American Ins. Co. v. Cazort

• Court: Arkansas Supreme Court
• Writing for the Court: DUDLEY; CORBIN
• Citation: American Ins. Co. v. Cazort, 316 Ark. 314, 871 S.W.2d 575 (Ark. 1994)
• Decision Date: 14 March 1994
• Docket Number: No. 93-934,93-934
• Parties: The AMERICAN INSURANCE COMPANY, NAP Financial Corporation, and Mark J. Berman, Appellants, v. Lee CAZORT, Jr., Appellee.

Page 575

871 S.W.2d 575

316 Ark. 314

The AMERICAN INSURANCE COMPANY, NAP Financial Corporation and Mark J. Berman, Appellants, v. Lee CAZORT, Jr., Appellee.

No. 93-934.

Supreme Court of Arkansas.

March 14, 1994.

Phil Campbell, Thomas B. Staley, Hilburn, Calhoon, Harper, Pruniski & Calhoun, Ltd., No. Little Rock, for appellants.

Mark W. Nichols, H. Gregory Campbell, Nichols, Wolff & Ledbetter, Little Rock, for appellee.

DUDLEY, Justice.

Lee Cazort, Jr., appellee, a resident of Arkansas, opened a securities brokerage account with Marc Berman, a resident of Florida who was an employee of MJB Associates, Inc., a Florida corporation. The account was opened through NAP Financial Corporation, a Texas corporation which has its principal place of business in California. Cazort signed an asset management agreement with Berman and MJB, a letter of transmittal with NAP, and an asset management agreement with First Southwest Company. Each of these documents contains clauses by which Cazort agreed to submit to arbitration all controversies between himself and NAP, Berman, and MJB. The American Insurance Company, appellant, filed a corporate bond with the Arkansas Securities Department in which it agreed to be "liable to any and all persons who may suffer loss by reason of [NAP or Berman's] failure to comply with the law of securities transactions."

Cazort filed this suit in the Circuit Court of Pulaski County and alleged that Berman and NAP engaged in excessive and inappropriate trading in his account. The counts of the complaint alleged that Berman and NAP (1) were not properly registered to sell securities; (2) violated Arkansas statutes by making false statements; (3) committed common law fraud; (4) breached a fiduciary duty; (5) committed common law negligence; and (6) violated the federal Securities Act of 1933. In the same complaint he alleged that appellant American issued a blanket bond "to cause no person to suffer loss" by Berman and NAP's wrongs.

Appellant American filed a cross-complaint against NAP and Berman for indemnity in the event American should be required to make payment on their behalf.

Berman and NAP filed a motion to compel arbitration in accordance with the agreements, and alleged that "the Federal Arbitration Act requires arbitration." Cazort moved for a voluntary nonsuit of the actions against NAP and Berman. The circuit court granted leave to Cazort to voluntarily dismiss the claims against NAP and Berman. This left appellant American as the only defendant remaining in Cazort's suit, although NAP and Berman remained in the case on American's cross-complaint for indemnity should it be required to make payment on their behalf.

Appellant American moved for an order to compel Cazort to submit his claim to arbitration, or in the alternative, to dismiss. Cazort pleaded that he had not signed an agreement with American to arbitrate. After a hearing, the circuit court denied American's motion to compel arbitration and denied NAP and Berman's motions to dismiss American's cross-complaint. The trial court denied American's motion to compel arbitration because the complaint alleged tort causes of action which are not subject to the Arkansas Uniform Arbitration Act. See Ark.Code Ann. § 16-108-201(b) (Supp.1993). American, NAP, and Berman appeal and argue that the trial court's ruling failed to address their argument that the Federal Arbitration Act is applicable and that the better policy is to compel arbitration. The argument has merit, and we reverse and remand.

The parties appeal from the order denying a motion to compel arbitration. American's jurisdictional statement provides that the order is appealable because Ark.Code Ann. § 16-108-219(a)(1) (1987) authorizes an appeal from an "order denying an application to compel arbitration ..." and Rule 1-2(a)(12) of the Rules of the Supreme Court provides that the supreme court shall hear "interlocutory appeals permitted by statute...." The statement is partially correct. The statute provides that an appeal may be taken, but the appealability of orders is governed by Rule 2 of the Arkansas Rules of Appellate Procedure and not by Rule 1-2 of the Rules of the Supreme Court. Rule 1-2 addresses the division of appellate jurisdiction between the supreme court and the court of appeals. Under Amendment 58 to the Constitution of Arkansas, which created the court of appeals, the supreme court, by rule, decides which court will have primary jurisdiction of appeals after an appeal has been validly lodged. Rule 1-2 addresses that division of appellate jurisdiction and does not address the appealability of orders. The appealability of orders is governed by Ark.R.App.P. 2. See Chem-Ash, Inc. v. Arkansas Power & Light Co., 296 Ark. 83, 751 S.W.2d 353 (1988).

Rule 2 of the Arkansas Rules of Appellate Procedure provides, with certain exceptions, that an appeal may be taken from a judgment or decree that finally determines the outcome of an action. There is no final order in this case. Indeed, the order refusing to compel arbitration is more akin to an order refusing to transfer a case from circuit court to chancery court. Chem-Ash Inc., supra. However, Rule 2 preserved all statutory rights of appeal that were in existence at the effective date of the rules, July 1, 1979. Act 38 of 1973, which authorized the supreme court to prescribe the rules, provides that rights of appeal shall continue as authorized by law. See Ark.R.App.P. 2 (court's notes). When we promulgated Rule 2, we did not intend to alter the statutory rights of appeal that were then in existence. Sunbelt Courier v. McCartney, 303 Ark. 522, 798 S.W.2d 92 (1990), and Whitlock v. G.P.W. Nursing Home, Inc., 283 Ark. 158, 672 S.W.2d 48 (1984). The Uniform Arbitration Act and its section on appeals, § 16-108-219, were enacted in 1969 and were in existence at the time we promulgated Rule 2. Thus, appellants have a right of appeal under Ark.R.App.P. 2.

We have refused to permit attempted appeals from orders compelling arbitration. See England v. Dean Witter Reynolds, Inc., 306 Ark. 225, 811 S.W.2d 313 (1991); Chem-Ash, Inc., 296 Ark. at 85, 751 S.W.2d at 354. Unlike those cases, this is an appeal from an order denying a motion to compel arbitration, and the Uniform Arbitration Act treats the two differently. See Ark.Code Ann. § 16-108-219. In summary, appellant has a right of appeal and this court has appellate jurisdiction.

American's primary argument is that arbitration should be compelled pursuant to the Federal Arbitration Act. It contends that the federal act controls all agreements to arbitrate disputed transactions involving interstate commerce. The argument is well taken. The word "commerce" is first defined as commerce among the several states. 9 U.S.C. § 1. Section 2 then provides:

A written provision in any ... contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ... or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

Cazort's transactions involved interstate commerce. See Parry v. Bache Co., 125 F.2d 493 (5th Cir.1942); England v. Dean Witter Reynolds, 306 Ark. 225, 811 S.W.2d 313 (1991); McEntire v. Monarch Feed Mills, Inc., 276 Ark. 1, 631 S.W.2d 307 (1982). In addition, Cazort's complaint alleged violations of the federal Securities Act of 1933. By alleging a violation of the Securities Act of 1933, Cazort made a claim that the Supreme Court has ruled arbitrable. See Rodriguez De Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989) (overruling its previous holding that such claims are not arbitrable).

In England v. Dean Witter Reynolds, we indicated that claims alleging fraudulent inducement, intentional misrepresentation, and outrage were arbitrable under the federal act. 306 Ark. at 226-27, 811 S.W.2d at 314-15. Cases from lower federal courts and another state are in accord. A.L. Williams & Assoc., Inc. v. McMahon, 697 F.Supp. 488 (N.D.Ga.1988); U.M.C. Petroleum Corp. v. J & J Enters., Inc., 758 F.Supp. 1069, 1073-74 (W.D.Pa.1991); and Paine Webber, Jackson & Curtis v. McNeal, 143 Ga.App. 579, 239 S.E.2d 401, 403 (1977). Claims under state securities law are arbitrable under the federal act. See Surman v. Merrill Lynch, Pierce, Fenner & Smith, 733 F.2d 59 (8th Cir.1984); Kroog v. Mait, 712 F.2d 1148 (7th Cir.1983) cert. denied, 465 U.S. 1007, 104 S.Ct. 1001, 79 L.Ed.2d 233 (1984).

The Supreme Court has emphasized a strong preference for removing the parties from court and into arbitration as quickly and easily as possible, and has urged district courts to enforce these agreements as rigorously as possible. Perry v. Thomas, 482 U.S. 483, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987); Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985); Dean Witter Reynolds v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985); Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Even though our state act is more restrictive, cases construing Arkansas law reflected this same policy. See Dean Witter Reynolds, Inc. v. Deislinger, 289 Ark. 248, 711 S.W.2d 771 (1986); Bob Ladd, Inc. v. Adcock, 633 F.Supp. 241 (E.D.Ark.1986); Wessell Bros. Found. Drilling Co. v. Crossett Public Sch. Dist. No. 25, 287 Ark. 415, 701 S.W.2d 99 (1985); Merrill Lynch, Pierce, Fenner & Smith v. Hovey, 726 F.2d 1286 (8th Cir.1984). In summary, the claims asserted by Cazort are arbitrable claims under the federal act.

The next issue is whether American can compel Cazort to...