Kloss v. Edward D. Jones & Co.

• Citation: 310 Mont. 123,54 P.3d 1,2002 MT 129
• Decision Date: 13 June 2002
• Docket Number: No. 00-507.,00-507.
• Court: United States State Supreme Court of Montana
• Parties: Alice P. KLOSS, Plaintiff and Appellant, v. EDWARD D. JONES & CO., a limited partnership, and Paul Husted, Defendants and Respondents.

54 P.3d 1

2002 MT 129

310 Mont. 123

Alice P. KLOSS, Plaintiff and Appellant, v. EDWARD D. JONES & CO., a limited partnership, and Paul Husted, Defendants and Respondents.

No. 00-507.

Supreme Court of Montana.

Submitted on Briefs October 11, 2001.

Decided June 13, 2002.

As Modified on Rehearing in Part September 25, 2002.

For Appellant: Joseph C. Engel, III, P.C., Attorney at Law, Great Falls, Montana.

For Respondents: Robert F. James, Ugrin, Alexander, Zadick & Higgins, Great Falls, Montana.

For Amicus (Montana Trial Lawyers Association): Paul J. Petit, Petit and Schultz, PLLP, Dane J. Durham, Missoula, Montana.

Justice TERRY N. TRIEWEILER delivered the Opinion of the Court.

¶ 1 The Appellant, Alice P. Kloss, opened financial services accounts with the Defendants, Edward D. Jones & Co. and Paul Husted, in 1992 and 1998. The agreement between Kloss and Jones contained pre-dispute arbitration clauses. After Kloss filed a complaint in the District Court for the Eighth Judicial District in Cascade County in which she sought damages caused by Husted's wrongful conduct, Jones filed a Motion to Compel Arbitration. The District Court granted the motion and Kloss appealed. While the appeal was pending, Jones located Kloss' 1998 brokerage agreement which was at issue in the District Court. This Court remanded this matter to the District Court for supplemental findings of fact and conclusions of law based on the 1998 account agreement. Following an evidentiary hearing, the District Court granted Jones' Motion to Compel Arbitration. Kloss now appeals from the order compelling arbitration. We reverse the order of the District Court.

¶ 2 Of the issues presented on appeal, we find the following to be dispositive:

¶ 3 1. Did the District Court err when it concluded that the arbitration clauses contained in the 1992 and 1998 Full Service Agreements were enforceable?

¶ 4 2. Did the District Court err when it failed to consider whether Defendants owed Kloss a fiduciary duty to explain the arbitration agreement?

¶ 5 3. Did the District Court err when it denied Kloss' motion for attorney's fees and costs?

FACTUAL BACKGROUND

¶ 6 The Appellant, Alice P. Kloss, is a 95 year old widow who was referred to Defendant Paul Husted in 1985. Husted has been employed by Defendant Edward D. Jones & Co. in Great Falls, Montana, as a stockbroker since 1981. Kloss opened a full service brokerage account with Jones on July 30, 1989, which permitted her to purchase securities and maintain a money market account. ¶ 7 Kloss established a living trust account with Jones in April of 1992. Like the 1989 account, the living trust account agreement contained a mandatory arbitration provision which required that "[a]ny controversy arising out of or relating to any of my accounts or transactions with you, your officers, directors, agents and or/employees ... shall be settled by arbitration...."

¶ 8 In early 1998, Kloss went to Husted's office to discuss investment options for a bond that had matured and Husted informed her that she had quite a bit of money and should set up a charitable trust with her bond proceeds. Husted then arranged for Kloss to meet with an attorney, who drafted the documents which created an irrevocable charitable trust.

¶ 9 On May 28, 1998, Kloss activated the charitable trust account by executing a Customer Account Agreement for Full Service and Customer Loan Accounts (hereinafter 1998 Agreement). The 1998 Agreement also contained a pre-dispute arbitration clause but was not signed by Kloss. Rather, Kloss signed a detachable signature card that acknowledged she received a copy of the 1998 Agreement and incorporated the Agreement's arbitration clause by reference:

The Full Service Account and the Customer Loan Account Agreements contain a pre-dispute arbitration clause that is incorporated by reference from the general account provisions on pages 1 and 2. By my signature below, I acknowledge that I have received a copy of this document.

The agreements themselves included the following explanations of rights waived by submission of disputes to arbitration:

The 1992 "Customer Account Agreements for Full Service and Customer Loan Accounts General Account Provisions" contains a section as follows:

ARBITRATION

1. Arbitration is final and binding on the parties.

2. The parties are waiving their right to seek remedies in court, including the right to jury trial.

3. Pre-arbitration discovery is generally more limited than and different from court proceedings.

4. The arbitrators' awards is not required to include factual findings or legal reasoning, and any party's right to appeal or to seek modification of rulings by the arbitrators is strictly limited.

5. The panel of arbitrators will typically include a minority of arbitrators who were or are affiliated with the securities industry.

¶ 10 After the charitable trust was executed, Husted selected and sold assets from Kloss' living trust to fund the charitable trust. The assets sold for approximately $352,000.00, which Husted deposited into a charitable remainder trust in the name of Alice P. Kloss.

¶ 11 In July 1998, Kloss began to have second thoughts about the charitable trust. She contacted her nephew and requested that he come to Montana, where she gave him power of attorney and decided to revoke the charitable trust. She then obtained counsel and filed a petition to revoke the charitable trust. After a hearing, Judge Kenneth Neill granted her petition.

¶ 12 Kloss then filed this complaint in the District Court for the Eighth Judicial District in Cascade County on December 28, 1998. Kloss alleged that Jones violated Montana statutes regarding the sale of securities, was negligent, committed unfair and deceptive business practices, breached its fiduciary obligations, and committed fraud. Kloss sought attorney fees, costs, expenses, and taxes incurred from the creation and revocation of the charitable trust. Jones filed a Motion to Compel Arbitration and Stay Proceedings on February 17, 1999. Evidentiary hearings were held on October 27, 1999, and February 1, 2000.

¶ 13 On June 12, 2000, the Honorable Marge Johnson entered an Order granting Jones' Motion to Compel Arbitration and Stay Proceedings, in spite of her finding that Kloss had not been provided with a copy of the 1992 Agreement. The 1998 Agreement was not discussed in Judge Johnson's decision. ¶ 14 On July 6, 2000, Kloss appealed to the Montana Supreme Court and filed her initial brief. During the course of the appeal, however, Jones located the detached signature card that acknowledged Kloss' receipt of the 1998 Agreement. Jones requested that the appeal be stayed so that the District Court could make supplemental findings of fact and conclusions of law based on the 1998 Agreement rather than the 1992 Agreement which was the subject of Judge Johnson's Order.

¶ 15 On January 9, 2001, we remanded this case to the District Court for supplemental findings of fact and conclusions of law based on the 1998 Agreement. We additionally remanded Kloss' Motion for Attorney's Fees and Costs.

¶ 16 The District Court, the Honorable Julie Macek presiding, held an evidentiary hearing on March 20, 2001. On March 26, 2001, the District Court issued an order which granted the Defendant's Motion to Stay Proceedings and Compel Arbitration. On May 7, 2001, the District Court issued an order denying Kloss' Motion for Attorney's Fees and Costs. Kloss now appeals from these orders. We affirm in part and reverse in part the orders of the District Court.

DISCUSSION

ISSUE 1

¶ 17 Did the District Court err when it concluded that the arbitration clauses contained in the 1992 and 1998 Full Service Agreements were enforceable?

¶ 18 Both district judges concluded, based on slightly different reasoning, that the identical arbitration clauses found in the 1992 and 1998 contracts were binding and should be enforced. Before we can review the correctness of those conclusions, it is necessary to set forth the findings made by each district judge. Those findings are not challenged on appeal and are, therefore, assumed to be the determinative facts on which our opinion is based. Judge Johnson made the following relevant findings:

7. The Full Service Agreement was drafted by Edward Jones, and printed on an Edward Jones form. The document at issue is a form dated 12/91.

8. Clients do not have any input on the contents of the agreement. It is presented to them as is for their signature and they must sign the agreement as is if they wish to open an account with the Defendants.

9. While there are certainly other investment brokers in Great Falls, no evidence was presented which would lead me to believe Mrs. Kloss had any meaningful choice in accepting or rejecting an arbitration provision of such a contract or that other stockbrokers offered contracts at that time for similar accounts which did not contain an arbitration provision. I have no reason to believe that was not a fairly standard practice at that time, and that she had no meaningful choice regarding acceptance of the agreement if she wished to open an investment account, which is what I do believe and find as a fact.

10. The arbitration provision is a unilateral provision of the brokerage houses contained in a contract presented to clients as is with no meaningful opportunity to negotiate its presence in the contract.... It is reasonable to assume that such contracts commonly contain such a provision today, regardless of the brokerage house with which a client is dealing.

....

12. Mrs. Kloss liked and trusted Mr. Husted and expected that he would explain to her anything she needed to know that was significant.

13. She did have an opportunity to read the agreement before she signed it, and was capable of doing so, but did not do so, relying instead upon Mr. Husted to advise her of the significant features of the agreement.

14. Mr. Husted, in opening accounts, such as that which Mrs.

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