Lewis v. Oakley

• Decision Date: 04 October 2002
• Citation: 847 So.2d 307
• Parties: E. Milton LEWIS III v. W. Lawrence OAKLEY et al.
• Court: Alabama Supreme Court

847 So.2d 307

E. Milton LEWIS III v. W. Lawrence OAKLEY et al.

1001847.

Supreme Court of Alabama.

October 4, 2002.

Richard Jordan and Ben Locklar of Richard Jordan, Randy Myers, and Ben Locklar, P.C., Montgomery, for appellant.

John A. Henig, Jr., and Shannon L. Holliday of Copeland, Franco, Screws & Gill, P.A., Montgomery, for appellee W. Lawrence Oakley.

Michael K.K. Choy and Michael C. Skotnicki of Haskell, Slaughter, Young & Rediker, L.L.C., Birmingham, for appellee Morgan Stanley Dean Witter.

Lee H. Zell of Balch & Bingham, L.L.P., Birmingham; and W. Joseph McCorkle, Jr., of Balch & Bingham, L.L.P., Montgomery, for appellee Merrill Lynch, Pierce, Fenner & Smith.

HARWOOD, Justice.

As will be explained later in this opinion, the record in this case is peculiarly structured: one of the contracts at issue was presented to the trial judge in an incomplete, truncated fashion. That contract, an executed written instrument that expressly incorporated by reference the rules, constitutions, and bylaws of various securities organizations, was presented to the trial court in such a way as to omit certain relevant rules otherwise due to form a part of the integrated whole. We have been able to determine this "after the fact," through our own research, but this omission was never disclosed to the trial judge and, in fact, has not been acknowledged in any of the briefs filed with this Court. Of course, "[p]arties may agree to try their case upon a theory of their own choosing and their agreements will be binding." Cotton v. Terry, 495 So.2d 1077, 1080 (Ala.1986). In our role as an appellate court, we review a case based exclusively on the record as compiled in the trial court, and we will not fault or overrule a trial judge based on matters not placed of record before the trial judge. "It is well established that this Court will not consider a case on a theory different from that on which it was tried below." Kmart Corp. v. Bassett, 769 So.2d 282, 284 n. 2 (Ala.2000). Accordingly, our review, and resulting rulings, in this case are limited to the record as the parties chose to constitute it.

I. Factual and Procedural Background

E. Milton Lewis III appeals from an order of the trial court compelling arbitration of his claims against W. Lawrence Oakley, Morgan Stanley Dean Witter ("Morgan Stanley"), and Merrill Lynch, Pierce, Fenner & Smith ("Merrill Lynch") (hereinafter collectively referred to as "the defendants"), alleging breach of contract and demanding an accounting. We affirm in part and reverse in part.

Lewis began working with Merrill Lynch as a securities dealer/stockbroker in 1966. During his 32 years of employment, he accumulated a "book of accounts"¹ with an approximate value of $182,000,000. In 1998, contemplating retirement, Lewis entered into a "Purchase Agreement" with Oakley, who was also a stockbroker with Merrill Lynch. Lewis agreed to sell his book of accounts to Oakley for $420,000, to be paid in monthly installments of $14,000 per month from April 1, 1998, through September 30, 2000. The Purchase Agreement provided for a significant reduction in the monthly payments in the event the value of the book of accounts fell below $100,000,000. The Purchase Agreement also stipulated that should Oakley "involuntarily separate from service with Merrill Lynch" while the Purchase Agreement was in effect, he would "have no obligation to continue to make payments" to Lewis. Further, Lewis expressly represented in the Purchase Agreement that the Agreement had "been approved by Merrill Lynch." Included in the record as an attachment to "Plaintiff's Opposition to Motions to Dismiss, To Stay, and/or To Compel Arbitration" (hereinafter referred to as the or his "Opposition") filed during the ensuing litigation, is a copy of a February 2, 1998, letter to Lewis from Merrill Lynch's senior resident vice president, Marvin D. Lubin, Jr., stating his understanding of some of the key terms of Lewis's upcoming retirement.² Lewis's signature appears at the bottom of the letter under the heading "Acknowledged." Another attachment to the Opposition is an undated document signed by Lewis, Oakley, and Lubin, captioned "Term of Retirement for Mr. E. Milton Lewis." It states that Lewis would transfer his "Book" of clients to Oakley "[o]n March 24, 1998." It also states:

"Milton will be paid $10,500 per month after taxes from April, 1 1998, until September 30, 2000, for his book of clients and his assistance in retaining them. Milton will give his best effort in assisting the facilitation of clients to Lawrence. If for some reason Milton's book of assets were to drop below $100,000,000 and it were mutually agreed upon by Milton Lewis and Lawrence Oakley, Milton's compensation would revert to a 50% payout of computed compensation."

Oakley paid Lewis $14,000 per month for 22 months; however, by letter dated March 16, 2000, Oakley informed Lewis that the value of the book of accounts had dropped below $100,000,000, and that, pursuant to the Purchase Agreement, a reduced payment in the amount of $4,733.26 would be made for February 2000. At the end of March, Oakley ceased working at Merrill Lynch and became a stockbroker for Morgan Stanley. Oakley never made the payment promised for February 2000, and he did not make any further payments. Lewis requested an explanation from Oakley and Merrill Lynch to verify Oakley's claim that the book of accounts had dropped to a value below $100,000,000, a reduction of approximately $82,000,000 in less than two years. Neither Oakley nor Merrill Lynch responded to Lewis's request. In the complaint filed on April 17, 2000, in the Circuit Court of Montgomery County to institute this action against Oakley, Merrill Lynch, and Morgan Stanley, Lewis asserted that on March 29, 2000, Oakley had advised him that Oakley had "voluntarily" left Merrill Lynch, but that his departure had been "hastened" when Merrill Lynch learned of his agreement to accept employment with Morgan Stanley.³ Lewis averred that Merrill Lynch retained "a significant number of the accounts developed by Plaintiff Lewis that are earning income daily" and that Morgan Stanley, having paid Oakley "a substantial bonus to join its firm," in reliance on the book of accounts, was "greatly benefitting from a great number of said accounts."

Lewis sought damages from Oakley, Merrill Lynch, and Morgan Stanley for breach of contract. He alleged that the "contractual agreement" between him and Oakley had been "approved and ratified by Defendant Merrill Lynch" and that Morgan Stanley was "a `successor' and `assign' under [the] contract and is obligated by the terms thereof." He also sought an accounting from Oakley for all accounts Oakley had purchased from Lewis as of "the first day of each month from January 1, 1998 to date," including "the monthly earnings and commissions paid on each"; a similar accounting from Merrill Lynch for the same period for all accounts "under its management sold by" Lewis to Oakley; and a similar accounting from Morgan Stanley for "all accounts brought under its management by virtue of hiring Defendant Oakley from January 1, 2000 to date." On May 4, 2000, Oakley filed an answer and a counterclaim. As counterclaims, Oakley asserted that Lewis himself had breached the Purchase Agreement and that, as to the clause of the agreement stating that Lewis "represents and warrants [to] use his best efforts to assist [Oakley] in retaining the clients comprising the assets," Lewis was guilty of fraudulent misrepresentation. As Lewis subsequently argued to the trial court when the defendants sought to compel arbitration, the Purchase Agreement contains the following "integration clause" and the following provisions relating to "jurisdiction" and "venue":

"(h) Integration: This Agreement and all other documents expressly contemplated herein, constitute the entire agreement of the parties, as a complete and final integration thereof. All understandings and agreements heretofore had between and among the parties with respect to the subject matter of this Agreement are merged into: (i) this Agreement and (ii) all other documents expressly contemplated herein; which alone fully and completely expresses the parties['] understandings.

". . . .

"(l) Situs: The laws of the State of Alabama shall govern the validity of this Agreement, the construction of its terms, the interpretation of the rights and the duties of the parties, the enforcement of its terms, and all other matters relating to this Agreement.

"(m) Jurisdiction: The jurisdiction over any dispute arising under this Agreement shall be in Montgomery County, Alabama.

"(n) Venue: The venue for any action arising from any dispute under this Agreement shall be with the state or federal court located in Montgomery County, Alabama."

On June 8, 2000, Merrill Lynch filed its "Motion To Stay Pending Arbitration," based on a document Lewis had signed on December 10, 1990, during his employment with Merrill Lynch, a copy of which was attached to the motion. The document was a "Form U-4, Uniform Application for Securities Industry Registration or Transfer" (hereinafter "Form U-4"). It bore the signatures of both Lewis and Lubin, signing on behalf of Merrill Lynch. Paragraph 5 of the Form U-4 stated, in pertinent part:

"I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person that is required to be arbitrated under the rules, constitutions, or bylaws of the organizations indicated in item 10 as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction."

Item 10 of the Form U-4 was completed in such a way as to indicate that Lewis would be registered with the American Stock Exchange ("ASE"), the National Association of Securities Dealers, Inc. ("NASD"), and the New York Stock Exchange ("NYSE"). Merrill Lynch also...