Metlife Sec., Inc. v. Holt

• Decision Date: 21 July 2016
• Docket Number: No. 2:16-CV-32,2:16-CV-32
• Parties: METLIFE SECURITIES, INC., METLIFE INSURANCE COMPANY USA, METLIFE INVESTORS DISTRIBUTION COMPANY, METROPOLITAN LIFE INSURANCE COMPANY AND METLIFE, INC., Petitioners, v. PATSY A. HOLT, Respondent.
• Court: U.S. District Court — Eastern District of Tennessee

METLIFE SECURITIES, INC., METLIFE INSURANCE COMPANY USA, METLIFEINVESTORS DISTRIBUTION COMPANY,METROPOLITAN LIFE INSURANCE COMPANY AND METLIFE, INC., Petitioners, v. PATSY A. HOLT, Respondent.

No. 2:16-CV-32

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF TENNESSEE GREENEVILLE DIVISION

July 21, 2016

MEMORANDUM OPINION

This matter is before the Court on Petitioners' Petition for Order to Compel Arbitration [doc. 1], Respondent's Motion to Dismiss, or in the Alternative, Motion for Summary Judgment [doc. 4], Respondent's Brief in Support of the Motion [doc. 5], and Petitioners' Response in Opposition to the Motion [doc. 6]. For the reasons herein, the Court will grant in part Petitioner's motion and deny Respondent's motion.

I. BACKGROUND

Respondent Patsy A. Holt ("Ms. Holt") opened several Individual Retirement Accounts with Petitioners ("MetLife") in Greeneville, Tennessee, four of which are at issue in this action. [Pet. to Compel Arbitration ¶¶ 1, 52; Holt Dep., doc. 1-9, at 8:4-8, 21-23, 9:17-20, 10:15-25, 11:1-3, 14:4-14; Woods Decl., doc. 4-1, ¶ 5].¹ Ms. Holt personally signed the account application for one of the four accounts—account number XXXXX9324. [Holt Dep. at 14:4-17]. At the suggestion of MetLife's authorized representative in charge of the accounts, Mark Salyer ("Mr. Salyer"), Ms. Holt instructed her daughter, Lydia Salyer ("Ms. Salyer"), to sign the account applications for the three other accounts—account numbers XXXXX3828, XXXXX9931, and XXXXX8578—on her behalf. [Id. at 5:23-25, 6:1, 7:22-25, 8:1-25, 9:1-16, 10:15-25, 11:1-13].² Ms. Holt's name, Patsy A. Holt, appears in cursive in the signature block on those three account applications, [see Account Application 3828, doc. 1-2, at 2; Account Application 9931, doc. 1-3, at 2; Account Application 8578, doc. 1-4, at 2], but Ms. Holt did not view or read them, [Holt Dep. at 11:14-18]. In total, Ms. Holt claims to have invested more than $1,900,000 in the accounts. [Second Am. Compl., doc. 1-8, ¶ 19].

According to Ms. Holt, Mr. Salyer went on to misappropriate her funds, which are now almost entirely gone. [Id. ¶¶ 28, 30]. As a result, she sued Mr. Salyer and MetLife in the Circuit Court of Sullivan County, Tennessee, for breach of contract, conversion, failure to supervise, fraud, and negligence, alleging that MetLife is responsible for Mr. Salyer's misconduct. [Id. ¶¶ 25-35]. In response, MetLife filed in the state court a motion to compel arbitration, arguing that Ms. Holt has to arbitrate her claims because the four account applications contain arbitration provisions. [See Pet. to Compel Arbitration ¶ 9; State CourtOrder, doc. 7-2, ¶ 2]. In each account application, the arbitration provision reads:

MetLife. . . and the purchaser of the shares, who is the signatory below . . . agree that any controversy . . . arising out of or relating to any transactions between [them] shall be determined by arbitration. . . . This agreement and any arbitration hereunder shall be governed and construed in accordance with the laws of the State of New York . . . .

[Account Applications, doc. nos. 1-1, 1-2, 1-3, 1-4, at 3]. The court ruled that Ms. Holt's claims related to account number XXXXX9324 are subject to arbitration but reserved ruling on the arbitrability of the other claims until it could decide whether to allow discovery. [Woods Decl. ¶ 5]. Mr. Salyer, however, then filed for bankruptcy, and the court stayed the case for roughly three years. [Pet. to Compel Arbitration ¶ 9]. When the case resumed after the bankruptcy proceedings, the court permitted Ms. Holt to file a revised second amended complaint so she could allege that the arbitration provisions are unenforceable contracts of adhesion. [Woods Decl. ¶ 8; see Second Am. Compl. ¶ 22].

Around this same time, Ms. Holt claims that she and MetLife agreed to "a methodology" to resolve the case. [Woods Decl. ¶ 9]. According to Ms. Holt, the parties decided, in a series of e-mails, "to pursue a ruling from the state court judge on the issue of arbitration and then irrespective of who prevailed, they would mediate the underlying suit within sixty (60) days for the ruling." [Id.]. In pertinent part, the e-mails read:

• Ms. Holt's counsel: "[We] would propose . . . mediat[ion] within 90 days so as to allow for mutual discovery in the Holt matter pursuant to an agreed scheduling Order." [E-mail 1, doc. 7-1, at 1].

• MetLife's counsel: "MetLife is agreeable to mediating Holt within 90 days of the court's ruling on the arbitration issue. . . . I don't know of any reason we couldn't have a hearing on the [arbitration] issue in the next 30-45 days and get a final decision from [the state court]. Please let me know if that is acceptable." [E-mail 2, doc. 7-1, at 1].

• Ms. Holt's counsel: "Holt will be okay if we shorten it up to 60 days." [E-mail 3, doc. 7, at 2].

• MetLife's counsel: "[Y]ou never directly responded to the shortening on Holt from 90 days to 60 days. You are agreeable to the sixty days, are you not?" [E-mail 4, doc. 7-1, at 2].

• Ms. Holt's counsel: "[W]e're ok with the 60 days." [E-mail 5, doc. 7-1, at 2].

After exchanging these e-mails, MetLife renewed its motion to compel arbitration, prompting the state court to allow discovery on whether all four arbitration provisions are unenforceable contracts of adhesion. [State Court Order at 2]. The state court reserved ruling on this issue until it could conduct an evidentiary hearing. [Id.]. Since then, the parties have conducted some discovery—including depositions, interrogatories, and requests for production. [Woods Decl. ¶ 12].

MetLife now petitions this Court to compel Ms. Holt to arbitrate her claims, seeking this recourse under the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-14. [Pet. to Compel Arbitration at 5-16].³ Ms. Holt argues that the Court should not compel arbitration because the doctrine of abstention prevents it from exercising jurisdiction while the parallel suit is pending in state court. [Resp't's Br. at 5-10]. Ms. Holt also contends that, in the e-mails between the parties, MetLife waived its contractual right to arbitrate and agreed to a legallybinding forum-selection provision that requires the parties to remain in state court. [Id. at 4-5].

II. THE FEDERAL ARBITRATION ACT

Under the FAA, "a district court's consideration of a motion to compel arbitration is limited to determining whether the parties entered into a valid agreement to arbitrate." Burden v. Check into Cash of Ky., LLC, 267 F.3d 483, 487 (6th Cir. 2001) (citation omitted).⁴ The FAA states that an arbitration provision in a commercial contract⁵ is "valid, irrevocable, and enforceable" except on "such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. In other words, inherent in the FAA's language is a "strong federal policy in favor of arbitration," Stout v. J.D. Byrider, 228 F.3d 709, 714 (6th Cir. 2000) (citations omitted), which requires courts to abide by the "well-establishedrule that any doubts regarding arbitrarily should be resolved in favor of arbitration," Fazio v. Lehman Bros., Inc., 340 F.3d 386, 392 (6th Cir. 2003) (citing Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983)). This federal policy, however, is "not an absolute one" because any agreement to arbitrate remains "a matter of consent, not coercion." Albert M. Higley Co. v. N/S Corp., 445 F.3d 861, 863 (6th Cir. 2006) (quoting Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989)); see Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985) ("[A]s with any other contract, the parties' intentions control, but those intentions are generously construed as to issues of arbitrability.").

A. Federal Jurisdiction under the FAA

Although MetLife seeks to compel arbitration under the FAA, its petition alone is insufficient to create subject matter jurisdiction:

The [FAA] is something of an anomaly in the field of federal-court jurisdiction. It creates a body of federal substantive law establishing and regulating the duty to honor an agreement to arbitrate, yet it does not create any independent federal-question jurisdiction under 28 U.S.C. § 1331 . . . or otherwise.

Moses H. Cone, 460 U.S. at 25 n.32. An independent jurisdictional basis is therefore a prerequisite to a federal court's ability to review a petition to compel arbitration. Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 581-82 (2008). A federal court has an independent jurisdictional basis over a petition to compel arbitration if it would have jurisdiction over the "suit arising out of the controversy between the parties." 9 U.S.C. § 4; see Moses H. Cone, 460 U.S. at 25 n.32 (stating that the FAA permits a federal court to consider a petition under the FAA "only when [it] would have jurisdiction over a suit onthe underlying dispute" and "hence, there must be diversity of citizenship or some other independent basis for federal jurisdiction").

MetLife asserts that this Court has an independent basis for jurisdiction over the underlying state-court action based on diversity of citizenship jurisdiction, [Pet. to Compel Arbitration at 5-9], the existence of which Ms. Holt does not appear to refute but to accept, [see Woods Decl. ¶ 7]. The parties, however, cannot create subject matter jurisdiction simply by consenting to it, see Tatum v. Mathews, 541 F.2d 161, 163 n.1 (6th Cir. 1976) (reviewing the action for subject matter jurisdiction even though a party had consented to it), and "it is of course proper, and indeed mandatory for a court to inquire into its subject-matter jurisdiction" to ensure that parties have not "confer[ed] . . . subject-matter jurisdiction" upon it, Rauch v. Day & Night Mfg., Corp., 576 F.2d 697, 699 & n.1 (6th Cir. 1978). The Court will therefore perform a sua sponte review of MetLife's petition to confirm that it meets the requirements of subject matter jurisdiction. Id. at 699 (stating...