A.G. Edwards & Sons, Inc. v. Syvrud

• Decision Date: 27 March 1992
• Parties: A.G. EDWARDS & SONS, INC. v. Gerhard SYVRUD. 1901747.
• Court: Alabama Supreme Court

Page 197

597 So.2d 197

A.G. EDWARDS & SONS, INC. v. Gerhard SYVRUD.

1901747.

Supreme Court of Alabama.

March 27, 1992.

J. Don Foster and James G. Curenton, Jr., Daphne, for appellant.

Fred K. Granade and George R. Irvine III of Stone, Granade, Crosby & Blackburn, P.C., Bay Minette, for appellee.

KENNEDY, Justice.

Gerhard Syvrud filed a lawsuit against Peggy Ryder Vanover and A.G. Edwards & Sons, Inc. (a securities company, hereinafter referred to as "Edwards"). Vanover and Edwards jointly moved to compel arbitration of the dispute involved in the lawsuit; the court denied this motion and Edwards has appealed.

In January 1989, Syvrud opened an account with Edwards through Vanover, the branch manager of Edwards's office in Daphne, Alabama, for the purpose of investing in securities.

The issue before us relates to whether a controversy between Syvrud and the defendants regarding this account must be submitted to arbitration. Syvrud, before filing the action, had signed a customer agreement contract with Edwards that contained an arbitration provision requiring that "any controversy" between the parties be arbitrated.

Under federal law certain predispute arbitration agreements must be enforced irrespective of any state law that would render them unenforceable. See, 9 U.S.C. §§ 1-15; Ala.Code 1975, § 8-1-41; Wells v. Mobile County Bd. of Realtors, Inc., 387 So.2d 140, 144 (Ala.1980) (stating that under § 8-1-41 Alabama holds void, on public policy grounds, predispute arbitration agreements). Syvrud argues that the arbitration provision is not enforceable, under an exception to this rule applicable where a claimant challenges the making of the arbitration provision itself.

The controversy underlying this case stems from Syvrud's loss of a significant amount of money in investments Vanover made on Syvrud's behalf. He states that he relied on Vanover's advice and that he gave her considerable discretion in investing his money. However, Syvrud says, Vanover did not adhere to his general directive that his money be invested conservatively; he also says that she failed to keep him informed and that she breached a fiduciary duty to him.

Syvrud alleges that some time after Vanover began, he says, improperly handling his investments, but before he was aware of any mismanagement, she obtained Syvrud's execution of the "customer agreement" contract. As stated, the customer agreement provided in part that Syvrud submit to arbitration "any controversies" with Edwards relating to his account.

According to Syvrud, Vanover explained to him that the customer agreement was for the purpose of allowing her to borrow against his Edwards account for investment on his behalf. By affidavit, Scott Kelsaw of Edwards stated that it was Edwards's policy to secure the execution of such an agreement before Edwards would approve loans against client accounts. Syvrud does not dispute this statement, but says that Vanover did not disclose to him that the agreement contained an arbitration provision and that, based on Vanover's explanation, and at her instigation, he signed it without reading it. Syvrud says that he did not intend to assent to an arbitration provision.

Syvrud sued Edwards and Vanover on a variety of claims relating to the handling of his account, but did not aver by complaint that the arbitration provision of the customer agreement was procured by fraud. Syvrud states that he was unaware of the existence of this provision until after he had filed suit.

After Syvrud filed his complaint, the defendants jointly moved for an order to compel arbitration, citing the arbitration provision. At that time, Syvrud did not amend his complaint, but, through a series of responses to the defendants' motion to compel arbitration, made a claim that Vanover had procured the arbitration provision by fraud through a breach of a fiduciary duty of disclosure. He said that, therefore, the arbitration provision was due to be rescinded and that he was entitled to litigate his claims.

The defendants submitted to the trial court a brief in support of their motion to compel arbitration. In it, they pointed to the existence of the arbitration provision and cited numerous cases for the proposition that the Federal Arbitration Act (FAA) applies in this case. The defendants correctly stated in their brief that where the FAA applies to a customer agreement that would require, by its terms, the arbitration of a controversy relating to a claim about the valid creation of the customer agreement, e.g., a claim of fraud in the inducement, the claim must be submitted to arbitration. We note in this regard, that if fraud is alleged with respect to an arbitration provision itself, rather than toward the entire customer agreement that encompasses it, the claimant is not forced to arbitrate this claim under the FAA. Simply stated, if the fraud question relates solely to the valid creation of the requirement of arbitration, rather than the entire customer agreement, this claim can be litigated on state law contract principles to determine if the arbitration provision is to be rescinded. See, Jones v. Merrill Lynch, Pierce, Fenner & Smith, Inc., [Ms. 89-1574, April 19, 1991], 1991 WL 82088 (Ala.1991).

The Arbitration Provision

On appeal, Syvrud's failure to attack the arbitration provision by his complaint fuels Edwards's argument that Syvrud did not challenge the creation of the arbitration provision itself. In this case there is no contention that the FAA does not apply and there is no question that the disputes in this case are encompassed within the language of the arbitration provision; ¹ therefore, if the arbitration clause is valid, it will subject all of Syvrud's claims to arbitration. However, as stated, where a claim is directed to the creation of the arbitration requirement itself, that claim can be litigated; in such a case, arbitration cannot be forced. Id. Thus, the question to be resolved is whether Syvrud's claim was that the entire customer agreement was fraudulently procured or was directed toward the arbitration provision itself.

In his complaint, Syvrud averred, in pertinent part, that Vanover had breached a fiduciary duty of disclosure. The complaint does not refer to the arbitration provision or to the customer agreement. However, we emphasize that Syvrud alleges that he was, because of fraud by Vanover, unaware of the arbitration provision when he filed his complaint. Thereafter, Syvrud specifically made, without objection, a claim of fraud in the inducement as to the arbitration agreement; he made this claim through responses to the defendants' motion to compel arbitration, but he filed nothing expressly purporting to amend his complaint.

Edwards argues that the trial court erred in denying their motion to compel arbitration, because, first, they say that Syvrud never pleaded by complaint that the arbitration clause was secured by fraud in the inducement; they say that Syvrud had to do that to defeat the motion to compel arbitration; and second, they say that the trial court could not find that, as Syvrud alleged, he was defrauded as to the existence of the arbitration provision.

Edwards's first argument, that Syvrud did not challenge the creation of the arbitration provision because he failed to plead by complaint that the arbitration provision was procured by fraud, is not properly before us.

In the trial court Edwards allowed Syvrud, without objection, to raise the arbitration matter through responses to their motion to compel arbitration. Edwards did not assert in any way that the trial court was to determine the arbitration issue solely from the language of Syvrud's complaint. At no time did Edwards assert that Syvrud had failed to challenge the creation of the arbitration provision itself because he did not do so by complaint. ²

Without commenting on the merits of Edwards's argument that Syvrud's complaint "must assert that the arbitration clause itself, standing apart from the whole agreement, was induced by fraud in order to defeat a motion to compel" and the argument, by implication, that we are not to examine the record beyond the complaint, to determine the nature of his claim, we note that we have long held that we shall not review matters not raised in the trial court. See, Record Data Int'l, Inc. v. Nichols, 381 So.2d 1 (Ala.1979). Therefore, we do not address this argument, because any trial court objection or error the defendants would assert as shown by this argument was not raised in the trial court. For this reason, we must leave intact the trial court's determination that the defendants' motion to compel arbitration was due to be denied, and the trial court's implicit, underlying determination that Syvrud made a claim of fraud in the creation of the arbitration provision itself, rather than in the creation of the customer agreement generally.

Although, as we shall explain, arguments relating to the sufficiency of the evidence are misplaced, we disagree with the Edwards's second argument, i.e., that the trial court could not find for Syvrud on the merits of his arbitration issue claim.

The record indicates that the defendants never answered ³ any of Syvrud's claims. With respect to the allegation...