Kramer v. Smith Barney , 80 F.3d 1080 ( 1996 )


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  •                  United States Court of Appeals,
    Fifth Circuit.
    No. 95-10441.
    Quentin T. KRAMER, M.D., Individually and as Trustee for Various
    Pension Plans, Quentin T. Kramer, M.D., PA Defined Benefit Pension
    Plan and Quentin T. Kramer, M.D., PA, Money Purchase Pension
    Plan/Profit Sharing Plan, Plaintiffs-Appellants,
    v.
    SMITH BARNEY, formerly known as Shearson Lehman Brothers Inc.,
    and Larry F. Robb, Defendants-Appellees.
    April 23, 1996.
    Appeal from the United States District Court for the Northern
    District of Texas.
    Before HIGGINBOTHAM   and    DUHÉ,    Circuit   Judges,   and   SCHWARZER,
    District Judge*.
    SCHWARZER, District Judge:
    Dr. Quentin T. Kramer brought this action in Texas state
    court, alleging state law claims for fraud, negligence, securities
    violations, and breach of contract arising out of purchases of
    partnership interests from defendants Smith Barney, Inc. and Larry
    F. Robb. Defendants removed the action to the district court which
    then granted their motion to dismiss the action under Fed.R.Civ.P.
    12(b)(6) as untimely. Kramer appealed. We have jurisdiction under
    28 U.S.C. § 1291 and remand with directions.
    FACTS
    Kramer brought this action as an individual and as trustee of
    two pension plans for the benefit of himself and his employees.
    *
    District Judge of the Northern District of California,
    sitting by designation.
    1
    Smith Barney is a licensed broker and Robb was its branch manager
    as well as a licensed broker and financial consultant.              Through
    Robb, Kramer opened three accounts with Smith Barney:               an IRA
    account in his individual capacity, a defined benefit pension plan
    account, and a money purchase pension plan/profit sharing plan
    account.    He was the trustee of the latter two plans and, along
    with his employees, a beneficiary.        From 1984 through 1989, Kramer
    purchased from Robb interests in limited partnerships for these
    accounts.   He alleges that he relied on Robb for advice in making
    those purchases, and that a fiduciary relationship existed between
    them.   He charges that Robb sold him unsuitable investments, made
    misrepresentations,   failed   to       disclose   the   true   risks,   and
    concealed losses in these accounts which he alleges total one
    million dollars.   On appeal from the granting of a Rule 12(b)(6)
    motion, we accept the allegations of the complaint as true. Carney
    v. Resolution Trust Corp., 
    19 F.3d 950
    , 954 (5th Cir.1994).
    When Kramer opened the accounts with Smith Barney, he signed
    the standard customer agreement which provided that:
    [A]ny controversy arising out of or relating to my accounts,
    to transactions with you for me, or to this agreement or the
    breach thereof, shall be settled by arbitration in accordance
    with the rules then in effect, of the National Association of
    Securities Dealers, Inc., or the Board of Directors of the New
    York Stock Exchange, Inc. and/or the American Stock Exchange,
    Inc. as I may elect.
    Rule 605 of the American Stock Exchange (AMEX) states:
    No dispute, claim or controversy shall be eligible for
    submission to arbitration in any instance where six (6) years
    shall have elapsed from the occurrence or event giving rise to
    the act or the dispute, claim or controversy.
    Kramer initiated an arbitration proceeding under the customer
    2
    agreement in July 1993, within two years after he discovered the
    true value of his investments but more than six years after he
    purchased most of them.        Smith Barney filed a motion in New York
    state court to stay arbitration of the claims that were based on
    purchases      made   more   than   six     years   before   the   arbitration
    commenced.     The court granted the motion and stayed arbitration of
    those claims. The Appellate Division of the New York Supreme Court
    affirmed.      Kramer then abandoned the arbitration and filed the
    instant action in the Texas state court with respect to all of the
    purchases.
    SUBJECT MATTER JURISDICTION
    Although neither the District Court nor the parties addressed
    the question of subject matter jurisdiction, we are obliged to do
    so.    Ziegler v. Champion Mortgage Co., 
    913 F.2d 228
    , 229 (5th
    Cir.1990).
    Under the well-pleaded complaint rule, a case does not "arise
    under" federal law and is not removable if the complaint asserts
    only   state    law   causes   of   action.         Franchise   Tax   Board   v.
    Construction Laborers Vacation Trust, 
    463 U.S. 1
    , 10, 
    103 S. Ct. 2841
    , 2846-47, 
    77 L. Ed. 2d 420
    (1983).               Nor will an anticipated
    federal    defense,    including    a     defense   of   preemption,   support
    removal.     Caterpillar Inc. v. Williams, 
    482 U.S. 386
    , 393, 
    107 S. Ct. 2425
    , 2430, 
    96 L. Ed. 2d 318
    (1987).                 Under the complete
    preemption doctrine, however, "Congress may so completely pre-empt
    a particular area that any civil complaint raising this select
    group of claims is necessarily federal in character." Metropolitan
    3
    Life Ins. Co. v. Taylor, 
    481 U.S. 58
    , 63-64, 
    107 S. Ct. 1542
    , 1546,
    
    95 L. Ed. 2d 55
    (1987).     Consequently, a statute's preemptive force
    may "convert[ ] an ordinary state common law complaint into one
    stating a federal claim for purposes of the well-pleaded complaint
    rule."     
    Id. at 65,
    107 S.Ct. at 1547.      Smith Barney removed this
    case by invoking federal jurisdiction under the Employee Retirement
    Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1109 (1982),
    1132(a)(2)-(3) (1988), 1144(a) (1982); 
    Taylor, 481 U.S. at 67
    , 107
    S.Ct. at 1548.1    We must determine whether the action is preempted
    by ERISA and, if so, whether ERISA displaces the state law causes
    of action asserted.
    Kramer filed this action on his own behalf and on behalf of
    the Kramer Defined Benefit Pension Plan and the Kramer Money
    Purchase    Pension   Plan/Profit   Sharing   Plan.   These   plans,   as
    "employee benefit plans" within the meaning of ERISA, are covered
    by ERISA.      See 29 U.S.C. §§ 1002(2)(A), 1002(3), 1003 (1982).
    Section 514(a) states that "the provisions of [ERISA] ... shall
    supersede any and all State laws insofar as they may now or
    hereafter relate to any employee benefit plan."            29 U.S.C. §
    1144(a).     "[T]he preemption provision is "deliberately expansive'
    and "designed to "establish pension plan regulation as exclusively
    a federal concern[.]" '     ... [A] law relates to an ERISA plan "if
    it has a connection with or reference to such a plan.' "       Anderson
    1
    If the claims relating to the ERISA accounts were
    removable, Kramer's other claims relating to purchases for his
    personal account were removable as supplemental claims under 28
    U.S.C. § 1367 (1994).
    4
    v. Electronic Data Sys. Corp., 
    11 F.3d 1311
    , 1313 (5th Cir.1994)
    (quoting Ingersoll-Rand Co. v. McClendon, 
    498 U.S. 133
    , 139, 
    111 S. Ct. 478
    , 483, 
    112 L. Ed. 2d 474
    (1990)), cert. denied, --- U.S. ---
    -, 
    115 S. Ct. 55
    , 
    130 L. Ed. 2d 14
    (1994).     Kramer's state law claims
    alleging that defendants violated their fiduciary duties to the
    plans and the beneficiaries relate to ERISA plans and are therefore
    preempted under section 514(a).       See 
    McClendon, 498 U.S. at 140
    ,
    111 S.Ct. at 483-84 (1990) (Texas common law wrongful discharge
    cause of action preempted by ERISA).
    Having concluded that Kramer's state law claims are preempted,
    we must next consider whether ERISA displaces those claims under
    the complete preemption doctrine. This appears to be a question of
    first impression.     Taylor involved the issue of whether ERISA
    section 502(a)(1)(B) preempted and displaced plaintiff's state law
    claims to recover benefits under an ERISA plan.      
    See 481 U.S. at 63-66
    , 107 S.Ct. at 1546-48;      29 U.S.C. § 1132(a)(1)(B).     Thus
    Taylor does not necessarily resolve the specific issue before us
    which involves section 502(a)(2) instead of section 502(a)(1).     We
    confronted a closely analogous situation, however, in 
    Anderson, 11 F.3d at 1315
    .    Anderson claimed that he had been discharged for
    reporting ERISA violations and failing to commit others.          We
    concluded that Anderson's claims fell within ERISA section 510.
    
    Id. at 1314.
       Section 510 makes it unlawful to discharge a person
    "for the purpose of interfering with the attainment of any right
    ... under the plan [or ERISA] ... [or] because he has given
    information ... relating to [ERISA,]" and makes the provisions of
    5
    section 502 "applicable in the enforcement of this section."             29
    U.S.C. § 1140 (1982).    Reasoning that Taylor "held that causes of
    action within the scope of the civil enforcement provisions of
    ERISA § 502(a) are subject to the complete preemption doctrine[,]"
    we held Anderson's action to be removable.         
    Anderson, 11 F.3d at 1315
    .    That reasoning is equally applicable here.       Section 409 of
    ERISA imposes duties and liabilities on fiduciaries of ERISA plans:
    Any person who is a fiduciary with respect to a plan who
    breaches any of the responsibilities, obligations, or duties
    imposed upon fiduciaries by this subchapter shall be
    personally liable to make good to such plan any losses to the
    plan resulting from each such breach....
    29 U.S.C. § 1109(a).2       ERISA further requires fiduciaries to
    discharge their duties "solely in the interest of the participants
    and beneficiaries[,]" using "care, skill, prudence, and diligence."
    29 U.S.C. § 1104(a)(1) (1982).          And section 502(a)(2) of ERISA
    provides for civil enforcement by authorizing a "participant,
    beneficiary or fiduciary" to bring a civil action "for appropriate
    relief under section 1109."      29 U.S.C. § 1132(a)(2).        We therefore
    conclude that because Kramer's state law claims fall within the
    enforcement    provisions   of   section    502,   they   are    completely
    preempted and the action was properly removed to the district
    court.
    2
    The existence of a fiduciary relationship under ERISA, on
    the merits, is a mixed question of law and fact. See Reich v.
    Lancaster, 
    55 F.3d 1034
    , 1044-45 (5th Cir.1995); 29 U.S.C. §
    1002(21) (1982). But since defendants removed on the basis of
    ERISA preemption founded on the complaint's allegations which
    included allegations of fiduciary breaches relating to ERISA
    plans, they are bound by those allegations for purposes of
    subject matter jurisdiction.
    6
    ARBITRABILITY OF KRAMER'S CLAIMS
    The district court dismissed the action with prejudice on the
    ground that Kramer could not pursue in court the claims that had
    been made ineligible for arbitration under Rule 605 by reason of
    their age.   In doing so, the court relied on Calabria v. Merrill
    Lynch,   Pierce,     Fenner      &     Smith,    Inc.,     
    855 F. Supp. 172
    (N.D.Tex.1994),     which   held       that   claims     made    ineligible   for
    arbitration under a customer agreement were not litigable in
    federal court.     
    Id. at 176.
          We review the dismissal of a complaint
    under Rule 12(b)(6) de novo.            Blackburn v. City of Marshall, 
    42 F.3d 925
    , 931 (5th Cir.1995).           We must consider the ERISA claims
    separately from the personal state law claims.
    A. The ERISA claims.
    The arbitration clause of the customer agreement is subject
    to the Federal Arbitration Act ("Arbitration Act") as "[a] written
    provision in ... a contract evidencing a transaction involving
    commerce to settle by arbitration a controversy thereafter arising
    out of such contract."      9 U.S.C. § 2 (1982).          The Arbitration Act
    makes the clause enforceable.           
    Id. §§ 2,
    3 (1982).         At the same
    time, ERISA vests exclusive jurisdiction of civil actions under
    ERISA in the district courts.           29 U.S.C. § 1132(e)(1) (1988).         We
    must determine whether ERISA's enforcement provision preempts the
    Arbitration Act.
    In Shearson/American Express, Inc. v. McMahon, 
    482 U.S. 220
    ,
    238, 
    107 S. Ct. 2332
    , 2343-44, 
    96 L. Ed. 2d 185
    (1987), the Supreme
    Court held that an arbitration clause was enforceable under the
    7
    Arbitration Act with respect to claims under section 10 of the
    Securities Exchange Act of 1934 ("Exchange Act"), even though the
    Exchange Act gives district courts exclusive jurisdiction over
    actions   brought   under   the   Act.3   The   Court   held   arbitration
    agreements to be enforceable with respect to statutory claims in
    the absence of evidence of "congressional intent to exclude ...
    [those] claims from the dictates of the Arbitration Act."           
    Id. at 238,
    107 S.Ct. at 2343-44;          see also Rodriguez de Quijas v.
    Shearson/American Express, Inc., 
    490 U.S. 477
    , 
    109 S. Ct. 1917
    , 
    104 L. Ed. 2d 526
    (1989) (enforcing agreement to arbitrate claims under
    the Securities Act of 1933);         Mitsubishi Motors Corp. v. Soler
    Chrysler-Plymouth, Inc., 
    473 U.S. 614
    , 625, 
    105 S. Ct. 3346
    , 3353,
    
    87 L. Ed. 2d 444
    (1985) (enforcing agreement to arbitrate antitrust
    claims:   "[W]e find no warrant in the Arbitration Act for implying
    in every contract within its ken a presumption against arbitration
    of statutory claims.").     Although this circuit has not confronted
    the issue, the three circuits to have done so have held that
    Congress did not intend to prohibit arbitration of statutory ERISA
    claims, and that arbitration is appropriate "[s]o long as the
    prospective litigant effectively may vindicate his or her statutory
    cause of action in the arbitral forum." Pritzker v. Merrill Lynch,
    Pierce, Fenner & Smith, 
    7 F.3d 1110
    , 1119 (3rd Cir.1993) (citation
    omitted) (relying on McMahon and Rodriguez, court held arbitration
    3
    Much of the opinion in McMahon is devoted to a discussion
    of Section 29(a) of the Act which declares void "[a]ny condition,
    stipulation, or provision binding any person to waive compliance
    with any provision of [the Act]". 15 U.S.C. § 78cc(a). ERISA
    contains no comparable provision.
    8
    agreement binding with respect to claims of fiduciary breaches
    under ERISA);         see also Bird v. Shearson Lehman/American Exp.,
    Inc., 
    926 F.2d 116
    (2nd Cir.1991) (same), cert. denied, 
    501 U.S. 1251
    , 
    111 S. Ct. 2891
    , 
    115 L. Ed. 2d 1056
    (1991);                 Arnulfo P. Sulit,
    Inc. v. Dean Witter Reynolds, 
    847 F.2d 475
    (8th Cir.1988) (same).
    We agree that Congress did not intend to exempt statutory
    ERISA     claims      from   the     dictates     of   the    Arbitration     Act.
    Accordingly,       we    hold     that    the   customer     agreement    mandates
    arbitration of Kramer's ERISA claims.
    We now reach the question whether AMEX Rule 605 applies to
    the arbitration of those claims.                 That rule, incorporated by
    reference into the customer agreement, renders ineligible for
    arbitration claims where "six (6) years shall have elapsed from the
    occurrence or event giving rise to the act or the dispute, claim or
    controversy."       The New York court ruled most of Kramer's claims
    ineligible under this rule.
    ERISA contains its own statute of limitations.                        It bars
    claims:
    [A]fter the earlier of—
    (1) six years after (A) the date of the last action which
    constituted a part of the breach or violation, or ... (2)
    three years after the earliest date (A) on which the
    plaintiff had actual knowledge of the breach or violation
    ...;
    except that in the case of fraud or concealment, such
    action may be commenced not later than six years after the
    date of discovery of such breach or violation.
    29 U.S.C. § 1113 (Supp. V 1987 & Supp. I 1989).               Thus ERISA permits
    tolling    of   the     statute    of    limitations   in    cases   of   fraud   or
    9
    concealment.    Under section 410, "any provision in an agreement or
    instrument     which   purports   to   relieve   a   fiduciary   from
    responsibility or liability for any responsibility, obligation, or
    duty under [ERISA] shall be void as against public policy."        29
    U.S.C. § 1110(a) (1982).       To the extent the AMEX rule renders
    ineligible for arbitration ERISA claims more than six years old
    which could otherwise be enforced on proof of fraud or concealment,
    it "relieve[s] a fiduciary from ... liability."      
    Id. In holding
    that an arbitration agreement may be enforced with respect to ERISA
    fiduciary claims, the court in Sulit reasoned:
    Under this statutory structure, an agreement to waive the
    judicial forum allowed for in section 1132(e) in favor of
    arbitration does not carry with it the waiver of any
    substantive duties or liabilities, and thus, no fiduciary has
    been   impermissibly   relieved   of   any   "responsibility,
    obligation, or duty" imposed by 
    [ERISA]. 847 F.2d at 478
    (citations omitted);     see also 
    Soler, 473 U.S. at 628
    , 105 S.Ct. at 3354 ("By agreeing to arbitrate a statutory
    claim, a party does not forgo the substantive rights afforded by
    the statute....");     de Coninck v. Provident Life and Ins. Co., 
    747 F. Supp. 627
    , 633 (D.Kan.1990) (applying ERISA limitations period
    despite shorter limitations period in parties' insurance contract);
    compare 
    Calabria, 855 F. Supp. at 175
    (AMEX rule binding where no
    ERISA claim involved).     Because application of Rule 605 to render
    Kramer's ERISA claims ineligible for arbitration would impair his
    substantive rights, we hold it void with respect to those claims.
    Since the district court's ruling dismissing the action was
    premised on the ineligibility of Kramer's claims under the AMEX
    rule, it must be set aside to permit arbitration of the ERISA
    10
    claims.4     While we recognize that neither party raised the ERISA
    issues in the district court, since subject matter jurisdiction is
    founded on ERISA, those issues cannot be avoided.                 Because ERISA
    permits     tolling   of   its   statute     of   limitations     for   fraud    or
    concealment, we need not address Kramer's arguments why tolling
    should be permitted under the customer agreement with respect to
    the ERISA claims.
    We reject defendants' contention that those claims are barred
    by collateral estoppel on the basis of the New York court's ruling.
    The courts of the United States give the judicial proceedings of a
    state court "the same full faith and credit ... as they have by law
    or usage in the courts of such State."               28 U.S.C. § 1738.          The
    district courts have exclusive jurisdiction under section 502(e)(1)
    of actions to enforce fiduciary obligations under ERISA.                        See
    Retail Shoe Health Comm. v. Reminick, 
    62 N.Y.2d 173
    , 
    476 N.Y.S.2d 276
    , 
    464 N.E.2d 974
    (1984), cert. denied, 
    471 U.S. 1022
    , 
    105 S. Ct. 2034
    , 
    85 L. Ed. 2d 316
    (1985).           The New York court therefore lacked
    subject matter jurisdiction, and under New York law, "[a] judgment
    ... issued without subject matter jurisdiction is void." Editorial
    Photocolor Archives, Inc. v. Granger Collection, 
    61 N.Y.2d 517
    , 
    474 N.Y.S.2d 964
    , 967, 
    463 N.E.2d 365
    , 368 (1984);             see also Marrese v.
    American Academy of Ortho. Surgeons, 
    470 U.S. 373
    , 382, 
    105 S. Ct. 1327
    , 1333,     
    84 L. Ed. 2d 274
      (1985)     ("If   state   preclusion     law
    includes this requirement of prior jurisdictional competency, which
    4
    We leave it to the arbitrator to decide whether application
    of the ERISA statute of limitations bars any of Kramer's claims.
    11
    is generally true, a state judgment will not have claim preclusive
    effect on a cause of action within the exclusive jurisdiction of
    the federal courts.").
    B. Kramer's personal claims.
    Kramer's   non-ERISA   claims,   over   which   the   court   has
    supplementary jurisdiction, are subject to the arbitration clause
    and AMEX Rule 605.     Those claims that arose out of transactions
    that occurred more than six years before the arbitration are
    ineligible.     Kramer is collaterally estopped by the New York
    judgment to contend that the claims are arbitrable because of
    fraudulent concealment.5 The New York court held specifically that
    "[t]hese [AMEX] rules are substantive eligibility requirements, not
    statutes of limitations, and may not be tolled.          The arbitration
    therefore may not proceed insofar as it concerns partnership
    interests purchased six years or more prior to the commencement of
    the original arbitration."      Shearson Lehman Bros., Inc. and Larry
    F. Robb v. Quentin T. Kramer, No. 101339/93, 5 (N.Y.Sup.Ct. Nov.
    16, 1993).    We are bound to give full faith and credit to this
    final decision of a state court.    Raju v. Rhodes, 
    7 F.3d 1210
    , 1214
    (5th Cir.1993) ("[O]nce a court of competent jurisdiction decides
    an issue of fact or law necessary to its judgment, the same parties
    to that judgment cannot relitigate that issue in a different
    action.").
    5
    Because the parties did not raise the issue, we do not
    decide whether Kramer's failure to exhaust the arbitration
    proceeding he commenced results in an abandonment of arbitrable
    claims.
    12
    Kramer contends, however, that he is entitled to litigate in
    court claims ineligible for arbitration. This too appears to be an
    issue of first impression in the courts of appeals, though several
    district courts have ruled on it.         Arbitration is a creature of
    contract and the scope of the parties' obligation to arbitrate must
    be   determined   by   reference   to    the   terms   of   the   agreement.
    Commercial Metals Co. v. Balfour, Guthrie, and Co., 
    577 F.2d 264
    ,
    266 (5th Cir.1978). The customer agreement provides that "[u]nless
    unenforceable due to federal or state law, any controversy arising
    out of or relating to [transactions between the parties] ... shall
    be settled by arbitration." The intention underlying the agreement
    quite plainly is to require the submission of all claims to
    arbitration, subject only to the express exemption for claims not
    arbitrable under federal or state law.           It would be bizarre to
    interpret the agreement to exempt stale claims from arbitration.
    We hold the customer agreement to bar litigation of the claims that
    are ineligible for arbitration.
    CONCLUSION
    We REMAND to the district court with directions to enter
    judgment directing the parties to submit the ERISA claims to
    arbitration and dismissing with prejudice all remaining claims.
    13
    

Document Info

Docket Number: 95-10441

Citation Numbers: 80 F.3d 1080, 1996 WL 162107

Judges: Higginbotham, Duhé, Schwarzer

Filed Date: 4/23/1996

Precedential Status: Precedential

Modified Date: 11/5/2024

Authorities (19)

Marrese v. American Academy of Orthopaedic Surgeons , 105 S. Ct. 1327 ( 1985 )

Caterpillar Inc. v. Williams , 107 S. Ct. 2425 ( 1987 )

frank-l-bird-trustee-of-the-frank-l-bird-profit-sharing-trust-frank-l , 116 A.L.R. Fed. 821 ( 1991 )

arnulfo-p-sulit-inc-arnulfo-p-sulit-md-inc-money-purchase-pension , 847 F.2d 475 ( 1988 )

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. , 105 S. Ct. 3346 ( 1985 )

Ingersoll-Rand Co. v. McClendon , 111 S. Ct. 478 ( 1990 )

Raju v. Rhodes , 7 F.3d 1210 ( 1993 )

Cooper v. United States Postal Service , 105 S. Ct. 2034 ( 1985 )

Jimmy Blackburn v. Marshall City Of , 42 F.3d 925 ( 1995 )

George Raymond Anderson, A/K/A Andy Anderson v. Electronic ... , 11 F.3d 1311 ( 1994 )

eli-pritzker-sol-cooperstein-jack-levin-as-trustees-of-penn-electric , 7 F.3d 1110 ( 1993 )

Shearson/American Express Inc. v. McMahon , 107 S. Ct. 2332 ( 1987 )

Rodriguez De Quijas v. Shearson/American Express, Inc. , 109 S. Ct. 1917 ( 1989 )

Franchise Tax Bd. of Cal. v. Construction Laborers Vacation ... , 103 S. Ct. 2841 ( 1983 )

Commercial Metals Company v. Balfour, Guthrie, and Company, ... , 577 F.2d 264 ( 1978 )

Dale L. Ziegler v. Champion Mortgage Company , 913 F.2d 228 ( 1990 )

robert-b-reich-secretary-of-the-united-states-department-of-labor-v , 55 F.3d 1034 ( 1995 )

Carney v. Resolution Trust Corp. , 19 F.3d 950 ( 1994 )

Metropolitan Life Insurance v. Taylor , 107 S. Ct. 1542 ( 1987 )

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