Victor v. Dean Witter Reynolds, Inc.

• Decision Date: 25 September 1992
• Docket Number: No. 92-191,92-191
• Parties: 17 Fla. L. Week. D2230 William D. VICTOR and Jeanette M. Victor, Appellants, v. DEAN WITTER REYNOLDS, INC., Appellee.
• Court: Florida District Court of Appeals

Page 681

606 So.2d 681

17 Fla. L. Week. D2230

William D. VICTOR and Jeanette M. Victor, Appellants, v. DEAN WITTER REYNOLDS, INC., Appellee.

No. 92-191.

District Court of Appeal of Florida,

Fifth

District.

Sept. 25, 1992.

Robert Dyer and Neal J. Blaher of Allen, Dyer, Doppelt, Franjola & Milbrath, P.A., Orlando, for appellants.

Peter J. Aldrich and Glenn D. Kelley of Broome, Kelley & Aldrich, P.A., West Palm Beach, for appellee.

GRIFFIN, Judge.

This is an appeal of a non-final order temporarily enjoining an arbitration proceeding governed by the Federal Arbitration Act (the "FAA"). ¹ We reverse.

Appellants William D. Victor and Jeanette M. Victor (the "Victors") were clients of Dean Witter Reynolds, Inc. ("Dean Witter") in its Eustis, Florida office. The Victors opened their account in 1981. Their "Securities Account Agreement" with Dean Witter ("customer agreement"), which was executed August 30, 1982, provided as follows:

Arbitration of Controversies. Any controversy between DWR and me arising out of or relating to this contract or the breach thereof, shall be settled by arbitration, in accordance with the rules, then obtaining of either the American Arbitration Association, or the Board of Arbitration of the New York Stock Exchange, as I may elect. If I do not make such election by registered mail addressed to DWR at DWR's main office within five (5) days after receipt of notification from DWR requesting such election, then I authorize DWR to make such election on my behalf. Any arbitration hereunder shall be before at lease [sic] three arbitrators and the award of the arbitrators, or of a majority of them, shall be final, and judgment upon the award rendered may be entered in any court, state or federal, having jurisdiction.

Governing Law. This agreement and its enforcement shall be governed by the laws of the State of New York and its provisions shall be continuous; shall cover individually and collectively all accounts which I may open or re-open with DWR, and shall enure to the benefit of DWR's present organization, and any successor organization, without regard to any change or changes at any time in the personnel thereof, for any cause whatsoever, and of the assigns of DWR's present organization, and of the assigns of any successor organization, and shall be binding upon me and/or my estate, executors, administrators and assigns.

In 1983, the Victors made a $10,000 investment in an oil limited partnership marketed by Dean Witter. They contend this investment, which they made based on the recommendation of their broker at Dean Witter, was incompatible with their investment objectives. They allege that in 1986 when the distributions they had been receiving dropped sharply, they questioned their Dean Witter broker and were told their distributions would increase when oil prices went up. They were also told for the first time that the partnership could not be sold. The Victors assert that although oil prices rose sharply in 1990 following the invasion of Kuwait, the "value" of the partnership remained at its previous level and "Mr. Victor realized at this point that the disclosures made to him prior to 1990 had not been truthful."

On May 28, 1991, the Victors filed a statement of claim with the American Arbitration Association ("AAA"), seeking arbitration of their dispute with Dean Witter over this investment. The Victors' complaint for expedited arbitration included five legal theories: (1) violation of federal and state securities laws; (2) breach of contract; (3) breach of fiduciary duty; (4) misrepresentation; and (5) negligence and/or gross negligence.

After several months of procedural wrangling between Dean Witter and the Victors, principally over the number of arbitrators, the matter was scheduled to be arbitrated on January 10, 1992. On January 3, 1992, Dean Witter filed an action for declaratory and injunctive relief in Lake County circuit court, seeking a judicial determination that the Victors' claims were barred by the statute of limitations and a permanent injunction barring arbitration. Accompanying the complaint was an emergency motion for a temporary injunction staying the upcoming arbitration. The lower court granted Dean Witter's motion for a temporary injunction. The Victors correctly contend that entry of this injunction was error.

This case is governed by the FAA since it involves a securities transaction in interstate commerce. Rosen v. Shearson Lehman Bros., Inc., 534 So.2d 1185, 1186 (Fla. 3d DCA 1988), rev. denied, 544 So.2d 200 (Fla.1989). Federal courts applying the FAA have almost uniformly held that, assuming an arbitration clause is sufficiently broad to permit arbitration of the statute of limitations issue, the question whether an action is time-barred due to a state statute of limitations is a question for the arbitrator, not the courts. See, e.g., Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 121 (2d Cir.1991); Hanes Corp. v. Millard, 531 F.2d 585 (D.C.Cir.1976); Titan Group, Inc. v. Anne Arundel County, Dept. of Public Works, 588 F.Supp. 938 (D.C.Md.), aff'd, 749 F.2d 32 (4th Cir.1984). ² The arbitration provision at issue here is broad and, standing alone, would plainly embrace the statute of limitations issue. ³

Dean Witter has claimed an "absolute right" to have the court determine the statute of limitations issue based on a recent opinion of the Fourth District Court of Appeal, Estate of Vernon v. Shearson, Lehman Bros., Inc., 587 So.2d 1169 (Fla. 4th DCA 1991). ⁴ We agree with the decision reached in Vernon, although we might disagree with dicta contained in the opinion. ⁵ In Vernon, the issue was not whether the arbitrable claim was barred by expiration of a contractual deadline, a statute of limitations or laches; rather, the issue was whether a brokerage firm seeking recovery of unpaid account balances from the estate of a deceased customer was precluded from asserting a claim against the customer's estate by virtue of its failure to timely file a claim as required by the probate code. Shearson had argued in that case that its agreement with the decedent to arbitrate disputes somehow avoided the nonclaim provision in the probate code. We agree with the Vernon court that the state court did have jurisdiction to prevent any prosecution of a claim against an estate which under Florida's probate code had been extinguished because it was not timely filed. This nonclaim issue was unrelated to the transaction between the deceased and Shearson and would have had no place in arbitration. An arbitration agreement, even under the FAA, should not affect the state court's power to enforce the provisions of its probate code.

It is true that the Vernon court went on to say that it is the court which should decide whether an arbitration claim has been barred by the statute of limitations, even in the context of the Federal Arbitration Act. According to the opinion, all of the cases relied upon by Shearson, authorizing the arbitrator to rule on statutes of limitations cases, involved contractual time bars, not statutory time bars. ⁶ Federal courts hold, however, that where the Federal Arbitration Act applies, any limitations defense--whether stemming from the arbitration agreement, arbitration association rules or state statute--should be determined by the arbitrator. Wagoner, 944 F.2d at 121. Indeed, Vernon is the only case (state or federal) cited by Dean Witter for the proposition that, in cases governed by the FAA, the courts, not the arbitrator, should decide statute of limitations issues. ⁷

Dean Witter also argues that federal arbitration law is inapplicable where, as here, an arbitration agreement contains a state choice of law provision which permits resolution of statute of limitations issues in court prior to arbitration. It relies on Volt Info. Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989). In Volt, based on a choice of law provision in an arbitration agreement, the Supreme Court refused to disturb a California Court of Appeals decision enforcing a state statutory stay of arbitration pending resolution of lawsuits against third parties not subject to arbitration. Volt held that the FAA does not preempt the field of arbitration so long as the state law does not require judicial resolution of claims that the parties agreed to arbitrate.

The Dean Witter customer agreement provides that New York law will apply to the "agreement and its enforcement." Section 7502(b) of the New York Civil Practice Laws and Rules ("CPLR"), on which Dean Witter relies, contains alternative procedures for determination of statutes of limitation issues in arbitration cases:

(b) Limitation of Time. If, at the time that a demand for arbitration was made or a notice of intention to arbitrate was served, the claim sought to be arbitrated would have been barred by limitation of time had it been asserted in a court of the state, a party may assert the limitation as a bar to the arbitration upon application to the court as provided in section 7503 [providing for a trial of the limitations issue] or subdivision (b) of section 7511 [setting forth the standard grounds for vacating an award]. The failure to assert such bar by such application shall not preclude its assertion before the arbitrators, who may, in their sole discretion, apply or not apply the bar. Except as provided in subdivision (b) of section 7511, such exercise of discretion by the arbitrators shall not be subject to review by a court on an application to confirm, vacate or modify the award.

We conclude that Volt does not extend as far as this New York statute. In Volt, arbitration was not displaced; it was merely deferred until the third party suits were decided. The New York statute, on the other hand, impermissibly strays into an area preempted by the FAA by permitting one party to avoid arbitration of an issue covered by an...