Board of Trustees of Weirton Policemen's Pension v. Jones Financial Group

STATE OF WEST VIRGINIA
IN THE SUPREME COURT OF APPEALS
FILED
BOARD OF TRUSTEES November 21, 2013
OF THE WEIRTON POLICEMEN’S released at 3:00 p.m.
RORY L. PERRY II, CLERK
PENSION AND RELIEF FUND SUPREME COURT OF APPEALS
Plaintiff Below, Petitioner OF WEST VIRGINIA
vs.) No. 12-0959 (Hancock Co. 10-C-123)
The Jones Financial Companies, LLP;
EDJ Holding Company, Inc.;
Edward D. Jones & Co., L.P.; and
CURT RANDY GROSSMAN,
Defendants Below, Respondents
MEMORANDUM DECISION
The Petitioner, the Board of Trustees of the Weirton Policemen’s Pension
and Relief Fund, appeals from an order entered June 19, 2012, by the Circuit Court of
Hancock County which granted Respondents, The Jones Financial Companies, LLP, EDJ
Holding Company, Inc., Edward D. Jones & Co., L.P. and Curt Randy Grossman’s,
Motion to Compel Arbitration.1 Herein, Petitioner alleges that the circuit court erred by
ordering that the arbitration agreement was valid and enforceable by misinterpreting the
impact of the United States Supreme Court decision, Marmet Health Care Ctr v. Brown,
132 S. Ct. 1201 (2012); by refusing to determine whether the arbitration agreement was
procedurally and substantively unconscionable pursuant to Brown v. Genesis Healthcare
Corp., 228 W. Va. 646, 724 S.E.2d 250 (2011) (“Brown I”) and Brown v. Genesis
Healthcare Corp., 229 W. Va. 382, 729 S.E.2d 217 (2012) (“Brown II”); and by refusing
to assess the impact of the ambiguity of the arbitration agreement. To the contrary,
Respondents assert that the circuit court did not refuse to determine whether the
arbitration agreement was procedurally and substantively unconscionable, but rather
found that the particular agreement to arbitrate was enforceable; and that the Petitioner
failed to establish evidence of unconscionability. Based upon the parties’ briefs and oral
arguments, the portions of the record designated for our consideration, and the pertinent
authorities, we conclude that the case should be remanded to the circuit court for a
consideration of whether the arbitration agreement is procedurally and substantively
unconscionable under Brown I and Brown II. This case satisfies the “limited
1
Petitioner is represented by Teresa C. Toriseva, Esq. Respondents are represented
Matthew P. Heiskell, Esq., James A. Walls, Esq., and Loren Schechter, Esq.
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circumstances” requirement of Rule 21(d) and it is appropriate for the Court to issue a
memorandum decision rather than an opinion.
The Weirton Policemen’s Pension and Relief Fund was created pursuant to
W.Va. Code § 8-22-16, et seq (2009).2 Pursuant to state law, it has a five member board
of trustees and it may contract with investment advisors. See W.Va. Code §§ 8-22-17, ­
22.3 On April 13, 2006, the trustees opened three different brokerage accounts with
Edward Jones and a registered financial advisor employed by Edward Jones, Curt Randy
Grossman.4
When opening these accounts in March 2006, Trustee (and Weirton Mayor)
William Miller signed a “Fiduciary/Trust Account Authorization and Acknowledgment
Form” (“Authorization”) for each account. This single-page form states, inter alia,
The Edward Jones Account Agreement and Disclosure
Statement contains, on page 19, paragraph 2, a binding
arbitration provision which may be enforced by the
parties. By my/our signature(s) below, I/we have received a
copy of this document including a schedule of fees and
Edward Jones Privacy Notice and agree to its terms and
conditions.
(Emphasis in original.) Accompanying the Authorizations is a multi-page “Edward Jones
Account Agreement and Disclosure Statement” which includes the arbitration agreement
on page 19. The arbitration agreement states:
This Agreement contains a predispute arbitration clause. By
signing an arbitration agreement the parties agree as follows:
2
Specifically, W. Va. Code § 8-22-18a (2009) creates a Pension Oversight Board “to
assure prudent administration, investment and management of the funds” and to “assure
the funds’ compliance with applicable laws.” West Virginia Code § 8-22-22 (2009) sets
forth the duties of the board of trustees generally, including their right to delegate
investment authority to a professional investment advisor.
3
The trustees have included former mayors of Weirton and full-time police officers.
4
Respondent Edward D. Jones & Co. L.P. (“Edward Jones”) is a registered broker-dealer.
It is a Missouri partnership and is authorized to do business in the State of West Virginia.
The Jones Financial companies LLP is the parent company of Edward Jones and is a
Missouri partnership. EDJ Holding Company is affiliated with Edward Jones and The
Jones Financial Companies LLLP, and is a Missouri corporation. Curt Randy Grossman
was formerly employed by Edward Jones in Pittsburgh, Pennsylvania.
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1. All parties to this Agreement are giving up the right to sue
each other in court, including the right to a trial by jury,
except as provided by the rules of the arbitration forum in
which a claim is filed.
2. Arbitration awards are generally final and binding; a party’s
ability to have a court reverse or modify an arbitration award
is very limited.
3. The ability of the parties to obtain documents, witness
statements and other discovery is generally more limited in
arbitration that in court proceedings.
4. The arbitrators do not have to explain the reason(s) for their
award.
5. The panel of arbitrators will typically include a minority of
arbitrators who were or are affiliated with the securities
industry.
6. The rules of some arbitration forums may impose time limits
for bringing a claim in arbitration. In some cases, a claim that
it ineligible in arbitration may be brought in court.
7. The rules of the arbitration forum in which the claim is filed,
and any amendments thereto, shall be incorporated into this
Agreement.
I agree that this Agreement shall be governed by the laws of
the State of Missouri without giving effect to the choice of
law or conflict of laws provisions thereof. 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, to this Agreement, or to 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 Board of Directors of the New York
Stock Exchange, Inc., or the National Association of
Securities Dealers, Inc. as I may elect.
No person shall bring a putative or certified class action to
arbitration, nor seek to enforce any pre-dispute arbitration
agreement against any person who has initiated in court a
putative class action, or who is a member of a putative class
who has not opted out of the class with respect to any claims
encompassed by the putative class action until: (i) the class
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certification is denied; or (ii) the class is decertified; or (iii)
the customer is excluded from the class by the court. Such
forbearance to enforce an agreement to arbitrate shall not
constitute a waiver of any rights under this Agreement except
to the extent stated herein.
The Edward Jones Authorizations were renewed annually. On August 20,
2007; February 3, 2009; September 28, 2009; and October 2, 8, 16, 2009, each of the
trustees signed new Authorizations for each of the three brokerage accounts, again
incorporating the arbitration agreement. More than ten separate authorizations were
executed.
The trustees maintained these investment accounts with Edward Jones until
2010. On July 30, 2010, the trustees filed suit against Edward Jones alleging that it had
made improper investments in violation of W.Va. Code § 8-22-22 and asserting claims
for negligence per se, breach of fiduciary duty, and breach of the implied covenant of
good faith and fair dealing. On October 13, 2010, Edward Jones filed a motion to compel
arbitration and to stay the litigation. After a significant time had passed, the trustees
noticed the arbitration issue for a hearing on February 15, 2012. No discovery had
occurred. On May 2, 2012, the trustees filed a written objection to the motion to compel
arguing that the arbitration provision was unconscionable. The trustees argued that
Brown I was controlling and that the arbitration provision was both procedurally and
substantively unconscionable, that it was ambiguous, and that it should be stricken. The
next day, May 3, the trustees supplemented their brief by bringing to the circuit court’s
attention the United States Supreme Court’s recent ruling in Marmet Health Care Ctr v.
Brown, 132 S. Ct. 1201 (“Marmet”), which partially reversed this Court’s decision in
Brown I and remanded the case for further proceedings to determine the application of
West Virginia law in light of the partial reversal of its per se rule against arbitration
agreements in nursing home contracts. Although Petitioner filed the supplemental brief
pointing out its omission of the Marmet case, it argued that the case left the arguments
that it was advancing unaffected.
At the May 4, 2012, hearing, the circuit court expressed a strong dislike for
arbitration agreements, but felt that it had no choice but to compel arbitration in this
matter in light of the United States Supreme Court’s decision in Marmet. Counsel for the
trustees sought to argue that the contract was procedurally and substantively
unconscionable, but the circuit court found that it was not and would not entertain oral
argument on that issue. Judge Recht made the following statements:
THE COURT: I have read all of the papers, and most
important, of course, I have read the United States Supreme
Court’s opinion in Marmet Health Care Center, Inc. versus
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Brown. That is dispositive of this case. Period. There’s no
getting around it.
...
THE COURT: “There are times, probably, if, in fact, there is
an attack on the contract itself, for example, going back to
your law school days, if there was no meeting of the minds,
go back to those --- you remember in Williston you had all of
the ingredients of a contract, you could attack it on that basis,
and then I think the Arbitration Clause would fail with it, or if
you had testimony – and I don’t see anything here – where
there may have been a question asked at the time that this
contract was entered into, “Is there an Arbitration Clause in
the contract?” And they say, “no,” then, of course, you have
fraud. There is no allegation of that point. That would
change things, but I see nothing in this case that has that.
THE COURT: So I am following the United States Supreme
Court opinion. . . .
...
I have no choice here, so the Motion is granted.
Believing that Marmet was dispositive of the issue and that no further
analysis was needed, the circuit court expressed frustration with Petitioner’s counsel for
not originally citing to the United States Supreme Court case that partially overruled
Brown I. The circuit court refused to entertain Petitioner’s argument that notwithstanding
Marmet, the court still has a duty to analyze procedural and substantive
unconscionability. The following discussion between Judge Recht and Petitioner’s
counsel took place:
THE COURT: As a matter of fact, you didn’t even know
about the Supreme Court’s opinion, and that bothered me.
That bothered me a great deal. When I read the first Brief,
and you’re relying on upon the West Virginia Supreme Court
case, that wasn’t right, just wasn’t right. And you found out
about it, and I got another paper this morning. It’s there.
That is it. It speaks for itself and there is nothing more to say.
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MS. TORISEVA: I understand, Your Honor. If I may just
have 30 seconds. I do believe this Court has authority to
examine our contractual arguments, not a categorical rule
against arbitration, but our contractual arguments about this
arbitration provision. In fact, not only do you have the right to
do so, I think you have the duty to do so ---­
THE COURT: Why?
MS. TORISEVA: ---- because we’ve objected. That’s the
law.
THE COURT: What are you going to put on? What facts are
you going to put on regarding this contract?
MS. TORISEVA: That it’s both procedurally and
substantively unconscionable -­
THE COURT: It is not. It is not.
MS. TORISEVA: I understand, Your Honor.
THE COURT: And you are -- again, it is the way that you
continually try to get around these things. I don’t blame you.
I’m not critical of those efforts, but it just can’t be done. It
cannot be done. Not in this case. And unless -- I mean, they
put these in every contract there is.
The contract in the nursing home case, I mean, there is just a
pure negligent -- I mean, next time you go anywhere, you go
into a hospital, you’re going to have an Arbitration Clause.
You buy a product, you sign an Arbitration Clause. It’s going
to get rid of the entire jury system.
Talk about tort reform, there is not going to be any torts at all
that are heard by a jury, and that’s how bad it is. I agree with
you.
And with those findings, how I disagree with the concept, I
cannot and I will not, go against the United States Supreme
Court’s opinion in Brown. So prepare the Order.
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Following that hearing, by order entered June 19, 2012, the circuit court
granted the motion to compel arbitration. In its findings of fact and conclusions of law,
the order the court found, inter alia, that a valid arbitration agreement exists, the trustees’
claims fall entirely within the scope of the arbitration agreement, and the arbitration
agreement is not procedurally or substantively unconscionable. However, the order
contained no reasoning or analysis supporting its finding regarding unconscionability.
Shortly following the entry of the circuit court’s order, this Court issued a
ruling upon remand from the United States Supreme Court decision in Marmet. Upon
remand, in Brown II, this Court overruled syllabus point 21 of Brown I, which contained
the per se rule invalidating arbitration agreements in nursing home contracts. Syl. Pt. 3,
Brown II, 229 W. Va. 382, 729 S.E.2d 217. However, we explained that arbitration
provisions can, in fact, still be voided if they are procedurally or substantively
unconscionable under West Virginia law, as set forth in Brown I. Brown II, 229 W. Va. at
391, 729 S.E.2d at 226. Herein, Petitioner alleges that this matter should be reversed and
remanded to allow the circuit court the benefit of the reasoning in Brown II. We agree.
At the time the circuit court entered its order compelling arbitration in this
case, it did not have the benefit of this Court’s opinion in Brown II, wherein we stated,
In accordance with the Supreme Court’s mandate, we
overrule Syllabus Point 21 of Brown I. We otherwise find that
the Supreme Court’s decision does not counsel us to alter our
original analysis of West Virginia’s common law of contracts.
The doctrine of unconscionability that we explicated in
Brown I is a general, state, common-law, contract-law
principle that is not specific to arbitration, and does not
implicate the FAA.
229 W. Va. at 388, 729 S.E.2d. at 222-223. In so holding, we reaffirmed syllabus point 6
of Brown I, which states:
Under the Federal Arbitration Act, 9 U.S.C. §2, a written
provision to settle by arbitration a controversy arising out of a
contract that evidences a transaction affecting interstate
commerce is valid, irrevocable, and enforceable, unless the
provision is found to be invalid, revocable or unenforceable
upon a ground that exists at law or in equity for the
revocation of any contract.
Syl. Pt. 1, Brown II.
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We previously explained in syllabus point 12 of Brown I that “[t]he
doctrine of unconscionability means that, because of an overall and gross imbalance, one­
sidedness or lop-sidedness in a contract, a court may be justified in refusing to enforce
the contract as written. The concept of unconscionability must be applied in a flexible
manner, taking into consideration all of the facts and circumstances of a particular case.”
228 W. Va. 646, 724 S.E.2d 250. We also stated that “[u]nder West Virginia law, we
analyze unconscionability in terms of two component parts: procedural unconscionability
and substantive unconscionability.” Id. at 681, 724 S.E.2d at 285. “Procedural and
substantive unconscionability often occur together, and the line between the two concepts
is often blurred. For instance, overwhelming bargaining strength against an
inexperienced party (procedural unconscionability) may result in an adhesive form
contract with terms that are commercially unreasonable (substantive unconscionability).”
Id. at 684, 724 S.E.2d at 288. In syllabus point 20 of Brown I, we held,
[a] contract term is unenforceable if it is both procedurally
and substantively unconscionable. However, both need not be
present to the same degree. Courts should apply a ‘sliding
scale’ in making this determination: the more substantively
oppressive the contract term, the less evidence of procedural
unconscionability is required to come to the conclusion that
the clause is unenforceable, and vice versa.
228 W. Va. 646, 724 S.E.2d 250.
In Brown II, we also reaffirmed the following guidelines for determining
procedural unconscionability that were set forth in Syllabus Point 17 of Brown I:
Procedural unconscionability is concerned with inequities,
improprieties, or unfairness in the bargaining process and
formation of the contract. Procedural unconscionability
involves a variety of inadequacies that results in the lack of a
real and voluntary meeting of the minds of the parties,
considering all the circumstances surrounding the transaction.
These inadequacies include, but are not limited to, the age,
literacy, or lack of sophistication of a party; hidden or unduly
complex contract terms; the adhesive nature of the contract;
and the manner and setting in which the contract was formed,
including whether each party had a reasonable opportunity to
understand the terms of the contract.
Syl. Pt. 10, Brown II. Reiterating the law set forth in Brown I regarding
unconscionability, we emphasized in Brown II that procedural unconscionability often
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begins with a contract of adhesion. Id. at 393, 729 S.E.2d at 228. We restated syllabus
point 18 of Brown I, which states,
[a] contract of adhesion is one drafted and imposed by a party
of superior strength that leaves the subscribing party little or
no opportunity to alter the substantive terms, and only the
opportunity to adhere to the contract or reject it. A contract of
adhesion should receive greater scrutiny than a contract with
bargained-for terms to determine if it imposes terms that are
oppressive, unconscionable or beyond the reasonable
expectations of an ordinary person.
Syl. Pt. 11, Brown II. We also reemphasized our prior statement in State ex rel. Dunlap
v. Berger, 211 W.Va. 549, 567 S.E.2d 265 (2002), that “[f]inding that there is an
adhesion contract is the beginning point for analysis, not the end of it; what courts aim at
doing is distinguishing good adhesion contracts which should be enforced from bad
adhesion contracts which should not.” Id. at 557, 567 S.E.2d at 273.
As for the factors to consider in assessing substantive unconscionabilty, we
set forth in syllabus point 19 of Brown I, that
[s]ubstantive unconscionability involves unfairness in the
contract itself and whether a contract term is one-sided and
will have an overly harsh effect on the disadvantaged party.
The factors to be weighed in assessing substantive
unconscionability vary with the content of the agreement.
Generally, courts should consider the commercial
reasonableness of the contract terms, the purpose and effect
of the terms, the allocation of the risks between the parties,
and public policy concerns.
Syl. Pt. 19, Brown I. We recognized in Brown II that
[s]ubstantive unconscionability may manifest itself in the
form of “an agreement requiring arbitration only for the
claims of the weaker party but a choice of forums for the
claims of the stronger party.” (footnote omitted). “Some
courts suggest that mutuality of obligation is the locus around
which substantive unconscionability analysis revolves.”
(footnote omitted). “Agreements to arbitrate must contain at
least ‘a modicum of bilaterality’ to avoid unconscionability.”
(footnote omitted).
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229 W. Va. at 393, 729 S.E.2d at 228. In State ex rel. Richmond American Homes v.
Sanders, 228 W. Va. 125, 129, 717 S.E.2d 909, 913 (2011), we stated that when “an
agreement to arbitrate imposes high costs that might deter a litigant from pursuing a
claim, a trial court may consider those costs in assessing whether the agreement is
substantively unconscionable.” Id. at 137, 717 S.E.2d at 921. We also held in State ex
rel. Dunlap v. Berger, 211 W.Va. 549, 567 S.E.2d 265 that,
[p]rovisions in a contract of adhesion that if applied would
impose unreasonably burdensome costs upon or would have a
substantial deterrent effect upon a person seeking to enforce
and vindicate rights and protections or to obtain statutory or
common-law relief and remedies that are afforded by or arise
under state law that exists for the benefit and protection of the
public, are unconscionable; unless the court determines that
exceptional circumstances exist that make the provisions
conscionable. In any challenge to such a provision, the
responsibility of showing the costs likely to be imposed by
the application of such a provision is upon the party
challenging the provision; the issue of whether the costs
would impose an unconscionably impermissible burden or
deterrent is for the court.
Id., syl. pt. 4. “No single, precise definition of substantive unconscionability can be
articulated” because “the factors to be considered vary with the content of the agreement
at issue.” Brown I, 228 W.Va. at 683-84, 724 S.E.2d at 287-88. “Accordingly, courts
should assess whether a contract provision is substantively unconscionable on a case-by­
case basis.” Id.
Based on the foregoing, we find that this case should be reversed and
remanded to allow the parties an opportunity to present evidence of, and the circuit court
to thoroughly consider, the factors set forth in Brown I and reaffirmed in Brown II
regarding procedural and substantive unconscionability. On remand, the circuit court is
ordered to enter an order setting forth the requisite findings of fact and conclusions of law
supporting its ruling.
Accordingly, the case is reversed and remanded for further proceedings
consistent with this opinion.
Reversed and Remanded.
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ISSUED: November 21, 2013
CONCURRED IN BY:
Chief Justice Brent D. Benjamin
Justice Robin Jean Davis
Justice Margaret L. Workman
Justice Menis E. Ketchum
Justice Allen H. Loughry, II
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