Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Whitney, 040411 FED10, 10-5072

Docket Nº:10-5072
Opinion Judge:Mary Beck Briscoe, Chief Judge
Party Name:MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., a Delaware corporation, Plaintiff-Appellee, v. PAMELA WHITNEY; ESTATE OF SUZANNE WHITNEY; ESTATE OF MARY WHITNEY, Defendants-Cross/Claimants-Appellants, and AMBER CALLAWAY, Defendant-Cross/Defendant-Counter/Claimant.
Judge Panel:Before BRISCOE, Chief Judge, EBEL and TYMKOVICH, Circuit Judges.
Case Date:April 04, 2011
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit
 
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MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., a Delaware corporation, Plaintiff-Appellee,

v.

PAMELA WHITNEY; ESTATE OF SUZANNE WHITNEY; ESTATE OF MARY WHITNEY, Defendants-Cross/Claimants-Appellants,

and

AMBER CALLAWAY, Defendant-Cross/Defendant-Counter/Claimant.

No. 10-5072

United States Court of Appeals, Tenth Circuit

April 4, 2011

D.C. No. 4:09-CV-00078-GKF-FHM, N.D. Okla.

Before BRISCOE, Chief Judge, EBEL and TYMKOVICH, Circuit Judges.

ORDER AND JUDGMENT [*]

Mary Beck Briscoe, Chief Judge

Defendants-Appellants Pamela Whitney, the Estate of Mary Whitney, and the Estate of Suzanne Whitney appeal from the district court's order granting plaintiff Merrill Lynch's motion to confirm an arbitration award in this interpleader action. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we affirm the judgment of the district court and grant Merrill Lynch's request for appellate fees and costs pursuant to 28 U.S.C. § 1927.

I

The IRA accounts

Mary Whitney (Mary), the mother of Pamela Whitney (Pamela) and Suzanne Whitney (Suzanne), died in May of 2007. At the time of her death, Mary owned two Individual Retirement Accounts (IRAs) held by Merrill Lynch. One of the accounts was a regular IRA; the other was a Roth IRA. For each account, Mary had designated both Pamela and Suzanne as beneficiaries, with each to receive 50% of the assets held therein upon Mary's death.

Following Mary's death, Suzanne, who maintained an IRA account of her own with Merrill Lynch, elected to have her share of her mother's IRA accounts placed into two new Merrill Lynch beneficiary-controlled accounts, rather than distributed directly to her. To do so, Suzanne completed a form entitled "Merrill Lynch Client Relationship Agreement" (CRA). Aplt. App. at 80. The CRA included spaces for two client names and their related information: "Client 1" and "Client 2." Id. Suzanne entered her name and relevant information (address and social security number) in the "Client 1" area of the form and left the "Client 2" area of the form blank. Id. Under a section of the CRA designated for the creation of "Retirement" accounts, Suzanne indicated that she was interested in opening two accounts: one "Inherited IRA" account and one "Roth IRA" account. Id. Unfortunately, that section of the CRA did not readily allow for the creation of more than one account per client. More specifically, that section contained (1) a line that read "Retirement Account for Client 1, " followed by boxes indicating the specific type of retirement account being created, the account number, and, for inherited IRA accounts, the name of the "NOW DECEASED ACCOUNT OWNER, " and (2) a second identical line that began with "Retirement Account for Client 2." Id. In the first line of this section (i.e., the line designated "Retirement Account for Client 1"), Suzanne checked the box "Inherited IRA", entered an account number of 65971152, and listed the "NOW DECEASED ACCOUNT OWNER" as "MARY WHITNEY." Id. In the second line of this section (i.e., the line designated "Retirement Account for Client 2"), Suzanne checked the box "Roth IRA, entered an account number of 65971155, and again listed the "NOW DECEASED ACCOUNT OWNER" as "MARY WHITNEY." Id. A separate part of the section designated for the creation of "Retirement" accounts allowed for the designation of beneficiaries for "Client 1" and "Client 2." Id. For "Client 1, " Suzanne listed "AMBER NICOLE CALLAWAY" as the sole "Primary Beneficiary, " and "PHYLLIS J. DORIAN" as the sole "Contingent Beneficiary" (and included the birth date and social security number for each of these women). Id. Notably, Suzanne did not list any beneficiary for "Client 2." Id. Finally, Suzanne signed and dated the CRA (June 27, 2007).1

Suzanne died intestate on October 25, 2007, approximately four months after opening the two beneficiary-controlled accounts with Merrill Lynch. At the time of Suzanne's death, account number 65971152 had a net value of $95, 326.49, and account number 65971155 had a net value of $274, 620.82. Probate proceedings were initiated in the District Court of Tulsa County, Oklahoma, and on May 21, 2008, Suzanne's estate was formally closed and Pamela was declared to be her sole heir. Thus, absent Suzanne's designations of beneficiaries, Pamela would have inherited the proceeds of Suzanne's Merrill Lynch accounts.

State court proceedings re Suzanne's competency

In 2008, Pamela filed suit in the District Court of Tulsa County against Merrill Lynch and Callaway. Pamela alleged that, as of June 2007, Suzanne lacked the requisite mental capacity to designate a beneficiary for her Merrill Lynch accounts (including the two beneficiary-controlled accounts she had created, as well as her personal IRA account). Pamela also alleged that Merrill Lynch lacked authority to transfer assets from Mary's IRAs to Suzanne's beneficiary-controlled accounts, and that the CRA, pursuant to which Suzanne designated Callaway as the primary beneficiary for her beneficiary-controlled accounts, was unlawful.

Merrill Lynch sought to compel arbitration of Pamela's claims against it. The state district court, however, dismissed Merrill Lynch from the action with instructions to freeze Suzanne's accounts until the state court action was resolved.

Pamela subsequently voluntarily dismissed all claims against Callaway that were related to the beneficiary-controlled accounts, leaving only claims pertaining to Suzanne's designation of Callaway as the beneficiary for Suzanne's personal IRA account with Merrill Lynch. In December 2008, the case proceeded to trial and a jury returned a verdict against Pamela, finding that Suzanne was of sound mind when she named Callaway as the beneficiary for her personal IRA account. The jury further found that Callaway was not unjustly enriched by Suzanne's designation of her as beneficiary.

Pamela unsuccessfully appealed the verdict and judgment.

The FINRA arbitration proceedings

On or about July 11, 2008, Pamela filed a Statement of Claim (SOC) with the Financial Industry Regulatory Authority (FINRA) initiating an arbitration proceeding against Merrill Lynch, the Estate of Mary Whitney, the Estate of Suzanne Whitney, and Callaway. Pamela alleged claims for declaratory judgment (Claims One, Two, Six, Seven and Nine), breach of fiduciary duty (Claim Three), negligence (Claim Four), breach of contract (Claim Five), refund of monies paid (Claim Eight), and injunctive relief (Claim Ten). As she had done in the prior state court proceedings, Pamela alleged that Suzanne was "of unsound mind and incapacitated" at the time she designated Callaway as the beneficiary for her Merrill Lynch accounts. Id. at 184. Pamela also alleged, in pertinent part, that Merrill Lynch lacked the authorization necessary to distribute the assets from her mother's IRAs, and that the contract between Merrill Lynch and Suzanne, pursuant to which Suzanne designated beneficiaries for the two IRA accounts she created, was unlawful.

In connection with the arbitration proceeding, Pamela, the two Estates, and Merrill Lynch executed written Uniform Submission Agreements pursuant to which each agreed to submit their claims to arbitration in accordance with the Constitution, By-Laws, Rules, Regulations, and/or Code of Arbitration Procedure of FINRA. Callaway, however, refused to submit to arbitration.

A hearing was held in Oklahoma City before the FINRA Arbitration Panel (Panel) on August 4-6, 2009. During the hearing, a Merrill Lynch representative, Debbie Lambrecht, testified that Merrill Lynch would have construed Suzanne's entries in the CRA form as indicating her intent to create two beneficiary-controlled accounts with the same beneficiaries for each: Amber Callaway as the primary beneficiary and Phyllis Dorian as the contingent beneficiary.

At the conclusion of the hearing, "the Panel requested and received submissions on attorney fees and costs from both [Pamela] and Merrill Lynch and the record in the case was closed." Id. at 40. On October 21, 2009, the Panel issued its written award, concluding, in pertinent part, as follows:

After considering the pleadings, testimony, the evidence presented at the hearing and the post-hearing submissions, the Panel has decided in full and final resolution of the issues submitted for determination as follows:

1.) Claimant's claims, each and all, are hereby denied and dismissed with prejudice;

2.) Pamela Whitney, the Estate of Suzanne Whitney, and The Estate of Mary Whitney, are jointly and severally liable for and shall pay to Merrill Lynch, Pierce Fenner & Smith, Inc. the sum of $93, 295.00 in attorneys' fees and costs pursuant to Oklahoma common law and the panel's equitable authority;

3.) Other than Hearing Session Fees which are specified below, the parties shall each bear their own costs and expenses incurred in this matter; and

4.) Any relief not specifically enumerated, including sanctions, is hereby denied with prejudice.

Id. at 41.2

The federal interpleader proceedings

On January 22, 2009, Callaway, through counsel, made a written demand on Merrill Lynch for payment of funds in the Suzanne Whitney Beneficiary Controlled Accounts. On February 4, 2009, in response to Callaway's demand, Merrill Lynch filed a petition for interpleader in the District Court of Tulsa County naming Pamela and Callaway as defendants.

On February 19, 2009, Pamela removed that petition to federal district court on the basis of diversity jurisdiction. The federal district court granted Merrill Lynch's motion for...

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