Pinnacle Trust Co. v. McTaggart

• Decision Date: 04 December 2014
• Docket Number: No. 2013–CA–01920–SCT.,2013–CA–01920–SCT.
• Court: Mississippi Supreme Court
• Parties: PINNACLE TRUST COMPANY, L.L.C., EFP Advisors, Inc. and Douglas M. McDaniel, v. Lisa Brocato McTAGGART, Individually, and as Natural Parent and Next Friend of Jonathan Antone McTaggart, Jacob Alexander McTaggart, and Madalyn Rose Mctaggart, Minors and Olivia Justine McTaggart.

152 So.3d 1123

PINNACLE TRUST COMPANY, L.L.C., EFP Advisors, Inc. and Douglas M. McDaniel

v.Lisa Brocato McTAGGART, Individually, and as Natural Parent and Next Friend of Jonathan Antone McTaggart, Jacob Alexander McTaggart, and Madalyn Rose Mctaggart, Minors and Olivia Justine McTaggart.

No. 2013–CA–01920–SCT.

Supreme Court of Mississippi.

Dec. 4, 2014.

Kathy A. Smith, John G. Corlew, E. Stephen Williams, John Andrew Payne, attorneys for appellants.

William P. Featherston, Jr., attorney for appellees.

Before RANDOLPH, P.J., KING and COLEMAN, JJ.

Opinion

RANDOLPH, Presiding Justice, for the Court:

¶ 1. The McTaggarts filed suit against the former trustee and trust advisor of their family trust, alleging improper handling of their trust funds. The former trustee and trust advisor moved to dismiss the case or have the case stayed pending arbitration, based on an arbitration provision in a wealth-management agreement between the former trustee and trust advisor. The trial court found that, because the McTaggarts did not sign the agreement containing the arbitration provision and because the agreement specifically excluded nonsignatories, including third-party beneficiaries, the arbitration provision was not binding on the McTaggarts. The former trustee and trust advisor appealed. Finding no error, we affirm.

FACTUAL/PROCEDURAL BACKGROUND

¶ 2. On December 20, 2000, Billie B. Brocato executed her Last Will and Testament. Pursuant to her will, Brocato left all of her personal belongings to her daughter, Lisa Brocato McTaggart, with the exception of “cash, stocks, bonds, or like investments on hand or on deposit,” business-related property, and $10,000, which was left to a friend. Brocato established a trust for the residue and remainder of her property and estate-the Billie B. Brocato Family Trust (“Trust”). Trusts were set up for Lisa and for each of Lisa's children (Jonathon, Jacob, Madalyn, and Olivia¹ ). The will named The Capital Trust Company of Delaware as the Trustee and EFP, Inc., (“EFP”)² as the Trust Advisor.

¶ 3. Billie B. Brocato died on June 27, 2004, and a Petition for Probate was filed on July 15, 2004. The estate was closed on August 5, 2005.

¶ 4. The Capital Trust Company of Delaware never assumed duties as Trustee of the Trust. On June 10, 2005, Lisa and “EFP,” the trust advisor, requested that The Capital Trust Company of Delaware resign and appointed Pinnacle Trust Company (“Pinnacle”) as the successor Trustee. Pinnacle accepted the trusteeship.

¶ 5. On June 13, 2005, Pinnacle Trust Company FBO³ Billie B. Brocato Family Trust and “EFP,” through its president Douglas M. McDaniel, entered into a Wealth–Management Agreement (“WMA”), in order for “EFP” to provide additional asset-management services for the Trust. Two sections are pertinent to today's dispute. Sections 16 and 24 of the WMA read as follows:

16. MEDIATION; BINDING ARBITRATION. The parties shall first try in good faith to settle by mediation any dispute arising out of or relating to this Agreement. The mediation is to be administered by the American Arbitration Association. Excepting only claims for injunctive relief and, if desired by Client [Pinnacle Trust Company FBO Billie B. Brocato Family Trust], claims arising under the Investment Advisors Act of 1940, all controversies and claims arising under or relating to this Agreement not settled through mediation, are to be resolved by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association before a single arbitrator selected in accordance with those rules. The arbitration is to be conducted in a mutually agreed upon location. Each party shall submit to any court of competent jurisdiction for purposes of enforcement of any award, order or judgment. Any award, order or judgment pursuant to the arbitration is final and may be entered and enforced in any court of competent jurisdiction.

24. THIRD PARTY BENEFICIARIES. This Agreement does not and is not intended to confer any rights or remedies upon any person or entity other than the signatories.

¶ 6. On June 28, 2013, the McTaggarts filed suit in the Madison County Chancery Court against Pinnacle, “EFP,” and McDaniel, alleging breach of fiduciary duties by “failing to prudently manage and invest the trust assets during the years 2007 through 2011,” in violation of Mississippi Code Section 91–13–3, inter alia. The McTaggarts claimed that Pinnacle, “EFP,” and McDaniel were “directly and proximately responsible for the loss of in excess of One Million Five Hundred Thousand Dollars and no/100 ($1,500,000.00).”

¶ 7. On July 29, 2013, “EFP” and McDaniel filed a motion to dismiss or stay litigation pending arbitration, arguing that (1) the McTaggarts' complaint arose from an alleged dispute concerning the administration of the Trust, (2) the Trust was administered pursuant to the WMA, and (3) all claims arising under or relating to the WMA must be resolved by arbitration. Pinnacle joined in this motion on July 30, 2013.

¶ 8. At the August 30, 2013, hearing, “EFP” and McDaniel argued that the McTaggarts' claims were subject to the arbitration provision in the WMA, because the McTaggarts were direct beneficiaries of the Trust and the WMA was entered into for their direct benefit; therefore, the McTaggarts were direct beneficiaries of the separate WMA. “EFP” and McDaniel contended that, although the McTaggarts did not sign the WMA, the WMA was entered into by Pinnacle, as Trustee for the benefit of the Trust, i.e., for the benefit of the McTaggarts. “EFP” and McDaniel argued that, because Lisa signed a separate document appointing Pinnacle as Trustee and Pinnacle was given authority to handle the Trust funds for the benefit of the beneficiaries, Lisa was bound by the WMA entered into by Pinnacle for the benefit of the Trust. Additionally, “EFP” and McDaniel argued that the McTaggarts' claims for the alleged failure of Pinnacle, “EFP,” and McDaniel to prudently invest and manage their Trust assets between 2007 and 2011 arose directly from the WMA, which contained the arbitration clause, as the WMA concerned the management of the Trust. “EFP” and McDaniel requested that the chancery court compel arbitration of the McTaggarts' claims.

¶ 9. The McTaggarts argued in response that Mrs. Brocato never entered into any agreement binding her or her beneficiaries to arbitration. Additionally, Lisa never entered into any agreement with Pinnacle, “EFP,” or McDaniel which would bind her or her children to arbitration. Because no entity which was a party to the WMA had claimed any allegations against any other party to the WMA, the arbitration clause was not at issue.

¶ 10. On October 3, 2013, the chancery court judge conducted a telephonic conference wherein she denied “EFP's” and McDaniel's motion to compel arbitration. The chancellor determined that the WMA did not confer any rights or remedies upon any persons who were not signatories of the WMA. The judge held that, because the McTaggarts did not sign the WMA, the arbitration clause was not binding on them. The court's order denying the motion to compel was entered on October 10, 2013, and “EFP,” McDaniel, and Pinnacle timely filed their appeal.

STATEMENT OF THE ISSUES

¶ 11. Pinnacle, “EFP,” and McDaniel present the issue as follows:

Whether an arbitration provision in a wealth management agreement by and between a trustee for the exclusive benefit of the trust and a trust advisor designated under the trust is binding on the beneficiaries of the trust when the beneficiaries, though not signatories to the agreement, are direct beneficiaries of the agreement and when their claims against the trust advisor may only be determined by reference to the agreement because the claims touch matters covered by the agreement and the agreement serves as the only source from which the trust advisor's potential liability could flow.

The McTaggarts present the issue as follows:

Whether [the McTaggarts] who are beneficiaries of a testamentary trust established by Plaintiff, Lisa Brocato McTaggart's mother, Billie B. Brocato, deceased, are bound by an arbitration clause in a wealth management agreement executed by and between Appellants Pinnacle Trust Company, LLC, [“EFP”], and Douglas M. McDaniel when neither Billie B. Brocato was a party to the wealth management agreement nor were any of the Plaintiffs.

STANDARD OF REVIEW

¶ 12. This Court reviews the denial of a motion to compel arbitration de novo. Cmty. Bank of Miss. v. Stuckey, 52 So.3d 1179, 1181 (Miss.2010) (citing United Credit Corp. v. Hubbard, 905 So.2d 1176, 1177 (Miss.2004) ). The scope of such review is limited, and this Court will not review the merits of the underlying claim. Harrison Cnty. Commercial Lot, LLC v. H. Gordon Myrick, Inc., 107 So.3d 943, 949 (Miss.2013) (citing Smith Barney, Inc. v. Henry, 775 So.2d 722, 725 (Miss.2001) ).

ANALYSIS

¶ 13. Under the Federal Arbitration Act, this Court conducts a two-pronged arbitration inquiry: “first, whether the parties intended to arbitrate the dispute, and second, if they did intend to arbitrate, ‘whether legal constraints external to the parties' agreement foreclosed the arbitration of those claims.’ ” Scruggs v. Wyatt, 60 So.3d 758, 766 (Miss.2011) (citations omitted). “The first prong is two-fold in that the court considers whether there is a valid arbitration agreement and then whether the parties' dispute is within the scope of the arbitration agreement.” Id. (citations omitted). To determine whether the parties' dispute is within the scope of the arbitration agreement, “two questions must be answered: (1) whether the proper forum for determining the scope of the arbitration agreement is in court or in arbitration, and (2) whether the arbitration agreement encompasses the dispute.” Greater Canton Ford Mercury, Inc. v. Ables, 948 So.2d 417, 421 (Miss.2007) (citing East Ford, Inc. v. Taylor, 826 So.2d 709, 713 (Miss.2002) ). “Under the second prong, ‘[t]he FAA mandates that arbitration...