Amtower v. William C. Roney & Co.

• Decision Date: 16 October 1998
• Docket Number: Docket No. 211717
• Citation: 590 N.W.2d 580,232 Mich.App. 226
• Parties: , Blue Sky L. Rep. P 74,170 Franklin AMTOWER, John Barbuscak, Sally Boukma, Personal Representative of the Estate of Louise Allen, Richard Bumb, Richard Cummings, Roger Davis, Thomas Deagostino, Vajendra Desai, Dewane Englerth, David Farber, Jeffrey Farber, Carl Freeman, Patricia Hutchinson, James Jolliffe, George Krull, Gary Lambert, Theo Merrill, Mazhar Munir, Thomas Nawrot, Leone Richardson, Paul Tatseos, John Tracy, Barry Miller, Dennis Chagnon and John Christ, Plaintiffs-Appellants, v. WILLIAM C. RONEY & CO. d/b/a Roney & Co., Defendant-Appellee (On Remand).
• Court: Court of Appeal of Michigan — District of US

Page 580

590 N.W.2d 580

232 Mich.App. 226, Blue Sky L. Rep. P 74,170

Franklin AMTOWER, John Barbuscak, Sally Boukma, Personal Representative of the Estate of Louise Allen, Richard Bumb Richard Cummings, Roger Davis, Thomas Deagostino, Vajendra Desai, Dewane Englerth, David Farber, Jeffrey Farber, Carl Freeman, Patricia Hutchinson, James Jolliffe, George Krull Gary Lambert, Theo Merrill, Mazhar Munir, Thomas Nawrot Leone Richardson, Paul Tatseos, John Tracy, Barry Miller Dennis Chagnon and John Christ, Plaintiffs-Appellants, v. WILLIAM C. RONEY & CO. d/b/a Roney & Co., Defendant-Appellee (On Remand).

Docket No. 211717.

Court of Appeals of Michigan.

Submitted May 19, 1998, at Lansing.

Decided Oct. 16, 1998, at 9:10 a.m.

Released for Publication Jan. 15, 1999.

Fieger, Fieger & Schwartz (by Geoffrey N. Fieger and Rebecca S. Eaton), Southfield, for the plaintiffs.

Honigman Miller Schwartz and Cohn (by Raymond W. Henney and Steven M. Ribiat), Detroit, for the defendant.

Before CORRIGAN, C.J., and HOLBROOK, Jr. and YOUNG, Jr., JJ.

ON REMAND

YOUNG, Jr., J.

This case involves claims arising out of infelicitous securities investments in which defendant advised plaintiffs to participate. As a part of these investment transactions, plaintiffs executed customer agreements providing that any claims against defendant arising from the investments must be submitted to binding arbitration within one year of the accrual of the cause of action.

Plaintiffs sued and defendant moved to dismiss plaintiffs' claims on the basis that plaintiffs had agreed to arbitrate any such disputes and that, under the arbitration provisions, plaintiffs' claims were barred by the contractual limitation period. The trial court concluded that plaintiffs' claims were barred by the contractual limitation period and dismissed plaintiffs' action. The plaintiffs appealed. Relying on Michigan precedent, Bennett v. Shearson Lehman-American Express, Inc., 168 Mich.App. 80, 83, 423 N.W.2d 911 (1987), we affirmed the determination that the plaintiffs' claims are arbitrable and reversed and remanded for arbitration, holding that procedural issues, such as the timeliness of an otherwise arbitrable claim, must be determined by the arbitrator, not the court. Amtower v. William C. Roney & Co., unpublished opinion per curiam of the Court of Appeals, issued February 11, 1997 (Docket No. 165777).

This case has now returned to us ¹ on remand from the Supreme Court for the limited purpose of considering "whether the Federal Arbitration Act [FAA], 9 U.S.C. § 1 et seq., requires that a court instead of arbitrators decide the issue of the timeliness of plaintiffs' claims." 457 Mich. 864, 581 N.W.2d 731 (1998). We hold that it does not, and we again conclude that the timeliness of plaintiffs' claims is a question to be decided by the arbitrator rather than the trial court. Accordingly, we reverse and remand this matter for further proceedings.

I. Underlying Facts and Procedural History

For completeness, we repeat the facts of this case as set forth in our prior unpublished opinion:

Following the advice of defendant, an investment adviser, plaintiffs invested in a limited partnership known as the Certified Historic Income Properties VII Limited Partnership (CHIPS VII). Twelve of the plaintiffs, Franklin Amtower, Richard Bumb, Richard Cummings, Thomas DeAgostino, David Farber, Jeffrey Farber, Carl Freeman, Patricia Hutchinson, Gary Lambert, Paul Tatseos, Barry Miller and John Christ, executed customer agreements with defendant. These agreements provided that any claims against defendant arising out of the CHIPS VII transaction would be submitted to binding arbitration within one year of the accrual of the cause of action.

Plaintiffs brought this action pursuant to the Michigan Consumer Protection Act, M.C.L. § 445.901 et seq.; MSA 19.418(1) et seq. Plaintiffs alleged that defendant misrepresented pertinent facts regarding the integrity of the CHIPS VII investment.[ ²] Defendant moved for summary disposition against Amtower, Bumb, Cummings, DeAgostino, David and Jeffrey Farber, Freeman, Hutchinson, Lambert, Tatseos, Miller and Christ, arguing for outright dismissal or, alternatively, for an order to compel arbitration. Defendant argued that the arbitration agreement precluded these plaintiffs from obtaining relief from the courts. Defendant also argued that the action had been brought more than one year from the time the cause of action accrued. Defendant argued that the cause of action accrued in October, 1990, when plaintiffs were notified that the CHIPS VII investments were failing. Plaintiffs argued in response that the arbitration agreement was invalid because they had not made a knowledgeable waiver of rights. Plaintiffs also argued that the cause of action did not accrue until May 8, 1991, when they learned that the CHIPS VII general partner had misappropriated funds.

The trial court concluded that the arbitration agreement was valid and that the cause of action accrued in October, 1990. The trial court granted defendant's summary disposition motion. The trial court later denied plaintiff [s'] motion for relief from order and for reconsideration pursuant to MCR 2.612.

On appeal, plaintiffs abandoned any claim that the arbitration agreements were invalid and argued only that the trial court erred in determining that their cause of action accrued in October 1990. Defendant argued that the court correctly made this determination. Although not an issue raised by the parties, we held in our prior opinion that the arbitrator, not the trial court, should decide whether plaintiffs' claims were barred by the contractual one-year limitation period:

Although the existence of a contract to arbitrate and its enforceability is a judicial question that cannot be decided by an arbitrator, City of Huntington Woods v. Ajax Paving [Industries, Inc. (After Remand) ], 196 Mich.App. 71, 74, 492 N.W.2d 463 (1992), procedural matters arising out of an arbitrable dispute are for the arbitrator, and not the court, to determine. Bennett v. Shearson Lehman-American Express, Inc., 168 Mich.App. 80, 83, 423 N.W.2d 911 (1987). As such, the timeliness of bringing of an arbitration proceeding is a procedural issue to be determined by the arbitrator rather than the courts. Id.; see also Nielsen v. Barnett, 440 Mich. 1, 10, 485 N.W.2d 666 (1992). Therefore, the trial court erred in making a determination regarding when plaintiffs' cause of action accrued.

On the basis of defendant's argument in seeking leave to appeal to the Supreme Court, that the FAA preempted state law and that federal law required the court rather than an arbitrator to determine the question of timeliness, the Supreme Court, in lieu of granting leave to appeal, remanded the matter for further consideration. ³

II. Analysis

Now that it has made its legal position more clear, we agree with defendant that the FAA applies to this dispute, which dispute unquestionably arises out of contracts involving interstate commerce. Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995). State courts are bound, under the Supremacy Clause, U.S. Const., art. VI, cl. 2, to enforce the FAA's substantive provisions. Ultracashmere House, Ltd. v. Meyer, 664 F.2d 1176, 1180 (C.A.11, 1981). However, as more fully explained below, because the parties broadly agreed to arbitrate the merits of any controversy arising between them, we conclude that federal law requires that an arbitrator, rather than the trial court, must decide the procedural issue whether plaintiffs' claims were timely.

A. General Federal Rule--Timeliness Issues as Questions of

"Procedural Arbitrability"

In John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 557-558, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964), the Supreme Court held that "[o]nce it is determined ... that the parties are obligated to submit the subject matter of a dispute to arbitration, 'procedural' questions which grow out of the dispute and bear on its final disposition should be left to the arbitrator." Since that decision, an overwhelming majority of federal appellate circuits (including the Sixth Circuit Court of Appeals) considering the issue have determined that timeliness of a claim is a procedural matter and, therefore, within the arbitrator's jurisdiction. ⁴ Michigan, which has developed its own strong policy favoring arbitration on the basis of federal precedent, ⁵ is in accord. Michigan law also provides that arbitrators, rather than courts, should decide the application of such potential defenses to arbitration as contractual limitation periods, statutes of limitation, and the doctrine of laches. See, e.g., Brown v. Holton Public Schools, 397 Mich. 71, 73-74, 243 N.W.2d 255 (1976); Iron Co. v. Sundberg, Carlson & Associates, Inc., 222 Mich.App. 120, 126, 564 N.W.2d 78 (1997); Bennett, supra at 83, 423 N.W.2d 911.

B. Parties' Intent to Reserve Timeliness Issues for the Court

Notwithstanding the general federal rule, it is equally clear that the parties to an arbitration agreement can provide that certain issues be determined by the court if they so specify in their contract. " '[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he had not agreed so to submit.' " AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) (citations omitted). Thus, "the basic objective in this area is ... to ensure that commercial arbitration agreements, like other contracts, ' "are enforced according to their terms," ' and according to the intentions of the parties." First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) (citations omitted).

Consequently, the determination whether the issue of timeliness must be decided by the arbitrator or a court inexorably becomes a question of contract...