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Tifani Wattenbarger and Jared Wattenbarger, A Married Couple v. A.G. Edwards & Sons

December 23, 2010

TIFANI WATTENBARGER AND JARED WATTENBARGER, A MARRIED COUPLE, PLAINTIFFS-APPELLANTS,
v.
A.G. EDWARDS & SONS, INC., A MISSOURI CORPORATION; AND GENE GILLETTE, AN INDIVIDUAL, DEFENDANTS-RESPONDENTS.



Appeal from the District Court of the Seventh Judicial District of the State of Idaho, Bonneville County. Honorable Gregory S. Anderson, District Judge.

The opinion of the court was delivered by: J. Jones, Justice.

2010 Opinion No. 140

SUBSTITUTE OPINION: THE COURT'S PREVIOUS OPINION FILED JUNE 28, 2010, IS HEREBY WITHDRAWN.

The district court's dismissal order is affirmed, but the fee award is reversed.

Jared and Tifani Wattenbarger appeal the district court's orders dismissing their case and awarding attorney fees to A.G. Edwards & Sons, Inc. and Gene Gillette (the respondents). We affirm the dismissal order, but reverse the fee award.

I. Facts and Procedural History

Tifani first sought financial planning services from A.G. Edwards in March of 1993 when she and her then husband, Shan Clement, met with Gillette to open individual retirement accounts (IRAs). On March 31, 1993, Tifani signed a new account card that contained the following provision above the signature line:

I hereby adopt the A.G. Edwards and Sons, Inc. Custodian Account Agreement; provided, that the Custodial Account Agreement shall be in force if and only if this Adoption Agreement is accepted below. . . .

By signing this agreement, I acknowledge that this agreement contains a binding and enforceable arbitration provision on page 21 in paragraph 13 of Article XII of the Custodial Account Agreement.

Article XII of the custodial account agreement provides, in part: (12) The following disclosure is required by various regulatory bodies but shall not limit the applicability of the following arbitration provision to any controversy claim or issue in any controversy or claim which may arise between the Depositor and the Custodian:

(a) ARBITRATION IS FINAL AND BINDING ON THE PARTIES.

(b) THE PARTIES ARE WAIVING THEIR RIGHT TO SEEK REMEDIES IN COURT, INCLUDING THE RIGHT TO JURY TRIAL.

(c) PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED THAN AND DIFFERENT FROM COURT PROCEEDINGS.

(d) THE ARBITRATORS' AWARD IS NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR LEGAL REASONING AND ANY PARTY'S RIGHT TO APPEAL OR TO SEEK MODIFICATION OF RULINGS BY THE ARBITRATORS IS STRICTLY LIMITED.

(e) THE PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF ARBITRATORS WHO WERE OR ARE AFFILIATED WITH THE SECURITIES INDUSTRY.

(13) The Depositor agrees and, by carrying any account for the Depositor, the Custodian agrees that all controversies between the Depositor and the Custodian or any of the Custodian's present or former officers, directors, agents or employees which may arise for any cause whatsoever, shall be determined by arbitration. Any arbitration under this agreement shall be before the National Association of Securities Dealers, Inc., or the New York Stock Exchange, Incorporated, or an arbitration facility provided by any other securities exchange of which the Custodian is a member, or the American Arbitration Association, or the Municipal Securities Rulemaking Board, and in accordance with the rules obtaining of such organization. The Depositor may elect in the first instance whether arbitration shall be before and in accordance with the rules of one of the aforementioned arbitration forums by registered letter or telegram addressed to the Custodian at the Custodian's office in St. Louis, Missouri. If the Depositor fails to notify the Custodian of such election as specified within five (5) days after receipt from the Custodian of a request to make such election, then the Custodian may make such election.

At least one of the arbitrators appointed to hear any controversy to be settled by arbitration shall be currently employed full time by a member organization of the New York Stock Exchange, Inc., unless otherwise agreed in writing prior to the time of the arbitration.

This arbitration provision shall apply to any controversy or claim or issue in any controversy arising from events which occurred prior, on or subsequent to the execution of this arbitration agreement. This arbitration provision shall be interpreted according to federal law and the Federal Arbitration Act. The award of the arbitrators, or of the majority of them, shall be final, and judgment upon the award rendered may be entered into any court, state or federal, having jurisdiction.

In September of 1994, Shan Clement was killed in an accident and Tifani collected a $200,000 life insurance policy. Tifani met with Gillette in March of 1995 for advice on investing the life insurance proceeds. Specifically, Tifani alleged that she sought advice on investment growth accounts to provide for the future college and mission expenses for her two children, Mitchell and Kylie. Gillette invested $15,000 for each child in annuity accounts that cannot be withdrawn, without severe penalties, until the children reach 591/2 years of age. Gillette opened another, similar annuity account for each child in the amount of $4,000 in September of 1995.

Tifani married Jared Wattenbarger in December of 1999. Gillette's alleged error was discovered by the Wattenbargers in January of 2007 when they met with Jared's investment advisor to discuss the children's impending educational expenses. The Wattenbargers filed suit against the respondents on December 20, 2007, alleging professional negligence/malpractice and fraud. The respondents appeared and moved to stay the matter and compel arbitration on the basis of the custodial account agreement or, in the alternative, to dismiss the claim. The Wattenbargers argued that the matter should proceed in district court because the annuities were outside the scope of the arbitration clause and, even if they were not, the arbitration clause was unconscionable.

The district court found that the arbitration clause was not unconscionable and that the dispute between the parties fell within the scope of the arbitration provision. Consequently, the district court granted the motion to dismiss and awarded attorney fees and costs to the respondents. The Wattenbargers appealed to this Court, arguing that the district court erred in:

(1) applying the wrong standard of review to the motion to dismiss; (2) finding that the Wattenbargers agreed to arbitrate their claims against the respondents as a matter of law; (3) finding that the Wattenbargers' claims were within the scope of the arbitration agreement; (4) finding that the arbitration clause was not unconscionable; and (5) awarding costs and attorney fees to the respondents.

II. Issues on Appeal

The following issues are presented on appeal: (1) whether this matter is governed by federal arbitration law; (2) whether arbitrability can be determined as a matter of law; (3) whether the tort claims fall within the scope of the arbitration agreement; (4) whether the Wattenbargers are bound by the arbitration agreement; (5) whether the arbitration clause is unconscionable; (6) whether the district court should have awarded ...


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