Fang v. Merrill Lynch, Pierce, Fenner & Smith, Inc.

Filing 76

ORDER re 64 MOTION TO VACATE ARBITRATION AWARD. Signed by Judge James Donato on 11/23/2018. (jdlc1, COURT STAFF) (Filed on 11/23/2018)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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WINNIE B. FANG,
Plaintiff,

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ORDER RE MOTION TO VACATE
ARBITRATION AWARD

v.

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Case No.16-cv-06071-JD

MERRILL LYNCH, PIERCE, FENNER &
SMITH, INC.,

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Re: Dkt. No. 64

Defendant.

United States District Court
Northern District of California

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Plaintiff Winnie B. Fang seeks to overturn a decision denying her claims against defendant

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Merrill Lynch, Pierce, Fenner & Smith Inc. (“Merrill Lynch”) in an arbitration that she initiated

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before the Financial Industry Regulatory Authority (“FINRA”). Dkt. No. 64. The motion is

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denied.

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BACKGROUND
The salient facts are undisputed. In 2005, Fang delivered to Merrill Lynch certificates for

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shares of stock in Peet’s Coffee & Tea, Inc. (“Peet’s”) that her deceased husband had previously

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held. Dkt. No. 35 ¶¶ 5-6. In 2010, Fang was notified that the Controller for the State of California

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had received Peet’s stock as unclaimed property. Id. ¶ 9. Fang sued Peet’s and other entities, but

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not Merrill Lynch, in California superior court for mishandling her investment. Id. ¶¶ 8, 10; Dkt.

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No. 64 at 6. The case ended in a “partial settlement” of Fang’s alleged losses. Dkt. No. 35 ¶ 12.

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In 2015, Fang initiated arbitration proceedings under FINRA’s rules and procedures

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against Merrill Lynch for breach of fiduciary duties and breach of contract. Dkt. No. 57, Ex. B.

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The gravamen of the arbitration demand was that Merrill Lynch had not properly managed

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shareholder registration information for her stock, which resulted in the escheatment and the

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issuance of misleading statements by Merrill Lynch indicating that the shares were in Fang’s

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account when in fact they had escheated to the state. See Dkt. No. 57, Ex. A; Dkt. No. 64 at 8.

In February 2018, a FINRA arbitration panel of three neutrals issued an award. Dkt.

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No. 61, Ex. L. The panel denied Fang’s claims in their entirety, and ordered her to pay $6,000 in

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expert witness fees incurred by Merrill Lynch. Id. at 4.
In the award’s summary of facts, the panel recounted in detail the rather unusual twists and

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turns in the proceedings. Among other events, the panel noted that it had scheduled a hearing on

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the merits for a date in October 2016, but that Fang failed to submit a witness list or other pre-

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hearing materials as required by the panel’s scheduling order. Id. at 2. Instead, Fang filed an

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improper ex parte motion to continue the hearing on the grounds that Merrill Lynch had not

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provided certain documents during discovery, and that Fang was planning to file a class action on
the same claims. Id. The panel noted that Fang had not filed a motion to compel or any other

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United States District Court
Northern District of California

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discovery motion by the deadline in the scheduling order, and had not provided evidence to

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FINRA that she had filed a class action case anywhere. Id. The request for a continuance was

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denied.

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Fang then filed a motion to dismiss her claims without prejudice, and a motion for

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reconsideration of the denial of the continuance. Id. The panel left the merits hearing date in

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place and said it would take up these motions at the start of the proceedings. Id. at 2-3.

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At that juncture, just a few days before the October 2016 hearing, Fang filed this action

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along with a motion for a temporary restraining order to stop the FINRA proceedings for alleged

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procedural violations. Dkt. Nos. 7, 8. The Court denied a TRO because Fang had failed to show a

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fair chance of success on the merits or a serious question requiring litigation, or the likelihood of

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irreparable harm. Dkt. No. 19. Fang appealed the denial to the Ninth Circuit, which affirmed the

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Court’s order. Dkt. No. 30.

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While the TRO events were underway, Fang continued to interact with the FINRA panel,

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again with less than smooth sailing. The panel found that Fang had mischaracterized one of the

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panel’s orders to this Court. Dkt. No. 61, Ex. L at 3. The panel also found that Fang’s attorney

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had falsely represented that the TRO had been granted. Id. Of even greater concern, Fang and her

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lawyer failed to appear at the October 2016 hearing, and consequently did not argue her pending

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motions to dismiss and for reconsideration, or the merits of her claims. Id. Merrill Lynch showed
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up, and the panel conducted an evidentiary hearing under FINRA rules. Id.
After that, Merrill Lynch sent the panel a copy of the Ninth Circuit decision affirming the

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denial of the TRO, and Fang submitted a “responsive” document that the panel interpreted to be

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another motion to dismiss without prejudice. Id. The panel decided to suspend its proceedings

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until this Court decided class certification in the case Fang filed here. Id. The Court, however,

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had already stayed this case before the panel’s suspension decision to allow for completion of the

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arbitration. Dkt. No. 32. The stay was entered at the parties’ joint request. Id. After Merrill

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Lynch advised the panel of this in a motion for the issuance of an award, the panel returned to

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action and convened a hearing on that motion and what appears to have been a new motion to
dismiss by Fang. Dkt. No. 61, Ex. L at 4. At the hearing in January 2018, Fang’s lawyer said the

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United States District Court
Northern District of California

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reason he could not attend the October 2016 merits hearing was because “he had to appear in a

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matter for the United Nations.” Id. The panel noted that the lawyer had not raised that particular

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conflict in his continuance papers. Id. The panel denied Fang’s motion to dismiss and issued the

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February 2018 award decision. Id.

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LEGAL STANDARDS
Our national policy favoring arbitrations means that “courts may vacate an arbitrator’s

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decision ‘only in very unusual circumstances.’” Oxford Health Plans LLC v. Sutter, 569 U.S. 564,

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568 (2013) (quoting First Options of Chicago, Inc. v. Kent, 514 U.S. 938, 942 (1995)); see also

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Kyocera Corp. v. Prudential-Bache Trade Servs., Inc., 341 F.3d 987, 997-98 (9th Cir. 2003) (en

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banc). As a strict rule, an arbitration award may be vacated only “(1) where the award was

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procured by corruption, fraud, or undue means; (2) where there was evident partiality or

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corruption in the arbitrators, or either of them; (3) where the arbitrators were guilty of misconduct

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in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence

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pertinent and material to the controversy; or of any other misbehavior by which the rights of any

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party have been prejudiced; or (4) where the arbitrators exceeded their powers, or so imperfectly

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executed them that a mutual, final, and definite award upon the subject matter submitted was not

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made.” 9 U.S.C. § 10(a) (“Section 10(a)”); see also Biller v. Toyota Motor Co., 668 F.3d 655,

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663-64 (9th Cir. 2012). These are the exclusive grounds for vacating an award, and if the moving
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party does not establish that one or more of them applies, the award will stand “even in the face of

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erroneous findings of fact or misinterpretations of law.” Lagstein v. Certain Underwriters at

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Lloyd’s London, 607 F.3d 634, 640 (9th Cir. 2010) (internal quotation omitted).

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The party seeking to vacate the award “bears the burden of establishing that one of the

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grounds . . . justifies vacating the award.” Glob. eBusiness Servs., Inc. v. Interactive Brokers LLC,

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16-cv-01264-JD, 2017 WL 4877174, at *1 (N.D. Cal. Oct. 30, 2017), aff’d in part, appeal

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dismissed in part, 17-17260, 2018 WL 5389627 (9th Cir. Oct. 29, 2018).
DISCUSSION

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As the panel’s statement of facts indicates, Fang in effect chose not to litigate the
arbitration demand she voluntarily submitted to FINRA. Nevertheless, she seeks to vacate the

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United States District Court
Northern District of California

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award by heaping blame on the arbitrators and Merrill Lynch. Fang mentions all four grounds in

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Section 10(a) as a basis for overturning the panel’s decision, but argues mainly that the award was

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the product of corruption, fraud and undue means, and exceeded the arbitrators’ authority.

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The record does not support Fang’s arguments for vacating the award. To start, there is no

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evidence even remotely indicating that Fang did not get a fair shake because the arbitrators were

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corrupt or partial to Merrill Lynch. She presents no evidence of an actual bias against her, or facts

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that might create a reasonable impression of bias or otherwise indicate “evident corruption.”

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See Lagstein, 607 F.3d at 645-46.

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Fang puts particular emphasis on discovery disputes and motions practice before the panel

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as alleged evidence of fraud and undue means, see, e.g., Dkt. No. 64 at 16, but her dissatisfaction

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with Merrill Lynch’s discovery responses or the panel’s disposition of her motions are no basis for

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throwing out the award. Discovery and other procedural issues “‘which grow out of the dispute

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and bear on its final disposition are presumptively not for the judge, but for an arbitrator, to

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decide.’” Lagstein, 607 F.3d at 644 (quoting Stolt-Nielsen S.A. v. Animalfeeds Int’l Corp., 559

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U.S. 662, 685 (2010)) (other quotation omitted). This is all more the more true here, where Fang

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actually raised discovery and motion issues with the arbitration panel, but not in a diligent or

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timely way, as stated in the panel’s statement of facts. She has not demonstrated that Merrill

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Lynch hid documents or information that might have made a material difference to the merits of
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her claims. Looking at the arbitration as a whole, Fang also has not demonstrated that Merrill

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Lynch engaged in conduct that could be seen as “immoral if not illegal.” A.G. Edwards & Sons,

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Inc. v. McCollough, 967 F.2d 1401, 1403 (9th Cir. 1992) (quotation and citation omitted).

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Consequently, Fang may not overturn the arbitration award on these grounds. See Braggs v.

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Jones, 614 Fed. App’x 901, 903 (9th Cir. 2015); A.G. Edwards, 967 F.2d at 1403.

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Fang’s contention that the arbitrators exceeded their powers is equally unavailing. Fang

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casts this allegation in various terms, including that “the panel was without jurisdiction,” but the

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overarching theme is that the arbitrators acted beyond the grant of their authority. See Dkt. No. 64

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at 13-14. While the grounds for this claim are not crystal clear, Fang’s argument appears to be
that, after voluntarily initiating the arbitration, she decided to pursue a class action in court against

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United States District Court
Northern District of California

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Merrill Lynch, and that the arbitration should have been terminated because FINRA has no

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provision for handling class action disputes. Id. at 14. In her view, the panel’s continued activity

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after that, including the issuance of the award, exceeded its powers.

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This is not a well-taken reason to vacate the award. Fang relies heavily on arguments that

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the panel misapplied FINRA rules to proceed with the arbitration. See, e.g., id. at 13-14. But the

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interpretation of the FINRA rules is up to the arbitrators to decide, and it is not for the district

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court “to determine whether the arbitrator committed an error, even a serious error,” in making

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those interpretations. Sanchez v. Elizondo, 878 F.3d 1216, 1223 (9th Cir. 2018). While that puts

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this contention to rest, it is also worth noting that Fang has also not shown that the panel did, in

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fact, misinterpret the FINRA rules.

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Nor has Fang shown that the arbitrators somehow exceeded the bounds of the agreement

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that empowered them to hear Fang’s arbitration demand. Id. The record plainly shows that Fang

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herself initiated the arbitration solely for her own individual claim, and expressly submitted to

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FINRA’s rules and authority for that purpose. Dkt. No. 57, Ex. B. At all times, the panel acted on

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her personal claim as she filed it. The fact that she might have decided later to pursue class action

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claims by no means demonstrates that the panel itself acted in any way beyond the scope of her

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original arbitration submission, or lacked “jurisdiction” over her arbitration demand. To the

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contrary, it was Fang who wanted to pursue class claims outside the scope of the FINRA rules; it
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was not the panel who sought to exceed the bounds of the arbitration agreement.

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Fang does not identify a FINRA rule stating that the arbitration should have been

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terminated after she expressed a desire to file a class action lawsuit, or any case that supports that

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proposition. The cases she cites are off point because they involved motions to compel arbitration

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of putative class actions originally filed in court. See, e.g., Alakozai v. Chase Inv. Servs. Corp.,

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11-cv-9178-SJO, 2012 WL 748584 at *2-3 (C.D. Cal. Mar. 1, 2012). That is not the situation

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here. In addition, Fang was perfectly free to withdraw her claims at any time under FINRA Rule

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12702(b). The consequence would have been a withdrawal with prejudice, which apparently did

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not suit Fang’s litigation plans, see, e.g., Dkt. No. 57, Ex. F at 3, but it cannot fairly or reasonably
be said that she was forced to arbitrate anything that she did not originally consent to do. See

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United States District Court
Northern District of California

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Sanchez, 878 F.3d at 1222. Fang has also not shown that the arbitrators were “completely

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irrational” or guilty of “a manifest disregard of law.” Kyocera, 341 F.3d at 997 (internal citations

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omitted).
CONCLUSION

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Overall, Fang has not crossed the high bar set in Section 10(a) to vacate the arbitrators’
award. The motion is denied.
IT IS SO ORDERED.
Dated: November 23, 2018

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JAMES DONATO
United States District Judge

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