Bank of Holly Springs v. Puryear ex rel. Brown

309 So.3d 598

BANK OF HOLLY SPRINGS, Appellant

v.Barbara PURYEAR FOR AND ON BEHALF OF the ESTATE OF John Dabney BROWN, Appellee

NO. 2019-CA-01263-COA

Court of Appeals of Mississippi.

December 15, 2020

ATTORNEYS FOR APPELLANT: LISA ANDERSON REPPETO, ANDREW SCOTT HARRIS, Jackson

ATTORNEY FOR APPELLEE: J. HALE FREELAND, Oxford

BEFORE WILSON, P.J., LAWRENCE AND McCARTY, JJ.

WILSON, P.J., FOR THE COURT:

¶1. This is an appeal from a chancery court's ruling denying a motion to stay litigation and compel arbitration. Barbara Puryear, in her capacity as the administrator of the Estate of John Dabney Brown, alleges that an employee of the Bank of Holly Springs ("the Bank") used undue influence to obtain money from Brown at a time when Brown was vulnerable and incapable of managing his own affairs. On behalf of Brown's estate, Puryear has asserted claims against the Bank based on the employee's alleged misconduct. Puryear seeks to recover, inter alia, compensatory damages, punitive damages, and treble damages. The Bank filed a motion to stay litigation and compel arbitration of Puryear's claims against the Bank pursuant to an arbitration agreement that Brown signed several years prior to his death. However, the chancery court denied the Bank's motion, ruling that the claims were outside the scope of the arbitration agreement.

¶2. We agree with the Bank that the chancery court erred by denying the motion to compel arbitration. Brown's arbitration agreement, which is binding on his estate, provides that an arbitrator, not a court, must determine issues of arbitrability, including whether certain claims are within the scope of the agreement. Therefore, we reverse and remand for entry of an order compelling arbitration and further proceedings consistent with this opinion.

FACTS AND PROCEDURAL HISTORY

¶3. In 1997, the Bank's board of directors adopted a policy that all new customers would be required to sign an arbitration agreement covering all transactions and agreements with the Bank. At the time, Brown was the Bank's largest shareholder and a member of the board.

¶4. In March 2013, Brown opened a new checking account at the Bank, naming his daughter, Barbara Puryear, as a joint owner of the account. When he opened the account, Brown signed an arbitration agreement that requires him and the Bank to arbitrate any "controversy or claim aris[ing] out of or relat[ing] to any agreement or transaction between [them]." The agreement further provides that "[a]ny controversy concerning whether an issue is arbitral shall be determined by the arbitrator." The agreement also provides that it "shall be binding upon ... the parties and their respective successors and assigns."

¶5. In 2017 and 2018, Brown signed a series of checks payable to Crystal Morgan, an employee of the Bank. These included a check for $600,000 written to Morgan in August 2018. Brown was ninety-eight years old at the time.

¶6. In September 2018, Puryear commenced this action in the Marshall County Chancery Court by filing a petition to establish a conservatorship for Brown, for a restraining order, and for other relief. Puryear named Morgan and the Bank as defendants. She alleged that Brown was a vulnerable person and incapable of managing his own affairs, that Morgan had abused her position at the Bank and her knowledge of Brown's assets to take advantage of him, that Brown's payments to Morgan were the product of undue influence, and that the Bank had notice of Morgan's actions. Puryear also alleged that Morgan and the Bank had breached fiduciary duties to Brown. Puryear asked the court to freeze the $600,000 that Morgan had received from Brown, to impose a constructive trust on all assets that Morgan had obtained from Brown, and to set aside transactions between Brown and Morgan. Puryear also sought compensatory damages, punitive damages, treble damages pursuant to Mississippi Code Annotated section 11-7-165 (Rev. 2019),¹ attorney's fees, and costs.

¶7. The chancery court appointed Puryear to serve as Brown's conservator. The court also granted a temporary restraining order freezing the $600,000 and barring Morgan from accessing any of Brown's accounts. Morgan deposited the $600,000 in the court registry in the form of a certificate of deposit, and the parties later agreed that the restraining order would remain in effect as a preliminary injunction.

¶8. The Bank answered and asserted that Brown's claims against it were all subject to arbitration. The Bank asked the court "to sever all claims against it so that [those] claims [could] be arbitrated pursuant to the applicable arbitration agreement." The Bank then filed a motion to compel arbitration of all claims against the Bank and to stay litigation of those claims pending arbitration. The Bank's motion also noted that Brown's arbitration agreement provided that the arbitrator would decide any issues of arbitrability. In response, Puryear argued that she was not bound by Brown's arbitration agreement and that her claims were beyond the scope of the arbitration agreement.

¶9. Brown died on December 23, 2018. Brown's estate was opened, and Puryear was appointed to serve as the administrator. Brown's claims against Morgan and the Bank were transferred into the estate proceedings for Puryear to pursue on behalf of the estate.

¶10. In July 2019, the court denied the Bank's motion to compel arbitration. The court ruled that Brown's arbitration agreement "could be subject to a broad interpretation" but that "allegations of exploitation of a vulnerable adult, breach of fiduciary duty, self dealing and/or undue influence by a Bank employee [were] beyond the scope of the ... agreement."

¶11. The Bank filed a notice of appeal.² On appeal, the Bank argues (1) that pursuant to Brown's arbitration agreement, the issue of arbitrability must be decided by an arbitrator, not a court; and (2) that even if a court may or should decide the issue, Puryear's claims against the Bank are within the scope of the arbitration agreement.

ANALYSIS

¶12. We review the grant or denial of a motion to compel arbitration de novo. Sawyers v. Herrin-Gear Chevrolet Co. , 26 So. 3d 1026, 1034 (¶20) (Miss. 2010). In determining whether to grant a motion to compel arbitration, a court must determine (1) "whether the parties agreed to arbitrate the dispute" and (2) "whether legal constraints external to the parties’ agreement bar arbitration of the claims." Greater Canton Ford Mercury Inc. v. Ables , 948 So. 2d 417, 421 (¶8) (Miss. 2007). We "follow[ ] the federal policy favoring arbitration." Sawyers , 26 So. 3d at 1034 (¶20).³ Therefore, "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Id. (citing Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) ).

I. An arbitrator, not a court, must determine whether Puryear's claims are within the scope of the arbitration agreement.

¶13. The threshold inquiry of whether the parties agreed to arbitrate the dispute encompasses two sub-issues: (1) "whether there is a valid arbitration agreement" and (2) "whether the parties’ dispute is within the scope of the arbitration agreement."

Ables , 948 So. 2d at 421 (¶9). In this case, Puryear does not dispute the validity of the arbitration agreement but argues that her claims are not within the scope of the agreement.

¶14. But before we determine whether Puryear's claims are within the scope of the arbitration agreement, we must first determine who —a court or an arbitrator—should decide that issue. Id. at 421-22 (¶11). Because the parties’ agreement is governed by the FAA, "we are bound by the decisions of the United States Supreme Court" on this issue. Id. at 422 (¶12). The question whether a particular dispute is subject to arbitration "is generally considered an issue for the courts, not the arbitrator, ‘unless the parties clearly and unmistakably provide otherwise .’ " Id. (brackets omitted) (quoting AT & T Techs. Inc. v. Commc'ns Workers of Am. , 475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) ). "In other words, when the parties have explicitly agreed that the question of arbitrability is to be decided by an arbitrator rather than the court, that agreement must be interpreted by an arbitrator." Id.

¶15. In such a case, the parties’ agreement to arbitrate issues of arbitrability, including the scope of their agreement and its applicability to particular claims, is controlling. See id. at 422-23 (¶¶13-16). "The terms of the arbitration provision must be honored in a dispute over arbitrability." Id. at 422 (¶13). "Therefore, arbitration of the issue of arbitrability is the mandatory result if those are the terms to which the parties have validly agreed." Id. "[P]arties may agree on the scope of arbitration in any way they desire," and we "must give ... effect" to their agreement "as written." Id.

¶16. The Mississippi Supreme Court addressed a similar issue in Ables . In that case, an arbitration clause in a contract between a car dealership and its customers required the parties to arbitrate "any [c]laim related to [the] contract," including but not limited to "(1) claims in contract, tort, regulatory, or otherwise; [and] (2) claims regarding the interpretation, scope or validity of this clause or arbitrability of any issue ." Id. at (¶14). The customers argued that their claim against the dealership was beyond the scope of the arbitration clause because it "relate[d] to pre-sale fraudulent representations and not to the ... contract." Id. at 422-23 (¶15). However, the Supreme Court held that the issue had to be determined by an arbitrator, not a court. Id. at 423 (¶16). The Court stated, "Clearly, the language of the arbitration agreement directs that disputes regarding interpretation of the agreement, including scope and arbitrability of issues, [must] be decided by an arbitrator." Id.

¶17. Similarly, in Swindle v. Harvey , 23 So. 3d 562, 570 (¶22) (Miss. Ct. App. ...