s entitlement to prevail on the
    merits of his claims with an unrelated objection to the panel’s authority to award
    Miller attorneys’ fees. The two are very different. See ConocoPhillips, Inc. v.
    Local 13-0555 United Steelworkers Int’l Union, 
    741 F.3d 627
    , 630 (5th Cir. 2014)
    (“There are three types of disputes concerning arbitration: (1) the merits of the
    dispute; (2) whether the parties agreed to arbitrate the merits; and (3) who has
    ‘the primary power to decide’ whether the parties agreed to arbitrate the merits.”
    (emphasis removed) (quoting First Options of Chicago, Inc. v. Kaplan, 
    514 U.S. 938
    , 942, 
    115 S. Ct. 1920
    , 1923 (1995))).
    As for Walker’s conduct before the panel, at the outset of the August 11,
    2015 hearing, when the Chairman notified the parties that the purpose of the
    hearing was to consider “damages, costs, and attorneys’ fees,” Walker did not
    object or otherwise notify the panel that it did not have the authority to award
    Miller attorneys’ fees.   Nor did Walker object when Miller testified about his
    attorneys’ fees. At the conclusion of the hearing, when the Chairman asked the
    parties “[i]f there [were] any other issues or objections that either side need[ed] to
    raise with respect to the hearing today in connection with the Panel’s
    deliberation -- or prior to the Panel’s deliberation,” Walker raised an issue, but it
    did not involve attorneys’ fees. A party may not participate in arbitration without
    objecting to the arbitrator’s authority to address a particular issue, only to
    challenge the arbitrator’s authority to address the issue after obtaining an
    10
    unfavorable result. Mantle v. Upper Deck Co., 
    956 F. Supp. 719
    , 735 (N.D. Tex.
    1997); see AGCO Corp. v. Anglin, 
    216 F.3d 589
    , 593 (7th Cir. 2000) (“If a party
    willingly and without reservation allows an issue to be submitted to arbitration, he
    cannot await the outcome and then later argue that the arbitrator lacked authority
    to decide the matter.”).
    Walker argues that our opinion in City of Arlington v. Kovacs, 
    508 S.W.3d 472
    (Tex. App.—Fort Worth 2015, pet. denied), supports his argument. It does
    not.   The question in that case was “whether the arbitrator, in determining
    whether Kovacs violated the personnel rules as charged, exceeded his authority
    by relying on evidence of events that occurred after the City terminated Kovacs.”
    
    Id. at 473.
    Unlike in this case, there was no contention that the parties, by their
    submissions, expanded the arbitrator’s authority beyond the terms contained in
    the City’s arbitration manual.
    Citing only one inapposite authority2 and ignoring the settled caselaw that
    we recited above, Walker argues that his request for attorneys’ fees did not
    authorize the panel to award Miller attorneys’ fees because only he, not Miller,
    had a right to recover fees under the AFA Agreement. Notwithstanding that we
    support our holding by also relying on Walker’s failure to challenge the panel’s
    authority, Walker overlooks that “the arbitrator’s interpretation of the scope of the
    2
    In re Lyon Fin. Servs., Inc., 
    257 S.W.3d 228
    (Tex. 2008) (orig.
    proceeding) (involving denial of motion to dismiss based on forum-selection
    clause).
    11
    issue submitted to him is to be treated with great deference” and “must be upheld
    so long as it is rationally derived from the parties’ submission.” Bull HN Info.
    Sys., Inc. v. Hutson, 
    229 F.3d 321
    , 332 (1st Cir. 2000) (citations omitted). In light
    of the parties’ requests for attorneys’ fees, and in the absence of any objection to
    the panel’s authority to award attorneys’ fees, the panel rationally could have
    concluded that it had the authority to award Miller attorneys’ fees. See 
    id. Finally, we
    note that the Tenth Circuit has reasoned that “parties may
    extend [an arbitrator’s authority to decide an issue] in their submissions to the
    arbitrators so long as the submissions do not violate an express provision of the
    original arbitration agreement.” 
    Hollern, 458 F.3d at 1174
    (emphasis added).
    But see OMG, L.P., 612 F. App’x at 208 (“By submitting issues for an arbitrator’s
    consideration, parties may expand an arbitrator’s authority beyond that provided
    by the original arbitration agreement such that we need not address whether the
    original agreement encompassed such authority.” (emphasis added)). To the
    extent that Walker’s argument can liberally be construed to implicate the Tenth
    Circuit’s standard, our holding is not inconsistent with it. Even if we assumed
    that the arbitration was conducted under the AFA Agreement instead of by the
    FINRA rules, although the AFA Agreement did not expressly permit an award of
    attorneys’ fees to an Independent Advisor like Miller, it also did not expressly
    prohibit such an award. As in any other instance in which parties deem a matter
    arbitrable via their submissions, the parties’ submissions to the panel here
    12
    effectively amended the AFA Agreement to expressly authorize an award of
    attorneys’ fees to Miller.3 See 
    Hollern, 458 F.3d at 1174
    (“Although the Option
    Account Agreement itself did not expressly permit an award of attorneys’ fees,
    the parties’ subsequent submissions to the arbitrators amended the original
    arbitration agreement to expressly authorize attorneys’ fees.”).
    The trial court erred by vacating the attorneys’-fees portion of the
    arbitration award. See OMG, L.P., 612 F. App’x at 210; 
    Hollern, 458 F.3d at 1173
    ‒74; 
    Thomas, 921 S.W.2d at 851
    . We sustain Miller’s first issue.
    D.    We cannot modify or correct the award
    Walker argues that if we reverse the trial court’s judgment vacating the
    attorneys’-fees portion of the arbitration award, then we should modify the award
    by reducing it to $78,250.
    A party may raise an independent ground for obtaining the same relief
    awarded in the judgment as a cross-point on appeal.                City of Austin v.
    Whittington, 
    384 S.W.3d 766
    , 789 (Tex. 2012). But a party who seeks greater
    relief than what the trial court awarded in the judgment must file a notice of
    3
    Insofar as the FINRA rules applied, those “rules explicitly contemplate that
    [a] Panel [may] award attorneys’ fees” when “‘all of the parties request . . . such
    fees.’” CF Global Trading, LLC v. Wassenaar, No. 13 Civ. 766(KPF), 
    2013 WL 5538659
    , at *8 (S.D.N.Y. Oct. 8, 2013). Also, unlike in his petition to vacate,
    Walker does not argue on appeal that the panel exceeded its authority by
    applying Texas law instead of Minnesota law. Thus, Walker does not specifically
    contest Miller’s assertion that civil practice and remedies code section 38.001
    was a valid statutory basis to award him attorneys’ fees. See Tex. Civ. Prac. &
    Rem. Code Ann. § 38.001 (West 2015).
    13
    appeal. Id.; see Tex. R. App. P. 25.1(c) (“The appellate court may not grant a
    party who does not file a notice of appeal more favorable relief than did the trial
    court except for just cause.”).
    Walker petitioned the trial court to vacate the attorney’s-fees portion of the
    award or, alternatively, to modify or correct it. Walker prevailed on his petition to
    vacate, but the trial court denied all of the other relief that it did not expressly
    grant, including the petition to modify or correct. Thus, by asking us to modify or
    correct the arbitration award, Walker is seeking greater relief than what the trial
    court ordered. Consequently, he was required to file a separate notice of appeal.
    Because he did not do so, his cross-issue is not properly before us. See City of
    
    Austin, 384 S.W.3d at 789
    ; see also Valerus Compression Servs. v. Reeves Cty.
    Appraisal Dist., 
    478 S.W.3d 20
    , 32 n.7 (Tex. App.—El Paso 2015, pet. filed)
    (reasoning similarly on own facts).
    IV. MOTION FOR SANCTIONS
    In his second issue, Miller argues that the trial court abused its discretion
    by denying his motion to sanction Walker under rule of civil procedure 13 for filing
    a frivolous, bad-faith petition to vacate the arbitration award.
    Rule 13 authorizes a trial court to impose sanctions against an attorney, a
    represented party, or both who file a pleading that is groundless and brought in
    bad faith. Tex. R. Civ. P. 13. A pleading is groundless when it has no basis in
    law or fact and is not warranted by a good faith argument for the extension,
    14
    modification, or reversal of existing law. 
    Id. Bad faith
    requires the conscious
    doing of a wrong for a dishonest, discriminatory, or malicious purpose; it is not
    simply bad judgment or negligence. Elkins v. Stotts-Brown, 
    103 S.W.3d 664
    , 669
    (Tex. App.—Dallas 2003, no pet.). Courts presume that pleadings, motions, and
    other papers are filed in good faith, and the party moving for sanctions has the
    burden of overcoming this presumption. GTE Commc’n Sys. Corp. v. Tanner,
    
    856 S.W.2d 725
    , 731 (Tex. 1993). We review a trial court’s award or denial of
    sanctions for an abuse of discretion. Low v. Henry, 
    221 S.W.3d 609
    , 614 (Tex.
    2007).
    Presumably, the trial court denied Miller’s motion for sanctions because it
    granted Walker’s petition to vacate. Thus, from a practical perspective, the trial
    court did not abuse its discretion.
    Nevertheless, we have concluded that the trial court erred by vacating the
    attorneys’ fees. But even so, Walker’s primary argument in response to Miller’s
    first issue is that the attorneys’-fees portion of the award is inconsistent with the
    terms of the AFA Agreement. Parties in both state and federal courts throughout
    the country have raised similar arguments. Although we ultimately disagreed
    with Walker’s argument, we cannot conclude that it has no basis in law or fact.
    We overrule Miller’s second issue.
    15
    V. CONCLUSION
    Having sustained Miller’s first issue, we reverse the part of the trial court’s
    judgment vacating the attorneys’-fees portion of the arbitration award and render
    judgment confirming that portion of the award. We affirm the part of the trial
    court’s judgment confirming the remainder of the arbitration award.
    /s/ Bill Meier
    BILL MEIER
    JUSTICE
    PANEL: WALKER, MEIER, and BIRDWELL, JJ.
    DELIVERED: February 15, 2018
    16