Hollern Ex Rel. Price v. Wachovia Securities, Inc.

F I L E D
United States Court of Appeals
Tenth Circuit
PU BL ISH
August 16, 2006
UNITED STATES CO URT O F APPEALS Elisabeth A. Shumaker
Clerk of Court
TENTH CIRCUIT

SU SA N P. HOLLERN, as trustee of
and on behalf of the other William H.
Price, II Trust,

Plaintiff-A ppellee,
Nos. 05-1253 and 05-1300
v.

W ACHOVIA SECURITIES, IN C.;
RA ND Y S. RU SSELL,

Defendants-A ppellants.

Appeal from the United States District Court
for the District of Colorado
(D.C. No. 04-CV-2585-RPM )

M ichael N. Ungar (W illiam D . Nelson, Craig R. W elling, Rothgerber, Johnson &
Lyons, LLP, Denver, Colorado, with him on the briefs), Ulmer & Berne, LLP,
Cleveland, Ohio, for Defendants-Appellants.

James D. Kilroy, Snell & W ilmer, L.L.P., Denver, Colorado, for Plaintiff-
Appellee.

Before M U RPH Y, B AL DOC K, and M cCO NNELL, Circuit Judges.

M U RPH Y, Circuit Judge.
I. Introduction

Plaintiff-Appellee Susan H ollern initiated arbitration proceedings against

Defendants-A ppellants W achovia Securities, Inc. and its employee, Randy Russell

(collectively “W achovia”). Hollern claimed W achovia was negligent and

breached its fiduciary duty in managing the W illiam H. Price, II Trust (“Trust”),

for which Hollern acted as successor trustee. Both parties sought attorneys’ fees

in their arbitration pleadings and submitted motions requesting attorneys’ fees at

the conclusion of the arbitration hearing. The arbitrators denied Hollern’s claims

in their entirety and awarded attorneys’ fees to W achovia. H ollern subsequently

sought to have the district court set aside the attorneys’ fees’ portion of the

arbitral award. Concluding the parties did not expressly agree to submit the issue

of attorneys’ fees to arbitration and the arbitrators misapplied the relevant law,

the district court vacated the attorneys’ fees’ portion of the award. W achovia

appeals. W e have jurisdiction pursuant to 28 U.S.C. § 1291. Because the

arbitrators did not exceed their powers or manifestly disregard the law in

awarding attorneys’ fees, we reverse and remand with instructions to reinstate

the attorneys’ fees’ portion of the arbitration award.

II. Background

W illiam H. Price, II created the Trust in 1987 and appointed himself sole

trustee. The Trust maintained an account at W achovia Securities, Inc. Randy

Russell, a Senior Vice President at W achovia, served as the Trust’s primary

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broker. Price, however, exercised absolute control over the Trust’s investments,

often engaging in highly volatile and risky trading strategies. Price was

hospitalized in early M ay 2002 due to complications from throat cancer. He

passed away approximately six weeks later.

After Price’s death, Hollern, Price’s daughter and successor trustee of the

Trust, entered into an Option Account Agreement with W achovia. The Option

Account Agreement contained an arbitration provision which provided, in

relevant part:

it is agreed that all controversies or disputes which may arise
between [Hollern] and [Wachovia] . . . concerning any transaction or
the construction, performance or breach of this Agreement or any
other agreement between us, whether entered into prior to, on, or
subsequent to the date of this Agreement, including any controversy
concerning whether an issue is arbitrable, shall be determined by
arbitration conducted before, and only before, an arbitration panel set
up by either the National Association of Securities Dealers, Inc.
(“NASD”) or the New York Stock Exchange, Inc. (“N YSE”) in
accordance with their respective arbitration procedures. Any of us
may initiate arbitration by filing a written claim with the NASD or
the NYSE. Any arbitration under this Agreement shall be conducted
pursuant to the Federal Arbitration Act and the Laws of the
Commonwealth of Virginia.

Appellants’ App. at 14. Hollern subsequently sought arbitration before the

National Association of Securities Dealers (“NASD”). Hollern claimed W achovia

was negligent and breached its fiduciary duty by not informing her or other

members of Price’s family of the volatile nature of the Trust’s investments w hile

Price was hospitalized. In her Statement of Claim, Hollern sought both

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compensatory damages for the decline in value of certain Trust investments and

attorneys’ fees and costs incurred in the arbitration proceeding. Hollern also

signed a C laim Information Sheet, which indicated she w as seeking attorneys’

fees. In its answer to Hollern’s Statement of Claim, W achovia likewise sought

reimbursement of attorneys’ fees. Both parties also signed an NASD Arbitration

Uniform Submission Agreement (“Uniform Submission Agreement”) wherein

they agreed to submit the issues identified in Hollern’s Statement of Claim and

W achovia’s Answer to arbitration in accordance with NASD arbitration

procedures. 1

At the conclusion of the arbitration hearing, the arbitrators directed the

parties to submit simultaneous affidavits of attorneys’ fees. Hollern filed a

motion for attorneys’ fees and an accompanying affidavit. In her motion, she

argued an award of attorneys’ fees was permitted pursuant to NASD Code of

Arbitration Procedure (“NASD Code”) Rule 10215. Rule 10215 states,

“arbitrator(s) shall have the authority to provide for reasonable attorney fee

reimbursements, in whole or in part, as part of the remedy in accordance with

1
The Uniform Submission Agreement provided:
The undersigned parties hereby submit the present matter in
controversy, as set forth in the attached statement of claim, answ ers,
and all related counterclaims and/or third-party claims which may be
asserted, to arbitration in accordance w ith the Constitution, By-Law s,
Rules, Regulations, and/or Code of Arbitration Procedure of the
sponsoring organization.
Appellants’ App. at 50.

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applicable law.” Hollern contended Colorado law was applicable. She urged the

arbitrators to award her attorneys’ fees pursuant to Colo. Rev. Stat. § 13-17-

102(4), which requires Colorado courts to award reasonable attorneys’ fees in any

civil action where a party brings or defends a frivolous, groundless, or vexatious

claim. The same day, W achovia filed an affidavit detailing the attorneys’ fees it

had incurred in the arbitration proceeding. W achovia subsequently filed a motion

in support of its request for attorneys’ fees relying, as Hollern had, on § 13-17-

102(4).

The arbitrators issued an award denying Hollern’s claims in their entirety

and awarding W achovia $193,526.84 in attorneys’ fees, pursuant to § 13-17-102.

Hollern then filed a motion in district court seeking to have the attorneys’ fees’

portion of the arbitration award set aside. She asserted the arbitrators had

exceeded their powers and acted in manifest disregard of the law in awarding

attorneys’ fees. The district court agreed and vacated the attorneys’ fees’ portion

of the award. W achovia filed a motion pursuant to Rule 60(b) of the Federal

Rules of Civil Procedure, which the district court summarily denied. W achovia

appeals both the district court’s decision to vacate the attorneys’ fees’ portion of

the arbitral award (Case No. 05-1253) and its denial of W achovia’s Rule 60(b)

motion (Case No. 05-1300).

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III. Discussion

In reviewing a district court order vacating an arbitration award, we review

factual findings for clear error and legal determinations de novo. Sheldon v.

Verm onty, 269 F.3d 1202, 1206 (10th Cir. 2001). W e must nevertheless “give

extreme deference to the determination of the arbitration panel for the standard of

review of arbitral awards is among the narrowest known to law.” Brown v.

Coleman Co., 220 F.3d 1180, 1182 (10th Cir. 2000) (quotation omitted). “Once

an arbitration award is entered, the finality of arbitration weighs heavily in its

favor and cannot be upset except under exceptional circumstances.” Ormsbee

Dev. Co. v. Grace, 668 F.2d 1140, 1146–47 (10th Cir. 1982). A district court

may vacate an arbitral award only for reasons enumerated in the Federal

Arbitration Act (“FAA”), 9 U.S.C. § 10, 2 or for “a handful of judicially-created

reasons.” Sheldon, 269 F.3d at 1206 (observing an arbitration award may be set

2
The FAA allows district courts to vacate an arbitral award
(1) where the award was procured by corruption, fraud, or
undue means;
(2) where there was evident partiality or corruption in the
arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in refusing
to postpone the hearing, upon sufficient cause shown, or in refusing
to hear evidence pertinent and material to the controversy; or of any
other misbehavior by which the rights of any party have been
prejudiced; or
(4) where the arbitrators exceeded their powers, or so
imperfectly executed them that a mutual, final, and definite award
upon the subject matter submitted was not made.
9 U.S.C. § 10.

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aside because of a violation of public policy, manifest disregard of the law, or

denial of a fundamentally fair hearing). Errors in an arbitration panel’s factual

findings, or its interpretation and application of the law, do not justify vacating an

award. Denver & Rio Grande W. R.R. v. Union Pac. R.R., 119 F.3d 847, 849

(10th Cir. 1997).

Hollern advanced two grounds in the district court for vacating the

attorneys’ fees’ portion of the arbitral award. Hollern first argued Virginia law

governed the issue of attorneys’ fees and claimed the arbitrators exceeded their

powers because the parties did not expressly authorize an award of attorneys’ fees

as required by Virginia law. Alternatively, Hollern contended, if Colorado law

governed the issue of attorneys’ fees, the arbitrators manifestly disregarded the

law in their application of Colo. Rev. Stat. § 13-17-102. Because we conclude

both of these grounds are without merit, we need not decide whether Virginia or

Colorado law should have governed the issue of attorneys’ fees in this case.

A. Arbitrators Exceeded Their Pow ers Under Virginia Law

In her motion to vacate the attorneys’ fees’ portion of the arbitral award,

Hollern first argued the arbitrators lacked authority to award attorneys’ fees. See

9 U.S.C. § 10(4). She claimed the arbitrators erred in relying on Colorado law to

support the award of attorneys’ fees. Instead, Hollern contended the arbitration

should have been governed by Virginia law in accordance with the terms of the

Option Account Agreement she entered into with W achovia. Virginia has adopted

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the Uniform Arbitration Act (“UAA”), which contains the following provision

regarding attorneys’ fees:

Unless otherwise provided in the agreement to arbitrate, the
arbitrator’s expenses and fees incurred in the conduct of the
arbitration, and all other expenses, not including counsel fees,
incurred in the conduct of the arbitration shall be paid as provided in
the award.

Va. Code Ann. § 8.01-581.07. Although Virginia state courts have not yet

interpreted or applied this provision, Hollern argued it prohibits an arbitral award

of attorneys’ fees unless the parties expressly provide for such an award in their

arbitration agreement. Hollern contended the Option Account Agreement did not

expressly authorize an award of attorneys’ fees, and thus, the arbitrators exceeded

their authority in aw arding such fees. The district court agreed that Virginia law ,

not Colorado law, governed the arbitration proceeding. Further, it determined

Virginia law prevented an award of attorneys’ fees under the facts of this case

because the parties had not expressly authorized the arbitrators to award

attorneys’ fees. The district court therefore vacated the attorneys’ fees portion of

the award.

In assessing the scope of the arbitrators’ authority, we are mindful of the

strong presumption requiring all doubts concerning whether a matter is within the

arbitrators’ powers to be resolved in favor of arbitrability. Shankle v. B-G M aint.

M gmt. of Colo., Inc., 163 F.3d 1230, 1233 (10th Cir. 1999). Even assuming

Virginia law applies and requires parties to expressly authorize an award of

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attorneys’ fees in their arbitration agreement, as Hollern contends, 3 the parties

have satisfied that requirement in this case. Accordingly, the arbitrators did not

exceed their pow ers under Virginia law in aw arding W achovia attorneys’ fees.

Although the Option Account Agreement itself did not expressly permit an

aw ard of attorneys’ fees, the parties’ subsequent submissions to the arbitrators

amended the original arbitration agreement to expressly authorize attorneys’ fees.

Arbitrators derive their authority from the parties’ arbitration agreement. United

3
Because V irginia state courts have not interpreted the UAA attorneys’
fees’ provision, Hollern urges us to rely on decisions from other state courts. She
contends most states have construed the UAA attorneys’ fees’ provision to
prohibit an award of attorneys’ fees unless the parties expressly authorize such an
award in their arbitration agreement. For purposes of this appeal, we accept
H ollern’s characterization of how Virginia courts would likely interpret the UA A
attorneys’ fees’ provision. W e note, however, that, contrary to H ollern’s
assertion, the provision has not been interpreted uniformly by the states. In
particular, although most states require parties to agree to submit the issue of
attorneys’ fees to arbitration, the states differ in their characterization of the form
that agreement may take. See Canon Sch. Dist. No. 50 v. W.E.S. Constr. Co., 882
P.2d 1274, 1278 (Ariz. 1994) (permitting attorneys’ fees if parties explicitly
provide for such fees in the arbitration agreement); Com pton v. Lemon Ranches,
Ltd., 972 P.2d 1078, 1080 (Colo. Ct. App. 1999) (observing parties may expand
scope of original arbitration agreement by subsequently submitting other matters
to arbitration); Bingham County Comm’n v. Interstate Elec. Co., 665 P.2d 1046,
1052 (Idaho 1983) (authorizing attorneys’ fees w hen parties contractually agree);
WM C, Inc. v. Weaver, 602 S.E.2d 706, 709 (N.C. Ct. App. 2004) (requiring
express provision in arbitration agreement authorizing attorneys’ fees, but
permitting waiver of challenge to attorneys’ fees award when party does not
object during arbitration); D & E Constr. Co. v. Robert J. Denley Co., 38 S.W .3d
513, 519 (Tenn. 2001) (prohibiting attorneys’ fees unless parties have
understanding to the contrary); cf. Cassedy v. M errill Lynch, Pierce, Fenner &
Smith, Inc., 751 So. 2d 143, 149 (Fla. Dist. Ct. App. 2000) (concluding parties
expressly waived right to have issue of attorneys’ fees decided by a court instead
of arbitrators by requesting attorneys’ fees in arbitration pleadings and closing
argument).

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Food & Com mercial Workers, Local Union No. 7R v. Safeway Stores, Inc., 889

F.2d 940, 946 (10th Cir. 1989). The parties may extend that authority, however,

in their submissions to the arbitrators so long as the submissions do not violate an

express provision of the original arbitration agreement. Id. After the parties

executed the Option Account Agreement, Hollern submitted an NASD Statement

of Claim wherein she explicitly requested an award of attorneys’ fees. She

reaffirmed her desire to have the arbitrators decide the issue of attorneys’ fees by

indicating she was seeking attorneys’ fees on the Claim Information Sheet.

W achovia did not object to the arbitrators’ authority to award attorneys’ fees.

Instead, in its A nsw er to Hollern’s Statement of Claim, W achovia also explicitly

requested an award of attorneys’ fees. M ost importantly, the parties then entered

into a Uniform Submission Agreement. The Uniform Submission Agreement

expressly incorporated Hollern’s Statement of Claim and W achovia’s Answer,

and indicated the parties agreed to submit all issues identified in those pleadings

to arbitration. By incorporating their pleadings, including their parallel requests

for attorneys’ fees, into the Uniform Submission Agreement, the parties expressly

empowered the arbitrators to award attorneys’ fees. See Plunkett v. Plunkett, 624

S.E.2d 39, 42 (Va. 2006) (indicating that incorporating a document by reference

into a contract makes that document an express part of the contract).

The parties’ authorization of the award of attorneys’ fees, however, went

even further. The arbitrators noted at the end of the arbitration hearing that both

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Hollern and W achovia had requested attorneys’ fees in their submissions.

Accordingly, the arbitrators directed each party to submit an affidavit of

attorneys’ fees. Neither party objected to the arbitrators’ authority to aw ard

attorneys’ fees. Instead, both parties submitted motions seeking attorneys’ fees.

Hollern argued the arbitrators had authority to award attorneys’ fees pursuant to

NASD Code Rule 10215 and Colo. Rev. Stat. § 13-17-102(4). W achovia also

asserted attorneys’ fees w ere permitted under § 13-17-102(4). In accordance with

the parties’ requests, the arbitrators decided the issue of attorneys’ fees, granting

fees to W achovia.

In determining the parties did not expressly agree to permit an award of

attorneys’ fees, the district court relied on Carson v. Painewebber, Inc., 62 P.3d

996 (Colo. Ct. App. 2002). 4 In Carson, the parties entered into an arbitration

agreement that was silent on the issue of attorneys’ fees. See id. at 1000. The

4
The issue of whether an agreement exists is a mixed question of law and
fact. Naimie v. Cytozyme Labs., Inc., 174 F.3d 1104, 1111 (10th Cir. 1999). “W e
review mixed questions under either the clearly erroneous standard or de novo
standard depending on whether the mixed question involves primarily a factual
inquiry or the consideration of legal principles.” Id. (quotation omitted). In this
case, the parties do not dispute the existence or content of the documents relied
on by the district court in determining the parties did not expressly authorize an
aw ard of attorneys’ fees— i.e., Hollern’s Statement of Claim, W achovia’s Answer,
the Uniform Submission Agreement, and both parties’ motions and affidavits for
attorneys’ fees. Instead, W achovia challenges the district court’s determination
that these documents do not evidence an express agreement. Because this
determ ination involves the application of legal principles to undisputed facts, w e
review the district court’s conclusion that the parties did not expressly agree to
permit an aw ard of attorneys’ fees de novo. See id.

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claimant requested attorneys’ fees in its Statement of Claim and the respondent

made a corresponding request in his Answer. Id. at 997. Additionally, both

parties signed a Uniform Submission Agreement wherein they agreed to submit

the issues identified in their pleadings to arbitration. Id. The arbitrators

subsequently awarded attorneys’ fees to the claimant, and the respondent

appealed. Id. In reviewing the award, the state court first observed Colorado

courts have interpreted the UAA attorneys’ fees’ provision to prohibit an award of

attorneys’ fees unless the parties have specifically authorized the arbitrator to

address the issue. Id. at 1000. It then concluded the parties’ mutual requests for

attorneys’ fees in their pleadings alone were not sufficient to demonstrate the

parties specifically agreed to permit the award. Id.

Although Carson’s application of Colorado law does not control our

application of Virginia law, we note Carson would not prohibit an award of

attorneys’ fees under the facts of this case. Colorado courts have acknowledged

parties may expand the scope of their original arbitration agreement by

subsequently submitting matters outside the agreement to arbitration. Compton v.

Lemon Ranches, Ltd., 972 P.2d 1078, 1080 (Colo. Ct. App. 1999). The court in

Carson merely determined parties’ parallel requests for attorneys’ fees in their

pleadings and their execution of a Uniform Submission Agreement are

insufficient to authorize an award of attorneys’ fees. Carson, 62 P.2d at 1000.

Here, however, in addition to filing pleadings requesting attorneys’ fees and

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executing a Uniform Submission Agreement, the parties also filed affidavits and

motions for attorneys’ fees. In their motions, the parties explicitly argued the

arbitrators had authority to award attorneys’ fees pursuant to Colo. Rev. Stat. §

13-17-102(4). Further, neither party objected to the arbitrators’ authority to

award attorneys’ fees during the arbitration. The parties’ submissions to the

arbitrators in this case, which exceed those at issue in Carson, are sufficient to

constitute an express authorization to award attorneys’ fees. 5 Therefore, the

arbitrators did not exceed their pow ers under Virginia law in aw arding attorneys’

fees, and the district court erred in vacating the attorneys’ fees’ portion of the

arbitral award on this ground.

5
On appeal, Hollern relies on another Colorado case to support her
contention that the parties’ submissions did not authorize an award of attorneys’
fees. See Com pton, 972 P.2d 1078. The parties’ arbitration agreement in
Compton did not expressly permit an award of attorneys’ fees, and the parties did
not request attorneys’ fees in their pleadings. Id. at 1080. Nevertheless, at the
conclusion of the arbitration hearing, the arbitrators directed each party to submit
an affidavit detailing their attorneys’ fees. Id. at 1079. Both parties complied,
and the arbitrators awarded attorneys’ fees. Id. The state court vacated the
award. Id. at 1080. It observed the original court order compelling arbitration
specifically provided that each party would be required to pay its own attorneys’
fees incurred in the arbitration. Id. In light of this order, the court concluded the
parties’ mere compliance with the arbitrators’ request for attorneys’ fees
affidavits did not amount to an agreement authorizing an award of attorneys’ fees.
Id. Like Carson, Compton is unpersuasive here because Hollern’s and
W achovia’s submissions to the arbitrators regarding attorneys’ fees went beyond
merely acquiescing in the arbitrators’ request for submission of attorneys’ fees
affidavits. Additionally, in the present case there was no court order preceding
arbitration indicating that each party should bear its own attorneys’ fees.

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 B. M anifest Disregard of Colorado Law

As an alternative ground for vacating the attorneys’ fees portion of the

arbitral award, Hollern argued if Colorado law governed the issue of attorneys’

fees, the arbitrators manifestly disregarded Colorado law. The arbitrators

awarded attorneys’ fees to W achovia pursuant to Colo. Rev. Stat. § 13-17-102.

The statute permits courts, “in any civil action of any nature commenced or

appealed in any court of record in [Colorado],” to aw ard reasonable attorneys’

fees. Colo. Rev. Stat. § 13-17-102(1). W hen awarding attorneys’ fees, courts

must consider the factors enumerated in § 13-17-103 in determining whether

attorneys’ fees should be assessed and the amount to be assessed. Colo. Rev.

Stat. § 13-17-103. Courts must also specifically set forth their reasons for

awarding attorneys’ fees. Id.

In her motion to vacate the attorneys’ fees’ portion of the arbitral award,

Hollern argued the arbitrators’ reliance on § 13-17-102, when the statute by its

terms only applies to civil actions brought in Colorado state courts, was in

manifest disregard of the law . She also contended the arbitrators’ failure to

consider the relevant statutory factors or set forth the reasons justifying their

award of attorneys’ fees constituted a manifest disregard of the law. The district

court agreed, concluding the arbitrators’ failure to comply with the requirements

of § 13-17-102 was an alternative ground for vacating the attorneys’ fees’ portion

of the arbitral award.

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 Errors in an arbitration panel’s interpretation or application of the law are

generally not reversible. Dominion Video Satellite, Inc. v. Echostar Satellite

L.L.C., 430 F.3d 1269, 1274 (10th Cir. 2005). A judicially-created exception to

this rule exists, however, w here arbitrators act in manifest disregard of the law.

Id. M anifest disregard of the law has been defined as “willful inattentiveness to

the governing law.” Id. To warrant setting aside an arbitration award based on

manifest disregard of the law, “the record must show the arbitrators knew the law

and explicitly disregarded it.” Id.

Assuming Colorado law applies, the arbitrators’ application of § 13-17-102

to the facts of this case was not in manifest disregard of the law . Hollern

contends Colorado law only authorizes Colorado state courts to aw ard attorneys’

fees in civil actions. Hollern has cited no authority adopting this interpretation.

M ore importantly, in the arbitration proceeding, both parties argued the statute

permitted the arbitrators to award attorneys’ fees, and neither party suggested the

statute might only apply in the context of a civil suit brought in state court. In

light of the positions taken by the parties during the arbitration proceeding, we

cannot say the arbitrators knew § 13-17-102 did not authorize arbitrators to award

attorneys’ fees and nevertheless chose to disregard the law.

Hollern also contends the arbitrators w ere required to consider the factors

enumerated in Colo. Rev. Stat. § 13-17-103 and explicitly set forth their reasons

for assessing attorneys’ fees in the arbitration award. Hollern, however, has

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presented no evidence showing the arbitrators did not consider the relevant

statutory factors. M oreover, arbitrators are generally not required to delineate the

reasons for their decision. Eljer M fg., Inc. v. Kowin Dev. Corp., 14 F.3d 1250,

1254 (7th Cir. 1994) (observing contrary rule would perpetuate the delay and

expense that arbitration is meant to combat). In fact, in this case, the parties’

original arbitration agreement, the Option Account Agreement, specifically

provides that “[t]he arbitrator’s award is not required to include factual findings

or legal reasoning.” Appellants’ App. at 14. Because the arbitrators were not

required to state the reasons for their award of attorneys’ fees, their failure to do

so does not constitute a manifest disregard of the law. The district court thus

erred in vacating the attorneys’ fees portion of the arbitration award on this

ground as w ell.

IV. Conclusion

For the foregoing reasons, we REV ER SE the district court order vacating

the attorneys’ fees portion of the arbitration award and REM AND with

instructions to reinstate that portion of the award. Because we have determined

the district court erred in vacating the arbitral award, we need not address

W achovia’s claim that the district court abused its discretion in denying

W achovia’s Rule 60(b) motion.

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