David Earley and Rhonda Earley v. Edward Jones & Co., LP, Edward Jackson, and Adam Jackson

FILED
Jun 25 2018, 8:41 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEYS FOR APPELLANTS ATTORNEYS FOR APPELLEES
Jason M. Smith Stacy Walton Long
W. Brent Gill William J. Barkimer
Smith Law Services, P.C. Krieg DeVault LLP
Seymour, Indiana Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
David Earley and June 25, 2018
Rhonda Earley, Court of Appeals Case No.
Appellants-Plaintiffs, 36A04-1710-PL-2258
Appeal from the Jackson Superior
v. Court
The Honorable Bruce Markel III,
Edward Jones & Co., LP, Judge
Edward Jackson, and Adam Trial Court Cause No.
Jackson, 36D01-1611-PL-44
Appellees-Defendants.
Barnes, Senior Judge.
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Case Summary
[1] David and Rhonda Earley (“the Earleys”) appeal the trial court’s stay and order
compelling arbitration in their action against Edward D. Jones & Co., LP
(“Edward Jones”), Edward Jackson, and Adam Jackson (collectively,
“Defendants”). We affirm.
Issues
[2] The Earleys raise two issues, which we restate as:
I. whether the trial court properly found that the
arbitration agreements between the parties were
enforceable; and
II. whether the trial court properly found that the
Federal Arbitration Act applied rather than Missouri
law.
Facts
[3] Edward Jones is a national corporation based in Missouri and doing business in
Jackson County, Indiana, and Edward Jackson and Adam Jackson were
employees/agents of Edward Jones. In 1998, David Earley opened a Roth
Individual Retirement Account (“IRA”) with Edward Jones. The Adoption
Agreement, which David signed, provided: “I appoint Edward Jones to serve
as Custodian in accordance with the terms and conditions of the Edward Jones
Self-Directed Individual Retirement Account Custodial Agreement, which
contains a pre-dispute arbitration clause. I hereby acknowledge that I have
received and read such Agreement and the Disclosure Statement and Schedule
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of Fees accompanying it.” Appellants’ App. Vol. II p. 31. The Custodial
Agreement provided, in part:
Any controversy arising out of or relating to any of my accounts
or transactions with you, your officers, directors, agents and/or
employees for me, or to this agreement, or the breach thereof, or
relating to transactions or accounts maintained by me with any of
your predecessor or successor firms by merger, acquisition or
other business combinations from the inception of such accounts
shall be settled by arbitration in accordance with the rules then in
effect of the Boards of Directors of the New York Stock
Exchange, Inc., the American Stock Exchange, Inc., the
Municipal Securities Rulemaking Board, or the National
Association of Securities Dealers, Inc. as I may elect.
Id. at 44.
[4] In 2005, the Earleys opened a joint account with Edward Jones. They signed
an Account Authorization and Acknowledgement Form, which provided: “The
Edward Jones Account Agreement and Disclosure Statement contains on page
20 a binding arbitration provision which may be enforced by the parties. By
my/our signature below, I/we have received a copy of this document . . . and
agree to its terms and conditions.” Id. at 45. That agreement contained an
arbitration clause similar to the earlier arbitration clause.
[5] In 2009, David executed a revised Roth IRA agreement. David acknowledged
that he had received and reviewed the Retirement Account Agreement, which
contained a binding arbitration clause similar to the earlier arbitration clauses.
The document also provided: “THESE CONTRACTS CONTAIN A
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BINDING ARBITRATION PROVISION . . . WHICH MAY BE
ENFORCED BY THE PARTIES.” Id. at 74. Also in 2009, the Earleys
opened traditional IRAs with Edward Jones. They signed a document
acknowledging that they had received and reviewed the Retirement Account
Agreement, which contained a binding arbitration provision similar to the
earlier provisions. The document also provided: “THESE CONTRACTS
CONTAIN A BINDING ARBITRATION PROVISION . . . WHICH MAY
BE ENFORCED BY THE PARTIES.” Id. at 87, 89, 91. Finally, in 2014,
Rhonda opened another IRA account with Edward Jones. She signed an
Account Authorization and Agreement Form, in which she acknowledged
receiving and reviewing the Account Agreement, which contained a binding
arbitration provision similar to the earlier provisions. The document also
provided: “THE EDWARD JONES ACCOUNT AGREEMENT CONTAINS
. . . A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.” Appellants’ App. Vol. III p. 31. All of the
agreements also provided that the agreement was to be governed by the laws of
the State of Missouri.
[6] In November 2016, the Earleys filed a complaint against the Defendants
regarding a significant decrease in funds that the Earleys invested with Edward
Jones. The Earleys’ complaint alleged breach of contract, negligence,
constructive fraud, and conversion. Defendants filed a motion to dismiss or to
compel arbitration and stay the proceedings. Defendants alleged that the
Earleys’ agreements with Edward Jones contained binding arbitration
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provisions, that the disputes fell within the scope of the arbitration provisions,
and that Missouri law governed.
[7] The Earleys responded and argued: (1) the provisions are not valid under
Missouri law because they lack the language and format required by Missouri
Revised Statutes Section 435.460; and (2) they “were never presented with the
arbitration provisions in question and their signatures were obtained by
misrepresentation as to the substance of the signed documents which contained
the arbitration provisions.” Id. at 48. The Earleys submitted affidavits in which
they alleged that the forms were presented merely as forms to open an account,
they trusted Jackson to advise them of relevant facts regarding the documents,
they were not given the agreements containing the arbitration provisions, and
Jackson never discussed the agreements or arbitration provisions with them.
[8] The trial court held a hearing on Defendants’ motion. At the hearing,
Defendants argued that the Federal Arbitration Act (“FAA”) preempted
Missouri law and governed the parties’ agreements. The trial court then
allowed the parties to submit additional briefs. Defendants argued that the
FAA applied because the contracts involve interstate commerce and that the
Earleys acknowledged in writing that they received the agreements and that
they contained arbitration provisions. The Earleys then filed another response
arguing that the Defendants’ misrepresentations voided any contracts and that
FAA was not controlling. After a second hearing, the trial court entered
findings of fact and conclusions thereon granting Edward Jones’s motion to
compel arbitration. In particular, the trial court found:
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The Plaintiffs’ counsel attached to their first response, affidavits
from Mr. and Mrs. Earley to support the argument that the
contracts are void because the Defendants misrepresented the
contractual documents; “as mere forms to authorize
transactions”. The Plaintiffs, Earleys, allege they were told on
each occasion they signed account agreements that the forms
merely authorized the opening of accounts (emphasis added),
transfer of funds and/or naming beneficiaries.
The forms did “authorize transactions” and was [sic] exactly
what was being authorized by the Plaintiffs’ signatures. The
Earleys acknowledge they went to the Defendants for the very
purpose of doing financial planning and having their money
invested for them. Each contract they signed from 1998 to and
through July 29, 2014, clearly refers to account agreements,
disclosure statements and in the later documents, arbitration
clauses, immediately above their signatures. In addition, in the
contracts signed from 2009 and on, language appears in the
paragraph above the Plaintiffs’ signatures acknowledging that
they have received and read the account agreements. Again, in
the later documents, directly above their signatures, in bold type,
is a statement that there are arbitration provisions in the contract
including the page and paragraph numbers where found.
There is no allegation that the Plaintiffs ever asked to read or
review the contracts before they signed, but were refused.
*****
With regard to the issue of void contracts, the Court must look to
Indiana law. If there never was a contract, the choice of law
provisions of the contracts in question never took effect and
therefore don’t control.
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The Court finds insufficient evidence of fraudulent inducement
or misrepresentation to void the contracts under Indiana law.
The fact that the Defendant’s [sic] did not provide copies after the
fact is irrelevant. The contracts were already signed.
The Earleys simply chose not to read the contracts and chose to
remain ignorant of the terms and conditions thereof.
The Court finds that all of the contracts in controversy were or
are valid and enforceable.
Indiana recognizes choice of law provisions in contracts.
Missouri’s arbitration notice statute applies to each of the
contracts in issue in this case.
The contracts in question do not substantially comply with
Missouri’s arbitration notice statute and the arbitration
provisions are unenforceable under Missouri law.
Missouri’s arbitration notice statute is in derogation of the
agreement of the Parties to arbitrate in each of the contracts in
question.
The Defendants have asked to invoke application of the FAA. 9
U.S.C.S. § 3 and require arbitration in spite of Missouri law.
*****
The procedural requirements of the FAA have been met. This
Court has ruled that the contracts in question are valid and
enforceable [sic] 9 U.S.C.S. § 4. The contracts in question
evidence transactions involving (“interstate”) commerce. 9
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U.S.C.S. § 2. The Defendants have asked for the act to be
applied. 9 U.S.C.S. § 3. Missouri law would prevent arbitration
otherwise. 9 U.S.C.S. § 2.
The FAA should be applied to each contract in question in this
matter.
Appellants’ App. Vol. II pp. 9-11. The trial court stayed the litigation pending
arbitration and ordered that the parties arbitrate the claims in the Earleys’
complaint. The Earleys now appeal.
Analysis
[9] The Earleys appeal the trial court’s grant of Defendants’ motion to compel
arbitration. We begin by addressing the parties’ argument regarding the proper
standard of review. Defendants argues that we should review the trial court’s
findings of fact and conclusions of law under a clearly erroneous standard and
give due regard to the trial court’s ability to assess a witness’s credibility. The
Earleys contend that our review is de novo. We agree with the Earleys.
[10] “Our review of a trial court’s order compelling arbitration is de novo.”
Maynard v. Golden Living, 56 N.E.3d 1232, 1237 (Ind. Ct. App. 2016). We held
in Brumley v. Commonwealth Bus. Coll. Educ. Corp., 945 N.E.2d 770, 775 (Ind. Ct.
App. 2011), that the review of a motion to compel arbitration is similar to that
of a motion for summary judgment. We concluded that, “like parties opposing
motions for summary judgment, parties opposing motions to compel arbitration
may designate and rely on evidence beyond the pleadings and written
contractual instruments.” Brumley, 945 N.E.2d at 775. As in summary
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judgment proceedings, there were no evidentiary hearings here, and there was
no opportunity for the trial court to judge a witness’s credibility. Further, just
as we are not bound by a trial court’s specific findings of fact and conclusions
thereon in the context of summary judgment proceedings, we are not bound by
them here. Estate of Spry v. Batey, 804 N.E.2d 250, 252 (Ind. Ct. App. 2004),
trans. denied.
I. Validity of Arbitration Provisions
[11] The Earleys argue that the arbitration provisions are invalid because the
contracts were misrepresented to them by Defendants. “Indiana recognizes a
strong policy favoring enforcement of arbitration agreements.” Progressive Se.
Ins. Co. v. Empire Fire & Marine Ins. Co., 88 N.E.3d 188, 194 (Ind. Ct. App.
2017). Because arbitration is a matter of contract, a party cannot be required to
submit to arbitration unless he or she has agreed to do so. Id. Arbitration is a
method to resolve disputes, but only disputes that the parties have mutually
agreed to submit to arbitration. Id.
[12] “A party seeking to compel arbitration first must demonstrate the existence of
an enforceable arbitration agreement and that the disputed matter is the type of
claim that the parties agreed to arbitrate.” Brumley, 945 N.E.2d at 776. “Like
other contracts, however, arbitration agreements may be invalidated by
generally applicable contract defenses, such as fraud, duress, or
unconscionability.” Id. “State law contract principles apply to determine
whether parties have agreed to arbitrate.” Id.
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[13] In support of their argument, the Earleys rely on A.G. Edwards and Sons, Inc. v.
Hilligoss, 597 N.E.2d 1 (Ind. Ct. App. 1991), where a customer filed a complaint
against an investment broker, and the broker filed a motion to stay the
proceedings pending arbitration. The trial court denied the broker’s motion,
and the broker appealed. The customer argued that the broker misrepresented
the contents of the contract and that fraudulent inducement voided the
agreement. We found that “[s]ubstantial evidence” supported the trial court’s
finding that the customer’s signature was procured by representing the
agreement as a loan document rather than a customer agreement form.
Hilligoss, 597 N.E.2d at 3. Consequently, we affirmed.
[14] Hilligoss is distinguishable from this case. In Hilligoss, “the fraud went to the
actual contents of the contract, and the facts regarding the contract, which
included the arbitration clause, were misstated.” Novotny v. Renewal by Andersen
Corp., 861 N.E.2d 15, 21 n.6 (Ind. Ct. App. 2007). “‘This result only follows,
however, if the misrepresentation relates to the very nature of the proposed
contract itself and not merely to one of its nonessential terms.’” Brumley, 945
N.E.2d at 779 (quoting Restatement (Second) of Contracts § 163 (1981)). Here,
the Earleys allege that the contractual documents were presented “as mere
forms necessary only for the opening of an account or some other single
action.” Appellants’ Br. p. 12. They contend that Edward Jones’s employees
did not give them an opportunity to read the agreements or explain the
agreements. However, there is no evidence that Edward Jones’s employees
misrepresented the contents of the documents signed by the Earleys. Rather,
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the Earleys signed the documents without reading them. “Under Indiana law,
a person is presumed to understand the documents which he signs and cannot
be released from the terms of a contract due to his failure to read it.” Clanton v.
United Skates of Am., 686 N.E.2d 896, 899-900 (Ind. Ct. App. 1997). The trial
court found:
The Court finds insufficient evidence of fraudulent inducement
or misrepresentation to void the contracts under Indiana law.
The fact that the Defendant’s [sic] did not provide copies after the
fact is irrelevant. The contracts were already signed.
The Earleys simply chose not to read the contracts and chose to
remain ignorant of the terms and conditions thereof.
The Court finds that all of the contracts in controversy were or
are valid and enforceable.
Appellants’ App. Vol. II p. 10. We agree with this conclusion. The Earleys
have failed to present contract defenses to invalidate the agreements.
II. Applicability of the Federal Arbitration Act
[15] Next, the Earleys argue that the trial court erred when it determined that the
FAA preempted application of Missouri law. According to the Earleys,
Missouri law applies, and the arbitration agreements are unenforceable because
they failed to comply with Missouri law’s notice of arbitration statute, Missouri
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Revised Statutes Section 435.460.1 The trial court disagreed and concluded that
the FAA, not Missouri law, controlled.
[16] The FAA applies to written arbitration provisions contained in contracts
involving interstate commerce. See 9 U.S.C. §§ 1-16; MPACT Const. Grp., LLC
v. Superior Concrete Constructors, Inc., 802 N.E.2d 901, 904 (Ind. 2004) “The
[FAA] reflects congressional intent to ‘foreclose state legislative attempts to
undercut the enforceability of arbitration agreements.’” LaSalle Grp., Inc. v.
Electromation of Delaware Cty., Inc., 880 N.E.2d 330, 331 (Ind. Ct. App. 2008)
(quoting Southland Corp. v. Keating, 465 U.S. 1, 16, 104 S. Ct. 852 (1984)). “The
Act contains no express preemptive provision, nor does it reflect a
congressional intent to occupy the entire field of arbitration.” Id. “But state
law may be pre-empted to the extent it ‘stands as an obstacle to the
accomplishment and execution of the full purposes and objectives of
Congress.’” Id. (quoting MPACT, 802 N.E.2d at 904). “Preemption has been
found where state statutes ‘explicitly made certain arbitration clauses
unenforceable or placed serious burdens on the enforceability of arbitration
provisions.’” Id. (quoting MPACT, 802 N.E.2d at 905).
1
Missouri Revised Statutes Section 435.460 provides:
Each contract subject to the provisions of sections 435.350 to 435.470 shall include
adjacent to, or above, the space provided for signatures a statement, in ten point capital
letters, which read substantially as follows:
“THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH
MAY BE ENFORCED BY THE PARTIES.”
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[17] The parties do not dispute here that the agreements at issue affect interstate
commerce. Rather, their arguments focus on whether the Missouri notice of
arbitration statute is preempted by the FAA. In support of their argument, the
Earleys rely on Albright v. Edward D. Jones & Co., 571 N.E.2d 1329 (Ind. Ct.
App. 1991), trans. denied, cert. denied. In Albright, customers bought investments
through Edward Jones, and the agreements contained arbitration provisions
and provisions calling for the application of Missouri law. The trial court
entered an order compelling arbitration. On appeal, we addressed whether the
notice of arbitration provisions of Missouri Revised Statutes Section 435.460
were preempted by the FAA. We relied on Volt Information Sciences Inc. v. Board
of Trustees, 489 U.S. 468, 109 S. Ct. 1248 (1989), in which “the Supreme Court
held that state law was not pre-empted by the Federal Arbitration Act where the
parties have agreed that their arbitration agreement will be governed by state
law.” Albright, 571 N.E.2d at 1332-33. We found that Volt was controlling and
looked “to Missouri law in our construction of the contracts.” Id. at 1333. We
concluded, in part, that the arbitration clauses would not be enforceable under
Missouri law, and we reversed the trial court’s order compelling arbitration.
[18] Defendants point out that, after Albright was decided, the United States
Supreme Court clarified Volt. In Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681,
688, 116 S. Ct. 1652, 1656-57 (1996), the Supreme Court held:
Volt involved an arbitration agreement that incorporated state
procedural rules, one of which, on the facts of that case, called
for arbitration to be stayed pending the resolution of a related
judicial proceeding. The state rule examined in Volt determined
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only the efficient order of proceedings; it did not affect the
enforceability of the arbitration agreement itself. We held that
applying the state rule would not “undermine the goals and
policies of the FAA,” 489 U.S., at 478, 109 S. Ct., at 1255,
because the very purpose of the Act was to “ensur[e] that private
agreements to arbitrate are enforced according to their terms,”
id., at 479, 109 S. Ct., at 1256.
Casarotto, 517 U.S. at 688, 116 S. Ct. at 1656-57. The court then held that
Montana’s notice of arbitration requirements, which required notice that a
contract was subject to arbitration to be included in underlined capital letters on
the first page of the contract, would have invalidated the arbitration clause and
was “inconsonant with, and is therefore preempted by, the federal law.” Id.,
116 S. Ct. at 1657.
[19] The Missouri notice of arbitration statute is similar to the Montana notice of
arbitration statute discussed in Casarotto. Consequently, we find Casarotto more
persuasive here than Albright. We further note that Missouri courts have
repeatedly held that the notice of arbitration provisions of Missouri Revised
Statutes Section 435.460 are preempted by the FAA in cases of interstate
commerce. See, e.g., Duggan v. Zip Mail Servs., Inc., 920 S.W.2d 200, 203 (Mo.
Ct. App. 1996) (“Applying the Missouri Act to defeat arbitration in instances
where the FAA permits it would place the state act above the federal act,
violating the Supremacy Clause of the Constitution.”); Kagan v. Master Home
Products Ltd., 193 S.W.3d 401, 407-08 (Mo. Ct. App. 2006) (holding that, even
if Missouri law applied, the notice of arbitration provisions were preempted by
the FAA); Paetzold v. Am. Sterling Corp., 247 S.W.3d 69, 74 (Mo. Ct. App. 2008)
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(holding that the arbitration clause was enforceable despite the lack of the
notice of arbitration language). Given this authority, we agree with the trial
court that the FAA is applicable here and preempts the Missouri notice of
arbitration statute.
Conclusion
[20] The arbitration agreements between the parties are enforceable and subject to
the FAA. The trial court properly granted the Defendants’ motion to compel
arbitration. We affirm.
[21] Affirmed.
Vaidik, C.J., and Pyle, J., concur.
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