Court Opinion

ID: 805249
Source: CourtListenerOpinion
Date Created: 2012-07-26 15:09:38+00
Date Added: 2024-06-11T18:00:15.256559
License: Public Domain

United States Court of Appeals
                           FOR THE EIGHTH CIRCUIT
                                    ___________

                                    No. 11-2476
                                    ___________

Thomas A. Wootten,                      *
                                        *
             Appellant,                 *
                                        * Appeal from the United States
      v.                                * District Court for the
                                        * Eastern District of Missouri.
Fisher Investments, Inc.; Fisher Asset *
Management, LLC, dba Fisher             *
Investments, Inc.; Kenneth Fisher;      *
Matthew Goldhaber; Michael Weston, *
                                        *
             Appellees.                 *
                                   ___________

                              Submitted: March 14, 2012
                                 Filed: July 26, 2012
                                  ___________

Before MELLOY, SMITH and SHEPHERD, Circuit Judges.
                           ___________

SMITH, Circuit Judge.

       Thomas A. Wootten initiated an arbitration against his former investment
advisor, Fisher Investments, Inc. ("Fisher Investments"). During the arbitration, Fisher
Investments moved to dismiss Wootten's Missouri statutory claims based on the
arbitration agreement's Delaware choice-of-law provision. Ruling on Fisher
Investments' motion, the arbitrator dismissed Wootten's Missouri statutory claims and
sua sponte prohibited Wootten from adding a federal securities law claim. Wootten
then filed a civil action against Fisher Investments in the United States District Court
for the Eastern District of Missouri, re-alleging the Missouri statutory and federal
securities law claims and seeking a declaration that the arbitration agreement was
void. The district court1 dismissed Wootten's claims without prejudice, deciding that
Wootten had to complete arbitration before he could pursue remedies in federal court.
We affirm.

                                  I. Background
      Wootten, a former insurance agent, sought investment options for his retirement
savings. In September 2007, after receiving marketing materials from Fisher
Investments, Wootten met with Fisher Investments's Vice President Matthew
Goldhaber. Subsequently, on September 11, 2007 Wootten signed a written Letter of
Agreement (LOA), which acknowledged Wootten's retention of Fisher Investments
as his investment advisor. The LOA contained choice-of-law and arbitration
provisions, which stated:

      13. GOVERNING LAW.

      This Agreement will be governed by and construed in accordance with
      the laws of the State of Delaware without giving effect to any conflict or
      choice of law provisions.

                                        ***

      18. PROBLEMS AND DISPUTES; ARBITRATION.

                                        ***

      Any dispute, claim or controversy arising out of this Agreement or
      otherwise between Fisher and the Client, including but not limited to the
      breach, termination, enforcement, interpretation or validity of this

      1
       The Honorable Stephen N. Limbaugh, Jr., United States District Judge for the
Eastern District of Missouri.

                                         -2-
      Agreement and the scope and applicability of the agreement to arbitrate
      contained in this paragraph shall be determined by arbitration before the
      Judicial Arbitration and Mediation Service ("JAMS") office closest to
      the Client's principal place of residence before one arbitrator who shall
      be a retired judicial officer. Any claim asserted by the Client will not be
      joined, for any purpose, with the claim or claims of any other person or
      entity. The arbitration shall be administered by JAMS pursuant to the
      Comprehensive Arbitration Rules and Procedures. The laws of the State
      of Delaware shall govern the substantive rights of the parties. The
      arbitration shall be final and binding, and judgment on the award may be
      entered in any court having jurisdiction. Client understands that by
      agreeing to arbitration, the Client is waiving all rights to seek remedies
      in court, unless otherwise mandated by federal or state securities laws.
      This clause will not prohibit the parties from seeking provisional
      remedies in any court of competent jurisdiction. This paragraph shall
      survive termination of this Agreement.

After executing the LOA, Fisher Investments assigned Michael Weston to Wootten's
account as his investment counselor. At the time, unbeknownst to Wootten, Weston
was not licensed or registered as an investment advisor as required by law. Wootten
followed Weston's suggested investment strategy and did not diversify his portfolio
but instead invested all of his money in equities.

       In May 2008, Wootten called Weston with concerns about events in the
marketplace and inquired about Fisher Investments's intended response. Weston
attempted to allay Wootten's fears and suggested that, despite market jitters, Wootten
would still see a positive return on his investments. In July 2008, Wootten again called
Weston, concerned by mounting losses in his account with Fisher Investments.
Weston again expressed confidence in the original investment strategy and expressed
that Wootten did not need to assume a defensive stance at the time. On September 29,
2008, Fisher Investments sent a message to all of its clients stating, "now more than
ever we urge you to exercise continued patience." In response, Wootten sent Weston
a written complaint, demanding a formal review of the suitability of the recommended

                                          -3-
portfolio. Fisher Investments responded to this letter, denying responsibility for
Wootten's losses. Wootten then wrote Fisher Investments' Chief Compliance Officer,
Tom Fishel, requesting reparation for his losses. Fishel rejected Wootten's request for
reparations. In November 2008, after suffering $316,000 in losses, Wootten liquidated
his retirement account with Fisher Investments.

       In October 2008, Wootten sought arbitration against Fisher Investments with
the Judicial Arbitration and Mediation Services (JAMS). The parties engaged in
written discovery, produced documents, and deposed potential witnesses. In late 2009,
Wootten filed a motion in the arbitration, seeking leave to amend to add an additional
Missouri Securities Act count. Fisher Investments opposed Wootten's motion and
moved to dismiss all of his Missouri statutory claims based on the LOA's Delaware
choice-of-law provision. In response, Wootten challenged the enforceability of the
LOA's arbitration provision.

      On December 10, 2009, the arbitrator dismissed Wootten's Missouri statutory
claims based on the Delaware choice-of-law provision. The arbitrator ruled that

             [t]he parties entered into a written letter of Agreement ("LOA")
      with two choice of law provisions that require the application of
      Delaware law. If we find that the choice of law provisions in the LOA
      are valid and enforceable, then Claimant's Missouri claims cannot stand.

                                        ***

      Accordingly, the law of Delaware, alone, will be applied to govern the
      dispute between Claimant and Respondent and their respective
      substantive rights.

After the arbitrator's ruling, Wootten filed a motion to reconsider. On March 19, 2010,
the arbitrator denied Wootten's motion to reconsider and sua sponte prohibited

                                         -4-
Wootten from adding a federal securities claim under the Investment Advisers Act of
1940 based on the Delaware choice-of-law-provision.

       On April 9, 2010, while the arbitration was proceeding, Wootten filed a
complaint in federal court challenging the enforceability of the arbitration provision
in the LOA and asserting his dismissed Missouri and federal statutory claims. On
April 27, 2010, the arbitrator stayed the arbitration proceeding pending the outcome
of Wootten's federal action. Wootten then moved to enjoin the arbitration in federal
court. Fisher Investments filed a motion to dismiss Wootten's federal court action in
favor of arbitration. On March 31, 2011, the district court denied Wootten's motion
to enjoin the arbitration and granted Fisher Investments's motion to dismiss Wootten's
claims without prejudice based on the ongoing arbitration.

                                     II. Discussion
       Wootten challenges the district court's dismissal of his Missouri and federal
statutory claims based on the ongoing arbitration. Wootten argues that (1) the district
court has jurisdiction to address his claims; (2) the arbitrator limited the scope of the
arbitration agreement to only Delaware claims, thus allowing him to bring non-
Delaware claims in federal court; (3) the arbitrator's interpretation of the arbitration
provision renders it void; (4) Fisher Investments waived its right to arbitrate; (5) the
arbitration agreement is unenforceable; (6) he did not waive his right to challenge the
arbitration agreement; and (7) the LOA's provisional remedies void the LOA's
arbitration provision.

                        A. Jurisdiction Over Wootten's Claims
       Wootten argues that the district court erred in finding that the district court
lacked jurisdiction to adjudicate Wootten's Missouri and federal statutory claims. In
response, Fisher Investments counters that the complete arbitration rule prohibits the
district court from exercising jurisdiction until the arbitration is complete. "We review

                                          -5-
the District Court's determination regarding subject matter jurisdiction de novo."
Monson v. Drug Enforcement Admin., 589 F.3d 952, 958 (8th Cir. 2009).

       "For an arbitration to be final and therefore federal court jurisdiction to be
proper, there must be a 'complete arbitration.' Some courts have called this the
'complete arbitration' rule." Local 36, Sheet Metal Workers Int'l Ass'n. AFL-CIO v.
Pevely Sheet Metal Co., 951 F.2d 947, 949–50 (8th Cir. 1992) (citation omitted).
"Whether [an arbitration] award indicates that [it] is final and whether the arbitrator
intended the award to be final are factors in determining if an arbitration award is
final." Id. at 949.

       Wootten argues that the complete arbitration rule does not apply in this case
because he is not challenging an arbitrator's interim decision. Wootten asserts that the
arbitrator made a final determination by limiting the scope of the arbitration to only
Delaware claims. According to Wootten, that final determination on the arbitration's
scope is immediately appealable. But reviewing the arbitrator's decision, we conclude
otherwise. The arbitrator found that the parties agreed that "the law of Delaware,
alone, will be applied to govern the dispute between Claimant and Respondent and
their respective substantive rights." In doing so, the arbitrator interpreted the
arbitration provision of the LOA to only allow Delaware law to establish and govern
the parties' substantive rights for any dispute arising from their relationship. Because
the ruling simply decided the substantive rights of the parities during the arbitration,
we find that Wootten is challenging an interim ruling and thus the complete arbitration
rule applies. See id. Because the complete arbitration rule applies, the district court did
not err in deciding that it did not have jurisdiction to adjudicate Wootten's claims.

                    B. Wootten's Claims Filed In Federal Court
      Wootten next argues the arbitrator's interpretation of the LOA's arbitration
provision permits him to bring his Missouri and federal law statutory claims in federal

                                           -6-
court. Specifically, Wootten argues that the arbitrator's interpretation of the LOA's
choice-of-law provision and choice-of-forum provision act in tandem to prevent
Wootten from pursuing his Missouri and federal statutory claims in arbitration.
Consequently, the LOA implicitly allows him to bring those claims in federal court
notwithstanding the ongoing arbitration proceedings. "We review a district court's
interpretation of a contractual arbitration provision de novo." Hudson v. ConAgra
Poultry Co., 484 F.3d 496, 499 (8th Cir. 2007).

      As expressed above, we find that Wootten is appealing the arbitrator's interim
decision as to the parties' substantive rights. See Part II. A. As such, we find that the
complete arbitration rule applies, and Wootten must fully arbitrate his claims before
he may ask a federal court to review the arbitrator's decision regarding a dispute
covered by the arbitration agreement. Thus, we find that the district court did not err
in requiring Wootten to fully arbitrate his claims before proceeding to a judicial
forum.

                               C. Pubic Policy Concerns
       Wootten argues that the arbitration agreement is void as against public policy
because it precludes Wootten's Missouri and federal statutory claims. We review a
district court's dismissal in favor of an ongoing arbitration de novo. See Green v.
SuperShuttle Int'l., Inc., 653 F.3d 766, 768 (8th Cir. 2011).

       Federal courts have expressed concern when an arbitration agreement limits
statutory rights. We have said that "[a]rbitration agreements encompassing federal
statutory claims are enforceable as long as the potential litigant can effectively
vindicate her statutory rights through arbitration." E.E.O.C. v. Woodmen of World Life
Ins. Soc'y, 479 F.3d 561, 565 (8th Cir. 2007). Similarly, where a choice-of-law
provision sought to curtail a party's rights under federal antitrust laws, the Supreme
Court noted in dicta "that in the event the choice-of-forum and choice-of-law clauses
operated in tandem as a prospective waiver of a party's right to pursue statutory

                                          -7-
remedies for antitrust violations, we would have little hesitation in condemning the
agreement as against public policy." Mitsubishi Motors Corp. v. Soler Chrysler-
Plymouth, Inc., 473 U.S. 614, 637 n.19 (1985).

       Wootten correctly notes that federal courts have frowned upon arbitration
agreements that preclude important statutory remedies; however, when the complete
arbitration rule applies, available federal court remedies must wait their turn. This is
especially so here where the parties have committed to the arbitrator the determination
of whether the LOA's arbitration provisions are valid. See Rent-A-Center, W., Inc. v.
Jackson, 130 S. Ct. 2772 (2010) (deciding that the arbitrator must decide the
enforceability of the agreement where the parties agreed to arbitrate the enforceability
of the arbitration agreement).2 Thus, while Wootten may have valid federal claims, he
must complete the arbitration before a court can hear those claims.

                          D. Waiver by Fisher Investments
       Wootten also argues that Fisher Investments waived its right to arbitrate by
acting inconsistently with the arbitrative process. "We review the question of waiver
de novo." Stifel, Nicolaus & Co. v. Freeman, 924 F.2d 157, 158 (8th Cir. 1991).

      2
       The LOA states in relevant part:

      Any dispute, claim or controversy arising out of this Agreement or
      otherwise between Fisher and the Client, including but not limited to the
      breach, termination, enforcement, interpretation or validity of this
      Agreement and the scope and applicability of the agreement to arbitrate
      contained in this paragraph shall be determined by arbitration before the
      Judicial Arbitration and Mediation Service . . . .

As explained in Section II.E below, we read this language to require that the arbitrator
decide the enforceability of the arbitration provision.

                                          -8-
       "To prove [Fisher] waived its right to arbitration, [Wootten] must show: (1)
[Fisher Investments] knew of an existing right to arbitration; (2) [Fisher Investments]
acted inconsistently with that right; and (3) [Fisher Investment]'s inconsistent acts
prejudiced [Wootten]." Id.

       Wootten argues that Fisher Investments waived its right to arbitrate by
withholding material evidence, committing perjury, and refusing to comply with
JAMS rules. Wootten relies on Hooters of America, Inc. v. Phillips, 173 F.3d 933 (4th
Cir. 1999). We find that case inapposite and thus not persuasive. In Hooters, a former
employee complaining of sexual harassment threatened to sue Hooters. Id. at 935.
Hooters preemptively filed a motion to compel arbitration under the Federal
Arbitration Act. Id. The district court denied Hooters's motion, finding that Hooters's
promise to arbitrate was illusory because of the conditions it set for arbitration. Id. at
936. Affirming, the Fourth Circuit found that "Hooters materially breached the
arbitration agreement by promulgating rules so egregiously unfair as to constitute a
complete default of its contractual obligation to draft arbitration rules and to do so in
good faith." Id. at 938.

      Here, while Fisher Investments's alleged dilatory actions, if true, are regrettable,
Fisher Investments has nonetheless continued to participate in the arbitration.
Ultimately, Wootten received many, if not all, of the requested documents and
deposed Fisher Investments employees. Under these facts, we conclude that Fisher
Investments did not act inconsistently with the right to arbitrate and, thus, did not
waive its right to arbitrate.

                E. Enforceability of the LOA's Arbitration Provision
      Wootten argues that the district court erred by failing to evaluate the
enforceability of the LOA's arbitration provision. Fisher Investments counters that the
LOA's arbitration provision requires that the arbitrator decide the enforceability of the

                                           -9-
arbitration agreement. We review de novo a district court's decision to dismiss in favor
of an ongoing arbitration. See Green, 653 F.3d at 768.

       In Rent-A-Center v. Jackson, the United States Supreme Court decided
"whether, under the Federal Arbitration Act . . ., a district court may decide a claim
that an arbitration agreement is unconscionable, where the agreement explicitly
assigns that decision to the arbitrator." 130 S. Ct. at 2775. The Court held that, where
the parties agree to arbitrate the enforceability of the arbitration agreement, federal
courts must allow the arbitrator to determine that threshold issue first. Id. at 2777–78.3
Even before Rent-A-Center, this circuit held that federal courts should defer the
question of arbitrability to the arbitrator where the court finds "a clear and
unmistakable expression of the parties' intent to leave the question of arbitrability to
an arbitrator." Fallo v. High-Tech Inst., 559 F.3d 874, 878 (8th Cir. 2009).

       Here, the LOA's arbitration provision states in relevant part:

       Any dispute, claim or controversy arising out of this Agreement or
       otherwise between Fisher and the Client, including but not limited to the
       breach, termination, enforcement, interpretation or validity of this
       Agreement and the scope and applicability of the agreement to arbitrate
       contained in this paragraph shall be determined by arbitration before the
       Judicial Arbitration and Mediation Service . . . .

We read this language to be "a clear and unmistakable expression of the parties' intent
to leave the question of arbitrability to an arbitrator." Id. As such, the district court did
not err in declining to rule on the arbitrability of the LOA's arbitration provision.

       3
       An exception exists where a party "challenges the contract as a whole, either
on a ground that directly affects the entire agreement (e.g., the agreement was
fraudulently induced), or on the ground that the illegality of one of the contract's
provisions renders the whole contract invalid." Rent-A-Center, 130 S.Ct. at 2777–78.

                                            -10-
             F. Wootten's Waiver of the Right to Challenge Arbitrability
       Wootten next argues that the district court erred in finding that he waived his
right to challenge the validity of the arbitration proceeding. "We review the question
of waiver de novo." Stifel, Nicolaus & Co., 924 F.2d at 158.

       Assuming that Wootten did not waive his ability to challenge the validity of the
arbitration proceeding, as decided above, Wootten must first present that challenge to
the arbitrator. Because the arbitrator has not yet decided whether the LOA's arbitration
provision is enforceable, Wootten's challenge in federal court is premature. See Local
36, Sheet Metal Workers Int'l Ass'n. AFL-CIO, 951 F.2d at 949–50.

                      G. Provisional Remedies Clause Applicability
        Finally, Wootten argues that the district court erred in not applying the
provisional remedies in the LOA. Specifically, Wootten argues that the LOA allows
the federal court to declare the LOA's arbitration provision unenforceable. "We review
a district court's interpretation of a contractual arbitration provision de novo." Hudson,
484 F.3d at 499.

       The LOA's arbitration provision states, "This clause will not prohibit the parties
from seeking provisional remedies in any court of competent jurisdiction." Wootten
argues that this language "specifically allows for the court to evaluate the validity of
the arbitration provision in light of the Arbitrator's Orders precluding [his] statutory
claims." We disagree. We need not decide the meaning of the provisional remedies
provision because we find that the LOA's unambiguous language is at odds with
Wootten's interpretation. Specifically, the agreement provides that "breach,
termination, enforcement, interpretation or validity of this Agreement and the scope
and applicability of the agreement to arbitrate contained in this paragraph shall be
determined by arbitration before the Judicial Arbitration and Mediation Service."
Wootten invites us to ignore this language to allow a court to decide the enforceability
of the LOA's arbitration provision. We decline Wootten's invitation and find that the

                                          -11-
district court did not err in refusing to interpret the LOA's provisional remedies
provision to override the express language that requires that the arbitrator decide the
agreement's enforceability.

                                 III. Conclusion
      Accordingly, we affirm the judgment of the district court.
                     ______________________________

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