NationsBanc Investments, Inc. v. Paramore

• Decision Date: 21 May 1999
• Docket Number: No. 1971578., No. 1971534
• Citation: 736 So.2d 589
• Parties: NATIONSBANC INVESTMENTS, INC. v. Billie Jo Nicole Paramore, by and through her guardian ad litem; and Tony Lee Paramore. Robert Lipscomb v. Billie Jo Nicole Paramore, by and through her guardian ad litem; and Tony Lee Paramore.
• Court: Alabama Supreme Court

736 So.2d 589

NATIONSBANC INVESTMENTS, INC. v. Billie Jo Nicole Paramore, by and through her guardian ad litem; and Tony Lee Paramore.

Robert Lipscomb v. Billie Jo Nicole Paramore, by and through her guardian ad litem; and Tony Lee Paramore.

Nos. 1978.

Supreme Court of Alabama.

May 21, 1999.

James C. Huckaby, Jr., Carter H. Dukes, and John W. Scott of Haskell, Slaughter & Young, L.L.C., Birmingham, for appellant NationsBanc Investments, Inc.

John P. Scott, Jr., of Starnes & Atchison, L.L.P., Birmingham, for appellant Robert Lipscomb.

Joseph M. Cloud and Brent L. Parker of Morris, Cloud & Conchin, P.C., Huntsville; and Earl E. Cloud, Jr., of Cloud & Cloud, Huntsville, for appellee Billie Jo Nicole Paramore.

Douglas Rogers, Birmingham, for appellee Tony Lee Paramore.

PER CURIAM.

NationsBanc Investments, Inc., and Robert Lipscomb, defendants in an action pending in the Tuscaloosa Circuit Court, appeal that court's order denying their motions to dismiss or, in the alternative, to stay proceedings and to compel arbitration of the plaintiff's claims. For the reasons outlined below, we reverse and remand with instructions.

Facts and Procedural History

Billie Jo Nicole Paramore, a minor, brought this action through her guardian ad litem, against her father, Tony Paramore, as conservator of her estate, and against NationsBanc and its broker, Robert Lipscomb. Tony Paramore was appointed conservator of the plaintiff's estate on May 10, 1994. At the time, Billie Jo's estate consisted of approximately $380,000. This amount originated from the settlement of a wrongful-death action based on the death of Billie Jo's mother. Pursuant to § 26-2A-154, Ala.Code 1975, the letters of conservatorship specifically limited Tony Paramore's powers in dealing with Billie Jo's estate funds.

Tony Paramore, as conservator, entered into two contracts with NationsBanc establishing a brokerage account for the investment of funds belonging to Billie Jo's estate. The account allowed Paramore, as a NationsBanc client, to "purchase, sell or hold securities." The account privileges outlined in the contract also allowed Paramore to withdraw account funds by writing checks and by using a debit card or automated-teller-machine card. These contracts contained arbitration clauses. Billie Jo alleges that, after Tony Paramore had entered the contracts, he depleted the estate funds to approximately $850.

Billie Jo's original complaint alleged, among other things, that NationsBanc and Lipscomb had conspired with Tony Paramore to violate §§ 19-3-120 and 26-2A-152, Ala.Code 1975, and to deprive her of her money and other property and to make the conservatorship funds available to Tony Paramore. (NationsBanc and Lipscomb filed separate appeals challenging the trial court's refusal to compel arbitration. This opinion addresses both appeals. The two appellants will hereinafter be referred to as "NationsBanc.") After Billie Jo filed her original complaint, NationsBanc moved the trial court to dismiss or, in the alternative, to stay proceedings and to compel arbitration of her claims. The trial court denied the motions, without explanation. NationsBanc thereafter attempted to mediate the dispute, but to no avail, and the case was set for trial.

Because of the mediation efforts, NationsBanc did not seek review of the trial court's denial of arbitration. It was only after the mediation efforts failed that NationsBanc answered the original complaint and the first amendment to that complaint and raised the arbitration issue as an affirmative defense.

Billie Jo filed a second amendment to her complaint, alleging, among other things, claims for money had and received, a breach of fiduciary duty, suppression of a material fact, negligence and wantonness in the handling of the conservatorship account, and conspiracy to deplete the account; these claims were based upon numerous alleged acts of wrongdoing by NationsBanc and Tony Paramore.

NationsBanc then removed the action to a federal district court, but that court remanded the case to the Tuscaloosa Circuit Court. Thereafter, NationsBanc again moved the trial court to dismiss or, in the alternative, to stay proceedings and to compel arbitration of the claims asserted in the second amendment to the complaint. After holding a hearing, the court denied the motions.

On appeal, NationsBanc argues that the two brokerage contracts containing arbitration clauses and signed by Tony Paramore come under the Federal Arbitration Act, 9 U.S.C. §§ 1-16 ("FAA"), because, it says, they deal with "interstate commerce," and it argues that the FAA requires a court to dismiss an action pending arbitration of any claims covered by the arbitration agreement.

Billie Jo makes alternative arguments on the arbitration issue. First, she argues that Tony Paramore, because he had at most a fourth-grade reading level, lacked the requisite capacity to enter into and understand the contracts. Therefore, she argues, the contracts are invalid. Second, Billie Jo argues that Tony Paramore, by entering into the contracts, created a conflict between his personal interests and his fiduciary responsibilities as conservator. She argues that this conflict of interest made the contracts voidable under § 26-2A-150, Ala.Code 1975. Third, Billie Jo argues that Tony Paramore lacked the authority to enter into the subject contracts because, in his letters of conservatorship, the probate court had limited his authority. In response to these arguments, NationsBanc argues that they raise the question whether the contracts are voidable, which, NationsBanc argues, is a question for an arbitrator to decide.

Because the trial court did not discuss, or even state, its specific reasons for denying arbitration, we address each of the above-stated arguments¹ and we instruct the trial court as to the impact of the issues raised by these arguments. If the trial court denied arbitration based on Billie Jo's first two arguments, or on either of them, then its order denying arbitration was error and arbitration should be compelled. However, if the trial court denied arbitration based on Billie Jo's third argument, then the order denying arbitration was correct.

Arbitration

I.

This Court has written:

"[W]hen a party claims fraud in the inducement relating to the validity of the arbitration clause itself, an issue that goes to the `making' of the agreement to arbitrate, a court may adjudicate that claim; however, if the claim of fraud in the inducement actually bears upon the entire agreement and upon the activities of the parties in general, then an arbitrator, rather than a court, should adjudicate that claim, examining the making of the contract in its entirety."

Anniston Lincoln Mercury Dodge v. Conner, 720 So.2d 898, 901 (Ala.1998). In Conner, the plaintiff claimed to be challenging the validity of an arbitration provision in a contract, 720 So.2d at 901, arguing that "her inability to understand English prevented her from effectively assenting to that clause." Id. The trial court agreed and found that the plaintiffs "inability to under-stand the English language had caused the parties not to reach a meeting of the minds as to the agreement to arbitrate." Id. at 900.

We reversed the trial court's order, stating that "we must look beyond the ad hoc arguments of counsel in order to determine whether [the plaintiffs] claim actually bears upon the entire agreement" or just the arbitration clause. Id. at 901-02. Accordingly, we determined that the plaintiffs claim concerned "the making of the contract in its entirety, rather than just... the arbitration clause itself," and held that arbitration should have been compelled. Id. at 902.

The facts of Conner were somewhat similar to the facts of this case. The plaintiff in Conner argued that she had been unable to understand provisions of the contract. In her brief to this Court, Billie Jo has questioned "whether Tony Lee Paramore[, given his fourth-grade reading level,] possessed the requisite contractual capacity to assent to the terms and conditions of the brokerage agreements containing the arbitration provisions." (Emphasis supplied.) Billie Jo argues that Paramore could not understand the brokerage contracts and could not understand the arbitration provisions within those contracts. Therefore, Billie Jo's argument clearly concerned the making of the contracts, and, in accordance with Conner, the question whether Tony Paramore could understand the contracts and their provisions would be for the arbitrator to decide. If the trial court based its denial of arbitration on this ground, then it erred and it is instructed to compel arbitration.

II.

Billie Jo also alleges, in her brief to this Court, that when Tony Paramore entered into the contracts a conflict of interest arose between his "personal interest and his fiduciary responsibilities imposed on him by statute," and she alleges that that conflict existed as he allegedly depleted the funds. Significantly, in making this argument Billie Jo is not alleging that the contract did not exist, only that Tony Paramore created a conflict of interest by entering into the contract and that the result of that conflict was his allegedly improper depletion of estate funds.

Section 26-2A-150, Ala.Code 1975, governs transactions affected by a conservator's conflict of interest. It states: "[A]ny... transaction involving the estate being administered by the conservator which is affected by a substantial conflict between fiduciary and personal interests is voidable unless the transaction is approved by the court after notice as directed by the court." (Emphasis supplied.)

This Court has recognized that "`[i]f the dispute is within the scope of an arbitration agreement, an arbitrator may properly decide whether a contract is "voidable" because the parties have agreed to arbitrate the dispute.'" Shearson Lehman Bros., Inc. v. Crisp, 646 So.2d 613, 616 (Ala.1994), quoting...