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HomeMy WebLinkAbout2003-3622 Civil JAMES N. SCHEUREN AND BARBARA D. SCHEUREN, Husband and Wife, Plaintiffs/Appellants IN THE COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA vs. NO. 03-3622 CIVIL TERM AMERICAN EXPESS FINANCIAL ADVISORS, INC. (n/k/a AMERIPRISE FINANCIAL, INC.), IDS LIFE INSURANCE COMP ANY, DONALD WEAVER, VICE PRESIDENT AND DORIS E. BRYTZ, Defendants/Appellees CIVIL ACTION - ACTION IN RE: OPINION PURSUANT TO PA. R.A.P. 1925 Appellants James and Barbara Scheuren have filed an appeal to the Superior Court of Pennsylvania following an order compelling arbitration of a contractual dispute between the two parties.l Appellants' bases of appeal are as follows: (1) The order erroneously assumes the validity of an adhesion contract and erroneously enforces the arbitration clause contained in that contract retroactively to cover transactions that occurred before the contract was even signed, and (2) The order compelling arbitration denies Appellants' an opportunity for a jury trial. 2 This opinion in support of the order compelling arbitration is written pursuant to Pa. RAP. 1925(a). STATEMENT OF FACTS The facts of this case are not in dispute. Appellants/Plaintiffs James and Barbara Scheuren (Hereinafter "Appellants" or "Scheurens"), on or about August 2000, sought financial planning advice from one Doris E. Brytz, a financial advisor associated with Appellees/Defendants American Express Financial Advisors ("AEF") and IDS Life Insurance 1 See Order of Court, December 6, 2006, granting Defendants' Motion to Compel Arbitration and staying all actions pending the completion of arbitration. 2 Appellant's Statement of Matter Complained of Pursuant to Order of Court, filed Jan. 5, 2007, ~ 1-2. 1 Co. ("IDS"), (Hereinafter collectively "AEF" or "Appellees")? Following the advisor's suggestion, Appellants liquidated Mr. Scheuren's Dividend Reinvestment Plan ("DRIP") as well as his PPL Employee Stock Ownership Plan ("ESOP,,).4 Appellants maintain they agreed to proceed with the liquidations only after being assured by AEF that they would not owe additional taxes as a result of the transaction.5 The transaction subsequently occurred on August 29,2000.6 On March 21,2001, Appellants were notified by the IRS that they owed taxes as a result of the transaction in the amount of$7,708.00 to the IRS and $1,224.00 to the Commonwealth of Pennsylvania. 7 On that same day, Appellants contacted AEF regarding the taxes, to which AEF replied that the Scheurens did indeed owe the additional taxes.8 Scheurens submitted a written complaint to AEF. They alleged that AEF provided inadequate services to them in regards to the August 29, 2000, transaction. 9 On June 20, 2001, AEF rejected the complaint as unjustified. 10 Unsatisfied with AEF' s response, Plaintiff filed a similar complaint with the Pennsylvania Securities Commission on October 20, 2002.11 The Commission dismissed the second complaint on August 20, 2002.12 Despite having already declared their dissatisfaction with AEF's services, on June 3,2003, the Scheurens signed an American Express Brokerage IRA Application with Appellees.13 The IRA application contained an arbitration clause which in pertinent part stated: "Any controversy arising out of, or relating to, my accounts, to transactions with you or your Brokers and/or employees for me or to this agreement or the breach thereof, shall be settled by arbitration. . ." 14 3 Compl. ~ 5. 4 Compl. ~ 15 5 Compl. ~~ 15-16 6 Compl. ~ 17 7 Compl. ~ 20 8 Compl. ~ 19 9 See Atwood Affidavit at ~ 4 and Exhibit 1 attached thereto. 10 See Atwood Affidavit at ~ 5 and Exhibit 2 attached thereto. 11 See Atwood Affidavit at ~ 6 and Exhibit 3attached thereto. 12 See Atwood Affidavit at ~ 7 and Exhibit 4 attached thereto. 13 See Atwood Affidavit at ~ 8 and Exhibit 5 attached thereto. 2 On July 30, 2003, the Plaintiffs/Appellants began this action by filing a Praecipe for Writ of Summons in a Civil Action and serving it upon AEF. On July 26, 2006, the Complaint was filed by the Plaintiffs against the Defendants alleging various claims as a result of erroneous tax advice provided by American Express Advisor Doris Brytz to the Plaintiffs on August 29,2000. AEF filed a Motion to Compel Arbitration at which time this Court faced the issue of whether the arbitration clause is valid, and if so, should the parties be compelled to undergo arbitration. DISCUSSION 1. The Agreement Between the Parties Constitutes an Enforceable Contract Appellants contend that this Court, in issuing its Order to Compel Arbitration, "erroneously assumes the validity of an adhesion contract." See Plaintiffs' / Appellants' Statement of Matter Complained of Pursuant to Order of Court, filed Jan. 5,2007. Ar1 adhesion contract is defined as a, "[s]tandard-form contract prepared by one party, to be signed by the party in a weaker position, [usually] a consumer, who has little choice about the terms." Black's Law Dictionary (7th ed.1999). The mere fact that a contract is a contract of adhesion does not automatically render it unconscionable and unenforceable. Whether a contract is unconscionable is a question of law. In order for a court to deem a contractual provision unconscionable, "it must determine both that the contractual terms are unreasonably favorable to the drafter and that there is no meaningful choice on the part of the other party regarding acceptance of the provisions." Huegel v. Mifflin Canst. Co., Inc., 796 A2d 350, 357 (Pa.Super. 2002), citing Todd Heller, Inc., v. United Parcel Service, Inc., 754 A2d 689, 701 (Pa.Super.2000). The fact that the weaker party does not participate in the drafting of the agreement, verbally assent, or sign anything does not render his consent invalid. The behavior of the parties is telling as to whether 14 See Memorandum of Law in Support of the Preliminary Objections of Defendant in the Nature of a Motion to Compel Arbitration Pursuant to Pennsylvania Rule of Civil Procedure 1028(a)(6) and 42 Pa. C.S.A. ~7304, filed Oct. 10,2006, (Hereinafter "Defendant's Motion to Compel") at 5 (referring to arbitration agreement section v). 3 the required contractual elements of offer, acceptance, and consideration are present. See Wetzel v. Baldwin Hardware Corp, 199 U.S. Dist. LEXIS 1227, *8-10 (Pa. Dist. Ct. 1999) (Plaintiffs continued employment at the company indicated his acceptance of the employer's offer of continued employment conditioned upon acceptance of the terms in the company handbook. The continued employment amounted to sufficient consideration between the parties.) Appellants allege that the agreement between the parties is unenforceable due to its adhesionary nature. Such a contention is without merit. Although Appellants did not participate in the drafting of the terms, they were not naive customers being forced to enter into the second agreement with AEF. It is important to note that the financial advisor and customer have relatively equal bargaining power. If the customer does not agree with the terms of the contract, he may seek services elsewhere, request different terms, or simply choose not follow the advice offered. Indeed, courts have upheld adhesion contracts resulting from relationships of a much more unequal nature. For example, in the above mentioned Wetzel case, the court enforced the agreement between an employer and employee despite its adhesionary nature and in spite of the unequal bargaining power of the parties. Id at * 11. The Wetzel court basically stated that a contract whereby the employer essentially dictated that employees having disputes with the employer must accept arbitration or loose their employment was enforceable. At the very least, it is clear that the Scheurens do not constitute the "weak consumers" the legal system seeks to protect against unconscionable, adhesion contracts. Appellants, being sophisticated customers of AEF, and after already experiencing problems with AEF, accepted the terms of the new contract and received due consideration through the services provided. The agreement is thus enforceable and valid. 4 II. The Arbitration Clause in the Contractual Agreement Is Enforceable "It is hornbook law that Pennsylvania favors the enforceability of agreements to arbitrate." Dodds v. Pulte Home Corp., 909 A2d 348,351 (Pa. Super. 2006). The legal system supports arbitration because it provides a quicker, less expensive, and more private alternative to traditional litigation. It is also inherently less formal with simplified procedures and often involves a technically experienced decision-maker. Thibodeau v. Com cast Corp., 2006 WL 3457582, ~ 16 (Pa. Super. 2006). Justifiably, Pennsylvania courts, in concordance with the Federal Arbitration Act, are instructed that if there be any doubts as to whether or not arbitration should be compelled, the doubts must favor arbitration. McNulty v. H&R Block, Inc., 843 A2d 1267, 1271 (Pa. Super. 2004) ("The FAA represents a declaration of a liberal federal policy favoring arbitration, and so any doubts regarding the scope of arbitral issues should be resolved in favor of arbitration"), citing Moses H. Cone Memorial Hasp. v. Mercury Constr. Corp., 460 US. 1,24-25, 103 S. Ct. 927, 74 L.Ed.2d 765 (1983). Pennsylvania law concerning the enforceability of arbitration agreements allows an arbitration provision to be set aside only for generally recognized contracted defenses such as duress, illegality, fraud, and unconscionability. 2006 WL 3457582 at ~ 16. Before a party to a lawsuit can be compelled to arbitrate there must be an express, unequivocal agreement to that effect. 9 US.C. S 2, (1970) (an agreement to arbitrate is unenforceable if not in writing). In the event that one party to an agreement seeks to prevent another from proceeding to arbitration, judicial examination is limited to the determination of (1) whether a valid agreement to arbitrate exists between parties, and, if so, (2) whether the dispute involved is within the scope of the arbitration provision. See Midomo Co., Inc. v. Presbyterian Housing Development Co., 739 A2d 180 (Pa. Super. 1999). We have already discussed the issue of contractual validity. The issue now is whether the dispute comes within the scope of 5 that agreement. More specifically stated, the issue is whether the clause contained in the contract signed in 2003 can act retroactively on the previous agreement signed in 2000. In Hamilton v. Dean Witter Reynolds, Inc. the court stated that, contrary to plaintiffs argument, the broad sweeping terms of the agreement to arbitrate are not limited to activities undertaken in the account after the signing of the arbitration agreement. Hamilton v. Dean Witter Reynolds, Inc., 1989 WL 89434 (W.D. Pa. July 19, 1989). Other jurisdictions have concurred with the Western District of Pennsylvania. The Supreme Court of Alabama in Syvrud stated that the language of the Federal Arbitration Act does not forbid the retroactive application of an arbitration agreement. A.G. Edwards & Sons, Inc. v. Syvrud, 591 So.2d 197 (1992). The United States District Court of Maryland has declared, "Whether plaintiffs signed the agreements before or after opening their accounts or even before or after the claims arose, does not change the fact that they signed written agreements to arbitrate claims arising out of their account." Shatto v. Laub, 632 F.Supp. 516, 522 (1986). In the above mentioned Hamilton opinion, the Pennsylvania Court gave credence to the Massachusetts case of Prestera v. Shearson Lehman Bros., Inc.; in this case the court compelled arbitration based on the language of an arbitration clause which stated: "Any controversy arising out of or relating to my accounts, to transactions with you for me or to this agreement or the breach thereof, shall be settled by arbitration in accordance with the rules, then in effect..." Prestera v. Shearson Lehman Bros., Inc., 1986 WL 10095, *5 (D. Mass 1986). The court noted that, although Prestera had signed the arbitration clause after the original contract, only one account existed with Shearson, and the clear language of the contract indicated that Prestera agreed to arbitrate all claims that arose out of that account. The arbitration clause was subsequently enforced. Id. The instant case is very similar to Prestera. Section (v) of the agreement states, "Any controversy arising out of, or relating to, my accounts, to transactions with you or your Brokers 6 and/or employees for me or to this agreement or the breach thereof, shall be settled by arbitration and conducted pursuant to the Federal Arbitration Act..." See Defendants' Motion to Compel supra. The plain language reading of this provision is nearly identical to that of the Prestera agreement and supports the retroactive applicability of the arbitration clause to previous transactions associated with the Appellants' account with the AEF. The phrase "Any controversy arising out of, or relating to, my accounts, to transactions with you," suggests that the current transaction and any subsequent transactions are not the only dealings subject to this provision, but rather that "any" issue related to accounts or transactions with this company. Considering that there was only one other account existing with AEF, it is fair to state that the arbitration clause was meant to be applicable to both. Again, it cannot be overstated that the Scheurens were sophisticated in their dealings with AEF. They made two separate written complaints regarding the August 29,2000 transaction. Appellants had the assistance of counsel in their direct complaint to AEF and their complaint to the Pennsylvania Securities Commission. This same law firm eventually commenced the lawsuit filed on July 30,2003. One would assume that given the date they commenced this action on July 30, 2003 with the same law firm who helped them with their previous complaints, that they must have been considering litigation on June 3, 2003, when they signed the new agreement. Considering their discontent, logic dictates that the Appellants would be cautious and would carefully consider the terms of their second agreement with AEF. If they did not want to arbitrate, they would have deleted the clause from the contract or walked away from the transaction entirely. Appellants have argued that according to the decision of the Pennsylvania Eastern District Court in Wetzel v. Baldwin Hardware Corp., the arbitration clause should not be held to apply retroactively. Wetzel involved an issue of employment age discrimination. According to 7 the Age Discrimination in Employment Act,15 no civil action may be commenced by an individual until 60 days after a charge alleging unlawful discrimination has been filed with the Equal Employment Opportunity Commission. Between the time of the Equal Employment Opportunity Commission filing and the filing of suit, employer Baldwin issued a Corporate Dispute Resolution Policy. All employees, including Wetzel, who wanted to continue working for Baldwin had to accept the terms of the Corporate Dispute Resolution Policy, which included binding arbitration of disputes with the company. The court found that Wetzel's action did not fall within the terms of the valid arbitration clause because he had commenced his lawsuit before entering into the contract containing the arbitration provision. On this basis, the motion to compel arbitration was therefore denied. See Wetzel v. Baldwin Hardware Corp, 199 US. Dist. LEXIS 1227 (Pa. Dist. Ct. 1999). The case at bar is factually distinguishable from Wetzel. The Plaintiff in Wetzel had clearly commenced his suit against his employer before the issuance of the Corporate Dispute Resolution Policy containing the arbitration clause. To hold him to new contractual terms after the commencing of his suit would go against the basic principles of judicial pleading and contract law. In Wetzel, the Court held that because the Age Discrimination in Employment Act required that no civil action may be commenced until 60 days after the charge had been filed with the Equal Employment Opportunity Commission, Wetzel's suit actually began when he filed his complaint with the Equal Employment Opportunity Commission. In this case, there is no statutory requirement to file a complaint to AEF or the Pennsylvania Securities Commission prior to commencing a lawsuit. Thus, Appellants complaints to AEF and the Pennsylvania Securities Commission did not commence the lawsuit. 15 See 29 USCS ~ 626(d) 8 Appellants did not commence their lawsuit against AEF until several weeks after entering into yet another agreement with the company which included binding arbitration. In signing the new agreement before commencing the legal action they bound themselves to the new terms. Had the Scheurens brought suit before signing the second agreement containing the arbitration cause, then perhaps Wetzel would hold some precedential weight. However, this is simply not the case. CONCLUSION This Court finds that the contract between the parties constitutes a valid and enforceable agreement. This Court also finds that, considering the strong policy of both State and Federal Courts favoring arbitration, the plain language of the arbitration clause, and Appellants' level of sophistication and previous interaction with Appellees, the 2000 transaction falls within the scope of the 2003 arbitration agreement. Appellees' Motion to Compel Arbitration pursuant to 42 Pa. C.S.A S 7304 is thereby granted. BY THE COURT, M.L. Ebert, Jr., 1. Henry F. Coyne, Esquire Coyne & Coyne, P.C. 3901 Market Street Camp Hill, P A 17011-4227 Attorney for the Plaintiffs/Appellants Joshua Horn, Esquire Fox Rothschild LLP 2000 Market Street, Tenth Floor Philadelphia, P A 19103 Attorney for the Defendants/Appellees 9