Grant v. Rotolante

• Decision Date: 29 August 2014
• Docket Number: No. 5D13–3288.,5D13–3288.
• Citation: 147 So.3d 128
• Parties: Mark Jeffrey GRANT, Appellant, v. Denise Jardin ROTOLANTE, Appellee.
• Court: Florida District Court of Appeals

147 So.3d 128

Mark Jeffrey GRANT, Appellant

v.Denise Jardin ROTOLANTE, Appellee.

No. 5D13–3288.

District Court of Appeal of Florida, Fifth District.

Aug. 29, 2014.

Rehearing Denied Sept. 22, 2014.

Gary R. Irwin, of Gary Irwin & Assoc., LLC, Naples, for Appellant.

Allan P. Whitehead, of Frese, Hansen, Anderson, Anderson, Heuston & Whitehead, P.A., Melbourne, for Appellee.

Opinion

FEIGENBAUM, B.A., Associate Judge.

Mark Jeffrey Grant appeals the trial court's confirmation of the Financial Industry Regulatory Authority (“FINRA”) arbitration award entered in favor of Denise Jardin Rotolante. We find that Mr. Grant was not obligated to arbitrate Ms. Rotolante's claims, and therefore, reverse.

Mr. Grant and Ms. Rotolante were friends and neighbors.¹ Mr. Grant is a FINRA² Registered Representative per Securities and Exchange Commission Rule 17 C.F.R. § 240.15b7–1. He has more than thirty-eight years' experience in the securities industry, and is a published author and commentator on investment subjects. When Ms. Rotolante learned about Mr. Grant's experience in securities, she spoke to him about her finances. According to Mr. Grant, as a friendly neighbor, he advised her to obtain a job, downsize her home, or both. When she rejected this advice, he suggested, but did not endorse due to high risk, that she could obtain a mortgage on her $1.2 million home, use it to pay off her high interest debt, and invest the remainder. Ms. Rotolante ultimately chose that route.

Based on Mr. Grant's recommendations, Ms. Rotolante obtained a home mortgage with Bank of America (“the bank”), invested the proceeds with its investment banking subsidiary, and used one of the bank's FINRA Registered Representatives as her financial advisor for the new investment account. She deposited hundreds of thousands of dollars into that investment account, paid fees and commissions to the bank, and engaged in many securities transactions with the bank. The bank provided all of Ms. Rotolante's account records and statements. Ms. Rotolante never opened an account with Mr. Grant, deposited any money or securities with Mr. Grant, purchased or sold any securities from or through Mr. Grant, or paid Mr. Grant any compensation. Further, the bank never paid Mr. Grant any commission or referral fee. Still, in the following years, Mr. Grant reviewed Ms. Rotolante's investment portfolios, attended various meetings with Ms. Rotolante and the bank's financial advisor, and repeatedly gave her financial recommendations regarding her investment portfolio, which, at times, conflicted with the financial advisor's advice. In 2008, Ms. Rotolante suffered losses related to her investments, which included preferred shares of Fannie Mae, Freddie Mac, and Lehman Brothers.

Thereafter, Ms. Rotolante commenced a FINRA arbitration against Mr. Grant and others related to her failed investments. A three-member FINRA arbitration panel heard the parties' evidence and argument, and found it had jurisdiction to consider Ms. Rotolante's claim because Mr. Grant “is required to submit to arbitration pursuant to the [FINRA Customer] Code and, having answered the claim, is bound by the determination of the Panel on all issues submitted.” The panel subsequently entered an award for Ms. Rotolante and against Mr. Grant on several of her claims, awarding $49,000 in compensatory damages, together with interest, attorney's fees and part of the filing fee.

Ms. Rotolante subsequently petitioned the trial court to confirm the FINRA arbitration award and enter judgment. In response, Mr. Grant sought to remove the case to the federal district court pursuant to 28 U.S.C. § 1441. The district court sent the case back to the state court for lack of subject matter jurisdiction. See Grant v. Rotolante, No. 6:13–cv–168–Orl–TBS, slip op. at 9–17, 2013 WL 2155076 (M.D.Fla. May 17, 2013). Back in state court, Mr. Grant challenged the arbitration award, arguing that Ms. Rotolante's claims against him were not arbitrable. The court disagreed and confirmed the FINRA arbitration award. On appeal, Mr. Grant asserts that he was not required to arbitrate Ms. Rotolante's claim. He argues that the panel did not have jurisdiction to conclusively decide the arbitrability of this matter and that Ms. Rotolante was not his “customer,” a prerequisite for invoking arbitration under the FINRA Rules.

1. Arbitrability

The arbitrability of the merits and the question of who decides arbitrability depend on the agreement of the parties. See First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 943, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). “But, unlike the arbitrability of claims in general, whether the court or the arbitrator decides arbitrability is an issue for judicial determination unless the parties clearly and unmistakably provide otherwise. ” Oracle Am., Inc. v. Myriad Grp. A.G., 724 F.3d 1069, 1072 (9th Cir.2013) (internal quotation marks and citations omitted). Thus, “there is a presumption that courts will decide which issues are arbitrable.” Id. The mere fact that Mr. Grant is a FINRA member does not provide “clear and unmistakable” evidence that he consented to FINRA determination on the issue of arbitrability. As there was no evidence that Mr. Grant intended the panel would determine the issue of arbitrability, the presumption that the court will decide which issues are arbitrable remains unrebutted. See Goldman, Sachs & Co. v. City of Reno, 747 F.3d 733, 738–39 (9th Cir.2014). Accordingly, the court must determine whether this particular dispute is arbitrable. As the resolution of arbitrability turns only on questions of law, our review is de novo. See, e.g., First Options, 514 U.S. at 947–48, 115 S.Ct. 1920 ; Coady v. Ashcraft & Gerel, 223 F.3d 1, 10 (1st Cir.2000) ; SCG Harbourwood, LLC v. Hanyan, 93 So.3d 1197, 1199 (Fla. 2d DCA 2012) ; Fla. Envtl. Servs., Inc. v. Rentoumis, 950 So.2d 466, 470 (Fla. 4th DCA 2007).

In determining whether Ms. Rotolante's claim is arbitrable, the Federal Arbitration Act (“FAA”), not the Florida Arbitration Code (“FAC”), applies. The FAA, 9 U.S.C. §§ 1 to 16, creates a body of federal substantive law that is applicable in both state and federal courts. See Allied–Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995). It provides concurrent jurisdiction to state courts to enforce arbitration agreements with a federal forum available only when diversity or federal question jurisdiction is otherwise established. See 9 U.S.C. § 4 ; Vaden v. Discover Bank, 556 U.S. 49, 59, 129 S.Ct. 1262, 173 L.Ed.2d 206 (2009) (reiterating that FAA does not bestow federal jurisdiction but requires independent jurisdictional basis for access to federal forum). However, under the Supremacy Clause of the United States Constitution, the FAA supersedes inconsistent provisions of state law and state courts must enforce the FAA when it applies. See, e.g., id. ; Della Penna v. Zabawa, 931 So.2d 155, 160 n. 3 (Fla. 5th DCA 2006).

“The FAA applies to any contract ‘affecting’ interstate commerce.” Klay v. All Defendants, 389 F.3d 1191, 1200 n. 9 (11th Cir.2004) (quoting Dobson, 513 U.S. at 273–74, 115 S.Ct. 834 ). Here, this matter involves securities, which plainly implicates interstate commerce, and thus, the FAA, not the FAC, applies. See Qubty v. Nagda, 817 So.2d 952, 956 (Fla. 5th DCA 2002) (“Brokerage contracts concerning the sale of securities have been consistently treated as contracts involving interstate commerce.”). Even if the FAC applied, in cases involving interstate commerce, the FAC would apply only to the extent that it is not in conflict with the FAA.See, e.g., Shotts v. OP Winter Haven, Inc., 86 So.3d 456, 463–64 (Fla.2011) ; Qubty, 817 So.2d at 955–56.

Under the FAA, in determining the threshold issue of arbitrability, courts consider whether the party opposing confirmation objected throughout the arbitration proceeding. See, e.g., Czarina, L.L.C. v. W.F. Poe Syndicate, 358 F.3d 1286, 1294 (11th Cir.2004) ; Avis Rent A Car Sys. v. Garage Emps. Union, 791 F.2d 22, 26 (2d Cir.1986). In Kaplan v. First Options of Chicago, Inc., 19 F.3d 1503, 1510 (3d Cir.1994), the Third Circuit held that “where a party objects to arbitrability but nevertheless voluntarily participates in the arbitration proceedings, waiver of the challenge to arbitral jurisdiction will not be inferred.” In that case, after the arbitrator rejected the plaintiffs' objection to arbitration, they participated in the arbitration on the merits and lost. In affirming, the United States Supreme Court concluded that since the plaintiffs had “forcefully object [ed] to the arbitrators deciding their dispute,” they had not clearly agreed to submit the issue of arbitrability to arbitration. First Options, 514 U.S. at 946, 115 S.Ct. 1920 ; see also China Minmetals Materials Imp. & Exp. Co. v. Chi Mei Corp., 334 F.3d 274, 291–92 (3d Cir.2003) (holding that although party participated in arbitration, even presenting argument on merits, it had not waived its objection to arbitrator's jurisdiction because it consistently objected to arbitrator's jurisdiction throughout proceedings”); Eleanor L. Grossman, Annotation, Participation in Arbitration Proceedings as Waiver of Objections to Arbitrability Under State Law, 56 A.L.R.5th 757 (1998) (collecting cases in which courts have discussed whether, or under what circumstances, party's participation in arbitration proceeding may result in waiver of that party's right subsequently to raise arbitrability issue).

In the instant case, Ms. Rotolante contends that Mr. Grant waived his objections to arbitration. However, at the outset of the arbitration hearing, and throughout the four-day arbitration hearing, Mr. Grant objected to the panel's jurisdiction. Therefore, while Mr. Grant had other options to challenge the panel's authority, he did not waive his objection to the panel's jurisdiction under the FAA. See, e.g., Local 36 Sheet Metal Workers' Int'l Ass'n v. Whitney, 670 F.3d 865, 868 (...