Breckenridge v. Farber

• Decision Date: 03 August 1994
• Docket Number: No. 93-0874,93-0874
• Citation: 640 So.2d 208
• Parties: Fed. Sec. L. Rep. P 98,365, 19 Fla. L. Weekly D1639 Paula P. BRECKENRIDGE, Appellant, v. Alvin Wayne FARBER, Appellee.
• Court: Florida District Court of Appeals

Page 208

640 So.2d 208

Fed. Sec. L. Rep. P 98,365, 19 Fla. L. Weekly D1639

Paula P. BRECKENRIDGE, Appellant, v. Alvin Wayne FARBER, Appellee.

No. 93-0874.

District Court of Appeal of Florida,

Fourth District.

Aug. 3, 1994.

Bennett S. Cohn, Law Office of Bennett S. Cohn, West Palm Beach, for appellant.

John T. Milton, Palm Beach, and John P. Stetson of Law Office of John P. Stetson, West Palm Beach, for appellee.

PARIENTE, Judge.

Appellant, Paula P. Breckenridge (investor), seeks review of an order granting appellee's, Alvin W. Farber's (broker's), motion to compel arbitration. The investor contends the trial court erred in granting the motion because the broker, having knowledge of his right to arbitration, failed to timely assert the right and actively participated in litigation thereby waiving his right. We agree and reverse.

On December 13, 1985, the investor opened a stock brokerage account with Thomson McKinnon Securities, Inc. (Thomson McKinnon) through the broker. The documents the broker presented to the investor to sign in order to open the account included a management agreement and signature card containing an arbitration clause which reads as follows:

It is agreed that any dispute, claim or controversy between us and your firm which does not arise out of the federal securities law shall be resolved by arbitration under the Constitution and Rules of the New York Stock exchange, Inc., or under the Code of Arbitration Procedure of the National Association of Securities Dealers, Inc., at ____ election. Disputes, claims or controversies arising under the federal securities laws may, at our election, be resolved either by arbitration or through litigation in the Courts.

The broker signed the investor's new accounts form.

In October 1990, the investor filed a complaint against the broker for damages sustained alleging common law claims of negligence and fraudulent misrepresentation and violations of both state and federal securities law arising from the manner in which her funds were invested. Litigation between the investor and the broker actively ensued for two and one-half years--from October 1990 through February 1993. During this time the broker filed motions to dismiss the investor's complaint and three amended complaints, none of which asserted arbitration as grounds for dismissal. In his answer to the investor's third amended complaint, the broker asserted affirmative defenses. Again a right to arbitration was not raised. Thereafter, the parties proceeded with discovery, including interrogatories and document production.

Early in 1992, the trial court set the case for trial for October of that year and simultaneously directed mediation. The broker failed to participate in mediation. He was sanctioned by the trial court and compelled to comply.

In July 1992, the broker, through his attorney, sent a letter to Thomson McKinnon, which was in bankruptcy, requesting a copy of the documents executed between Thomson McKinnon and the investor. The attorney stated an interest in obtaining the documents "as soon as possible to determine if this matter should be properly heard in binding arbitration." In response, Thomson McKinnon forwarded the broker a poor quality microfilmed copy of the management agreement, signature card and new accounts form.

The first scheduled trial for October 1992 was continued upon the broker's motion and reset for February 1993. Thereafter, having failed to answer the investor's interrogatories, the broker was ordered to comply or have his answer stricken.

By November 1992, the investor succeeded in striking all of the broker's expert witnesses. At the same time, the broker's successor attorney obtained a second, similarly poor copy of the agreement, signature card and new accounts form. Several days later, the broker, through his new attorney, filed a motion to dismiss and motion for summary judgment. Again, neither motion was based on a right to arbitration. Both motions were denied.

In January 1993, having received adverse rulings on all motions which could have disposed of the case and faced with the prospect of proceeding to trial without any expert witnesses, the broker's attorney "succeeded" in reading the signature card, which he stated could only be done with the aid of a magnifying glass, and "discovered" the arbitration clause. Based on the clause, the broker filed a motion for arbitration which the trial court granted. The granting of this motion is the subject of this appeal.

There is no dispute between the parties that though a non-signatory to the signature card, the broker is a beneficiary of the arbitration clause either by virtue of his third party beneficiary status or his then-existing employee-employer relationship with Thomson McKinnon. See Stratton Oakmont, Inc. v. Goldstein, 615 So.2d 183 (Fla. 3d DCA 1993); Zac Smith & Co. v. Moonspinner Condo. Ass'n, 472 So.2d 1324 (Fla. 1st DCA 1985); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Melamed, 453 So.2d 858 (Fla. 4th DCA 1984). Thus, as the broker may enforce the rights of the signature card, so may the obligations attached to these rights be enforced against him.

We start with the general proposition that all doubts about the scope of an arbitration agreement, as well as any questions about waivers thereof, are in favor of arbitration, rather than against it. Ronbeck Constr. Co. v. Savanna Club Corp., 592 So.2d 344, 346 (Fla. 4th DCA 1992). This is consistent with the policy of the federal courts in construing arbitration provisions liberally in favor of arbitration under the United States Arbitration Act, 9 U.S.C. sections 1-14 (1982). Ronbeck; see Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983).

While arbitration agreements are favored, a party may waive that right if the party has knowledge of the right yet takes actions inconsistent with the right. See, e.g., Mike Bradford & Co. v. Gulf States Steel Co., 184 So.2d 911, 913 (Fla. 3d DCA 1966). This rule has been consistently followed in this state. See, e.g., Klosters Rederi A/S v. Arison Shipping Co., 280 So.2d 678 (Fla.1973), cert. denied, 414 U.S. 1131, 94 S.Ct. 869, 38 L.Ed.2d 755 (1974); Finn v. Prudential-Bache Secs., Inc., 523 So.2d 617, 618 (Fla. 4th DCA), rev. denied, 531 So.2d 1354 (Fla.), cert. denied, 488 U.S. 917, 109 S.Ct. 274, 102 L.Ed.2d 262 (1988); King v. Thompson &amp McKinnon, Auchincloss, Kohlmeyer, Inc., 352 So.2d 1235 (Fla. 4th DCA 1977); Ojus Indus. v. Mann, 221 So.2d 780, 782 (Fla. 3d DCA 1969).

Under Bradford and its progeny, a two-prong inquiry is appropriate. A party claiming waiver of arbitration must demonstrate: 1) knowledge of an existing right to arbitrate and 2) active participation in litigation or other acts inconsistent with the right. Bradford, 184 So.2d at 915. A showing of prejudice is not required if waiver is based on inconsistent acts rather than delay in asserting one's right. Finn. It is the knowledge requirement which must be addressed first, and which is the crux of the appeal.

The broker claims he did not have actual knowledge of the arbitration clause until his attorney discovered it through a magnifying glass in January 1993, one month before the scheduled trial. Apparently the broker expects us to overlook the fact that he had the signature card in hand in July...