Court Opinion

ID: 4287828
Source: CourtListenerOpinion
Date Created: 2018-06-25 16:08:31.999274+00
Date Added: 2024-06-11T14:37:19.955016
License: Public Domain

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.

Court of Appeals of Indiana | Opinion 36A04-1710-PL-2258 | June 25, 2018                           Page 1 of 15
                                              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

      Court of Appeals of Indiana | Opinion 36A04-1710-PL-2258 | June 25, 2018    Page 2 of 15
      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

      Court of Appeals of Indiana | Opinion 36A04-1710-PL-2258 | June 25, 2018   Page 3 of 15
      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

      Court of Appeals of Indiana | Opinion 36A04-1710-PL-2258 | June 25, 2018   Page 4 of 15
      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:

      Court of Appeals of Indiana | Opinion 36A04-1710-PL-2258 | June 25, 2018   Page 5 of 15
        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.

Court of Appeals of Indiana | Opinion 36A04-1710-PL-2258 | June 25, 2018       Page 6 of 15
        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

Court of Appeals of Indiana | Opinion 36A04-1710-PL-2258 | June 25, 2018    Page 7 of 15
               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
       Court of Appeals of Indiana | Opinion 36A04-1710-PL-2258 | June 25, 2018    Page 8 of 15
       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.

       Court of Appeals of Indiana | Opinion 36A04-1710-PL-2258 | June 25, 2018   Page 9 of 15
[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,

       Court of Appeals of Indiana | Opinion 36A04-1710-PL-2258 | June 25, 2018   Page 10 of 15
       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

       Court of Appeals of Indiana | Opinion 36A04-1710-PL-2258 | June 25, 2018   Page 11 of 15
       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.”

       Court of Appeals of Indiana | Opinion 36A04-1710-PL-2258 | June 25, 2018                                Page 12 of 15
[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

       Court of Appeals of Indiana | Opinion 36A04-1710-PL-2258 | June 25, 2018   Page 13 of 15
               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)

       Court of Appeals of Indiana | Opinion 36A04-1710-PL-2258 | June 25, 2018   Page 14 of 15
       (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.

       Court of Appeals of Indiana | Opinion 36A04-1710-PL-2258 | June 25, 2018   Page 15 of 15