Levine v. Advest, Inc.

• Decision Date: 26 May 1998
• Docket Number: No. 15586,15586
• Citation: 244 Conn. 732,714 A.2d 649
• Court: Connecticut Supreme Court
• Parties: , 128 Ed. Law Rep. 1085 Gabriel LEVINE et al. v. ADVEST, INC.

Page 649

714 A.2d 649

244 Conn. 732, 128 Ed. Law Rep. 1085

Gabriel LEVINE et al. v. ADVEST, INC.

No. 15586.

Supreme Court of Connecticut.

Argued Jan. 22, 1998.

Decided May 26, 1998.

Thomas P. Willcutts, with whom was John J. Pavano, Hartford, for appellants (plaintiffs).

Dean M. Cordiano, with whom was Lauren R. Greenspoon, Hartford, for appellee (defendant).

Before CALLAHAN, C.J., and BORDEN, NORCOTT, KATZ and PALMER, JJ.

CALLAHAN, Chief Justice.

The principal issue in this appeal is whether the parties' contracts provide that disputes regarding timeliness of claims arising under the contracts are to be resolved by arbitrators in accordance with the rules of the arbitrating body, or by a court of competent jurisdiction in accordance with the relevant statutes of limitation. The plaintiffs ¹ brought this action in the Superior Court pursuant to General Statutes § 52-410 ² seeking an order directing the defendant, Advest, Inc., to proceed with the arbitration of the plaintiffs' claims regarding six investment accounts that were maintained with the defendant. The plaintiffs moved for summary judgment maintaining that the arbitration clauses contained in the contracts that governed the six investment accounts entitled them to such an order as a matter of law. The defendant, in turn, moved for partial summary judgment claiming that all but one of the plaintiffs' claims were not arbitrable because they were time barred by statutes of limitation. The trial court denied the plaintiffs' motion for summary judgment and granted partial summary judgment in favor of the defendant. The plaintiffs appealed from the judgment of the trial court to the Appellate Court claiming that the trial court had ruled improperly on the summary judgment motions. We transferred the appeal to ourselves pursuant to Practice Book § 4023, now Practice Book (1998 Rev.) § 65-1, and General Statutes § 51-199(c). We reverse both of the trial court's rulings on the parties' motions for summary judgment.

By way of background, in September, 1986, the named plaintiff, Gabriel Levine, opened a personal investment account with the defendant and also made arrangements to open investment accounts for Gale Investments, a Connecticut partnership of which he was a member, and the Yeshiva University-Levine Trust, a charitable trust that had been established for the purpose of providing unrestricted funds to Yeshiva University. Anna V. Levine, Gabriel Levine's wife, subsequently opened a personal account and, together with her husband, established a joint account with the defendant. In May, 1987, Gabriel Levine opened an account for the Yeshiva University-Gabriel and Anna V. Levine Scholarship Fund, a fund that had been established in 1979 for the purpose of providing Yeshiva University with funds to be used solely to enable "needy and deserving young men and women to obtain [a] Torah education...." We refer herein to those six investment accounts collectively as the Advest accounts.

Written contracts governed each of the Advest accounts. Gabriel Levine executed the contracts related to his personal account, the Gabriel Levine and Anna V. Levine joint account, the Gale Investments account and the Yeshiva University-Gabriel and Anna V. Levine Scholarship Fund account. Anna V. Levine signed the contracts that governed her personal account and the Gabriel Levine and Anna V. Levine joint account. Robert E. Berman, trustee of the Yeshiva University-Levine Trust, executed the contracts related to the Yeshiva University-Levine Trust account.

All of the contracts that governed the Advest accounts contain identical arbitration and choice of law clauses. The arbitration clauses provide in relevant part that "[i]t is understood that the following agreement to arbitrate does not constitute a waiver of the right to seek a judicial forum where such a waiver [of the right to seek a judicial forum] would be void under the federal securities laws. The [parties agree] ... that except as inconsistent with the foregoing sentence, all controversies which may arise ... concerning any transaction or the construction, performance or breach of this ... agreement ... shall be determined by arbitration in accordance with the rules then prevailing of the Arbitration Committee of the National Association of Securities Dealers, Inc., the American Arbitration Association, the Board of Arbitration of the New York Stock Exchange or the Board of Arbitration of the American Stock Exchange...." (Emphasis added.) The choice of law clauses provide in relevant part that "[t]his [a]greement and its enforcement shall be governed by the laws of the State of New York." The arbitration and choice of law clauses are the only provisions of the parties' contracts that are relevant to this appeal. Within this opinion we refer to the arbitration clauses and the choice of law clauses collectively as the parties' agreement.

On September 22, 1987, the plaintiffs executed the documents necessary to transfer the assets held in the Advest accounts to accounts that the plaintiffs had established with PaineWebber, Inc. (PaineWebber). ³ The assets were transferred from Advest to PaineWebber in early October, 1987. The plaintiffs assert that at the time of the transfer, the Advest accounts contained cash and fully paid securities with a combined value of more than $30,000,000, as well as stock option contracts exposing the accounts to liabilities in excess of $100,000,000.

In mid October, 1987, after the transfer but before any significant trading activity had taken place in the accounts that had been transferred to PaineWebber, the stock market fell 769 points. The precipitous market decline caused margin calls ⁴ to take place in the accounts that had been transferred to PaineWebber. Because the plaintiffs were unable to meet the resulting demands for cash, their accounts' assets were liquidated by PaineWebber. The plaintiffs allege that due to the stock option contracts, four of the six accounts that had been transferred to PaineWebber sustained not only 100 percent losses, but also a combined deficit of more than $4,000,000, and that the two remaining accounts declined in value to only $150,000.

On September 21, 1993, the plaintiffs brought suit in the Superior Court alleging that the Advest accounts had been mishandled by the defendant and its former employee, Charles Badain. See Levine v. Advest, Superior Court, judicial district of Hartford-New Britain at Hartford, Docket No. CV-93-0529887-S, 1994 WL 411228. ⁵ Specifically, the plaintiffs asserted claims against the defendant for breach of contract, breach of fiduciary duty, breach of the duty of good faith and fair dealing, fraudulent misrepresentation, fraudulent nondisclosure of material facts, negligence and breach of professional standards of conduct. On the basis of those same claims, the plaintiffs simultaneously initiated arbitration proceedings against the defendant before the Board of Arbitration of the New York Stock Exchange.

Citing the Federal Arbitration Act (arbitration act); see 9 U.S.C. §§ 1 through 16; and General Statutes §§ 52-409 ⁶ and 52-410, ⁷ the plaintiffs subsequently filed a motion in the trial court for a stay of the court proceedings they had initiated and an order directing the defendant to proceed with arbitration before the Board of Arbitration of the New York Stock Exchange. The defendant objected to the plaintiffs' motion to stay the court proceedings and to compel arbitration. After briefing and oral argument, the trial court found that in the six years immediately prior to the initiation of arbitration proceedings, only one transaction had occurred in the Advest accounts. Citing rule 603 of the New York Stock Exchange, which provides in relevant part that "[n]o dispute ... shall be eligible for submission to arbitration under this Code where six (6) years shall have elapsed from the occurrence or event giving rise to the act or the dispute, claim or controversy," the trial court concluded that the plaintiffs were not eligible, under the rules of the Board of Arbitration of the New York Stock Exchange, to bring arbitration proceedings before that body regarding any transaction other than the one transaction that had occurred in the six years immediately prior to the initiation of arbitration proceedings in September, 1993. Except as to that one transaction, the court consequently denied the plaintiffs' motion to stay court proceedings and compel arbitration.

Subsequent to the trial court's denial of the plaintiffs' motion to stay court proceedings and to compel arbitration, the plaintiffs became aware that their motion to compel arbitration might have been procedurally defective because even if a party seeking to compel arbitration has filed a motion, pursuant to § 52-409, to stay legal proceedings in the court in which such proceedings are pending, § 52-410 arguably requires the party to institute an entirely distinct legal action, by separate writ of summons and complaint, in order to obtain an order directing the opposing party to proceed with arbitration. See Success Centers, Inc. v. Huntington Learning Centers, Inc., 223 Conn. 761, 764-65 nn. 4 and 5, 613 A.2d 1320 (1992).

The plaintiffs, therefore, did not file a motion for reconsideration of, or an appeal from, the order of the trial court denying their motion to compel the defendant to submit to arbitration before the Board of Arbitration of the New York Stock Exchange. Instead, pursuant to § 52-410, the plaintiffs instituted this action, by way of separate complaint, seeking an order directing the defendant to proceed with arbitration before the American Arbitration Association. ⁸

The plaintiffs subsequently moved for summary judgment as to their application for an order compelling arbitration before the American Arbitration Association, maintaining, inter alia, that the parties' agreement, which required them to arbitrate "all...