Charles Grant v. Kevin Houser , 469 F. App'x 310 ( 2012 )

Case: 11-30161 Document: 00511798444 Page: 1 Date Filed: 03/23/2012
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
March 23, 2012
No. 11-30161 Lyle W. Cayce
Clerk
CHARLES GRANT; ET AL,
Plaintiffs
v.
KEVIN HOUSER; ET AL,
Defendants
------------------------------------------------------------------------------------------------------------
MITCH BERGER,
Plaintiff - Appellee
v.
KEVIN HOUSER; SECURITIES AMERICA, INCORPORATED; AMERICAN
INTERNATIONAL SPECIALTIES LINES INSURANCE COMPANY,
Defendants - Appellants
Appeals from the United States District Court
for the Eastern District of Louisiana
USDC No. 2:10-CV-805
Before BARKSDALE, GARZA, and ELROD, Circuit Judges.
PER CURIAM:*
*
Pursuant to 5th Cir. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5th Cir.
R. 47.5.4.
Case: 11-30161 Document: 00511798444 Page: 2 Date Filed: 03/23/2012
No. 11-30161
Before us are two interlocutory appeals from denials of motions to compel
arbitration in this action. Primarily at issue is: whether the district court had
jurisdiction to rule on the second motion after the appeal of the first denial; and
whether sufficient evidence supports the assignment of a contract containing an
arbitration clause. In challenging those denials, Kevin Houser, Securities
America Inc., and American International Specialties Lines Insurance Co.
(Appellants) contend the district court: lacked jurisdiction to rule on their
second motion, pending the interlocutory appeal from the denial of their first
motion; and, in the alternative, erred by concluding the evidence in support of
arbitration was insufficient and, in the further alternative, by failing to apply
equitable estoppel. In addition, they maintain all of Mitch Berger’s claims are
covered by the arbitration agreement. VACATED and REMANDED.
I.
On 1 January 2004, Berger opened a securities brokerage account with
Brecek & Young Advisors, Inc. (BYA). Houser, Berger’s New Orleans Saints
teammate and financial advisor, was BYA’s registered representative for the
account. In opening it, Berger filled out a “New Account Form”, which he and
Houser signed. This form contained an arbitration clause, located immediately
above the signature lines, which stated, inter alia:
It is agreed that any controversy between [Berger] and
BYA, or its registered representatives, employees, or
agents, including but not limited to those arising out of
or relating to my account, transactions with or for me,
investments, or this agreement, shall be resolved by
arbitration in accordance with the rules, then applying,
of the [National Association of Securities Dealers].
(Emphasis added.) That same day, Berger and Houser also signed a form
entitled “Asset Based Brokerage Services (ABBS): Agreement and Disclosure”,
which likewise included an expansive arbitration clause.
2
Case: 11-30161 Document: 00511798444 Page: 3 Date Filed: 03/23/2012
No. 11-30161
In 2008, Houser advised Berger to invest in Louisiana Film Studios, LLC
(LFS). Houser represented that the investment was backed by Louisiana tax
credits and the land improvements upon which the studio was situated. Based
on those representations, Berger provided a check for $250,000 to Houser, with
LFS as payee.
In late 2008, Securities America acquired BYA. In early 2009, BYA
assigned all of its assets and accounts, including Berger’s, to Securities America.
As reflected in the subsequent account statements provided to Berger by
Securities America in its name, it maintained Berger’s account and employed
Houser as its registered representative.
Alleging his funds invested in LFS were “wasted”, Berger filed this action
in 2010 against Houser, Securities America, and American International
(Securities America’s insurer), stating claims for: violations of Louisiana Civil
Code art. 1997 (bad-faith breach of contract), Louisiana Revised Statute 51:1401
et seq. (unfair trade practices and consumer protection law), Louisiana Civil
Code art. 1967 (breach of promise that induced detrimental reliance), 15 U.S.C.
§ 78j(b) (the Exchange Act of 1934), and Rule 10b-5; breach of contractual,
professional, and fiduciary duty; unjust enrichment; respondeat superior;
liability on the part of Securities America; and liability-coverage from American
International for damages caused by Houser.
In October 2010, Appellants moved to compel arbitration, based on: the
arbitration agreement signed by Berger, claiming the rights under it were
assigned to Securities America; and, in the alternative, equitable estoppel
because Berger relies on an agreement with Securities America for his claims.
In support, they provided a declaration by Kevin Miller (Miller Declaration),
Vice President, Chief Compliance Officer, and Deputy General Counsel at
Securities America, which stated, inter alia: based on his personal knowledge,
in acquiring BYA, Securities America inherited all contractual rights and
3
Case: 11-30161 Document: 00511798444 Page: 4 Date Filed: 03/23/2012
No. 11-30161
obligations associated with BYA’s accounts, including Berger’s and the rights
bestowed by the arbitration agreement contained in his account’s contract.
Berger’s motion to strike the Miller Declaration was denied in November 2010.
The declaration is uncontroverted.
In January 2011, through an order and reasons, the district court denied
the motion to compel arbitration because: Appellants did not provide sufficient
evidence that BYA assigned the New Account Form, with its arbitration clause,
to Securities America; and, in the alternative, equitable estoppel did not apply.
Charles Grant, et al v. Kevin Houser, et al, No. 2:10-CV-805 (E.D. La. 10 Jan.
2011) (First Order). The first of the two interlocutory appeals at issue was filed
in February 2011. The district court did not stay this action pending that appeal.
Between the motion to compel’s being filed and denied, Berger had been
permitted to file a second amended complaint, adding claims for negligent
training and supervision and “selling away” (an investment professional
inappropriately selling securities not offered by the brokerage firm with which
he is associated). In December 2010, prior to denial of the first motion to compel
arbitration, Appellants filed a similar second motion, regarding these new
claims. The first order (January 2011) did not address this second motion.
Instead, after the notice of appeal from the first order was filed, this second
motion was denied on 9 March 2011, based on the reasoning of the first order,
and also because the court ruled no evidence had been offered showing the two
claims added by the second amended complaint fell within the arbitration
agreement. Grant, No. 2:10-CV-805 (E.D. La. 9 Mar. 2011) (Second Order).
Accordingly, the second of the two interlocutory appeals at issue was filed that
month, concerning the second order and reasons.
II.
The Federal Arbitration Act (FAA) applies to contracts involving interstate
commerce that contain or are subject to a written agreement to arbitrate. 9
4
Case: 11-30161 Document: 00511798444 Page: 5 Date Filed: 03/23/2012
No. 11-30161
U.S.C. §§ 1-2. The statute provides for “the enforcement of arbitration
agreements within the full reach of the Commerce Clause”, and reaches more
transactions than those actually “within the flow of interstate commerce”.
Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56 (2003) (internal quotation marks
omitted). Berger’s contracts constitute interstate commerce under the FAA,
because the sale of securities has a substantial effect on interstate commerce.
See id. at 56-57. The arbitration agreement at issue satisfies the FAA’s
“agreement in writing” requirement, 9 U.S.C. § 2, because it is in writing and
signed by Berger. Therefore, the terms of the FAA apply. The FAA permits an
interlocutory appeal from the denial of a motion to compel arbitration. 9 U.S.C.
§ 16(a)(1)(C).
Appellants contend the district court: lacked jurisdiction to rule on the
second motion to compel; and, in the alternative, erred by concluding the
evidence was insufficient to show BYA assigned its rights to Securities America
and, in the further alternative, by concluding equitable estoppel does not apply.
(As discussed below, the Miller Declaration provides sufficient evidence;
therefore, we need not reach equitable estoppel.) They also maintain the
arbitration agreement covers all of Berger’s claims.
A.
We first address district-court jurisdiction vel non to rule on the second
motion to compel arbitration. After the briefs were filed, our court held that an
interlocutory appeal from denial of a motion to compel arbitration does not
divest the district court of jurisdiction to proceed to the merits. Weingarten
Realty Investors v. Miller, 661 F.3d 904, 908–09 (5th Cir. 2011). Relying on the
Supreme Court’s holding in Griggs v. Provident Consumer Discount Co., 459 U.S.
56 (1982), our court explained that “[a]lthough appeals transfer jurisdiction from
the district court to the appellate court concerning ‘those aspects of the case
involved in the appeal,’ the district court is nonetheless free to adjudicate
5
Case: 11-30161 Document: 00511798444 Page: 6 Date Filed: 03/23/2012
No. 11-30161
matters that are not involved in that appeal.” Weingarten, 661 F.3d at 908(quoting Griggs, 459 U.S. at 58). Weingarten further explained that “[a]n issue
is generally an aspect of the case on appeal if it results in the district court’s
deciding an issue that the appellate court is deciding at the same time.” Id. at
909. The court concluded that “because answering the question of arbitrability
does not determine the merits of the case, the merits are not an aspect of the
case that is involved in the appeal on arbitrability.” Id. at 908.
Here, unlike in Weingarten, the first interlocutory appeal divested the
district court of jurisdiction to decide the second motion to compel. That motion
raised arbitrability issues that are “an aspect of the case on appeal,” id. at 909,
because it required the district court to address the same arbitrability issues
involved in the first interlocutory appeal for the same purpose, i.e., deciding
whether to compel arbitration of Berger’s claims. In other words, by deciding the
second motion to compel, the district court decided arbitrability issues that this
court was deciding at the same time, such as whether the Miller Declaration
constitutes sufficient evidence of an assignment of contractual rights for
purposes of a motion to compel arbitration. Because the district court lacked
jurisdiction to decide the second motion to compel, the Second Order is vacated
and our review is limited to the arbitrability of the claims covered by the First
Order.
B.
Denial of a motion to compel arbitration is reviewed de novo. E.g., Webb
v. Investacorp, Inc., 89 F.3d 252, 257 (5th Cir. 1996) (per curiam); Banks v.
Mitsubishi Motors Credit of Am., Inc., 156 F. App’x 710, 711 (5th Cir. 2005) (per
curiam) (unpublished) (sufficiency of evidence of existence of arbitration
agreement reviewed de novo). When considering a motion to compel arbitration,
the court must determine: (1) whether a valid agreement to arbitrate exists
between the parties, and (2) whether the dispute at issue falls within the scope
6
Case: 11-30161 Document: 00511798444 Page: 7 Date Filed: 03/23/2012
No. 11-30161
of that agreement. Webb, 89 F.3d at 258. Berger does not contend there is no
agreement; nor, as discussed infra, does he contend the disputes at issue are
outside the scope of that agreement.
1.
Therefore, primarily at issue is whether the right to arbitrate, provided by
that agreement, was assigned to Securities America. It is undisputed that, if it
was, Securities America can enforce it under California law (the law controlling
the agreement), despite Securities America’s not being a signatory to the
agreement. Prograph Int’l Inc. v. Barhydt, 928 F. Supp. 983, 991 (N.D. Cal.
1996).
In denying application of the arbitration agreement, the district court
concluded:
While Securities America argues that it is entitled to
enforce the terms of the Arbitration Agreement between
BYA and Berger as BYA’s assignee, the Court agrees
with [Berger] and finds that [Securities America has]
not supplied sufficient evidence to support [its] claims
about the extent of any such contractual assignment.
[Securities America has] only supplied a generic
affidavit that claims that BYA assigned all of its
contracts to Securities America, without supplying
documentary evidence of such a transaction. In addition,
the Court finds that the principle of equitable estoppel
does not apply in this case.
(Emphasis added.)
Review of the district court’s rejection of the Miller Declaration is not for
abuse of discretion, because that rejection was not a ruling on the admissibility
vel non of that evidence; instead, it was a ruling on the merits–the sufficiency vel
non of that evidence. The ruling at issue is that the Miller Declaration was
insufficient to show BYA assigned its rights to Securities America. The district
court erred in so ruling.
7
Case: 11-30161 Document: 00511798444 Page: 8 Date Filed: 03/23/2012
No. 11-30161
In Doddy v. Oxy USA, Inc., 101 F.3d 448 (5th Cir. 1996), our court held an
affidavit in which a corporate officer attested to the fact that the corporation
acquired its predecessor’s assets but not its liabilities, without attaching the
contract of sale evidencing the acquisition, was sufficient summary-judgment
evidence when the statements in the affidavit were based on personal knowledge
and did not reference the contract of sale. Id. at 463. Likewise, the Miller
Declaration was based on personal knowledge and did not reference the contract
of sale.
Moreover, there is a strong presumption in favor of arbitration under the
FAA. See 9 U.S.C. § 2; see also Moses H. Cone Mem’l Hosp. v. Mercury Constr.
Corp., 460 U.S. 1, 24 (1983). Accordingly, for ruling on a motion to compel
arbitration, the FAA requires “an expeditious and summary hearing, with only
restricted inquiry into factual issues”. Moses H. Cone Mem’l Hosp., 460 U.S. at
22. The party seeking to compel arbitration need only prove the existence of an
agreement to arbitrate by a preponderance of the evidence. See Banks, 156 F.
App’x at 712.
Given this strong presumption favoring arbitration, the summary nature
of a motion to compel arbitration, and our precedent in Doddy, the Miller
Declaration is sufficient evidence–in this motion-to-compel setting–to establish
the assignment of BYA’s rights to Securities America by a preponderance of the
evidence. See id. (uncontroverted affidavit sufficient to show existence of
agreement by preponderance).
2.
Because of the strong presumption in favor of arbitration, the burden
shifts to the party opposing arbitration to demonstrate either that the agreement
is invalid or, at a minimum, to allege the dispute is outside of the agreement’s
scope. Carter v. Countrywide Credit Indus., Inc., 362 F.3d 294, 297 (5th Cir.
2004); see also Banks, 156 F. App’x at 712 (claims within scope because
8
Case: 11-30161 Document: 00511798444 Page: 9 Date Filed: 03/23/2012
No. 11-30161
nonmoving party did not allege claims were outside it). In this regard, the Miller
Declaration is uncontroverted; no other bases in opposition to arbitration are
raised.
In other words, Berger does not assert his claims are not covered by the
arbitration agreement. In any event, they fall within its scope.
As the district court found, this agreement is a “broadly worded”
agreement. A broad arbitration agreement is “capable of expansive reach”,
intended to cover “all aspects of the relationship”; a dispute then need only
“touch matters covered” by the agreement in order to compel arbitration.
Pennzoil Exploration & Prod. Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1067-68
(5th Cir. 1998). Furthermore, our court has held that a broadly worded
arbitration agreement covers claims related to private investments outside of the
brokerage firm. See Downer v. Siegel, 489 F.3d 623, 627 (5th Cir. 2007).
This agreement covers “any controversy” between the parties or its
registered agents. In the light of this, and similar, language in the agreement,
our precedent, and the federal-law preference for arbitration, all of Berger’s
claims over which we have jurisdiction fall within the scope of the arbitration
agreement.1
III.
For the foregoing reasons, the district court’s 10 January 2011 order is
VACATED, the district court’s 9 March 2011 order is VACATED for lack of
jurisdiction, and this matter is REMANDED for further proceedings consistent
with this opinion.
1
Because the district court lacked jurisdiction to enter its Second Order, Berger’s
negligent training and supervision and “selling away” claims addressed therein are not
properly before us and we express no opinion regarding whether or not they are covered by the
arbitration agreement. That is a question for the district court in the first instance.
9
Case: 11-30161 Document: 00511798444 Page: 10 Date Filed: 03/23/2012
No. 11-30161
RHESA HAWKINS BARKSDALE, Circuit Judge, dissenting in part.
I respectfully dissent from the majority’s holding in part II.A. at 6 that
“the district court lacked jurisdiction to decide the second motion to compel”,
which concerned Berger’s second amended complaint, pending resolution of the
appeal from the earlier denial of the first motion to compel, which concerned
Berger’s amended complaint.
As discussed in the majority opinion at 4, the second amended complaint
was filed after the first motion to compel was filed, but before the First Order,
which denied that motion. Except for new paragraphs 40-43, which added two
new claims, the second amended complaint was identical to the amended
complaint. “[A]n amended complaint ordinarily supersedes the [preceding
complaint] and renders it of no legal effect, unless the amended complaint
specifically refers to or adopts the earlier pleading”. Boelens v. Redman Homes,
Inc., 759 F.2d 504, 508 (5th Cir. 1985). Because the second amended complaint
did neither, it superseded the amended complaint.
As such, the first motion to compel, and resulting First Order, concerned
a complaint that carried “no legal effect” when that order was issued. See id. On
the other hand, the second motion to compel and corresponding Second Order
(issued after the notice of appeal from the First Order was filed), addressed the
new claims in the second amended complaint, which was the operative, or “live”,
complaint and included all of Berger’s claims, new and old. The reasoning and
ruling in the Second Order were a continuation and validation of those in the
First Order. Therefore, the district court had jurisdiction to enter the Second
Order insofar as it brought completion and legal effect to the arbitrability
determination.
In any event, pursuant to Weingarten Realty Investors v. Miller, 661 F.3d
904 (5th Cir. 2011), and contrary to the majority’s analysis, the district court had
10
Case: 11-30161 Document: 00511798444 Page: 11 Date Filed: 03/23/2012
No. 11-30161
jurisdiction to issue the Second Order. Weingarten held an interlocutory appeal
from denial of a motion to compel arbitration does not automatically divest the
district court of jurisdiction to proceed with other issues in that action. Id. at
908. Instead, the district court maintains jurisdiction over matters not involved
in the appeal. Id.; see also Alice L. v. Dusek, 492 F.3d 563, 564-65 (5th Cir. 2007).
Consistent with that, the district court did not stay this action pending the
appeal from the First Order.
“A narrow interpretation is normally appropriate” when a court addresses
how broadly to define the aspects of an appeal. Weingarten, 661 F.3d at 908. The
aspects of Appellants’ first appeal, when narrowly interpreted, can be defined as
the arbitrability vel non of the claims stated in Berger’s amended complaint and
addressed in Appellants’ first motion to compel. As discussed, Berger’s second
amended complaint raised two new claims not addressed in that first motion to
compel. As such, Appellants’ second motion to compel, and the resulting Second
Order, only addressed claims not included in the First Order.
This framing of the “aspects on appeal” is supported by precedent. In
Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982), the Court
held jurisdiction was divested when a notice of appeal challenging a judgment
was filed while a motion to amend that judgment was pending. See Weingarten,
661 F.3d at 909 (summarizing Griggs). On the other hand, in Alaska Electrical
Pension Fund v. Flowserve Corp., 572 F.3d 221 (5th Cir. 2009), our court held
jurisdiction was not divested when an appeal was filed on a matter (denial of
class certification) distinct from that being addressed in a motion in district
court (loss-causation on the merits), despite the fact that “the two issues [were]
practically identical”. Id. at 233; see also Weingarten, 661 F.3d at 909(discussing Alaska Electrical).
In the action at hand, the second motion to compel addressed distinct/new
claims from those on appeal. Therefore, a stay pending appeal not having been
11
Case: 11-30161 Document: 00511798444 Page: 12 Date Filed: 03/23/2012
No. 11-30161
imposed by the district court, it had jurisdiction to rule on the second motion,
despite the dispositive issue in each (arbitrability vel non) being identical. To
hold otherwise impermissibly exalts form over substance, resulting in
unnecessary delay in resolution of this action, waste of scarce judicial resources,
and needless expense for the parties.
Accordingly, under either basis, the district court had jurisdiction to rule
on the second motion to compel arbitration, resulting in the appeal from the
denial of that motion being properly before our court for resolution now.
Therefore, I respectfully dissent from the majority’s holding the district court
lacked such jurisdiction.
12