Appeal by defendants from order entered 11 January 2005 by
Judge John R. Jolly, Jr., in Carteret County Superior Court. Heard
in the Court of Appeals 22 September 2005.
Richard L. Stanley for plaintiffs-appellees.
PARKER, POE, ADAMS & BERNSTEIN, L.L.P., by Cynthia L. Wittmer
and Sarah L. Ford, for defendants-appellants.
SMITH, Judge.
Stephen Fry (“Fry”), SouthTrust Securities, Inc.
(“SouthTrust”), and AXA Financial Inc. (“AXA Financial”), doing
business as The Equitable Life Assurance Society of the United
States (“Equitable Life Assurance”) and Equitable Distributors,
Inc. (“Equitable Distributors”) (collectively “defendants”), appeal
a trial court order denying their motion to stay the proceedings
and compel arbitration in the matter. For the reasons discussedherein, we reverse.
The facts and procedural history pertinent to the instant
appeal are as follows: In 1998, Joseph H. Pake (“Pake”) and Regina
P. Rose (“Rose”) (collectively, “plaintiffs”) were appointed co-
guardians of their legally incompetent cousin, Norman E. Luster
(“Luster”). Plaintiffs subsequently contacted SouthTrust, seeking
to invest approximately $115,000.00 of Luster's assets. Following
the execution of a Customer Cash Account Application (“Account
Application”), SouthTrust aided plaintiffs in investing the assets
into mutual funds selected and recommended by Fry, a registered
representative of SouthTrust. Pursuant to Fry's recommendations,
plaintiffs sold the mutual funds and purchased an annuity from AXA
Financial on or around 10 January 2000. According to plaintiffs,
Fry informed Pake that, “as the owners of the annuity,” plaintiffs
would receive “not less than the principal amount and a 5% return
annually in the event of” Luster's death.
Luster died on 3 August 2003. Shortly thereafter, Pake
contacted Fry and inquired as to the value of the annuity. Fry
informed Pake that although the value of the annuity had dropped to
approximately $60,400.00, the life insurance and annuity interest
would total approximately $121,965.70 in death benefits. However,
after processing the claim, Equitable Distributors subsequently
informed Pake that because he was listed as annuitant and Luster
was listed as owner, there was no death benefit provided by the
annuity and there would be a penalty for withdrawing more than 10%
of the annuity's total. In their capacity as administrators of Luster's estate,
plaintiffs filed suit against defendants on 29 January 2004,
asserting claims for breach of fiduciary relationship, negligent
misrepresentation, and fraudulent and prohibited securities
practices. On 29 March 2004, defendants filed a “Motion to Dismiss
or Stay Proceedings and Compel Arbitration.” Following a hearing
on the motion, the trial court entered an order containing the
following pertinent findings of fact:
4. The Account Application contained a hand-
added “X” beside the first of two “Applicant's
Signature” lines, the first of which was
signed by Pake. The Account Application also
contained a hand-added “X” beside the second
“Applicant's Signature” line, to the immediate
right of the signature line signed by Pake.
However, the second Applicant's Signature line
was left blank. Rose did not sign the Account
Application.
. . . .
6. The Account Application signed by Pake on
Luster's behalf contained an arbitration
clause providing that matters in dispute, as
defined, be submitted to binding arbitration
under the Federal Arbitration Act. By its
terms, the scope of the arbitration provision
covers the transactions involving Luster and
Luster's estate.
Based upon these findings of fact, the trial court made the
following pertinent conclusions of law:
2. The allegations in the Complaint frame a
claim or controversy arising out of the
relationship between Luster and SouthTrust
Securities, Inc. that falls within the scope
of the arbitration clause in the Account
Application signed by Pake on Luster's behalf.
. . . .
5. Ordinarily, actions taken by co-guardianswith respect to their ward must be unanimous.
Defendants argue that Rose ratified the
Account Application or is estopped from
arguing that her lack of signature precludes
enforcement of the arbitration clause by
bringing this action and seeking to benefit
thereby.
6. Defendants have failed to carry their
burden of proving that Rose should be deemed
to have ratified Luster's contract with the
Defendants, or that she should be estopped
from asserting her lack of signature as a
defense to the Defendants' motion to compel
arbitration, by virtue of the positions she
has taken in this litigation.
7. Accordingly, Luster's estate is not bound
by the sole signature of Pake on the Account
Application, and the estate therefore did not
agree to arbitrate the dispute at issue.
Based upon these conclusions of law, the trial court denied
defendants' motion. It is from this order that defendants appeal.
The issue on appeal is whether the trial court erred by
denying defendants' motion to dismiss or stay proceedings and
compel arbitration. Defendants argue that plaintiffs are equitably
estopped from asserting that the lack of Rose's signature on the
Account Application precludes enforcement of the Application's
arbitration clause. We agree.
We note initially that because it does not dispose of the
entire controversy between the parties, a trial court's denial of
a motion to compel arbitration is generally interlocutory in
nature.
See Raspet v. Buck, 147 N.C. App. 133, 135, 554 S.E.2d
676, 677 (2001). “While an interlocutory order is generally not
directly appealable, such an order will be considered if the trialcourt's decision deprives the appellant of a substantial right
which would be lost absent immediate review.”
Howard v. Oakwood
Homes Corp., 134 N.C. App. 116, 118, 516 S.E.2d 879, 881,
disc.
review denied, 350 N.C. 832, 539 S.E.2d 288 (1999),
cert. denied,
529 U.S. 1155, 145 L. Ed. 2d 1072 (2000) (citations and quotation
marks omitted). This Court has previously held that because “[t]he
right to arbitrate a claim is a substantial right which may be lost
if review is delayed, . . . an order denying arbitration is
therefore immediately appealable.”
Id. Accordingly, we address
the merits of defendants' instant appeal.
The determination of whether a dispute is subject to
arbitration is a question of law for the trial court, and its
conclusion is reviewable
de novo on appeal.
Raspet, 147 N.C. App.
at 136, 554 S.E.2d at 678. The determination involves a two-
pronged analysis, wherein the court must consider (i) whether the
specific dispute between the parties falls within the substantive
scope of their agreement, and (ii) whether the parties had a valid
agreement to arbitrate.
Id. In the instant case, there is no
issue regarding whether the dispute between plaintiffs and
defendants falls within the substantive scope of the arbitration
clause in the Account Application. However, because only Pake
signed the Account Application on behalf of Luster, we must
determine whether the parties had a valid agreement to arbitrate.
“The obligation and entitlement to arbitrate 'does not attach
only to one who has personally signed the written arbitration
provision.' Rather, '[w]ell-established common law principlesdictate that in an appropriate case a nonsignatory can enforce, or
be bound by, an arbitration provision within a contract executed by
other parties.'”
Washington Square Securities, Inc. v. Aune, 385
F.3d 432, 435 (4th Cir. 2004) (quoting
Inter. Paper v.
Schwabedissen Maschinen & Anlagen, 206 F.3d 411, 416-17 (4th Cir.
2000)) (alteration in original). One such principle is equitable
estoppel, “which prevents a party from asserting a right that 'he
otherwise would have had against another' when his conduct would
make the assertion of those rights contrary to equity.”
LSB Fin.
Servs. v. Harrison, 144 N.C. App. 542, 548, 548 S.E.2d 574, 579
(2001) (citation omitted).
In the arbitration context, the doctrine
recognizes that a party may be estopped from
asserting that the lack of his signature on a
written contract precludes enforcement of the
contract's arbitration clause when he has
consistently maintained that other provisions
of the same contract should be enforced to
benefit him. “To allow [a plaintiff] to claim
the benefit of the contract and simultaneously
avoid its burdens would both disregard equity
and contravene the purposes underlying the
enactment of the Arbitration Act.”
Schwabedissen, 206 F.3d at 418 (citation omitted) (alteration in
original).
After carefully reviewing the record in the instant case, we
conclude plaintiffs are estopped from asserting that the
arbitration clause at issue is inapplicable to their complaint. As
in
Schwabedissen, plaintiffs' “entire case hinges on [their]
asserted rights” under the agreement, and the agreement “provides
part of the factual foundation for every claim” advanced by
plaintiffs.
Id. (noting that it would “'both disregard equity andcontravene [the Federal Arbitration Act]'” to allow a plaintiff
“'to claim the benefit of the contract and simultaneously avoid its
burdens'” (citation omitted)). With respect to their breach of
fiduciary duty claim, plaintiffs assert defendants “breached their
duties as fiduciary by selling the mutual funds and using the same
to purchase an annuity with [AXA Financial] and causing the annuity
to be wrongfully purchased in the names of [Pake] as annuitant and
[Luster] as contract owner.” Plaintiffs further assert defendants'
management and administration of the funds “caused an annuity to be
purchased in the name of [Pake] as annuitant and Luster as owner,
resulting in the loss of the life insurance benefits on the life of
Norman Luster as well as severe tax consequences to the
Plaintiffs.” With respect to their negligent misrepresentation
claims, plaintiffs assert defendants “prepared the application and
all accompanying documents for the annuity purchased from [AXA
Financial], and said application and all data and information
furnished to [AXA Financial] by [Fry and SouthTrust] contained
substantial errors regarding the identity of the annuitant as
[Pake] and [Luster] as owner.” With respect to their claims for
fraudulent and prohibited securities practices, plaintiffs assert
defendants “received compensation for the investment advi[c]e which
they rendered to the Plaintiffs” and “[t]he actions of [Fry] in
advising the Plaintiffs that there were no problems with showing
[Pake] as the annuitant and Luster as the owner of the annuity
contract and that it would not make any
difference . . . constituted an act, practice or course of businesswhich operated as a fraud or deceit upon the Plaintiffs.” These
claims are supported by factual allegations which indicate that
Rose was equally involved in and a recipient of the services
provided by defendants, including the following:
3. At all times complained of herein,
Plaintiffs dealt with [SouthTrust] through its
Raleigh, North Carolina office.
. . . .
8. [SouthTrust] accepted the $115,000.00 from
the Plaintiffs which it then invested in
various mutual funds as selected by and
recommended by [SouthTrust] for and on behalf
of
the Plaintiffs as guardians of the Estate
of Norman E. Luster.
9. At all times herein complained of, [Fry
and SouthTrust] and its brokers and agents
with whom Plaintiff conferred, acted in a
fiduciary capacity for and on behalf of
the
Plaintiffs and Norman Luster, and in such
capacity owed to
the Plaintiffs the duty to be
fair with, fairly represent
the Plaintiffs,
and to act in the best interest of
the
Plaintiffs and [Luster] in such capacity as
fiduciaries.
10. [SouthTrust] managed and administered the
funds provided by
the Plaintiffs in 1999 and a
short period of 2000 when [Fry and SouthTrust]
recommended that
Plaintiffs authorize [Fry and
SouthTrust] to sell the mutual funds and to
convert the same to a more conservative
investment.
. . . .
12. Based upon the advi[c]e and
representations of [Fry] acting for and on
behalf of [SouthTrust],
Plaintiffs authorized
the sale of the mutual funds then being
administered by [SouthTrust], and the
subsequent purchase of [the] annuity
contract . . . .
. . . .
19.
Plaintiffs at this date have not been
able to withdraw any of the annuity because of
the substantial tax penalties which will be
involved. Moreover,
Plaintiffs have been
denied any death benefits payable as the
result of the death of [Luster] as a result of
the mistakes made by [Fry and SouthTrust].
(emphasis added).
It is well established that “North Carolina has a strong
public policy favoring the settlement of disputes by arbitration.”
Johnston County v. R.N. Rouse & Co., 331 N.C. 88, 91, 414 S.E.2d
30, 32 (1992). In the case at bar, while we recognize that Rose
did not sign the Account Application, because she and Pake are
seeking a direct benefit from the underlying customer agreement, we
conclude plaintiffs are precluded from asserting that its
arbitration provisions are inapplicable to their case. Although we
agree that actions by co-guardians must generally be unanimous with
respect to their ward, we note that in the case
sub judice,
notwithstanding the absence of her signature on the agreement, Rose
joined Pake in seeking payment of the annuity and their joint
complaint describes the alleged duties and services due both of
them under the customer agreement. We do not believe that both
guardians should be allowed to assert a claim for alleged damages
arising out of an agreement while simultaneously suggesting that
one portion of the agreement should not be enforced due to the
absence of one guardian's signature. Instead, we conclude the
doctrine of equitable estoppel requires enforcement of each of the
agreement's terms. As the agreement provided for arbitration by
the parties, we conclude the trial court erred in denyingdefendants' motion. Accordingly, we reverse and remand the trial
court's order. On remand, the trial court shall enter such orders
and conduct such proceedings as are consistent with this opinion.
Reversed.
Judges HUDSON and ELMORE concur.
Report per Rule 30(e).
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