Spahr v. Secco

• Court: U.S. Court of Appeals — Tenth Circuit
• Writing for the Court: Lucero
• Citation: Spahr v. Secco, 330 F.3d 1266 (10th Cir. 2003)
• Decision Date: 03 June 2003
• Docket Number: No. 00-1152.,No. 00-1132.,00-1132.,00-1152.
• Parties: William J. SPAHR, by and through his co-conservators Steven D. Spahr and Barbara J. Spahr, Plaintiff-Appellee, v. Melissa Catherine SECCO, a/k/a Melissa Radtke, a/k/a Melissa Fisher, a/k/a Melissa Ball, a/k/a Melissa Sweeney, a/k/a Melissa Simms; U.S. Bancorp Investments, Inc., a Minnesota corporation f/k/a FBS Investment Services, Inc., Defendants-Appellants.

330 F.3d 1266

William J. SPAHR, by and through his co-conservators Steven D. Spahr and Barbara J. Spahr, Plaintiff-Appellee, v. Melissa Catherine SECCO, a/k/a Melissa Radtke, a/k/a Melissa Fisher, a/k/a Melissa Ball, a/k/a Melissa Sweeney, a/k/a Melissa Simms; U.S. Bancorp Investments, Inc., a Minnesota corporation f/k/a FBS Investment Services, Inc., Defendants-Appellants.

No. 00-1132.

No. 00-1152.

United States Court of Appeals, Tenth Circuit.

June 3, 2003.

Dale A. Gaar, Denver, CO, for Plaintiff-Appellee.

Stephen D. Bell, Dorsey & Whitney LLP (Brian E. Casey, with him on the opening and reply briefs; William D. Nelson and Gilbert M. Roman of Rothgerber, Johnson & Lyons, L.L.P. on the supplemental brief), Denver, CO, for Defendant-Appellant U.S. Bancorp Investments, Inc.

Francis V. Cristiano, Denver, CO, for Defendant-Appellant Melissa Catherine Secco.

Before LUCERO, McWILLIAMS, and REAVLEY,^* Circuit Judges.

LUCERO, Circuit Judge.

In August 1999, William J. Spahr, through the co-conservators of his estate, brought suit in state court against U.S. Bancorp Investments, Inc., and Melissa Catherine Secco, alleging breach of fiduciary duty, fraud, constructive trust, and negligence. Defendants removed the case to federal court and then filed a motion to stay the proceedings and order arbitration, pursuant to an agreement signed by Spahr in 1995. On the basis that the parties' agreement, which contained an arbitration provision, was unenforceable due to Spahr's mental incapacity, the district court denied the motion. This appeal presents the question, not yet considered in this circuit, whether the Federal Arbitration Act ("FAA"), 9 U.S.C. § 4, dictates that an arbitrator, rather than the court, decide a mental capacity challenge to a contract providing for arbitration of all disputes relating to that contract. Exercising jurisdiction under 9 U.S.C. § 16, we conclude that it does not and affirm the district court's order denying arbitration.

I

According to the complaint, Spahr "is an adult and unable to manage his property and financial affairs effectively because he suffers from dementia and Alzheimer's disease." (U.S. Bancorp's App. at 8 ¶ 2.) On June 6, 1995, he opened an investment account at U.S. Bancorp, formerly known as FBS Investment Services, Inc., through Secco, its employee. In doing so, Spahr signed a Cash Account Agreement promising to submit any controversy arising out of the account to arbitration:

I agree that any controversy arising out of or relating to my account, to transactions with or for me or to this agreement or the breach thereof, whether executed or to be executed within or outside of the United States, and whether asserted against broker-dealer and/or its present or former agents or employees, will be settled by arbitration before and in accordance with the then current rules of the National Association of Securities Dealers, Inc. [("NASD")].

(Id. at 82 ¶ 24.)

During the following year, Secco exploited Spahr's mental deficiencies and finagled him out of large sums of money and real estate. In doing so, Spahr claims, Secco breached her fiduciary duties as Spahr's broker, investment advisor, and trustee. Spahr also alleges that Secco defrauded and exercised undue influence over him.

Spahr seeks recovery from U.S. Bancorp under vicarious liability and negligence theories. Although much of the challenged conduct occurred after U.S. Bancorp discharged Secco for violating NASD broker-dealer ethical guidelines, the complaint alleges that as an employee, Secco was "`legendary' in the stock brokerage community for convincing elderly men to loan her money in exchange for sex." (Id. at 9 ¶ 13.) Spahr claims that U.S. Bancorp was negligent in employing her for "[a] ... position that involved close contact with the clients of [U.S. Bancorp], handling funds of the clients of [U.S. Bancorp] and making investment recommendations for clients." (Id. at 16 ¶ 78.) After the suit was filed, U.S. Bancorp filed a motion — which Secco sought to join — to stay the district court proceedings and compel arbitration based on the Cash Account Agreement signed by Spahr and subsequent customer agreements signed on his behalf.¹

After a two-day evidentiary hearing on U.S. Bancorp's motion to compel arbitration, the district court concluded that the 1995 Cash Account Agreement "is not an enforceable agreement under the law [for] failure of [Spahr] to have sufficient mental capacity to understand the nature and effect of this contract." (Id. at 211.) On this basis, the court denied U.S. Bancorp's motion to compel arbitration. In response to U.S. Bancorp's argument that subsequent customer agreements signed by co-trustees of the Spahr Trust and Spahr's co-conservators require arbitration, the court concluded that "[t]he matter of later ratification has nothing to do with this case." (Id. at 210.) Denying Secco's request to join U.S. Bancorp's motion, the district court determined that the "allegations here deal with things that had nothing to do with ... [Secco] being the customer's representative for [U.S. Bancorp]." (Secco's App. at 82.)

On appeal, U.S. Bancorp and Secco challenge the district court's rulings on the ground that Spahr's mental incompetence claim must be submitted to arbitration under the parties' agreement. Defendants also challenge the district court's decision that Spahr was not obligated to arbitrate this dispute based on the subsequent customer agreements signed on his behalf. Secco further contends that the district court misconstrued the arbitration provision to exclude the claims against her.²

II

We review de novo trial court denials of motions to compel arbitration. Williams v. Imhoff, 203 F.3d 758, 762 (10th Cir.2000). Motions to compel arbitration are governed by 9 U.S.C. § 4,³ which provides:

The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.... If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof.⁴

9 U.S.C. § 4 (emphasis added). This provision requires judicial resolution of issues that go to the "making" of an agreement for arbitration. Prima Paint Corp. v. Flood & Conklin Mfg., 388 U.S. 395, 403-04, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967). It has long been a tenet of federal arbitration law that "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." AT & T Techs. v. Communications Workers of Am., 475 U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986). It follows that "[t]he question whether the parties have submitted a particular dispute to arbitration, i.e., the `question of arbitrability,' is an issue for judicial determination unless the parties clearly and unmistakably provide otherwise." Howsam, 123 S.Ct. at 591. Although "doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration," Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983), a court may compel arbitration of a particular dispute under § 4 of the FAA only when satisfied that the "making" of the agreement to arbitrate is not at issue, Prima Paint, 388 U.S. at 404, 87 S.Ct. 1801.

In denying U.S. Bancorp's motion to compel arbitration, the district court concluded that Spahr's June 6, 1995, Cash Account Agreement was "not an enforceable agreement under the law." (U.S. Bancorp's App. at 211.) On appeal, U.S. Bancorp advances two arguments in support of its position that Spahr's mental capacity challenge should have been decided by arbitrators: It argues that the parties agreed to arbitrate arbitrability, and asserts that Spahr's mental capacity challenge goes to the validity of the entire contract, rather than merely the arbitration clause itself. For the latter reason, U.S. Bancorp contends that the Supreme Court's decision in Prima Paint dictates arbitration of Spahr's mental capacity challenge. We reject both arguments.⁵

A

We first consider whether the agreement signed by Spahr in 1995 contains "clear and unmistakable evidence" that the parties agreed to submit the question of arbitrability to arbitration. In First Options of Chicago, Inc. v. Kaplan, the Supreme Court held that "[j]ust as the arbitrability of the merits of a dispute depends on whether the parties agreed to arbitrate that dispute, so the question `who has the primary power to decide arbitrability' turns upon what the parties agreed about that matter." 514 U.S. 938, 943, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995) (citation omitted). First Options concludes that we "should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so." Id. at 944, 115 S.Ct. 1920. On this authority, this court has held that broad provisions to arbitrate all disputes arising out of or relating to the overall contract, like the one at issue here, do not provide the requisite clear and unmistakable evidence "within the four corners of the ... [a]greement that the parties intended to submit the question of whether an agreement to arbitrate exists to an arbitrator." Riley Mfg. Co. v. Anchor Glass Container Corp., 157 F.3d 775, 780 (10th Cir.1998); see also McLaughlin Gormley King Co. v. Terminix Int'l Co., 105 F.3d 1192, 1194 (8th Cir.1997) (concluding that the arbitration clause in question did not clearly and unmistakably evidence the parties' intent to give the arbitrator power to determine arbitrability where the clause did not mention a "controversy over arbitrability"); cf. PaineWebber, Inc. v. Bybyk, 81 F.3d 1193, 1199-1200 (2d Cir.1996) (holding that a provision requiring...