Jones v. Merrill Lynch, Pierce, Fenner & Smith, Inc.
| Decision Date | 19 April 1991 |
| Citation | 604 So.2d 332 |
| Parties | Mary E. JONES v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., and J. Edward Porter. 89-1574. |
| Court | Alabama Supreme Court |
Alton B. Parker, Jr. and Maston E. Martin, Jr. of Spain, Gillon, Grooms, Blan & Nettles, Birmingham, for appellant.
A. Inge Selden III, Walker Percy Badham III and Mark Strength of Maynard, Cooper, Frierson & Gale, Birmingham, for appellees.
Mary Jones appeals from a judgment dismissing her suit for failure to comply with an order to arbitrate her claims against Merrill Lynch, Pierce, Fenner & Smith, Inc. ("Merrill Lynch"), and J. Edward Porter. We affirm conditionally.
On August 12, 1982, Mrs. Jones opened account number 524-85812 with Merrill Lynch for the investment and management of proceeds from the settlement of a wrongful death action and an insurance policy on the life of her deceased husband. In doing so, she signed a "Customer Account Agreement" ("Agreement"), a copy of which she received by mail with blank spaces for her signature, each of which was marked with an "X." The Agreement contained the following pertinent language:
It is agreed that any controversy between us arising out of your business or this agreement shall be submitted to arbitration conducted under the provisions of the Constitution and Rules of the Board of Governors of the New York Stock Exchange, Inc. or pursuant to the Code of Arbitration Procedure of the National Association of Securities Dealers, Inc. as the undersigned may elect.
(Emphasis added). By May 1983, the plaintiff had deposited with Merrill Lynch a total of $350,000. In March 1984, Merrill Lynch also opened in her name, allegedly without her consent, another account, account number 524-96284.
On November 4, 1988, she sued Merrill Lynch and Mr. Porter, its representative, alleging that improper activities of the defendants had resulted in a loss of over half of her $350,000 investment. More specifically, the plaintiff contended that "beginning on or about September 29, 1983, and continuing until on or about July 27, 1988, [the defendants] wrongfully, intentionally, fraudulently, maliciously, and deceptively manipulated ... and 'churned' " her accounts. Count one of her seven-count complaint alleged excessive trading of securities, which, she contended, amounted to a violation of Ala.Code 1975, § 8-6-17. 1 Count two alleged fraudulent conversion of securities from a cash account to a "margin" account, in violation of § 8-6-17. Count three alleged breach of fiduciary duty. Count four alleged conversion of the $350,000 investment to the use of the defendants. Counts five through seven alleged, respectively, knowing, reckless, and innocent misrepresentation of material facts regarding the $350,000 investment.
On December 6, 1988, the defendants filed a "Motion to Compel Arbitration and for Stay Pending Arbitration" of the dispute pursuant to Clause 11 of the Agreement. On March 3, 1989, the plaintiff filed an amended and restated complaint that contained the same counts as alleged in her original complaint. On April 10, 1989, the Honorable Stuart Leach, Jefferson County Circuit Court judge, conducted a pretrial hearing to consider various motions, including the defendants' motion to compel arbitration. After considering affidavits, briefs, and "heated argument from counsel for both parties," the trial judge, on June 16, 1989, granted the defendants' motion to compel arbitration.
On June 21, 1989, following the trial court's denial of a motion for "reconsideration," the plaintiff filed a motion requesting the trial court to provide a statement, pursuant to Rule 5, A.R.App.P., that would allow her to seek to appeal from the order compelling arbitration. The judge, on June 29, 1989, granted her motion, provided the statement required by Rule 5, and certified a number of questions to this Court for immediate appeal. On July 11, 1989, we denied the plaintiff's petition for permission to appeal the interlocutory order compelling arbitration.
On August 28, 1989, the plaintiff filed a motion to set aside the order compelling arbitration. On September 22, 1989, the judge heard arguments on that motion; on September 28, 1989, the court denied the motion, but expressly retained jurisdiction of the case pending a decision by the arbitration board to take jurisdiction.
On November 3, 1989, the plaintiff submitted a statement of claims to the National Association of Securities Dealers, Inc. ("NASD"). However, she refused to sign the "NASD Uniform Submission Agreement," requisite to submitting her claims to arbitration, because, she argues, "by execution of the agreement she would consent to arbitrate her claims against Merrill Lynch and would thereby waive any objection [that] she might have to the validity, enforceability and revocability" of Clause 11 of the Agreement. 2 Consequently, on January 25, 1990, the NASD notified her that it was "closing the case."
On March 14, 1990, Merrill Lynch filed a "Motion to Dismiss for Failure to Comply with Court Orders and for Want of Prosecution." The plaintiff, on March 28, 1990, responded by filing a second amended complaint, containing an eighth count, in which she sought to reform the Agreement pursuant to Ala.Code 1975, § 8-1-2, by the deletion of Clause 11. 3
With her second amended complaint, the plaintiff also filed a motion to stay arbitration, supported by a supplemental brief and various affidavits. On April 5, 1990, the trial judge conducted a hearing on all motions, including the "Motion to Dismiss for Failure to Comply with Court Orders and for Want of Prosecution." On June 19, 1990, the judge entered the following order:
On appeal, the plaintiff contends that the Agreement must be reformed to eliminate Clause 11 because (1) the agreement was procured by fraud; (2) there was no mutual assent to the agreement to arbitrate; (3) no agreement was made to arbitrate any disagreements involving account number 524-96284; (4) the agreement is unconscionable; and (5) the agreement constitutes an impermissible waiver of the right to a jury trial provided under Alabama law. In addition, she insists that the arbitration request is time-barred.
The plaintiff first insists that state law controls the disposition of this case. In particular, she contends that the defendants waived any federally created rights arising under the Federal Arbitration Act, 9 U.S.C. §§ 1-15 (1982) ("FAA"), as a result of Mr. Porter's execution of "Form U-4," the "Uniform Application for Securities Industry Registration or Transfer," in which he agreed to "abide by, comply with, and adhere to all the provisions, conditions and covenants of the statutes, constitutions, ... and rules and regulations" of Alabama in consideration for registration by this state as a representative of Merrill Lynch. Consequently, she insists, the defendants "agreed to be bound by the law of Alabama."
Her reliance on Volt Information Sciences, Inc. v. Board of Trustees of Stanford Junior University, 489 U.S. 468, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989), as support for this argument is misplaced. The contract involved in Volt Information Sciences contained a choice of law clause providing for the application of California law in the event of a dispute. That case merely held that where a contract contained a choice of law clause, specifically providing for the application of California law in the event of a dispute, California's statute providing for a stay of arbitration "pending resolution of related litigation" was not preempted by the FAA. Id. at 471, 477, 109 S.Ct. at 1251, 1255. The Court concluded that the parties had not waived their federally created rights because their "agreement did not require arbitration to proceed in [that] situation." Id. at 475, 109 S.Ct. at 1253 (emphasis added).
Not only does the Agreement at issue in this case contain no clause providing for the application of Alabama law, but the practical and unacceptable result of the plaintiff's argument would be to render the FAA inoperative in all similar disputes within this state. Moreover, it is well settled that the FAA applies to cases, such as this one, in which transactions in securities are involved. Ex parte Merrill Lynch, Pierce, Fenner & Smith, 494 So.2d 1, 2 n. 1 (Ala.1986). We are thus constrained to apply federal law insofar as the FAA has circumscribed the sphere of operation of state law. See Southland Corp. v. Keating, 465 U.S. 1, 16, 104 S.Ct. 852, 861, 79 L.Ed.2d 1 (1984); Ex parte Alabama Oxygen Co., 433 So.2d 1158, 1168 (Ala.1983), (Maddox, J., dissenting), vacated, 452 So.2d 860 (Ala.1984) (adopting dissenting opinion of Maddox, J., as opinion of the Court).
The FAA, in pertinent part, provides:
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