Smith Barney, Inc. v. Henry

• Decision Date: 11 January 2001
• Docket Number: No. 1998-CA-01218-SCT.,1998-CA-01218-SCT.
• Citation: 775 So.2d 722
• Parties: SMITH BARNEY, INC. and Marty Scudder v. Gertrude HENRY.
• Court: Mississippi Supreme Court

775 So.2d 722

SMITH BARNEY, INC. and Marty Scudder v. Gertrude HENRY.

No. 1998-CA-01218-SCT.

Supreme Court of Mississippi.

January 11, 2001.

James M. Garner, Martha Y. Curtis, New Orleans, LA, William Lee Guice, III, Biloxi, Attorneys for Appellants.

Joe Sam Owen, Robert P. Myers, Jr., Gulfport, Attorneys for Appellee.

En Banc.

MILLS, Justice, for the Court:

¶ 1. Smith Barney, Inc. and Marty Scudder appeal an interlocutory order of the Harrison County Circuit Court denying a motion to compel arbitration and stay proceedings.

STATEMENT OF THE CASE

¶ 2. LaFare Hilliard opened two securities accounts through Mr. Marty Scudder with Smith Barney, Inc. The first account, opened in 1989, was an individual securities account, and the second account, opened in 1990, was an individual retirement account for Ms. Hilliard's benefit. Scudder served as Hilliard's financial consultant during the time she maintained her accounts at Smith Barney.

¶ 3. Hilliard executed client agreements in which she agreed that all controversies arising out of or relating to her accounts would be resolved by arbitration and that the client agreements would be binding on her heirs and successors. Specifically, the client agreements contained the following language concerning arbitration:

1989 CLIENT AGREEMENT

23. ARBITRATION AND GOVERNING LAW.... Any controversy arising out of or relating to any of my accounts..., to transactions with you, or to this agreement, ... or relating to transactions or accounts maintained by me with any of your predecessor firms by merger, acquisition or other business combination from the inception of such accounts, shall be settled by arbitration.... Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction thereof.

1990 CLIENT AGREEMENT

23. ARBITRATION AND BINDING LAW.... Any controversy (1) arising out of or relating to any of my accounts maintained individually ...; or (2) relating to my transaction or accounts with any of your predecessor firms be merger, acquisition or other business combination from the inception of such accounts; or (3) with respect to transactions of any kind executed by, through or with you ...; or (4) with respect to this agreement ... shall be resolved by arbitration ... Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction thereof.

Both client agreements contained the following language regarding the binding effect of the agreements on Hilliard's heirs and successors:

25. Binding Effect. This agreement and its terms shall be binding upon my heirs, executors, successors, administrators, assigns, committee and conservators ("successors"). In the event of my death, ... you may liquidate my account as described in Paragraph 15 above without prior notice to or demand upon my successors....

¶ 4. Hilliard died testate on January 26, 1997. Her will established a testamentary trust containing the Smith Barney accounts. Hilliard's mother, Gertrude Henry, was named beneficiary of the trust. Her niece, Patti Ann Cospelich, was named executrix of the will and was also named as trustee and remainderman beneficiary of the trust. The chancery court ordered Cospelich to transfer all assets from the Smith Barney accounts, comprising approximately $458,012.78, to the trust. Thus, all Smith Barney accounts were closed by Cospelich.

¶ 5. The trust account was established for Henry's benefit, but Cospelich deposited only $17,000.00, or about four percent, of the total assets in the Smith Barney accounts. Cospelich then transferred $50,000.00 from the individual Smith Barney account into the Hilliard estate account and used these funds to pay debts of the estate. The result of this transaction was to benefit Cospelich personally to the ultimate detriment of the estate. Scudder and Cospelich closed the IRA custodian account and placed the bulk of the assets in a new IRA account for the benefit of Cospelich. Cospelich was later removed from the office of trustee.

¶ 6. Henry sued Smith Barney and Scudder alleging that Cospelich breached certain fiduciary duties by converting money from the Smith Barney accounts; that Scudder and Smith Barney were negligent in allowing Cospelich to convert the funds from Hilliard's accounts; and that Scudder and Smith Barney conspired with Cospelich to deprive Henry of her inheritance. Smith Barney and Scudder filed a motion to compel arbitration and stay proceedings which was denied by the circuit court. We granted this permissive interlocutory appeal pursuant to M.R.A.P. 5.

DISCUSSION

I. WHETHER THE FEDERAL ARBITRATION ACT APPLIES TO THE CLIENT AGREEMENTS.

¶ 7. Henry argues that she was not a party to the client agreements and, therefore, is not bound by them. The appellants argue that Henry is bound by the arbitration agreements under the Federal Arbitration Act which provides:

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

9 U.S.C. § 2 (1976).

¶ 8. This Court discussed the Federal Arbitration Act in IP Timberlands Operating Co. v. Denmiss Corp., 726 So.2d 96 (Miss.1998). We overturned prior case law and "expressly stated that this Court will respect the right of an individual or an entity to agree in advance of a dispute to arbitration or other alternative dispute resolution." Id. at 104. We reiterated our policy that "[a]rticles of agreement to arbitrate, and awards thereon are to be liberally construed so as to encourage the settlement of disputes and the prevention of litigation, and every reasonable presumption will be indulged in favor of the validity of arbitration proceedings." Id. at 106. This Court explained:

`In enacting § 2 of the Arbitration Act, Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration. Congress has thus mandated the enforcement of arbitration agreements.' Southland Corp. v. Keating, 465 U.S. 1, 10, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984). The Arbitration Act, resting on Congress's authority under the Commerce Clause, creates a body of federal substantive law that is applicable in both state and federal courts. Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). `The sine qua non of the FAA's applicability to a particular dispute is an agreement to arbitrate the dispute in a contract which evidences a transaction in interstate commerce.' Peoples Sec. Life Ins. Co. v. Monumental Life Ins. Co., 867 F.2d 809, 813 n. 4 (4th Cir.1989).

Doubts as to the availability of arbitration must be resolved in favor of arbitration. Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). `[U]nless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue, then a stay pending arbitration should be granted.' Wick v. Atlantic Marine, Inc., 605 F.2d 166, 168 (5th Cir.1979) (citing United Steelworkers of Am. v. American Mfg. Co., 363 U.S. 564, 80 S.Ct. 1343, 4 L.Ed.2d 1403 (1960), and Seaboard Coast Line R.R. Co. v. National Rail Passenger Corp., 554 F.2d 657 (5th Cir.1977) (per curiam)).

726 So.2d at 107. In IP Timberlands, we held that the timber industry, on a national level, meets the minimum threshold of affecting or bearing upon interstate commerce and thus is subject the Act.

¶ 9. The United States Supreme Court explained that section 2 embodied "a clear federal policy of requiring arbitration unless the agreement to arbitrate is not part of a contract evidencing interstate commerce or is revocable upon such grounds as exist at law or in equity for the revocation of any contract. We see nothing in the Act indicating that the broad principle of enforceability is subject to any additional limitation under state law." Perry v. Thomas, 482 U.S. 483, 489, 107 S.Ct. 2520, 2525, 96 L.Ed.2d 426 (1987). "In addition to establishing a strong presumption in favor of arbitration, the Act also limits the role of the court to determining whether an issue is arbitrable. The court's sole function is to determine whether the claim is referable to arbitration. Once that determination is made, the court may not delve further into the dispute. `The courts ... have no business weighing the merits of the grievance, considering whether there is equity in a particular claim, or determining whether there is particular language in the written instrument which will support the claim.'" IP Timberlands, 726 So.2d at 108 (quoting United Steelworkers v. American Mfg. Co., 363 U.S. 564, 567, 80 S.Ct. 1343, 4 L.Ed.2d 1403 (1960)). See also Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218, 105 S.Ct. 1238, 1241, 84 L.Ed.2d 158 (1985)

.

¶ 10. In Perry, the United States Supreme Court held that the FAA pre-empted a provision of the California Labor Law which stated that wage collection actions may be maintained without regard to the existence of any private agreement to arbitrate. 482 U.S. at 489, 107 S.Ct. at 2525. The Court explained that the FAA embodied "Congress's intent to provide for the enforcement of arbitration agreements within the full reach of the Commerce Clause. Its general applicability reflects that `the preeminent concern of Congress in passing the Act was to enforce private agreements into which parties had entered....'" Id. at 490, 107 S.Ct. 2520 (quoting By...