Dean Witter Reynolds Inc. v. Howsam

• Citation: 261 F.3d 956
• Parties: (10th Cir. 2001) DEAN WITTER REYNOLDS, INC., a Delaware Corporation, Plaintiff-Appellant, v. KAREN HOWSAM, individually, and as Trustee for the E. Richard Howsam, Jr., Irrevocable Life Insurance Trust dated
• Decision Date: 14 May 1982
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

Page 956

261 F.3d 956 (10th Cir. 2001)

DEAN WITTER REYNOLDS, INC., a Delaware Corporation, Plaintiff-Appellant, v. KAREN HOWSAM, individually, and as Trustee for the E. Richard Howsam, Jr., Irrevocable Life Insurance Trust dated May 14, 1982, Defendant-Appellee.

No. 99-1320

UNITED STATES COURT OF APPEALS TENTH CIRCUIT

August 9, 2001

Appeal from the United States District Court for the District of Colorado (D.C. No. 97-WM-1463) Bradford D. Kaufman, Greenberg Traurig, P.A. (Joseph C. Coates, Greenberg Traurig, P.A., and Martin D. Litt, Holme Roberts & Owen LLP, with him on the briefs), West Palm Beach, Florida, for Plaintiff-Appellant.

Alan C. Friedberg, Pendleton, Friedberg, Wilson & Hennessey, P.C., Denver, Colorado, for Defendant-Appellee.

Before EBEL and LUCERO, Circuit Judges, and VRATIL,^* District Judge.

EBEL, Circuit Judge.

Plaintiff-Appellant Dean Witter Reynolds, Inc. brought this action seeking to enjoin Respondent-Appellee Karen Howsam from arbitrating a dispute between Dean Witter and Howsam with the National Association of Securities Dealers ("NASD") on the ground that the dispute was time-barred under NASD rules. The district court concluded that the parties, in a 1992 ACCESS Client Service Agreement, had "clearly and unmistakably" agreed that all disputes between the parties, including questions regarding the arbitrability of those disputes, would be determined by an arbitrator rather than by the courts. The district court thus dismissed Dean Witter's cause of action. Exercising jurisdiction pursuant to 28 U.S.C. 1291, we conclude that the district court erred in finding that the parties "clearly and unmistakably" agreed to allow an arbitrator, rather than the courts, to decide whether specific disputes are arbitrable. We therefore REVERSE the decision of the district court and REMAND for further proceedings.

BACKGROUND

Karen Howsam ("Howsam") was a customer of Dean Witter Reynolds, Inc. ("Dean Witter") in March and April 1986, at which time she was advised by Dean Witter, through two of its brokers, Robert P. Howard and Paul J. Siler, to invest in a total of four limited partnerships. Howsam remained invested in those limited partnerships, allegedly due to the ongoing advice of Dean Witter, until late 1994, at which point she closed her Dean Witter accounts and moved her funds to another investment firm.

During the period when Howsam was a customer of Dean Witter, Howsam entered into a standard ACCESS Client Service Agreement ("1992 ACCESS Agreement"). The 1992 ACCESS Agreement, which was drafted by Dean Witter and signed by both Howsam and a Dean Witter representative, stated:

The Client agrees that all controversies between the Client and Dean Witter and/or any of its officers, directors, or employees, present or former, concerning or arising from (i) any account maintained with Dean Witter by Client; (ii) any transaction involving Dean Witter and Client, whether or not such transaction occurred in such account or accounts; or (iii) the construction, performance or breach of this or any other agreement between us, whether such controversy arose prior to, on or subsequent to the date hereof, shall be determined by arbitration before any self-regulatory organization or exchange of which Dean Witter is a member. The Client may elect which of these arbitration forums shall hear the matter . . . .

Additionally, the 1992 ACCESS Agreement contained a provision specifying that the Agreement would be construed and enforced in accordance with New York state law "without reference to choice of law doctrine."

Pursuant to the terms of the 1992 ACCESS Agreement, on March 7, 1997, Howsam commenced an arbitration proceeding before the NASD regarding Dean Witter's recommendation that she invest in the four limited partnerships. Howsam filed an amended arbitration claim on April 10, 1997. In the amended claim, Howsam alleged that Dean Witter, through its agents Howard and Siler, made material misrepresentations about the investments prior to her decision to purchase them, and that the investments were unsuitable for someone with her investment needs. Howsam further alleged that Dean Witter, again through its agents, continued to inform her that the investments were sound, despite indications to the contrary, which impeded her understanding of the true nature of the investments until late 1994.

In order to commence the arbitration before the NASD, Howsam executed a Uniform Submission Agreement ("1997 Submission Agreement"), as required by the NASD. The 1997 Submission Agreement stated that Howsam agreed to submit her claims to the NASD with the understanding that the arbitration would be conducted in accordance with the rules and provisions of the NASD. Specifically, the 1997 Submission Agreement stated:

1. The undersigned parties hereby submit the present matter in controversy, as set forth in the attached statement of claim, . . . to arbitration in accordance with the Constitution, By-Laws, Rules, Regulations, and/or Code of Arbitration Procedure of the sponsoring organization.

The 1997 Submission Agreement contained another provision asserting, "The undersigned parties hereby state that they have read the procedures and rules of the sponsoring organization relating to arbitration." Although only Howsam signed the 1997 Submission Agreement, Dean Witter had effectively agreed to the 1997 Submission Agreement when, in the 1992 ACCESS Agreement, it gave Howsam the power to select the particular arbitration forum that would hear any dispute arising between the parties.

The NASD Code of Arbitration Procedure ("NASD Code") contains a provision stating that "[n]o dispute, claim or controversy shall be eligible for submission to arbitration under this Code where six (6) years have elapsed from the occurrence or event giving rise to the act or dispute, claim or controversy." See NASD Code 10304 (formerly NASD Code 15).¹ Based upon this provision in the NASD Code, Dean Witter (and co-defendant Howard, who was later dismissed from the lawsuit²) filed a complaint in the United States District Court for the District of Colorado, requesting declaratory relief in the form of a court determination that Howsam's claims were untimely and thus non-arbitrable by the NASD, as well as an order enjoining the NASD arbitration proceeding pending resolution of Dean Witter's claim. Dean Witter asserted that the question of arbitrability of Howsam's claims was for the court, and not for NASD arbitrators, to decide.

In response, Howsam filed a "Motion to Dismiss for Lack of Jurisdiction" ("Motion"). In the Motion, Howsam argued that the district court lacked jurisdiction to decide the issue of arbitrability because the parties, in the form of the 1992 ACCESS Agreement, had agreed that all issues concerning or arising from Dean Witter's account-related services would be submitted to arbitration. Additionally, Howsam argued that the 1992 ACCESS Agreement's choice of law provision, which specified that New York state law would govern any dispute between the parties, required that NASD arbitrators, and not the district court, determine whether Howsam's claims were arbitrable because a claim's arbitrability under 10304 of the NASD Code is a question reserved for arbitrators under New York state law.

Dean Witter countered by arguing that, because Howsam had not contested Dean Witter's asserted basis for subject matter jurisdiction (i.e., diversity of citizenship) her Motion arguing that the court lacked jurisdiction and that the complaint should be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(1) was effectively a motion to dismiss for failure to state a claim under Rule 12(b)(6). Because the Motion was more properly characterized as a motion to dismiss under Rule 12(b)(6), Dean Witter argued, the district court should not consider the 1992 ACCESS Agreement because it was not attached to or referenced in Dean Witter's complaint. Dean Witter further argued that, even if the court were to look to the 1992 ACCESS Agreement, it did not provide "clear and unmistakable" evidence that the parties agreed to submit the question of arbitrability to the chosen arbitration organization.

The district court granted Howsam's Motion on June 28, 1999. The district court analyzed the language of the 1992 ACCESS Agreement (without referencing the 1997 Submission Agreement) and concluded that its language provided "clear and unmistakable" evidence that the parties intended to submit all issues, including the issue of arbitrability, to the chosen arbitration body. See Dean Witter Reynolds, Inc. v. Howsam, No. 97-WM-1463, slip op. at 2-4 (D. Colo. June 28, 1999).

On appeal, Dean Witter argues, first, that the district court erred in looking to the 1992 ACCESS Agreement because Howsam's motion was, in effect, a motion to dismiss pursuant to Rule 12(b)(6) and, since Dean Witter never referenced the 1992 ACCESS Agreement in its complaint, the 1992 ACCESS Agreement was not properly before the court. Second, Dean Witter argues that, regardless of whether the 1992 ACCESS Agreement could potentially be reviewed by the court, that agreement was superceded by the 1997 Submission Agreement and thus was no longer the controlling agreement between the parties. Third, Dean Witter asserts that, even if we find the district court's review of the 1992 ACCESS Agreement appropriate, that agreement does not "clearly and unmistakably" demonstrate that the parties agreed to have the question of arbitrability of any given dispute decided by an arbitrator rather than the courts.

DISCUSSION

1. Standard of Review

We have stated, "Because it is based on contract interpretation, arbitrability is a legal question . . . [that] we review de novo." Cogswell v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 78 F.3d 474, 476 (10th Cir. 1996). District court determinations regarding subject matter jurisdiction are reviewed de novo. See Hart v. Dep't of...