Opinion
NOT TO BE PUBLISHED
San Francisco City and County Super. Ct. No. CPF-06-506877
Reardon, J.
Appellant Banc of America Investment Services, Inc. (BAI) initiated and engaged in an arbitration proceeding in which respondent Dermot J. Durnin never appeared or responded, resulting in a $81,834.18 judgment against Durnin. All communications concerning the arbitration proceeding were sent to Durnin’s prior address. When Durnin was personally served with a notice of levy at his residence, he immediately contacted counsel and petitioned successfully to vacate the arbitration award. Relying on statutory and constitutional provisions, Durnin argued that the ex parte proceedings produced a judgment against him without any notice or opportunity to be heard. BAI seeks reversal of the order granting the petition to vacate the underlying arbitration award. We affirm.
I. FACTUAL BACKGROUND
A. National Association of Securities Dealers Arbitration
Durnin was employed as a securities broker with BAI, San Francisco from September 2003 through October 2004, at which time BAI terminated him. Upon his hire, Durnin was required to join the National Association of Securities Dealers, Inc (NASD), filling out the mandatory application to operate as an investment advisor representative known and hereafter referred to as “Form U4.” He listed 4371 26th Street, San Francisco as his current address.
In July 2007, the NASD was consolidated with various functions of the New York Stock Exchange, creating the Financial Industry Regulatory Authority (FINRA). ( [as of Sept. 22, 2009].)
In December 2004, and February and July 2005, BAI sent three demand letters to Durnin at the 26th Street address, demanding return of a $52,000 signing bonus. In November 2005, BAI filed its statement of claim against Durnin with the NASD, alleging breach of a promissory note, and provided the NASD with the above address. The claim was arbitrated under the rules of the NASD Code of Arbitration Procedure, which required arbitration of disputes, claims or controversies between a member of the NASD (BAI) and a person associated with a member (Durnin). (Rule 10201(a).) The arbitration panel issued an award in favor of BAI in the amount of $78,812.18. It further found that Durnin “did not file with NASD Dispute Resolution... a Statement of Answer or properly executed submission to arbitration. The Panel determined that [Durnin] has been properly served with Claimant’s Statement of Claim.... [¶]... [¶] [Durnin] did not appear at the evidentiary hearing in this matter.... Pursuant to Rule 10318 of the Code, the Panel determined that [he] received proper notice of the hearing and ruled to proceed in [his] absence.” On September 24, 2007, the superior court confirmed the award, ordering Durnin to pay $81,834.18 plus accruing interest and costs.
The rules of the NASD apply to cases filed prior to April 16, 2007. ( [as of Sept. 22, 2009].)
This amount includes accrued interest from the date of the award to the date of filing the petition to confirm the award.
B. Petition to Vacate
On February 25, 2008, a deputy sheriff personally served Durnin with a notice of levy of execution at his residence at 113 Knockash Hill, San Francisco. Straight away Durnin sought legal counsel and 25 days later moved to vacate the judgment and petitioned to vacate the arbitration award. Relying on various statutory provisions including Code of Civil Procedure sections 1286.2 and 473 as well as California Constitution, article I, section 7 (due process), Durnin asserted that he had no notice of the arbitration proceedings or any opportunity to be heard. The trial court granted the motion, vacating the arbitration award, the judgment entered against Durnin and the order confirming the award. This appeal followed, challenging the order granting Durnin’s motion to vacate the award.
All statutory references are to the Code of Civil Procedure unless otherwise indicated.
C. Durnin’s Showing in Superior Court
Durnin presented the following evidence in support of his motion:
1. Employment at BAI
In the summer of 2003, Durnin was a securities broker at Merrill Lynch and had accumulated a $20 million book of business. At that time, BAI actively tried to recruit Durnin; he met several times with BAI managers who told him he would have access to a significant pool of discretionary assets; promised he would work with an experienced premier banker who would share customers, introduce him to clients, provide prospects (which were so numerous that “ ‘cold calling’ ” was unknown) and make referrals; and promised a post at its Noe Valley branch and a $52,000 signing bonus. These inducements were made to get Durnin’s $20 million book of business. Durnin accepted the offer, but the $52,000 signing bonus was offered in the form of a “forgivable ‘promissory note,’ ” with the forgiveness stretched out over five years, 20 percent each year. Durnin was reluctant to accept the terms of the signing bonus, but he was assured that the note was “a mere formality,” a “typical practice in the business.”
BAI did not deliver on its promises. Durnin was not assigned to an experienced premier banker; he had no access to leads, clients or products, and was told to make cold calls. His business book accounts were distributed to BAI branches across the country.
Durnin received the first “installment” on his signing bonus after about three months with BAI. This came with a requirement that Durnin make a set payment on the note, and upon receipt and deposit, BAI would issue a bonus check in the same amount, less withholding.
In December 2003, BAI assigned Durnin to a branch in the predominantly “Chinese-speaking” Sunset District, with no access to any prospect, and where the manager, bankers and customers were all “native Chinese” speakers. As Durnin did not speak “Chinese,” the manager told him his presence would not help generate business.
Subsequently Durnin was assigned to a lower income Daly City neighborhood where the management and customers were primarily Filipino. Again, as he did not speak Tagalog, developing investment business was difficult. Moreover, he did not have access to branch prospects.
Durnin met with BAI management and asked that BAI live up to its commitments. He asked for a list of prospects, a truly experienced premier banker and reminded management of the promise for a position at the Noe Valley branch. Durnin complained that the inability to generate business was causing health problems. The next day he was orally informed of his termination.
2. Durnin’s Change of Residence; Communications Regarding Arbitration
In March 2004, Durnin purchased his home at 113 Knockash Hill, San Francisco and has resided there continuously since then. He promptly told BAI of his new address, specifically informing the BAI compliance and administration manager that he was moving; she wrote down the new address in his presence. He also told his manager, the BAI marketing director, that he was moving to the Knockash Hill address. Also that month Durnin filed a change of address with the United States Postal Service. According to policy, the service forwards mail for 12 months and thus after March 2005, Durnin received no forwarded mail from his former address at 4371 26th Street. Durnin continuously rented the 26th Street property until it was remodeled for sale in September through November 2006; the property sold in February 2007. He never received any mail at the 26th Street residence during that entire time, except for mail forwarded for one year pursuant to his change of address notice.
As stated above, after he moved, BAI stated it sent the three demand letters to Durnin’s former 26th Street address. No copy of any letter is in the record, and Durnin declared he never received any such demand letter.
A legal assistant for the law firm Kane & Fischer, Ltd. stated that the firm sent a December 2004 letter by certified and regular mail to the 26th Street address and received a signed certified receipt. The copy of the receipt in the record is very difficult to read but does not resemble Durnin’s signature on the signed (two locations) Form U4 application which he provided to the NASD in September 2003 upon commencing work for BAI. Durnin declared that the signature was not his. At the time the letter was mailed, he had tenants living at the 26th Street address and they never forwarded any certified or other mail to him. According to the legal assistant, the February 2005 certified letter was returned “unclaimed” and the July 2005 letter was accepted with a signed certified receipt. Again, the signature is nothing like Durnin’s signatures on the Form U4 and Durnin declared that the signature on the certified receipt was not his.
BAI provided the NASD with Durnin’s old address when it filed the statement of claim against him. In November 2005, the NASD posted the statement to the old address; the statement went unclaimed and was returned to the NASD so designated. In January 2006, the NASD again sent the statement of claim and other materials to the old address but again the package of items went unclaimed and was returned. Kane & Fischer, Ltd. sent two Federal Express packages to the 26th Street address, which were signed for by “D. Dermot” and “Demot.” Durnin never received the Federal Express packages. The names provided in the Federal Express receipts are not his. Durnin declared he would never confuse his first and last name and would not sign with his misspelled first name.
Continuing in the same vein, in December 2006, a process server left BAI’s petition to confirm arbitration award at the front door of the 26th Street address, notwithstanding that the process server observed that a real estate lock box had been affixed to the door, and the residence appeared vacant.
Finally, in February 2008, after the judgment was final, Durnin was personally served with a notice of levy at his correct address at Knockash Hill. This was the first time communication was aimed at the correct address and the first time he learned about the arbitration proceedings and award.
II. DISCUSSION
A. Standard of Review
BAI challenges the propriety of the trial court’s ruling vacating the arbitration award. On appeal from an order vacating an arbitration award, we undertake a de novo review the trial court’s order. (Malek v. Blue Cross of California (2004) 121 Cal.App.4th 44, 55.) However, in reviewing the factual determinations underlying the award, we apply the standards of appellate review of a judgment based on affidavits or declarations, which are the same as for a judgment after oral testimony: We accept the trial court’s resolution of disputed facts when supported by substantial evidence; presume that the court found every fact and drew every permissible inference necessary to uphold its judgment; and defer to the lower court’s determination of credibility and weight of the evidence. (Betz v. Pankow (1993) 16 Cal.App.4th 919, 923.)
B. Governing Principles
Under section 1286.2, the trial court must vacate an arbitration award if it determines that “[t]he award was procured by corruption, fraud or other undue means.” (Id., subd. (a)(1).) This provision applies not only to the arbitrator’s conduct, but to the conduct of the parties as well. (Pacific Crown Distributors v. Brotherhood of Teamsters (1986) 183 Cal.App.3d 1138, 1147 & fn. 3 (Pacific Crown).)
Generally, California courts limit the fraud that will support vacation of an arbitration award to extrinsic fraud. “Not every incidence of fraud will be allowed a remedy; vacation of an award will lie only for occurrences of ‘extrinsic’ fraud and not for ‘intrinsic’ fraud. [Citation.] ‘Extrinsic’ fraud is that conduct which ‘results in depriving either of the parties of a fair and impartial hearing to their substantial prejudice.’ [Fn. omitted.]” (Pacific Crown, supra, 183 Cal.App.3d at p. 1147, quoting Stockwell v. Equitable F. & M. Ins. Co. (1933) 134 Cal.App. 534, 540-541.)
The reviewing court in Pour Le Bebe, Inc. v. Guess? Inc. (2003) 112 Cal.App.4th 810 (Pour Le Bebe) more recently pointed out that rather than relying on the distinction between intrinsic and extrinsic fraud, some federal courts have adopted a three-part test to determine whether an arbitration award should be vacated for fraud, as follows: “ ‘First, the movant must establish the fraud by clear and convincing evidence. [Citations.] Second, the fraud must not have been discoverable upon the exercise of due diligence prior to or during the arbitration. [Citations.] Third, the person seeking to vacate the award must demonstrate that the fraud materially related to an issue in the arbitration. [Citations.]’ ” (Id. at p. 830.) Unlike the rule of extrinsic fraud, this approach compensates for the lack of discovery in many arbitration proceedings and for the lack of full appellate review of arbitration awards. (Id. at p. 829.)
Section 1286.4 does not call for proof by clear and convincing evidence and thus the burden of proof is preponderance of the evidence. (Evid. Code, § 115; Liodas v. Sahadi (1977) 19 Cal.3d 278, 291-293 [burden of proving fraud in civil actions requires proof by a preponderance of the evidence.)
This test has also been applied in a federal case raising claims of “ ‘ “undue means.” ’ ” (A.G. Edwards &Sons, Inc. v. McCollough (9th Cir. 1992) 967 F.2d 1401, 1404, as noted in Pour Le Bebe, supra, 112 Cal.App.4th at pp. 831-832.)
Ultimately the Pour Le Bebe court did not apply the three-part test, reasoning that it was not always true that parties to an arbitration should not be given “ ‘a second bite at the apple’ ” notwithstanding that the issue in question was raised in some fashion during the arbitration. The key is whether the party had the opportunity to rebut or discover and reveal the purported fraud or undue means at the arbitration hearing. (Pour Le Bebe, supra, 112 Cal.App.4th at pp. 832-833.)
C. Analysis
BAI first charges that the reviewing court must give deference to the arbitration panel’s finding that Durnin had been properly served. The investment firm contends that Durnin’s claim of lack of notice or opportunity to be heard must fail because in the Form U4 submitted to the NASD, he recorded the 26th Street address as his current address and never amended the “RESIDENTIAL HISTORY” section to provide his correct, current address. BAI further points out that pursuant to his signed and submitted Form U4, Durnin agreed “to update [the] form by causing an amendment to be filed on a timely basis whenever changes occur to answers previously reported. Further, I represent that, to the extent any information previously submitted is not amended, the information provided in this form is currently accurate and complete.” BAI reasons that since the NASD mailed BAI’s statement of claim and other correspondence to Durnin at the address he provided the NASD on the Form U4, the NASD arbitration panel correctly concluded that he had been properly served.
While the scope of judicial review of an arbitration award is severely limited, the award is not immune from all review. A party may seek to vacate the award on grounds of fraud or undue means. (§ 1286.2, subd. (a)(1).) Here, the trial court credited Durnin’s declaration that he had apprised BAI of his change of address, but nonetheless the statement of claim against Durnin which BAI prepared and submitted to the NASD reflected Durnin’s old, incorrect address, as did every communication BAI provided in the proceeding until it got the address right when preparing to levy on Durnin.
Pursuant to the rules, the claimant is to provide “[s]ufficient additional copies” of the statement of claim and other documents to the Director of Arbitration “for each party and each arbitrator.” (Rule 10314(a)(1).) The Director of Arbitration, in turn, “shall endeavor to serve promptly by mail or otherwise on the Respondent(s) one (1) copy... of the Statement of Claim.” (Ibid.)
The rules also allowed for completing part of the claim filing process online through NASD’s Web site. (Rule 10314(a)(2).) This process generated a dispute resolution tracking form, a hard copy of which the claimant was to file with the Director of Arbitration.
BAI’s argument that the NASD would rely on the address supplied on the Form U4 regardless of what the statement of claim said, does not hold water. Rule 10314(a), which BAI repeatedly cites, does not refer to the Form U4 and more importantly, it is clear that under that rule, the claimant provides the NASD with copies of the documents to be served on the respondent or, in the case of electronic filing, an electronic version of the statement of claim which presumably could serve as the master for serving respondent. Certainly the trial court most reasonably would infer that if the NASD cross-checked the respondent’s address identified on the statement of claim against the Form U4 information—a point of speculation only—and had there been a discrepancy between the address on the copy of the statement of claim provided by the claimant for service on respondent and the Form U4—further inquiry would resolve the matter in favor of the most recent address. Therefore, the NASD would have served Durnin at his proper address and service in fact would have been effected. Further, the inference BAI would have us draw—that once an employee signs a Form U4 but fails to provide amending address information, an outdated address forever becomes the legitimate default address for notice of legal proceedings after the employee is terminated, with the potential of significant judgments accruing against him or her—is not sustainable under due process principles and BAI has provided us with no authority to the contrary.
BAI further maintains that Durnin has failed to meet the three-part test described in Pour Le Bebe, and therefore vacation of the award was improper. However, regardless of the merits of this assertion which we do not address, the three-part test is an alternative to the rule of extrinsic fraud. Here, the conduct at issue occurred prior to the arbitration proceeding and resulted in precluding Durnin from learning of, let alone participating in, the arbitration. Unquestionably, the conduct asserted in Durnin’s declaration and which the trial court credited is conduct which resulted in depriving Durnin “ ‘of a fair and impartial hearing’ ” to his substantial prejudice. (Pacific Crown, supra, 183 Cal.App.3d at p. 1147.)
III. DISPOSITION
The judgment vacating the arbitration award is affirmed.
We concur: Ruvolo, P. J., Sepulveda, J.
All references to rules are to the NASD rules.