Hillow v. E*Trade Sec.
| Decision Date | 20 April 2022 |
| Docket Number | 4:22-CV-145-JAR |
| Parties | REGIS HILLOW and the REGIS HILLOW LIVING TRUST, Plaintiffs, v. E*TRADE SECURITIES, LLC, Defendant. |
| Court | U.S. District Court — Eastern District of Missouri |
This matter is before the Court on E*Trade Securities, LLC's (“E*Trade”) Motion to Stay Proceedings and Compel Arbitration. (Doc. 9). The motion is fully briefed and ready for disposition. For the reasons discussed below, the motion will be granted.
On August 20, 2021, Plaintiffs Regis Hillow (“Hillow”) and the Regis Hillow Living Trust (the “Trust”) filed an action against E*Trade in Missouri state court. (Doc. 1 at ¶ 1). E*Trade timely removed the action to this Court on February 7, 2022 because Plaintiffs' Petition raised a federal question under the Securities Exchange Act. (Id. at ¶¶ 9-18). E*Trade now seeks to compel arbitration of Plaintiffs' claims pursuant to the parties' contractual agreements and the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq. (“FAA”).
Hillow is a retired businessman and sophisticated securities trader who has traded at high volumes for approximately 15 years. E*Trade is a Financial Industry Regulatory Authority (“FINRA”) registered online broker-dealer. Plaintiffs began trading on E*Trade's securities trading platform (the “Platform”) in early 2018. Plaintiffs indicate that the account at issue held over $3 million in March 2021, could trade on far more than this amount through margin lending, and the volume of account trading regularly exceeds $100 million per year. (Doc. 4 at ¶¶ 5-6).
Plaintiffs claim that the Platform failed to accurately reflect the “cost basis” of Plaintiffs' positions because the Platform did not properly incorporate “wash sale” data. It is unnecessary at this juncture of the case to delve further into Plaintiffs' arguments regarding alleged inaccuracies on the Platform. Plaintiffs bring claims for Fraudulent Misrepresentation (Count I) Negligent Misrepresentation (Count II), Fraud (Count III), Securities Fraud and Violation of 15 U.S.C. § 78j (Count IV), and Negligence (Count V). Plaintiffs seek directly attributable damages of at least $3.5 million and market adjusted damages of over $15 million due to trading on inaccurate cost basis information. E*Trade now seeks to compel arbitration on the grounds that Hillow and the Trust consented to binding arbitration upon opening the relevant account. (Docs. 9-10).
Hillow is a Trustee for the Trust and “able to act on its behalf, ” though there may be additional Trustees. (Doc. 15 at 11, ¶ 6). In December 2017, Hillow opened two brokerage accounts with E*Trade, one of which was closed just days later (the “Closed Account”). (Id. at ¶ 2). Hillow contends that the other brokerage account, ending in *7009 (the “Account”), was an individual account opened in his personal name and listing his Social Security Number. (Id. at ¶ 3). Shortly after opening the Account, Hillow contacted his E*Trade representative and changed the Account's name from his own to “Regis Hillow Living Trust UAD 01/29/98.” (Id. at ¶ 4). Despite this change, Hillow insists that he acted in a strictly personal capacity and did not execute an E*Trade Account Application in his role as Trustee of the Trust. (Id. at ¶ 8).
E*Trade has offered a Declaration by Erik Renga, its Executive Director of Operations. (Doc. 10-1). Renga's Declaration provides that Hillow opened an account for the Trust on December 12, 2017 and submitted an Account Application in connection with the opening.
(Id. at ¶ 7). It appears clear that Hillow selected “Trust” when asked to identify the “[t]ype of account” in the Account Application. (Id. at 5). When individuals submitted an Account Application with E*Trade at this time, they were also required to accept the E*Trade Customer Agreement (the “Agreement”), which E*Trade made available for review via hyperlink. (Id. at ¶ 15). In submitting the Account Application, Hillow was required to “acknowledge that I have received, read, and agree to be bound by the terms and conditions as currently set forth in the [Agreement].” (Id. at 6). This page also included the following language in all capital letters: “I UNDERSTAND THAT THIS ACCOUNT IS GOVERNED BY THE PREDISPUTE ARBITRATION CLAUSE IN SECTION 12 OF THE E*TRADE CUSTOMER AGREEMENT.” (Id.). It appears that the term “E*TRADE CUSTOMER AGREEMENT” is hyperlinked to the Agreement.[1]
At the time Hillow completed the Account Application, the Agreement contained § 12 titled “Arbitration Agreement and Disclosures.” (Id. at 25). This section of the Agreement included the following bolded language (hereinafter the “Arbitration Agreement”):
The Account Holder agrees to resolve by binding arbitration any controversy that may arise between E*TRADE and the Account Holder relating in any way to the Account Holder's relationship with E*TRADE, any Account held with E*TRADE, or any service provided by E*TRADE to the Account Holder. This arbitration agreement includes any controversy involving transactions of any kind made on the Account Holder's behalf by or through E*TRADE, or the performance, construction, or breach of this Customer Agreement or any other written agreement between E*TRADE and the Account Holder. Such arbitration will be conducted in accordance with the rules then in effect of FINRA unless the rules of another self-regulatory organization to which E*TRADE is subject mandate arbitration before that organization ....The Account Holder makes this arbitration agreement on behalf of itself and the Account Holder's heirs, administrators, representatives, executors, successors, assigns and together with all other persons claiming a legal or beneficial interest in the Account.
E*Trade has further supplemented the record with a Declaration by Joseph Kusmisz, a Financial Consultant who communicated with Hillow during the account opening process. (Doc. 19). According to Kusmisz, Hillow called E*Trade on December 7, 2017 and asked to delete the Closed Account which Hillow had then just opened. (Id. at ¶ 6). Kusmisz informed Hillow he would need to print, complete, and sign a Trust Account Application in order to open the Account. (Id.). Hillow proceeded to fax E*Trade a 12-page document entitled “Trust or Conservatorship Account Application, ” a copy of which E*Trade has provided (the “Trust Application”). (Id. at 314).
In the Trust Application, Hillow again chose “Trust” as the Account Type, listed himself as the Trustee, and authorized that he had “express legal authority to open, maintain, and transact business in the following types of accounts, each of which is governed by the E*TRADE Securities Customer Agreement.” (Id. at 4). The Trust Application includes the following language appearing exactly as stated herein: (Id. at 10). The Trust Application includes virtually identical language two other times, including at the very bottom just before Hillow's signature. (Id. at 11, 14). The Court will generally refer to this language in the Trust Application and the similar notice included in the Account Application and Agreement as the “Arbitration Notices.” Finally, Hillow expressly certified under penalty of perjury that “[t]here are no other Trustees of the Trust” other than himself and he had “the power under the Trust Agreement to enter into transactions for the purchase and sale of securities and other investments.” (Id. at 12).
Plaintiffs have not offered any specific objections to the validity of these key documents, and Hillow admits that he is “able to act on [the Trust's] behalf.” (Doc. 15 at 11, ¶ 6).[2] Hillow further acknowledges that he contacted Lusmisz to change the account from being in his name to that of the Trust. (Id. at ¶ 4). But Hillow has since made two sworn Declarations which appear to squarely contradict the documents submitted by E*Trade. First, Hillow now states that while he can act on the Trust's behalf, there are additional Trustees. (Id. at ¶ 6). Second, Hillow's Declaration includes the following assertion: “At no time did I execute an E*Trade Account Application in my capacity as a Trustee of the ‘Regis Hillow Living Trust.'” (Id. at ¶ 8). In analyzing the parties' legal arguments, the Court will consider whether these inconsistencies establish genuine disputes of material fact.
“Arbitration is a matter of contract, meaning that disputes are arbitrable only to the extent an agreement between the parties says so.” Foster v. Walmart, Inc., 15 F.4th 860, 862 (8th Cir. 2021) (citations omitted). The FAA “reflects a liberal federal policy favoring arbitration.” Torres v. Simpatico, Inc., 781 F.3d 963, 968 (8th Cir. 2015) (quoting AT&T Mobility, LLC v. Concepcion, 563 U.S. 333, 339 (2011)). Neither party disputes that the agreements at issue in this litigation are governed by the FAA, except to the extent Plaintiffs argue that FINRA's rules control. When ruling on a motion to compel arbitration, this Court limits its analysis to “1) whether the agreement for arbitration was validly made and 2) whether the arbitration agreement applies to the dispute at hand, i.e., whether the dispute falls within the scope of the arbitration agreement.” MedCam, Inc. v. MCNC, 414 F.3d 972, 974 (8th Cir. 2005) (emphasis in original). Considering the strong policy favoring arbitration, doubts are resolved in favor of arbitration. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 638-39 (1985).
The FAA does not expressly...
To continue reading
Request your trial