Arbitration/Standard of Review: Trial Court Properly Vacated Arbitraiton Award, In Light of Unfair Procedure and Lack of Actual Notice

 

Fundamental Fairness Issue Involving Lack of Notice Resulted in De Novo Standard of Review

     Plaintiff and Respondent Roland Hansalik signed a promissory note with Wells Fargo Advisors, LLC, with a provision calling for arbitration before the Financial Industry Regulatory Authority (FINRA). Then Mr. Hansalik moved to Switzerland. Wells Fargo initiated arbitration through FINRA, and obtained an award by default, because Mr. Hansalik never appeared. When enforcement procedures commenced in Switzerland against Mr. Hansalik, he immediately filed a petition in California to vacate the arbitration award, claiming he never received notice. Repeated notices had been sent to the wrong address. The trial court granted his petition, and a timely appeal followed. Hansalik v. Wells Fargo Advisors, LLC, Case No. B232151 (2nd Dist. Div. 2 April 25, 2012) (Ashmann-Gerst, J., author) (unpublished).

     The interesting wrinkle here is that FINRA rules provide in part: "The panel has the authority to interpret and determine the applicability of all provisions under the [FINRA rules]. Such interpretations are final and binding upon the parties." Wells Fargo contended that the arbitrator had the power to interpret the notice rule to determine if service was proper, and that it did so. End of story. Not quite.

     The Court of Appeal had a very different view of the matter, for it characterized Wells Fargo's position thusly:

     "What Wells Fargo is truly advocating is this: If the arbitrator has the contractual authority to determine the sufficiency of notice to a party, then the arbitrator's finding of adequate notice cannot be overturned even if the arbitration was unfair and a party was denied notice and an opportunity to be heard." (italics in the original).

     The Court of Appeal viewed this as a question of fairness and lack of notice, presenting a mixed question of fact and law. Such an issue is reviewed under a "de novo" standard. The Court of Appeal concluded: "Based on the unique facts of this case, FINRA's procedure was unfair." The trial court's order was affirmed.