Fairview Cemetery Ass'n of Stillwater v. Eckberg

• Decision Date: 18 April 1986
• Docket Number: No. C6-85-829,C6-85-829
• Parties: Blue Sky L. Rep. P 72,380 The FAIRVIEW CEMETERY ASSOCIATION OF STILLWATER, Minnesota, Respondent, v. David W. ECKBERG, Defendant, and Paine, Webber, Jackson & Curtis, Inc., Appellant.
• Court: Minnesota Supreme Court

Page 812

385 N.W.2d 812

Blue Sky L. Rep. P 72,380

The FAIRVIEW CEMETERY ASSOCIATION OF STILLWATER, Minnesota, Respondent, v. David W. ECKBERG, Defendant, and Paine, Webber, Jackson & Curtis, Inc., Appellant.

No. C6-85-829.

Supreme Court of Minnesota.

April 18, 1986.

Syllabus by the Court

1. Minn.Stat. Sec. 80A.23, subd. 10 (1984), and Kiehne v. Purdy, 309 N.W.2d 60 (Minn.1981), are preempted by Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984), for arbitration agreements falling within the Federal Arbitration Act.

2. A question of fact exists concerning whether appellant waived its right to compel arbitration in this case. This question is for the trial court to decide.

3. The district court is the proper tribunal to decide claims raised by respondent concerning the validity of the contract in this case.

4. Further proceedings under both the arbitrable and nonarbitrable claims in this case need not be delayed. Both can proceed on their own, independent of each other.

Kurtis A. Greenly, Susan E. Barnes, Minneapolis, for appellant.

Graham Heikes, Carol A. Hooten, St. Paul, for respondent.

Edward M. Laine, St. Paul, for defendant.

Heard, considered, and decided by the court en banc.

AMDAHL, Chief Justice.

This case comes to us as a certified question from the Court of Appeals. ¹ The case involves, among other things, the question of whether the United States Supreme Court decision in Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984), concerning the supremacy of the Federal Arbitration Act (FAA), overrules to a limited extent this court's decision in Kiehne v. Purdy, 309 N.W.2d 60 (Minn.1981). The Washington County District Court ruled that Kiehne was not overruled by Southland. The Court of Appeals certified this case to us for accelerated review. We accepted certification and now reverse the trial court. We remand the case to the trial court for further proceedings in conformity with this opinion.

The Fairview Cemetery Association of Stillwater, Minnesota (Fairview), brought this action against its former broker, David W. Eckberg, and Paine, Webber, Jackson & Curtis, Incorporated, seeking damages for the alleged mishandling of Fairview's account. The account allegedly established by Paine Webber included funds from Fairview's perpetual care fund, used for the upkeep of Fairview's property. Fairview's complaint alleged violations of the federal Securities Act of 1933, 15 U.S.C. Secs. 77a-77aa (1982), violations of the Minnesota Blue Sky Law, Minn.Stat. ch. 80A (1984), and common law claims of fraud, negligence, and breach of fiduciary duty. Eckberg and Paine Webber both filed answers that included a general denial of Fairview's claims and raised certain affirmative defenses.

The parties engaged in discovery for a period of approximately 1 year after the initial pleadings were filed. The discovery consisted of interrogatory requests and answers, document production, and several depositions. On November 21, 1984, however, Paine Webber filed a motion to compel arbitration ² and stay the district court proceedings based on the recently issued United States Supreme Court decision of Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1. Paine Webber claimed it had initially proceeded with litigation in this case because of our decision in Kiehne v. Purdy, 309 N.W.2d 60, which nullified arbitration agreements and required a trial where a violation of the Minnesota Blue Sky Laws was alleged. Paine Webber, however, argued that Southland preempts Kiehne in cases where the FAA ³ is involved. Paine Webber also asserted that its motion to compel arbitration was timely because prior to the Supreme Court's decision in Southland, no right to arbitration existed in this case. See Kiehne, 309 N.W.2d at 61.

The trial court denied Paine Webber's motion. It held Kiehne was not preempted by Southland because "Southland ruled on federal law and has no applicability to state law. The legal argument of Southland is inapplicable to the present case. Kiehne v. Purdy follows Wilko v. Swan [346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953) ], which is still good law."

Several issues are raised on appeal:

1. Does Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, overrule this court's decision in Kiehne v. Purdy, 309 N.W.2d 60, as to arbitration agreements under the FAA?

2. Has Paine Webber waived its right to proceed by arbitration in this case?

3. Is the contract in this case void, thereby destroying Paine Webber's right to proceed by arbitration?

4. If arbitration is allowable, should the arbitrable and nonarbitrable claims proceed independent of one another?

1. The initial question in this case concerns the legal effect of Southland Corp. v. Keating on this court's decision in Kiehne v. Purdy. In Kiehne, we held Minn.Stat. Sec. 80A.23, subd. 10 precluded arbitration of violations of the Minnesota Blue Sky Law and any factually intertwined common law claims. Kiehne required such actions to be brought in state courts under section 80A.23, subd. 10. In Southland, however, the United States Supreme Court held the FAA preempted a provision in the California State Franchising Law similar to subdivision 10, which also required that violations be litigated in court rather than being resolved through arbitration. The question in this case, then, is one of preemption--whether Southland and the FAA preempt Kiehne and section 80A.23, subd. 10, for arbitration agreements falling within the FAA.

The FAA governs the right of a party to seek arbitration where a contract involves interstate commerce. Section 2 of the FAA provides:

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, 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.

9 U.S.C. Sec. 2. "Commerce" is defined under the FAA as including "commerce among the several States * * *." Id. Sec. 1; see Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 401-02 n. 7, 87 S.Ct. 1801, 1805 n. 7, 18 L.Ed.2d 1270 (1967) (term "involving commerce" has broad enough meaning to encompass entire interstate commerce power of Congress). The FAA allows a party to move for a stay of any court proceedings and to compel arbitration under an arbitration agreement. 9 U.S.C. Secs. 3-4. It also provides a procedure for appointing arbitrators, subpoenaing witnesses and taking testimony, and challenging an arbitration panel's award. See id., Secs. 5-12.

The Minnesota Blue Sky Law, on the other hand, governs the offer, sale, or purchase of any security within this state. Minn.Stat. Sec. 80A.01. Securities regulation is viewed expansively in Minnesota in order to protect investors. State v. Coin Wholesalers, Inc., 311 Minn. 346, 355, 250 N.W.2d 583, 588 (1976). In enacting chapter 80A, the legislature provided certain private remedies for persons damaged by the illegal offer, sale, or purchase of securities. See Minn.Stat. Sec. 80A.23. The legislature also provided statutory protection of a litigant's private remedies:

Any condition, stipulation or provision binding any person to waive compliance with any provision of sections 80A.01 to 80A.31 or any rule or order hereunder in the purchase or sale of any security is void.

Id., subd. 10.

In Kiehne v. Purdy, 309 N.W.2d 60, we considered whether section 80A.23, subd. 10, rendered an arbitration agreement invalid for violations of the Minnesota Blue Sky Law and other related common law claims. The respondent in Kiehne sued her former broker and his firm for damages arising out of the alleged mishandling of her securities account. She asserted claims of common law fraud, breach of contract, and violations of the Minnesota Blue Sky Law. Appellants moved to compel arbitration of these claims, but the trial court, holding that subdivision 10 of section 80A.23 precluded arbitration, denied the motion.

On appeal, we considered the issue of "whether an agreement to arbitrate is '[a]ny condition, stipulation or provision binding any person to waive compliance with any provision' of Minnesota Blue Sky Laws" and therefore void under subdivision 10. We agreed with the trial court and held that subdivision 10 precluded arbitration of the respondent's claims:

Section 80A.23, subdivisions 1 and 2, establish the right of a seller or buyer of securities to redress violations of certain provisions of the Minnesota Blue Sky Law by bringing a civil action in law or equity. Thus, the right to judicial trial and review is a "provision" within chapter 80A. Clearly, an agreement to arbitrate is a "stipulation" which would require waiver of judicial trial and review. Therefore, under section 80A.23, subdivision 10, an agreement to arbitrate is void as to disputes arising under chapter 80A.

309 N.W.2d at 61. ⁴

Kiehne was based on two differing rationale. First, we relied upon the legislative intent of the Minnesota Blue Sky Law that it be construed to make uniform the law of this state and all other states in which the law has been enacted. See Minn.Stat. Sec. 80A.31. Second, we considered persuasive the United States Supreme Court's decision in Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953). In Wilko, the Supreme Court held that claims arising under the Securities Act of 1933 were not subject to arbitration under the FAA where the 1933 Act contained a provision similar to subdivision 10. See 15 U.S.C. Sec. 77n. We adopted the same reasoning for state securities law violations arising at the state level.

In Southland Corp. v. Keating, 465 U.S. 1, 104...