Court Opinion

ID: 39530
Source: CourtListenerOpinion
Date Created: 2010-04-25 20:27:43+00
Date Added: 2024-06-11T12:22:12.435040
License: Public Domain

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
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