Aste v. Metropolitan Life Ins. Co.

• Decision Date: 28 March 2000
• Docket Number: No. 1-99-2574.,1-99-2574.
• Parties: Kathryn G. ASTE, Independent Executrix, of the Estate of Mary G. Kenney, deceased June 7, 1994, Plaintiff-Appellant, v. METROPOLITAN LIFE INSURANCE COMPANY, MetLife Securities, Inc., Defendants-Appellees (Anthony M. Williams, Defendant).
• Court: United States Appellate Court of Illinois

728 N.E.2d 629

312 Ill. App.3d 972

245 Ill.Dec. 547

Kathryn G. ASTE, Independent Executrix, of the Estate of Mary G. Kenney, deceased June 7, 1994, Plaintiff-Appellant, v. METROPOLITAN LIFE INSURANCE COMPANY, MetLife Securities, Inc., Defendants-Appellees (Anthony M. Williams, Defendant).

No. 1-99-2574.

Appellate Court of Illinois, First District, Second Division.

March 28, 2000.

Benjamin P. Hyink, Regina A. Scannicchio and Paul J. Bargiel, Law Office of Paul J. Bargiel, P.C., Chicago, for Appellant.

Skadden, Arps, Slate, Meagher & Flom, Chicago (Charles F. Smith, Deborah G. Solmor, Albert L. Hogan III of counsel), for Appellant.

Justice GORDON delivered the opinion of the court:

Plaintiff appeals from an order of the circuit court of Cook County compelling arbitration. On appeal, plaintiff argues that Illinois arbitration law applies to this case, that the arbitration agreement is void for lack of consideration and that the arbitration agreement is void due to violations of the Illinois Securities Law. We reverse.

The plaintiff, Kathryn G. Aste, sued defendants, Metropolitan Life Insurance Company ("Metropolitan"), MetLife Securities, Inc. ("MetLife") and Anthony M. Williams on various grounds including breach of fiduciary duty, constructive fraud and negligence arising out of financial dealings that the decedent, Mary G. Kenney, had with the defendants. Defendants Metropolitan and MetLife moved to compel arbitration based on the arbitration clause in a document signed by one of their employees and by the decedent. The trial court held a hearing on this issue and ruled for defendants. Both sides were represented by counsel.

According to plaintiff's Second Amended Complaint, plaintiff Kathryn G. Aste is the independent executrix of the estate of Mary G. Kenney who died on June 7, 1994. Defendant Anthony Williams was employed by Metropolitan from before April 15, 1993, to July of 1993 as an account representative. His duties included contacting elderly individuals for the purpose of persuading them to invest in products offered by Metropolitan and MetLife. Metropolitan directed Williams to offer its estate planning services to potential customers at no charge in order to allow him to introduce himself to such potential customers. Williams, however, could not assist a potential customer with a transfer of assets to MetLife from another company without the participation of Paul Dooley.

Dooley was employed by Metropolitan and MetLife from before April 15, 1993, until after December 15, 1993. Plaintiff alleges on information and belief that Dooley had all the duties and responsibilities of Williams. Additionally, as a registered securities salesperson for MetLife, Dooley was responsible for assisting clients in transferring assets to MetLife from other companies. Dooley was registered as a securities salesperson with MetLife between June 1, 1993, and October 22, 1993.

In April or May of 1993 Williams contacted Kenney by telephone in order to solicit her use of MetLife's estate planning services. In May and June of 1993 Williams and Dooley met with decedent three or four times. On May 18, Williams prepared an estate analysis report for decedent. On May 20, Dooley interviewed Kenney and executed a MetLife Securities, Inc., "customer profile" form which stated that her objectives were to obtain current income and tax advantages. Additionally, a box marked "no" is checked next to a line which inquires if "the fund's investment objective" differs from the client's investment objective. The form contains an arbitration clause which reads:

"1. MetLife Securities, Inc. (hereinafter "MSI") and the purchaser of the shares, who is the signatory below (hereinafter the "Customer"), agree that any controversy between MSI, its employees, directors, agents, officers or affiliates and the Customer arising out of or relating to any transactions between such parties shall be determined by arbitration. Any arbitration pursuant to this agreement shall be conducted before, and under the rules of, the National Association of Securities Dealers, Inc. Judgement upon the award of the arbitrators may be entered in any federal or state court having jurisdiction.

2. This agreement and any arbitration hereunder shall be governed and construed in accordance with the laws of the State of New York, United States of America, including New York procedural and substantive arbitration laws and rules, without giving effect to conflicts of law principles."

The bottom of the form states that it is the "Tampa Mutual Fund Administrative Office Copy." The customer profile was signed by Dooley (on the line identified as "Registered Representative's Signature") and by Kenney. On May 28 Dooley transferred $212,000 from Kenney's Merrill Lynch Federal Securities Trust to various accounts at MetLife.

After June 17, Williams continued to meet with Kenney on a weekly basis. During that time Williams requested and received from Kenney a "loan" of $70,000 in order to start a tavern business. Dooley and Williams subsequently started a tavern business, known as T.J.'s Pub, which closed shortly after its opening. Williams also received three additional checks for $55,000, $55,000, and $27,000 respectively, from Kenney. As a result of these transactions, plaintiff sued Metropolitan, MetLife, and Williams. Defendants Metropolitan and MetLife moved to compel arbitration based on the arbitration clause in the customer profile and their motion was granted by the trial court. This appeal followed.

Plaintiff first contends that the Uniform Arbitration Act (710 ILCS 5/1 et seq. (West 1992)) applies to this case. Defendants Metropolitan and MetLife ("defendants") contend that federal arbitration law (9 U.S.C. § 1 et seq. (West 1999)) governs because the customer agreement involves commerce. We agree with the defendants. The "Supreme Court has held that when a contract involving interstate commerce contains an arbitration clause, federal law supersedes State statutes, even in State courts." Konewko v. Kidder, Peabody & Co., 173 Ill.App.3d 939, 942, 123 Ill.Dec. 617, 528 N.E.2d 1, 3 (1988); see also, Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984). Since this contract involves interstate commerce the federal law of arbitration applies. 173 Ill.App.3d at 942, 123 Ill.Dec. 617, 528 N.E.2d 1. In any event, we believe the result in this case would be the same under either statute. Whether under federal rules or state law, there is no arbitration without a valid contract to arbitrate. Gibson v. Neighborhood Health Clinics, Inc., 121 F.3d 1126, 1130 (7th Cir. 1997) (stating that without a contract to arbitrate there can be no forced arbitration); Board of Managers of the Courtyards at Woodlands Condominium Association v. IKO Chicago, Inc., 183 Ill.2d 66, 74, 231 Ill.Dec. 942, 697 N.E.2d 727, 731 (1998) (arbitration is a creature of contract). "In determining whether a valid arbitration agreement arose between the parties, a federal court should look to the state law that ordinarily governs the formation of contracts." 121 F.3d at 1130. Since the relevant events in this dispute occurred in Illinois, we will look to Illinois law to see if there is a valid arbitration agreement.

Plaintiff next contends that the customer profile is not a valid contract because defendants failed to show that MetLife made any promises on behalf of the decedent or the existence of an agreement for the sale of securities to which the arbitration agreement must be applied. Plaintiff maintains that an arbitration agreement with nothing to arbitrate is illusory. Defendant argues that the mutual promise of the parties to arbitrate is sufficient consideration. We agree. Under both Illinois and federal law, a mutual promise to arbitrate is sufficient consideration to support an arbitration agreement. Michalski v. Circuit City Stores, Inc., 177 F.3d 634, 637 (7th Cir.1999); Doyle v. Holy Cross Hospital, 186 Ill.2d 104, 112, 237 Ill.Dec. 100, 708 N.E.2d 1140, 1145 (1999) ("Any act or promise which is of benefit to one party or disadvantage to the other is a sufficient consideration to support a contract"). In this case, the parties agreed to arbitrate any disputes arising out of transactions between them. Thus, the lack of transactional contracts between the parties when the customer profile was entered into does not make the mutual promise to arbitrate illusory.

Plaintiff's primary argument is that the customer profile is not a valid contract requiring arbitration because it violates the Illinois Securities Law of 1953 (815 ILCS 5/1 et seq. (West 1992)) (the "ISL"), and therefore should be declared void. In support, the plaintiff argues that Dooley was not a registered salesperson when he signed the profile and that the profile therefore constitutes an unlawful solicitation of an offer to purchase securities. Defendants maintain that the trial court was correct in ruling that it was unnecessary for Dooley to be a registered salesperson at the time of the execution of the customer profile, because the ISL does not govern the formation of arbitration agreements. In support, defendants argue that the profile does not list, describe or authorize any securities transactions taking place on the date of its execution, but merely contemplates future transactions.

"The legislative intent in enacting the Securities Law has for its object the protection of the public from unscrupulous stock promoters. Registration with, and approval by, the Secretary of State is the primary safeguard * * *." Furthermore, the ISL is "paternalistic in character and should be liberally construed to better protect the public" from the fraud, dishonesty, incompetence and irresponsibility of persons selling securities. Martin v. Orvis Bros. & Co., 25 Ill.App.3d 238, 244-5, 323 N.E.2d 73, 78 (1974). Section 8A of the ISL states that "[e]xcept as otherwise provided in this subsection A, every dealer,...