Ameriprise Financial Services, Inc. v. Silverman

Background

Ameriprise Financial Services, Inc. hired Jeffrey R. Silverman in January 2016. Silverman signed a Transition Promissory Note under which Ameriprise loaned him $280,190 at 2.05% annual interest compounded annually. The note stated that the unpaid principal and accrued interest would become due when Silverman’s employment ended, including if he resigned. It also provided that, after default, the interest rate would convert to the maximum rate allowed by law. New York law governed the note.

The note required disputes between Ameriprise and Silverman to be arbitrated under the Financial Industry Regulatory Authority’s rules. It also required Silverman to pay collection costs, including reasonable attorney’s fees for collection efforts before legal proceedings, in arbitration, at trial, and on appeal.

Silverman resigned in August 2017. Ameriprise then filed an arbitration claim for breach of the note and unjust enrichment, seeking damages, attorney’s fees and costs, and interest. Silverman filed counterclaims alleging promissory fraud, fraudulent inducement, negligent misrepresentation, negligence, breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, and violations of the New York Wage Theft Prevention Act. He sought a declaration that the note was unenforceable, at least $1 million in compensatory damages, punitive damages, and attorney’s fees and costs.

The parties selected a three-member arbitration panel and conducted 16 hearings. On August 6, 2019, the panel unanimously awarded Ameriprise $358,891.03 in compensatory damages, interest at 9% per year beginning 30 days after the award, $211,821.30 in attorney’s fees, and $60,544.33 in costs, for a total of $631,256.66.

The parties’ court petitions

Ameriprise petitioned the federal court to confirm the award. Silverman cross-petitioned to vacate it. Under the Federal Arbitration Act, a court generally must confirm an arbitration award unless it is vacated, modified, or corrected under the statute. A party seeking vacatur bears the burden of proof, and judicial review is highly deferential.

Silverman relied on two grounds: that the arbitrators exceeded their authority under Section 10(a)(4) of the Federal Arbitration Act, and that the arbitrators acted in manifest disregard of the note’s fee-shifting provision. “Manifest disregard” is a narrow basis for setting aside an award when arbitrators knowingly ignore a clearly applicable legal rule or an express and unambiguous contract term.

Section 10(a)(4) challenge

The court explained that Section 10(a)(4) focuses on whether the parties gave the arbitrators authority to decide an issue, not whether the arbitrators decided that issue correctly. Silverman argued that the panel awarded incorrect amounts of compensatory damages, attorney’s fees, and costs. The court rejected that argument because the parties submitted their claims under the note to arbitration, and the note authorized collection of the debt and payment of collection costs, including reasonable attorney’s fees in arbitration.

The court also noted that Silverman had not shown that the amounts were erroneous. It explained that the note provided for a 9% post-default interest rate under applicable New York law and that the court generally could not review the arbitrator’s factual findings about damages.

Silverman separately argued that two arbitrators violated a Financial Industry Regulatory Authority disclosure rule. The court found that one arbitrator’s disclosure report identified two prior arbitrations he had handled. It also found that another arbitration involving the second arbitrator was confidential because it never resulted in an award. In addition, Silverman did not explain why handling those other arbitrations created circumstances that might prevent either arbitrator from being objective and impartial. The court concluded that Silverman had not shown that the panel exceeded its authority.

Fee-shifting challenge

Silverman argued that the attorney’s fees awarded to Ameriprise improperly included fees for defending against his counterclaims. The court rejected his interpretation of the note’s provision covering reasonable attorney’s fees for collection efforts “in arbitration.” Applying New York law, the court held that the provision did not have only one possible reasonable meaning. The phrase could reasonably include Ameriprise’s efforts to oppose counterclaims seeking to invalidate the note, because defending those counterclaims was necessary for Ameriprise to collect under the note.

The court therefore found that the attorney’s-fee award did not contradict an express and unambiguous term of the note. It also rejected Silverman’s related argument concerning a Promissory Note Acknowledgment Form, stating that the form merely acknowledged his understanding of provisions in the note and did not govern the fee-shifting agreement.

Disposition

Judge Naomi Reice Buchwald granted Ameriprise’s petition to confirm the arbitration award and denied Silverman’s cross-petition to vacate it. The Clerk of Court was directed to close the case.