Safer v. Nelson Fincl Grp Inc

United States Court of Appeals
Fifth Circuit
REVISED OCTOBER 14, 2005
F I L E D
August 18, 2005
IN THE UNITED STATES COURT OF APPEALS
Charles R. Fulbruge III
FOR THE FIFTH CIRCUIT Clerk
No. 04-31092
JOEL J SAFER; MELANIE M SAFER; VICTORIA THOMPSON, as Trustee for
the Heidi Elizabeth Safer Insurance Trust No. 1, the
Joel Jarrett Safer II Insurance Trust No. 1, the Kelli
Carpenter Insurance Trust No. 1 and the Charles Patrick
Carpenter Insurance Trust No. 1
Plaintiffs - Appellees
v.
NELSON FINANCIAL GROUP INC.; WILLIAM J NELSON
Defendants - Appellants
Appeal from the United States District Court
for the Middle District of Louisiana
Before KING, Chief Judge, and DAVIS, Circuit Judge, and
FITZWATER,* District Judge.
KING, Chief Judge:
Defendants-Appellants William Nelson and Nelson Financial
Group, Inc. appeal the district court’s denial of their motion
for order staying action pending arbitration and compelling
arbitration. For the following reasons, we REVERSE the district
*
District Judge of the Northern District of Texas,
sitting by designation.
1
court’s judgment denying this motion.
I. FACTUAL AND PROCEDURAL BACKGROUND
In the spring of 2000, Dr. Joel Safer, a sixty-year-old
dentist nearing retirement, received a solicitation from William
Nelson, CEO of Nelson Financial Group, Inc.,1 to attend a weekend
investment seminar for dentists entitled the “Investment
Strategies for the Roaring 2000’s Weekend.” According to the
solicitation, an individual named Harvey Dent, Jr., had been
reliably predicting the behavior of the stock market by tracking
birth rates. The solicitation letter from Nelson stated that
Dent’s theories, and their applicability for future investment
decisions, would be explained at the seminar. On April 7, 2000,
Dr. Safer and his wife, Melanie Safer, attended the seminar.
On April 8, 2000, the Safers met privately with William
Nelson to discuss their portfolio and financial planning needs.
That same day, the Safers entered into several agreements with
Nelson Financial regarding the management of their assets.
First, Joel Safer signed an agreement captioned “Advisory
Agreement with Nelson Financial Group, Inc.” (the “Advisory
Agreement”), which stated, inter alia, that in exchange for
$2,500, Nelson Financial would provide him with a group
presentation and a personalized written financial plan. With
1
Unless otherwise stated, we will refer to William
Nelson and Nelson Financial Group, Inc. collectively as “Nelson.”
2
respect to the implementation of investment advice provided by
Nelson Financial, the Advisory Agreement stated:
Remember, you are in control. Consequently, you are
under no obligation to utilize our services or any
company we may recommend. Should you decide to implement
with us, and we hope you do, it will be in our role as
Registered Representatives of Washington Square
Securities, Inc., a registered securities broker/dealer
and investment advisory firm. [Nelson Financial Group]
will implement recommendations made through products
offered by Washington Square Securities. [Nelson
Financial Group] does not have discretionary authority to
execute trades or full power of attorney. Consequently,
we do not have authority to withdraw or to take custody
of your funds or securities.
The Advisory Agreement further stated that:
[Nelson Financial Group] is an Investment Advisor
registered with the Ohio Division of Securities. [Nelson
Financial Group] is not a “fee-only” Investment Advisor,
and as such may accept commissions, fees or other
compensation for the implementation of portfolios.
Advisory Affiliates may be registered representatives of
Washington Square Securities, an affiliated broker/dealer
as disclosed in Form ADV, Part II. You may purchase
insurance products or securities that may be recommended
if appropriate during the course of Consultations
services. When such products are purchased normal
commissions may be earned.
The Advisory Agreement also contained a short mediation clause,
which stated that “[i]f we are not able to resolve your concerns,
we ask that we first seek to resolve any conflicts in Mediation
before resorting to any other forum.” Phyllis Nelson, William
Nelson’s wife and the president of Nelson Financial, signed the
Advisory Agreement on behalf of Nelson Financial.
The same day that Dr. Safer signed the Advisory Agreement,
he and Melanie Safer each signed separate agreements captioned
3
“New Account Information Form[s].” Phyllis Nelson also signed
these agreements. The Safers entered into these agreements in
order to open up brokerage accounts with Washington Square
Securities through Nelson, a registered representative of
Washington Square Securities. Subsequently, the Safers,
individually or together, executed additional New Account
Information Forms on June 9, 11, 12, 15, and 19, July 11, and
October 10, 2000. They also executed Direct Business New Account
Forms with Nelson Financial and Washington Square Securities on
March 7, 2002 and January 4, 2003. All of the New Account
Information Forms stated:
I REPRESENT THAT I HAVE READ AND UNDERSTAND THE TERMS AND
CONDITIONS GOVERNING THIS ACCOUNT AND AGREE TO BE BOUND
BY SUCH TERMS. THIS ACCOUNT IS GOVERNED BY A PRE-DISPUTE
ARBITRATION AGREEMENT ON THE BACK OF THIS NEW ACCOUNT
INFORMATION FORM. I ACKNOWLEDGE RECEIPT OF THE PRE-
DISPUTE ARBITRATION AGREEMENT.
Each form then contained the following arbitration agreement:
PRE-DISPUTE ARBITRATION AGREEMENT
Your account is subject to the arbitration rules of the
National Association of Security Dealers, Inc.
Arbitration is used to resolve a dispute between two
parties. Because controversies involving brokerage firms
often involve complicated issues, arbitration forums were
conceived by the National Association of Securities
Dealers, Inc. to provide an alternative dispute
resolution mechanisms [sic] for investors which can be
more efficient and less costly than court litigation.
You should be aware of the following:
a. Arbitration is final and binding on the parties.
b. The parties are waiving their right to seek
remedies in court including the right to a jury
trial.
4
c. Pre-arbitration discovery is generally more limited
than and different from court proceedings.
d. The arbitrators award is not required to include
factual finding or legal reasoning and any parties
[sic] right to appeal or seek modification of
rulings by the arbitrators is strictly limited.
e. The panel of arbitrators will typically include a
minority of arbitrators who were or are affiliated
with the securities industry.
I agree that any disputes or controversies that may arise
between myself and Washington Square Securities, Inc. or
a rgsee rpeettv o Wsigo Sur Scrte, Ic, cnenn ay odr o tascin o
eitrd ersnaie f ahntn qae euiis n. ocrig n re r rnato, r
the continuation, performance or breach of this or any other
agreement between us, whether entered into before, on, or after the
date this account is opened, shall be determined by arbitration
before a panel of independent arbitrators set up by and in
accordance with the rules and procedures of the National
Association of Security Dealers, Inc. I understand that judgement
upon any arbitration award may be entered in any court of competent
jurisdiction.
The same weekend that the Advisory Agreement and the New Account
Information Forms were signed, Nelson prepared a written
financial plan for the Safers, which they ultimately chose to
follow. In order to implement Nelson’s investment
recommendations, the Safers purchased life insurance policies and
other investments from Nelson (acting as a registered
representative of Washington Square Securities), and Nelson
received commissions and transaction fees from these sales. By
the fall of 2003, the total value of the assets that the Safers
had invested with Nelson had fallen by fifty percent.
On March 22, 2004, the Safers, upset by the loss of more
than half of their life savings, filed suit against William
5
Nelson and Nelson Financial in the United States District Court
for the Middle District of Louisiana.1 According to the Safers,
Nelson recommended investments for them that were extremely
aggressive and inappropriate for a couple close to retirement.
Specifically, the Safers alleged five causes of action: (1)
Inappropriate Investments; (2) Misrepresentation; (3) Breach of
Fiduciary Duty; (4) Violation of Federal Securities Laws; and (5)
Negligence. The Defendants responded by filing a motion for
order staying action pending arbitration and compelling
arbitration, in which they claimed that the pre-dispute
arbitration clause found in the New Account Information Forms
governed the dispute between the Safers and the Defendants. On
October 13, 2004, the district court denied the Defendants’
motion. In its order denying the motion, the district court
found that the Advisory Agreement, which pertained to investment
advice, was separate and distinct from the New Account
Information Forms, which pertained to the execution of that
advice. According to the district court, because the parties
entered into two separate agreements for two separate services
rendered, the arbitration clause found in the New Account
Information Forms did not apply to disputes regarding the
Advisory Agreement. The Defendants now appeal the district
1
Victoria Thompson, in her capacity as the trustee of
the Safer-Carpenter trusts, was also named as a plaintiff in the
lawsuit.
6
court’s denial of their motion. The parties have agreed to a
stay of the district court action pending the outcome of this
appeal.
II. STANDARD OF REVIEW
We review the denial of a motion to compel arbitration de
novo. Primerica Life Ins. Co. v. Brown, 304 F.3d 469, 471 (5th
Cir. 2002) (citing Webb v. Investacorp, 89 F.3d 252, 257 (5th
Cir. 1996)). When adjudicating a motion to compel arbitration,
we first must determine whether the parties agreed to arbitrate
the dispute in question. Fleetwood Enters., Inc. v. Gaskamp, 280
F.3d 1069, 1073 (5th Cir. 2002). In order to make this
determination, we must decide: “(1) whether there is a valid
agreement to arbitrate between the parties; and (2) whether the
dispute in question falls within the scope of that arbitration
agreement.” Personal Sec. & Safety Sys., Inc. v. Motorola, Inc.,
297 F.3d 388, 392 (5th Cir. 2002) (citing OPE Int’l LP v. Chet
Morrison Contractors, Inc., 258 F.3d 443, 445 (5th Cir. 2001)
(citations and internal quotation marks omitted)). If we decide
that the parties have agreed to arbitrate the dispute in
question, we then must determine “whether legal constraints
external to the parties’ agreement foreclosed the arbitration of
those claims.” Webb, 89 F.3d at 258.
The Fifth Circuit has repeatedly emphasized the strong
federal policy in favor of arbitration. See Neal v. Hardee’s
7
Food Sys., Inc., 918 F.2d 34, 37 (5th Cir. 1990). When
determining whether a dispute is covered by the scope of an
arbitration agreement, the Supreme Court has held that “any
doubts concerning the scope of arbitrable issues should be
resolved in favor of arbitration . . . .” Moses H. Cone Mem.
Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). The
Fifth Circuit has likewise stated that doubts concerning the
scope of an arbitration agreement should be resolved in favor of
arbitration. See Neal, 918 F.2d at 37. Specifically, we have
held that arbitration should not be denied “unless it can be said
with positive assurance that [the] arbitration clause is not
susceptible of an interpretation which would cover the dispute at
issue.” Motorola, 297 F.3d at 392 (quoting Neal, 918 F.2d at 37
(internal quotation marks omitted) (alteration in original)).
III. DISCUSSION
In the present case, the parties agree that each of the New
Account Information Forms contains a valid arbitration clause.
The parties disagree, however, about whether the scope of this
arbitration clause encompasses the Safers’ current dispute with
the Defendants.
The Plaintiffs contend that they complain solely about
Nelson’s provision of inappropriate investment advice--
allegations that, in their estimation, only concern the Advisory
Agreement. According to the Plaintiffs, the Advisory Agreement
8
and the New Account Information Forms are discrete and separate
agreements. Accordingly, they argue that because they do not
complain about the implementation of Nelson’s financial advice,
but complain only about the advice itself, their lawsuit pertains
only to matters covered by the Advisory Agreement, which does not
contain an arbitration clause.
The Defendants contend that the arbitration clause found in
the New Account Information Forms applies to the present dispute
between them and the Safers for three reasons. First, they claim
that the plain language of the arbitration clause clearly covers
this dispute. In support of this argument, the Defendants state
that the arbitration clause applies not only to disputes between
Washington Square and the Safers, as the Plaintiffs suggest, but
also to “any disputes or controversies that may arise between
myself [the Safers] and Washington Square Securities, Inc. or a
registered representative of Washington Square Securities, Inc.
[Nelson].” Along these lines, the Defendants contend that the
arbitration clause does not cover just “orders or transactions,”
as both the district court and the Plaintiffs state, but also
explicitly covers disputes between any of the parties concerning
“the continuation, performance or breach of this or any other
agreement between us, whether entered into before, on, or after
the date this account is opened.” According to the Defendants,
this broad phrasing ensures that the scope of the arbitration
clause in the New Account Forms covers any disputes arising out
9
of the Advisory Agreement. Second, the Defendants state that the
district court appears to have been under the mistaken impression
that the Safers did not execute an arbitration clause on the same
day that the Advisory Agreement was signed. In fact, as the
Defendants note, the Advisory Agreement was signed at the same
time that the first New Account Information Forms, which each
contained the arbitration clause, were signed. According to the
Defendants, the contemporaneous execution of these agreements
suggests that they are related and should be construed to be part
of the same underlying transaction. Finally, the Defendants
contend that the Safers’ lawsuit complains about the
implementation of investment advice, which is clearly arbitrable.
In determining whether the Plaintiffs’ claims are covered by
the arbitration agreement, we must decide whether “it can be said
with positive assurance that [the] arbitration clause is not
susceptible of any interpretation which would cover the dispute
at issue.” Motorola, 297 F.3d at 392 (quoting Neal, 918 F.2d at
37 (internal quotation marks omitted) (alteration in original)).
Because we find that the arbitration clause can be interpreted in
such a way as to cover the Plaintiffs’ claims, and because we
disagree with the Plaintiffs’ contention that their claims
pertain solely to the provision of financial advice and are
governed solely by the terms of the Advisory Agreement, we agree
with the Defendants that the scope of the arbitration clause
covers the Plaintiffs’ allegations. Id.
10
To begin with, as a factual matter, the Plaintiffs’ claim
that the allegations in their complaint relate solely to the
Advisory Agreement fails. First, only one of the three
Plaintiffs in this case was a party to the Advisory Agreement.
The district court and the parties appear to have overlooked this
important fact. Both the Plaintiffs and the Defendants state in
their appellate briefs that the Advisory Agreement was between
Nelson Financial and “the Safers.” (emphasis added). Similarly,
the district court, in its opinion denying the motion to compel
arbitration, stated that the Advisory Agreement was between
Nelson Financial and “Joel Safer, et al (‘Safers’).” The record
clearly indicates, however, that the Advisory Agreement was only
between Nelson Financial and Joel Safer. Specifically, the
Advisory Agreement was addressed only to Joel Safer, signed
solely by Phyllis Nelson and Joel Safer, and contained no
provisions that would indicate that it was entered into on behalf
of any unnamed third parties. Neither Melanie Safer nor Valerie
Thompson, both Plaintiffs in the present lawsuit, were parties to
the Advisory Agreement. Joel Safer, Melanie Safer, and a trustee
of the Safer-Carpenter trusts did, however, all sign New Account
Information Forms and are, accordingly, bound by the arbitration
clause found in them. As such, any allegations made by Melanie
Safer and Valerie Thompson are outside of the scope of the
Advisory Agreement.
Second, the Advisory Agreement specifically states that it
11
“terminates upon the delivery of the Written Financial Plan.”
Nelson allegedly provided the Safers with this written financial
plan on the weekend of the investment seminar in April 2000. Any
allegations in the complaint relating to events occurring after
April of 2000, therefore, would not be covered by the terms of
the Advisory Agreement. The Plaintiffs, however, clearly allege
in their complaint that they were harmed by actions taken by the
Defendants long after April 2000. For instance, the Plaintiffs
state in their complaint that “[o]n or about August 15, 2000,
William J. Nelson came to Louisiana to meet with the Safers and
their attorney and discussed the status of the Safers’
investments made pursuant to their financial planning advice.
Defendants also delivered to the Safers, in Louisiana, materials
regarding the recommendations and advice and consultations
regarding the implementation of the plan.” Similarly, the
Plaintiffs allege in their complaint that “[t]he defendants
mailed reports of the status of the investments to [the
Plaintiffs] in Louisiana during the course of their engagement by
[the Plaintiffs]. Further, defendants periodically communicated
with the Safers by telephone in Louisiana.” Likewise, the
Plaintiffs complain about the fact that the Defendants received
commissions and transactional fees related to the purchase and
sale of investment products, fees that were incurred after the
Advisory Agreement had ostensibly terminated. Accordingly, the
Plaintiffs complain of actions that, by virtue of when they
12
occurred, are not covered by the terms of the Advisory Agreement.
Third, the Plaintiffs make allegations in their complaint
that are outside of the scope of the Advisory Agreement, but are
clearly covered by the arbitration clause found in the New
Account Information Forms. Specifically, as noted above, the
Plaintiffs state in their complaint that the Defendants “received
commissions and transactional fees related to the sale of the
life insurance policies and other investments that were placed in
the trusts.” The Plaintiffs then list in their complaint the
damages they suffered as a result of the Defendants’ alleged
actions, including the “[p]ayment of transactional expenses,
insurance premiums and commissions . . . .” In making this
argument, the Plaintiffs specifically allege that they were
harmed by the implementation of the Defendants’ investment advice
(by, e.g., paying to the Defendants commissions, premiums, and
transactional expenses when the Defendants purchased or sold
investment products on their behalf). These allegations are
clearly outside of the scope of the Advisory Agreement, but fall
squarely within the language of the arbitration clause found in
the New Account Information Forms pertaining to disputes
regarding an “order or transaction.”
As can be seen from the discussion above, a review of the
record belies the Plaintiffs’ contention that their claims
pertain solely to the provision of financial advice and are
governed exclusively by the terms of the Advisory Agreement.
13
Additionally, a review of the record indicates that the Advisory
Agreement and the New Account Information Form signed by Joel
Safer on April 8, 2000 are related to each other and collectively
constituted one transaction. This court has repeatedly found
that when agreements are interdependent and exist to further a
single goal, an arbitration clause in one of the agreements
“reach[es] all aspects of the parties’ relationship,” including
disputes that might arise out of the other agreement. Neal, 918
F.2d at 37-38; see also Motorola, 297 F.3d at 392-95. In
determining whether two agreements are related, “it is well-
settled law that several writings executed by the same parties
substantially at the same time and relating to the same subject-
matter may be read together as forming parts of one transaction.”
Bailey v. Hannibal & St. J. R.R. Co., 84 U.S. 96, 108 (1872); see
also Neal, 918 F.2d at 37 (“[u]nder general principles of
contract law, separate agreements executed contemporaneously by
the same parties, for the same purposes, and part of the same
transaction, are to be construed together.”); Richland Plantation
Co. v. Justiss-Mears Oil Co., Inc., 671 F.2d 154, 156 (5th Cir.
1982) (“When several documents represent one agreement, all must
be construed together in an attempt to discern the intent of the
parties, reconciling apparently conflicting provisions and
attempting to give effect to all of them, if possible.”). In the
present case, the Advisory Agreement was signed at the same time
that the first New Account Information Form was signed by Joel
14
Safer, these two agreements were signed by the same parties (Joel
Safer and Phyllis Nelson), they were signed as part of one
transaction, and they had the same purpose--to enable Nelson
Financial and its representatives to act as the Safers’ financial
manager. The record clearly indicates that on April 8, 2000, the
Safers agreed to have Nelson manage their money. In order to
manage their money, Nelson, inter alia, agreed to advise them on
investments and to carry out that advice. The agreements signed
by Safer on April 8, 2000 were designed to give effect to this
relationship, i.e., they were offered hand-in-hand as part of a
single transaction designed to empower Nelson to manage the
Safers’ money. Separating the Advisory Agreement from the New
Account Information Forms after the fact overlooks this reality
about the Safers’ dealings with Nelson on April 8, 2000 and
drives an artificial wedge into the integrated transaction
between them.
Moreover, to the extent that any of the Plaintiffs’ claims
do fall under the terms of the Advisory Agreement, the plain
language of the arbitration clause of the New Account Information
Forms specifically covers them. In the arbitration clause, the
parties explicitly agreed that:
[A]ny disputes or controversies that may arise between
myself and Washington Square Securities, Inc. or a
registered representative of Washington Square
Securities, Inc. [Nelson], concerning any order or
transaction, or the continuation, performance or breach
of this or any other agreement between us, whether
entered into before, on, or after the date this account
15
is opened, shall be determined by arbitration . . . .
The Plaintiffs contend that “between us” refers only to
agreements between the Safers and either Washington Square
Securities or its registered representatives insofar as they are
acting on behalf of Washington Square. Nothing in the
arbitration clause, however, contains this limiting language. To
the contrary, the plain language of the arbitration clause states
that it covers all agreements between the Safers and registered
representatives of Washington Square like Nelson, which would
include the Advisory Agreement. This language from the
arbitration clause, especially when viewed in light of the strong
federal policy in favor of resolving disputes regarding the scope
of arbitration clauses in favor of arbitration, can be read to
include the Advisory Agreement. Arbitration of these claims is,
therefore, required because it cannot “be said with positive
assurance that [the] arbitration clause is not susceptible of any
interpretation which would cover the dispute at issue.”
Motorola, 297 F.3d at 392.2
2
The fact that the Advisory Agreement contains a weak
mediation clause does not change this result. The mediation
clause found in the Advisory Agreement simply states that “[i]f
we [Nelson] are not able to resolve your concerns, we ask that we
first seek to resolve any conflicts in Mediation before resorting
to any other forum.” This language is in no way contrary to that
of the arbitration clause. To the contrary, when interpreted in
the context of the parties’ entire contractual relationship, we
interpret the mediation clause merely as a request by Nelson to
mediate prior to arbitration. See Motorola, 297 F.3d at 395-96
(sending a dispute to arbitration after finding no conflict
between dispute resolution clauses in two separate, but related,
16
Accordingly, for the reasons stated above, the district
court should have granted the Defendants’ motion for order
staying action pending arbitration and compelling arbitration.
The Plaintiffs’ contention that their claims pertain solely to
the provision of investment advice and are governed only by the
Advisory Agreement is wrong. To the contrary, the Plaintiffs
make allegations that clearly pertain to the implementation of
Nelson’s financial advice. To the extent that the Plaintiffs do
complain about the provision of financial advice, the plain
language of the arbitration clause found in the New Account
Information Forms, combined with the fact that the agreements at
issue in this case were contemporaneously executed as part and
parcel of a single transaction between the Safers and Nelson,
compels us to conclude that the Plaintiffs’ allegations fall
within the scope of the arbitration clause. Because all three
Plaintiffs have signed agreements containing this arbitration
clause, this dispute should be resolved by arbitration.
IV. CONCLUSION
For the foregoing reasons, we REVERSE the district court’s
judgment denying the Defendants’ motion for order staying action
pending arbitration and compelling arbitration and REMAND for
entry of an order staying the litigation and requiring the
parties to submit their dispute to binding arbitration.
agreements).
17
18