Opinion
No. COA05-325
Filed 15 November 2005 This case not for publication
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.
Carteret County No. 04 CVS 101.
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 discussed herein, 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-guardians with 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 trial court'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 principles dictate that in an appropriate case a non signatory 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 and contravene [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 business which 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 denying defendants' 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).