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Board of County Commissioners of County of Bernalillo v. Bok Financial Securities, Inc.

United States District Court, D. New Mexico

March 15, 2019

BOARD OF COUNTY COMMISSIONERS OF THE COUNTY OF BERNALILLO, Petitioner,
v.
BOK FINANCIAL SECURITIES, INC. f/k/a/ BOSC, INC., and THOMAS WAYNE HAYES, Respondents.

          Clinton W. Marrs and Patrick J. Griebel, Marrs Griebel Law, Ltd., Albuquerque, New Mexico, for Petitioner Board of County Commissioners of the County of Bernalillo.

          Benjamin E. Thomas and Keith Mier, Sutin, Thayer & Browne, A Professional Corporation, Albuquerque, New Mexico, and Frederic Dorwart, Paul DeMuro, and Jared M. Burden, Frederic Dorwart, Lawyers, PLLC, Tulsa, Oklahoma, for Respondents BOSC, Inc., and Thomas Wayne Hayes.

          MEMORANDUM OPINION AND ORDER

          Paul Kelly, Jr. United States Circuit Judge.

         THIS MATTER is before the court on a petition and various motions concerning an arbitration award. ECF Nos. 4, 5, 16. Upon consideration thereof, the arbitral award should be confirmed, with the exception of Respondents' request for prejudgment interest calculated at 15% per annum.[1]

         Background

         This case arises out of arbitration between Petitioner Board of County Commissioners of the County of Bernalillo (“the County”) and Respondents BOSC, Inc. (now known as BOK Financial Securities, Inc.), and its representative, Thomas Wayne Hayes (collectively, “BOSC”). On November 20, 2014, the Director of the New Mexico Securities Division issued a Notice of Contemplated Action to BOSC, alleging BOSC gave unsuitable investment advice and failed to ensure the investments made by the Bernalillo County Treasurer's Office were commensurate with its investment policy. Am. Pet. 3 (ECF No. 4). The County sued BOSC in New Mexico State court the following July. See Burden Aff. 1 ¶ 4 (ECF No. 5-1); Bd. of Cty. Comm'rs of the Cty. of Bernalillo v. BOSC INC, No. D-202-CV-201506106 (N.M. Dist. Ct., Albuquerque Dist. 2015). BOSC removed the case to the United States District Court for the District of New Mexico in September 2015. Notice of Removal, Bd. of Cty. Comm'rs of the Cty. of Bernalillo v. BOSC, Inc., No. 1:15-cv-00772-MV-LF (D.N.M. Sept. 1, 2015), ECF No. 1. BOSC then moved to dismiss the case, and, after full briefing by the parties, the County voluntarily dismissed its action without prejudice to pursue its claims in arbitration before the Financial Institutions Regulatory Authority (“FINRA”) pursuant to Mr. Hayes's Form U4 Uniform Application for Securities Industry Registration or Transfer.[2] Am. Pet. 4; Pl.'s Notice of Dismissal, Bd. of Cty. Comm'rs of the Cty. of Bernalillo v. BOSC, Inc., No. 1:15-cv-00772-MV-LF (D.N.M. Oct. 19, 2015), ECF No. 22; Statement of Claim and Demand for Arbitration (ECF No. 4-1). BOSC sued separately in the District of New Mexico to enjoin the FINRA arbitration, claiming the County had waived its right to arbitration when it filed the state lawsuit, but the court disagreed and compelled arbitration. BOSC, Inc. v. Bd. of Cty. Comm'rs of the Cty. of Bernalillo, No. 15-cv-1042-KG-LF, 2016 WL 7428796 (D.N.M. Feb. 25, 2016), aff'd, 853 F.3d 1165 (10th Cir. 2017).

         The County's Statement of Claim and Demand for Arbitration alleged misleading securities sales practices under the New Mexico Uniform Securities Act, unfair or deceptive trade practices under the New Mexico Unfair Practices Act (UPA), breach of fiduciary duty, negligent misrepresentation, breach of contract and implied covenant of good faith and fair dealing, and theories of negligent supervision and respondeat superior, and it demanded costs and attorney's fees. Statement of Claim and Demand for Arbitration 13-27. In its answer, BOSC argued the County failed to state a claim upon which relief can be granted, and that the claims were both “fabricated” and “implausible.” Answer 3, 7 (ECF No. 5-6).

         The arbitration was conducted by a three-member FINRA arbitration panel in an eight-day hearing over the course of one month and “in accordance with the FINRA ByLaws, Rules, and Code of Arbitration Procedure.” FINRA Arbitration Submission Agreements (ECF Nos. 4-2, 4-4 & 4-5); Burden Aff. 2 ¶ 7. On the first day of the merits hearing BOSC informed the arbitration panel that “at the end of this case we want our fees, because, we shouldn't be here.” 1 Arbitration Tr. 2 (p. 82) (ECF No. 4-6). It reiterated its request at closing argument, citing both to the UPA and to New Mexico common law, which it argued support the payment of attorney's fees by a claimant whose claim is found to be frivolous. 8 Arbitration Tr. 4-5 (pp. 1808-10) (ECF No. 4-6). The County responded:

[T]he only fee shifting basis available to BOSC is under the Unfair Practices Act and that is only if [--] it is not enough for BOSC to be a prevailing party.
. . . [T]he fee shifting under UPA on the defense for Respondent's side, you must not only prevail but then the panel would have to go further and find that the claims were groundless.
The claims can have merit but not succeed, and that is not the same as the claims being groundless. So you have to go that extra step to shift fees to the Respondents under UPA.

Id. at 5 (p. 1811). The County also disagreed that New Mexico common law allowed for fee shifting because it argued its claims were not frivolous, and it objected to the fact that BOSC only requested costs or fees in its closing argument, not its pleading. Id. at 5, 6 (p. 1811-12, 1815).

         In response, an arbitrator noted, “I don't think the [FINRA] rules foreclose a recovery of attorney fees and costs if it is not in the initial pleadings.” Id. at 6 (p. 1816). The County disagreed, but it was unable to point to an applicable rule supporting its position. Id. at 6 (p. 1816); 8 Arbitration Tr. 3-4 (pp. 1816-17) (ECF No. 5-7). The arbitrator also noted that BOSC had raised the issue of attorney's fees in its opening argument. 8 Arbitration Tr. 4 (p. 1817) (ECF No. 5-7). At the end of the hearing, the County reiterated that fees could not shift because its claims were not frivolous, and it lodged a continuing objection to BOSC's requested costs and fees. 8 Arbitration Tr. 7 (p. 1897-99) (ECF No. 4-6). The arbitration panel issued its award dismissing the County's claims on July 27, 2017, and it awarded BOSC $285, 358.89 in attorney's fees and $73, 527.60 in costs.[3] Award, FINRA Office of Dispute Resolution 3 (ECF No. 4-7). The panel held that the award of attorney's fees was “pursuant to the authority set forth in New Mexico State Highway and Transportation Department v. Edward Baca, 120 NM 1 (1995) and NMSA 1978 57-12-10C [of the UPA].” Id.

         The County commenced the present action in September 2017, seeking vacatur of the award under 9 U.S.C. §§ 10(a)(3)-(4), or alternatively, modification under 9 U.S.C. § 11(b). ECF Nos. 1, 4. Count I of its Amended Petition, ECF No. 4, alleges the arbitration panel exceeded its authority by granting an untimely claim for attorney's fees and costs. Count II alleges the arbitration panel's award of attorney's fees and costs requires modification or correction, and Count III alleges the award violates ...


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