Opinion ID: 1648193
Heading Depth: 2
Heading Rank: 2

Heading: whether plaintiff's claims are subject to the arbitration provisions in the clients agreements.

Text: ¶ 28. The majority asserts Henry's claims arise out of or relate to Hilliard's accounts with Smith Barney, and are therefore, subject to the arbitration agreement, citing Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 406, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967). Henry's claims emanate not from her status as a direct beneficiary of the agreement, but rather from her interest in the trust established by Hilliard's will. The fact that the corpus of the trust originated by virtue of the Hilliard SBI agreements is not determinative of the arbitrability of the issues within her complaint. Tracer Research Corp. v. National Envtl. Servs. Co., 42 F.3d 1292, 1295 (9th Cir.1994) (citing Armada Coal Exp., Inc. v. Interbulk, Ltd., 726 F.2d 1566, 1568 (11th Cir.1984)). ¶ 29. In addition, the three cases the majority cites, Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110, 1114 (3rd Cir.1993); Trott v. Paciolla, 748 F.Supp. 305 (E.D.Pa.1990); and Levine v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 639 F.Supp. 1391, 1397 (S.D.N.Y. 1986), to support the claim that broadly worded arbitration provisions in securities agreements with brokerage houses have been held by courts to compel arbitration concern arbitration agreements that remained open and were not closed pursuant to a court order to transfer these funds to an estate. These examples do not apply to this case as the accounts here were not to remain open but were to go to the account of the estate for the creation of the trust. ¶ 30. While the claims asserted in Henry's complaint are related to the very funds once deposited in Hilliard's Smith Barney accounts, they should not be governed by the arbitration agreement. The agreement is to be given effect as it is written. The agreement should follow the parties, but not the funds. To rule otherwise would tie those specific funds, and whoever came into possession of them, to an arbitration agreement they never signed or contemplated. While the agreement does address assignments from Henry to a third party, the agreement is silent on transfers from that third party to another party. The funds in Hilliard's accounts were transferred to the estate and then the estate applied those funds to establish the trust. At this point the trust beneficiary steps in the shoes of an unintended third party as to the account agreements. The funds could have just as easily paid a creditor rather than establish a trust for Henry. Therefore, the agreement follows only the parties specified and not the funds themselves.
¶ 31. This Court has recently decided a probate case in involving a divorce settlement, a case in which the agreement was upheld even though one of the parties to the settlement died. In Sheppard v. Pace, 757 So.2d 173 (Miss.2000), the ex-wife contended that she was entitled to alimony from her deceased ex-husband's estate. The property settlement and separation agreement incorporated into their divorce specifically provided that [T]his Agreement shall be binding upon the parties hereto, their administrators, executors and assigns. This Court held that the language was sufficient to bind the estate to the agreement to pay alimony. The Hilliard/Smith Barney agreements, however, are distinguishable from Sheppard. The parties in Sheppard anticipated what would occur upon the death of one of the parties; additionally, the life of the agreement was finite and predetermined as the life of the spouse receiving benefits. The Hilliard/Smith Barney agreement, if interpreted as under Smith Barney's analysis, could potentially have an infinite lifespan attaching itself to anyone taking funds originating from Hilliard's accounts or the trust set up by her will. ¶ 32. Henry contends that the arbitration clause should be treated like clauses in other contracts and expire upon the death of one of the signatories (Hilliard). The contract between Hilliard and Smith Barney did not confer rights on anyone not a party or signatory to the agreements. Furthermore, the agreements themselves did not identify any specific beneficiaries. ¶ 33. There was no express provision for the survival of the arbitration clauses beyond Hilliard's lifetime. The provisions of the contract between Hilliard and SBI were revoked by and at the time of Hilliard's death. Furthermore, the contract concerned only the rights of Hilliard and Smith Barney. Henry's only tie to the arbitration agreements was through her indirect relation to the Hilliard/Smith Barney agreements by virtue that she stood to benefit from the trust set up by Hilliard's will, the corpus of which consisted of the monies from Hilliard's Smith Barney accounts. ¶ 34. Once Hilliard died, the accounts became property of the estate and subsequently the trust. When Smith Barney's alleged negligence took place, the assets in the accounts were no longer Hilliard's personal property. Since the accounts became property of the estate, by operation of law when Hilliard died, then the assets were ultimately property of the trust and not Hilliard; and therefore, the arbitration agreements do not apply to Henry. Henry, however, still has rights as a beneficiary, but she takes under the trust rather than as a third-party beneficiary to the account agreements.
¶ 35. Agreements to arbitrate are essentially creatures of contract. Tropical Cruise Lines, S.A. v. Vesta Ins. Co., 805 F.Supp. 409, 412 (S.D.Miss.1992). While the United States Supreme Court has held that arbitration agreements should be enforced to the fullest extent, they are still contracts and should not be given any greater treatment or weight than any other contract. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n. 12, 87 S.Ct. 1801, 1806 n. 12, 18 L.Ed.2d 1270 (1967); see also Southland Corp. v. Keating, 465 U.S. 1, 19, 104 S.Ct. 852, 862,79 L.Ed.2d 1, 17 (1984) (Stevens, J., concurring in part and dissenting in part) (The purpose of the FAA was to make arbitration agreements as enforceable as other contracts, but not more so.). ¶ 36. Henry, as a non-signatory to the contract, is not bound by the language cited by Smith Barney which defines agreement to arbitrate. International Customs Assocs., Inc. v. Ford Motor Co., 893 F.Supp. 1251, 1256 n. 3 (S.D.N.Y.1995) (a contract cannot bind a non-party) (citing Abraham Zion Corp. v. Lebow, 761 F.2d 93, 103 (2d Cir.1985) (a non-signatory to a contract was not bound by a contract where the party who signed the contract was not the non-signatory's agent), aff'd. mem. 201 F.3d 431 (2d Cir.1999)); see also Tropical Cruise Lines, S.A., 805 F.Supp. at 413; Crabtree v. Tristar Auto. Group, Inc., 776 F.Supp. 155, 166 (S.D.N.Y.1991) (It is hornbook law that a non-signatory to a contract cannot be named as a defendant in a breach of contract action unless it has thereafter assumed or been assigned the contract.); Beacon Syracuse Assocs. v. City of Syracuse, 560 F.Supp. 188, 201 (N.D.N.Y.1983) (Only those who are parties to a contract may be held liable for a breach of that contract.) (citation omitted); Dember Constr. Corp. v. Staten Island Mall, 56 A.D.2d 768, 769, 392 N.Y.S.2d 299, 300 (1977) (Since [the defendant] was not a party to the contract, the complaint against it must be dismissed.). Additionally, the Federal Arbitration Act (FAA) does not apply to parties who are not bound by the agreement to arbitrate. Indeed, as a general rule, a third-party beneficiary is not bound by the contract even though he has a right to benefits under the contract. Id. In International Customs Associates, a federal district court held that the status of intended third-party beneficiary gives that person a right to sue but does not give others right to sue that person on the contract. Ford Motor Co., 893 F.Supp. at 1256 n. 3, citing Abraham Zion Corp., 761 F.2d at 103. ¶ 37. In the case cited by Smith Barney, Collins v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 561 So.2d 952 (La.Ct. App.1990), Frank Collins entered into a customer agreement with Merrill Lynch. The agreement contained a provision requiring arbitration if a dispute arose. After Frank's death, his brother and sister, as the heirs of their brother, sued Merrill Lynch claiming that Merrill Lynch had made unauthorized tender of debentures to the account. Merrill Lynch filed a motion to require arbitration as per the customer agreement. The Collinses countered that they were not bound by the agreement to arbitrate since the contract was not signed by them. By its own terms, the court found that it applied to the heirs, stating specifically, the agreement applies to the successors and assigns of the customer. Id. at 955. ¶ 38. The majority in its opinion is now limiting the chancery court's power to control estates when funds are involved through brokerage companies where the decedent signed an arbitration contract. Henry's claims do not emanate from her status as a direct beneficiary of the account agreements, but rather from her interest in the trust established by Hilliard's will. Henry takes as a beneficiary of the trust and not as a direct beneficiary of the agreements between Hilliard and Smith Barney. Therefore, the arbitration clauses are not determinative of the arbitrability of the issues within Henry's complaint. See Tracer Research Corp., 42 F.3d at 1295 (citing Armada Coal Exp., Inc., 726 F.2d at 1568). ¶ 39. For the above reasons, I dissent. DIAZ, J., joins this opinion.