Sylver v. S, V. Regents Bank, N.A.

300 P.3d 718

129 Nev. Adv. Op. 30

Marshall SYLVER, an Individual; Mind Power, Inc., a Nevada Corporation; Casa De Millionaire, LLC, a Nevada Limited Liability Company; and Prosperity Center, LLC, a Nevada Limited Liability Company, Appellants,

v.REGENTS BANK, N.A., a National Association, Respondent.

Marshall Sylver, an individual; Mind Power, Inc., a Nevada Corporation; Casa De Millionaire, LLC, a Nevada Limited Liability Company; and Prosperity Center, LLC, a Nevada Limited Liability Company, Appellants,

v.Regents Bank, N.A., a National Association, Respondent.

Nos. 58869, 59683.

Supreme Court of Nevada.

May 2, 2013.

Kolesar & Leatham, Chtd., and Bart K. Larsen, Las Vegas, for Appellants.

Sullivan Hill Lewin Rez & Engel and Christine A. Roberts, Las Vegas; Sullivan Hill Lewin Rez & Engel and James E. Drummond, San Diego, California, for Respondent.

Before HARDESTY, PARRAGUIRRE and CHERRY, JJ.

OPINION

By the Court, PARRAGUIRRE, J.:

In this appeal, we consider whether an arbitration award was obtained through undue means. In resolving this issue, we interpret the meaning of “undue means” under NRS 38.241 in line with the interpretation given by other state and federal courts, whereby the challenging party has the burden of proving that the arbitration award was secured through intentionally misleading conduct. Accordingly, we conclude that the district court correctly refused to vacate the arbitration award since the appellant did not satisfy his burden in showing by clear and convincing evidence that the respondent secured the award through intentionally misleading conduct.

We also consider whether the arbitrator's refusal to void a loan in the underlying dispute constituted a manifest disregard of the law. Because the arbitrator did not consciously disregard the applicable legal standard, we conclude that there was no manifest disregard of the law.

FACTS AND PROCEDURAL HISTORY

In 2008, respondent Regents Bank, N.A., issued two loans to appellant Marshall Sylver. The first loan, intended as a bridge loan to purchase a residential property in Las Vegas, was partially secured by a deed of trust in another residential property located in Las Vegas. Sylver planned to sell the first property to pay off this loan. The second loan was a bridge loan to purchase a commercial building in Las Vegas. Sylver proposed to obtain commercial take-out financing for the second loan with Regents' assistance. With the exception of recordation of a deed of trust in Nevada, all transactions took place in California, where Regents is sitused. Throughout the process of obtaining the loans and seeking long-term financing with Regents, James Hibert was Sylver's point of contact.

When financing failed to materialize, the parties twice adjusted the terms of the second loan's maturity date. Still, Sylver did not repay either loan.

Regents filed a complaint in district court for breach of contract and judicial foreclosure. In his answer, Sylver alleged that Regents breached certain fiduciary duties; that Regents made false representations to Sylver regarding long-term financing; and that the first loan was void because Regents engaged in mortgage banking activity in Nevada without first seeking a certificate of exemption, as required by NRS 645E.910. The district court stayed the proceedings and compelled arbitration as provided in the loan documents.

Both Sylver and Regents designated witnesses who would testify at the arbitration hearing. One witness, James Hibert, was designated by both parties. Prior to arbitration, Regents informed the arbitrator and Sylver that Hibert was unwilling to go to Las Vegas to testify at the arbitration hearing. Regents had recently terminated Hibert and could contact Hibert only through his attorney. Because Hibert's counsel informed Regents that Hibert was unwilling to attend the arbitration hearing in Las Vegas, Regents took Hibert's deposition and used it instead of his live testimony at the hearing. Sylver cross-examined Hibert for two hours during the deposition.

On the second day of the arbitration hearing, Sylver testified that he had a phone conversation with Hibert that morning, wherein Hibert stated that he had never been asked to testify in Las Vegas but would be willing to do so. Nevertheless, Sylver did not ask for a continuance, and the arbitrator ultimately rejected Sylver's arguments and ruled in Regents' favor.

Regents filed a motion to confirm the arbitration award with the district court. Prior to the hearing on Regents' motion, Sylver filed a declaration by Hibert that, contrary to his earlier deposition testimony, supported allegations that Regents made false representations and failed to help secure long-term financing, despite Sylver's diligence throughout the process. In opposition to the motion, Sylver argued that Regents employed undue means in procuring the award by misrepresenting that Hibert was unavailable, and that the arbitrator had manifestly disregarded the law in refusing to void one of the loans. The district court confirmed the arbitration award and later entered an amended judgment and order of sale. Sylver appealed from both orders.

DISCUSSION

On appeal, Sylver revives the contentions he made before the district court. Specifically, he argues that (1) Regents employed undue means in procuring the award, and (2) the arbitrator manifestly disregarded the law in refusing to void one of the loans.

Standard of review

We review a district court's confirmation of an arbitration award de novo. Thomas v. City of North Las Vegas, 122 Nev. 82, 97, 127 P.3d 1057, 1067 (2006). In so doing, we consider that “[s]trong public policy favors arbitration because arbitration generally avoids the higher costs and longer time periods associated with traditional litigation.” D.R. Horton, Inc. v. Green, 120 Nev. 549, 553, 96 P.3d 1159, 1162 (2004). We apply a clear and convincing evidence standard when parties seek to vacate an arbitration award. Health Plan of Nevada v. Rainbow Med., 120 Nev. 689, 695, 100 P.3d 172, 178 (2004).

NRS 38.241 allows a court to vacate an arbitration award procured by fraud, corruption, or undue means. A court may also vacate an arbitration award under the common law ground that the arbitrator “manifestly disregarded the law.” Clark Cnty. Educ. Ass'n v. Clark Cnty. Sch. Dist., 122 Nev. 337, 341, 131 P.3d 5, 8 (2006). Sylver challenges the arbitration award on both grounds.

The arbitration award was not procured by undue means

Sylver argues that the arbitration award was obtained by undue means as a result of Regents' misrepresentation regarding Hibert's availability to testify at the arbitration hearing. Because we have never addressed the definition of “undue means” under NRS 38.241, we begin by reviewing and ultimately adopting the definition used by numerous state and federal circuit courts. Applying this definition to the circumstances raised here, we conclude that Sylver has not satisfied his burden for vacating the arbitration award.

Definition of “undue means”

NRS Chapter 38 embodies Nevada's adoption of the Revised Uniform Arbitration Act. Hearing on S.B. 336 Before the Assembly Judiciary Comm., 71st Leg. (Nev., April 24, 2001). NRS 38.241(1)(a) provides:

Upon motion to the court by a party to an arbitral proceeding, the court shall vacate an award made in the arbitral proceeding if ... [t]he award was procured by corruption, fraud or other undue means.

The language of NRS 38.241 closely mirrors the language of 9 U.S.C. § 10(a)(1), which also addresses the standard for vacating an arbitration award.

Numerous federal and state courts have addressed the meaning of “undue means” as used in this context.¹ These jurisdictions, in interpreting “undue means,” begin with the principle of statutory construction that “a word should be known by the company it keeps.” National Cas. Co., 430 F.3d at 499. Accordingly, “[t]he best reading of the term ‘undue means' under the maxim noscitur a sociis is that it describes underhanded or conniving ways of procuring an award that are similar to corruption or fraud, but do not precisely constitute either.” Id.; see also PaineWebber Group, 187 F.3d at 991 (“The term ‘undue means' must be read in conjunction with the words ‘fraud’ and ‘corruption’ that precede it in the statute.”); Amer. Postal Workers Union, 52 F.3d at 362(“[U]ndue means must be limited to an action by a party that is equivalent in gravity to corruption or fraud, such as a physical threat to an arbitrator or other improper influence.”). Thus, “ ‘undue means' has generally been interpreted to mean something like fraud or corruption.” Three S Delaware, 492 F.3d at 529;see also PaineWebber Group, 187 F.3d at 991 (citing Amer. Postal Workers Union, 52 F.3d at 362, and noting that courts have “uniformly construed the term undue means as requiring proof of intentional misconduct”).

Typically, to prove that an award was procured by undue means, the party seeking vacatur “must show that the fraud [or corruption] was (1) not discoverable upon the exercise of due diligence prior to the arbitration, (2) materially related to an issue in the arbitration, and (3) established by clear and convincing evidence.”

MCI Constructors, 610 F.3d at 858 (alteration in original) (quoting A.G. Edwards & Sons, 967 F.2d at 1404).MCI Constructors requires the party seeking to vacate the award to prove a causal connection between the undue means and the resulting arbitration award. Id.

Sylver has not established by clear and convincing evidence that the award was procured by undue means

Adopting the above interpretation of “undue means,” we conclude that Sylver has not met his burden for vacating the arbitration award.

First, the conduct alleged by Sylver does not rise to the level of intentional bad faith behavior equivalent in gravity to corruption or fraud. See PaineWebber Group, 187 F.3d at 991;Amer. Postal Workers Union, 52 F.3d at 362. While Sylver claims that Regents...