Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Landau-Taylor as Trustee of Georgia Sortor Lerangis Trust

• Decision Date: 21 October 2020
• Docket Number: A20A1249
• Citation: 849 S.E.2d 504,357 Ga.App. 818
• Parties: MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. v. LANDAU-TAYLOR, in His Capacities AS Successor TRUSTEE OF the GEORGIA SORTOR LERANGIS TRUST et al.
• Court: Georgia Court of Appeals

357 Ga.App. 818

849 S.E.2d 504

MERRILL LYNCH, PIERCE, FENNER & SMITH, INC.

v.LANDAU-TAYLOR, in His Capacities AS Successor TRUSTEE OF the GEORGIA SORTOR LERANGIS TRUST et al.

A20A1249

Court of Appeals of Georgia.

October 21, 2020

Reconsideration Denied November 18, 2020

Certiorari Denied June 21, 2021

David Michael Conner, Savannah, Robert Marshall Kutchey III, William Preston Martin, for Appellant.

Susan Warren Cox, Statesboro, Andrew John Lavoie, Jeffrey D. Horst, Jonathan David Grunberg, Nicole Jennings Wade, Joshua Ivan McLaurin, Atlanta, for Appellee.

Miller, Presiding Judge.

Harvey Investment Partners, LP and the successor trustees for the Sortor/Lerangis and Harvey families’ trusts filed suit against Merrill Lynch, Pierce, Fenner & Smith, Inc., Bank of America Corporation, and Barbara Davne Bart after money was allegedly stolen from various accounts for the trusts and Harvey Investment Partners. Merrill Lynch and Barbara Bart filed a motion to compel arbitration and for a stay pending arbitration, arguing that the client relationship agreements for the accounts contain an arbitration clause, but the trial court determined that the plaintiffs are not bound by any arbitration clause in the agreements. Merrill Lynch and Barbara Bart now appeal, arguing that (1) only the arbitrator, and not the trial court, can decide the validity of the client relationship agreements; and (2) the trusts and Harvey Investment Partners are bound by the arbitration clauses in the client relationship agreements. First, the trial court correctly ruled that it was authorized to decide whether the arbitration agreements bind the plaintiffs. Second, however, we conclude that (1) the successor trustees are bound by the arbitration clauses in the client relationship agreements which Randall Bart executed in his representative capacity; and (2) Randall Bart had agency authority to bind Harvey Investment Partners to the arbitration clauses to which he agreed in his representative capacity, and the record does not show that that authority was severed. Accordingly, we reverse.

On appeal, this Court reviews the record de novo to determine whether the trial court's denial of the motion to compel arbitration is correct as a matter of law. However, we defer to the trial court's findings of fact upon which its denial was based unless those findings are clearly erroneous.

(Citation, punctuation, and footnote omitted.) Schinazi v. Eden , 351 Ga. App. 151, 156, 830 S.E.2d 531 (2019).

The record shows that Randall Bart was the trustee for four trusts for the Sortor/Lerangis family and two trusts for the Harvey family. According to the complaint, Randall Bart was also the registered agent for Harvey Investment Partners and the CEO, CFO, registered agent, and Secretary for LEH Asset Management, Inc., the general partner of Harvey Investment Partners. Beginning in 2007, Randall Bart opened numerous Merrill Lynch investment accounts for the trusts and Harvey Investment Partners and, in so doing, entered into client relationship agreements with Merrill Lynch. In executing the client relationship agreements for the trusts, Randall Bart denoted his title as "Trustee" or "TTEE." In the client relationship agreements for Harvey Investment Partners, he indicated that his title was the "Pres[.] of" LEH Asset Management. The client relationship agreements contain an arbitration clause whereby the signatory consents to arbitrating controversies arising with Merrill Lynch.

According to the complaint, Barbara Bart — Randall Bart's wife — began working for Merrill Lynch in 2009. The plaintiffs alleged that, at Randall Bart's direction, Barbara Bart opened lines of credit (loan management accounts) secured by the assets in the accounts for the Harvey family trusts, Harvey Investment Partners, and one of the Sortor/Lerangis family trusts. The plaintiffs further alleged that (1) from 2010 to 2015, the Barts stole at least $1.8 million from the loan management accounts opened in the name of one of the Harvey family trusts; (2) from 2013 to 2014, the Barts stole at least $800,000 from the loan management accounts opened in the name of another Harvey family trust or Harvey Investment Partners; and (3) from 2012 to 2014, Randall Bart unlawfully transferred $266,350 from a loan management account opened in the name of one of the Sortor/Lerangis family trusts. The plaintiffs also alleged that from 2011 to 2017, the Barts colluded to steal money from investment accounts that had been established for the Sortor/Lerangis family trusts. The plaintiffs claimed that they learned of the alleged thefts after Randall Bart's death in 2017.

In 2019, Ben Landau-Taylor, as the successor trustee for the Sortor/Lerangis family trusts, J. William Griffin, as the successor trustee for the Harvey family trusts, and Harvey Investment Partners sued Merrill Lynch, Bank of America Corporation, and Barbara Bart. As against all the defendants, the plaintiffs asserted claims for breach of fiduciary duty, negligence, fraud, and violations of Georgia's Racketeer Influenced and Corrupt Organizations Act ( OCGA § 16-14-1 et seq. ). As to solely Barbara Bart, the plaintiffs asserted claims for civil conspiracy to commit fraud and securities fraud ( OCGA § 10-5-1 et seq. ). The complaint also alleged that Merrill Lynch and Bank of America had aided and abetted a breach of fiduciary duty and fraud, and that control person liability ( OCGA § 10-5-58 (g) ) applied to these two corporate defendants.

Merrill Lynch and Barbara Bart filed a motion to compel arbitration under the Federal Arbitration Act ( 9 U. S. C. § 1 et seq. ) and to stay proceedings pending the completion of arbitration. They acknowledged in the motion that Randall Bart was the trustee for the trusts and the president/CEO of Harvey Investment Partners’ general partner, and they argued that the appellees’ claims were all within the scope of the arbitration clauses in the Merrill Lynch client relationship agreements and that the plaintiffs were required to arbitrate their claims. The appellees opposed the motion, arguing that the only parties to the arbitration agreements were Randall Bart and Merrill Lynch, that Randall Bart had acted only on behalf of himself when executing the agreements, and that any agency authority Randall Bart had to bind the plaintiffs was severed because his purpose in opening the accounts was to defraud the families. The trial court denied the motion to compel arbitration, reasoning that (1) Randall Bart and Merrill Lynch were the only parties named in the agreements; (2) the defendants had failed to carry their burden of proving that Randall Bart had agency authority to execute the agreements; and (3) any agency relationship that existed between Randall Bart and the plaintiffs was severed by Randall Bart's intent to defraud the trusts and Harvey Investments Partners when he opened the accounts. Merrill Lynch and Barbara Bart now appeal.

1. As their first enumeration of error, the appellants argue that the trial court erred in denying their motion to compel arbitration and stay proceedings because only an arbitrator, and not the trial court, is authorized to decide a challenge to the validity of the client relationship agreements. This argument fails because the trial court was authorized to determine whether the plaintiffs are bound by the arbitration agreements.

Under both Georgia and federal law, arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit. Therefore, the question of arbitrability, i.e., whether an agreement creates a duty for the parties to arbitrate the particular grievance, is undeniably an issue for judicial determination.

(Citation omitted.) Yates v. CACV of Colorado, LLC , 303 Ga. App. 425, 430 (1), 693 S.E.2d 629 (2010). "[A]s the parties seeking arbitration, [the defendants] bear the burden of proving the existence of a valid and enforceable agreement to arbitrate[,]" which "is generally governed by state law principles of contract formation." (Citation omitted.) United Health Svcs. of Ga., Inc. v. Alexander , 342 Ga. App. 1, 2 (2), 802 S.E.2d 314 (2017) ; see also Triad Health Mgmt. of Ga., III, LLC v. Johnson , 298 Ga. App. 204, 205-206 (1) - (2), 679 S.E.2d 785 (2009) (determining that, although the Federal Arbitration Act "govern[ed] the agreement to arbitrate" because the contract evidenced a transaction involving commerce, state law principles of contract formation applied in determining whether a signatory to the arbitration agreement was authorized to bind nonsignatory).

As explained above, the successor trustees and Harvey Investment Partners argued that the arbitration clauses could not be enforced against them. They reasoned that they are nonsignatories to the client relationship agreements, that Randall Bart acted solely on his own behalf, and that Randall Bart did not, in a capacity as an agent, bind them to the arbitration clauses because he was advancing his own interests when executing the client relationship agreements. Given these arguments, whether the appellees are bound by the arbitration agreements is a question of law for the court to decide. Alexander , supra, 342 Ga. App. at 2 (2), 802 S.E.2d 314 (trial court was tasked with deciding whether a valid and enforceable arbitration agreement existed between the decedent's estate and the defendants where the decedent's mother signed the agreement but the decedent was a nonsignatory and did not "personally" assent to the agreement); McKean v. GGNSC Atlanta, LLC , 329 Ga. App. 507, 509-510 (1) (a), 765 S.E.2d 681 (2014) (trial court had to determine whether signatory was authorized to sign arbitration agreement on nonsignatory's behalf so as to enable its enforcement); see also United Health Svcs. of Ga., Inc. v. Norton , 300 Ga. 736, 737 (1), 797 S.E.2d 825 (2017) (assessing the trial court's determination that a wrongful death beneficiary...