Honea v. Raymond James Fin. Servs., Inc.

240 So.3d 550

Kathryn L. HONEA

v.RAYMOND JAMES FINANCIAL SERVICES, INC., and Bernard Michaud

Raymond James Financial Services, Inc., and Bernard Michaud

v.Kathryn L. Honea

1130590

1130655

Supreme Court of Alabama.

June 30, 2017

J. Timothy Francis of James L. North & Associates, Birmingham; and Susan E. McPherson of Wallace, Jordan, Ratliff & Brandt, LLC, Birmingham, for appellant/cross-appellee Kathryn L. Honea.

Lorrie L. Hargrove and Prim F. Escalona of Maynard, Cooper & Gale, P.C., Birmingham; and A. Inge Selden III, Andrea M. Greene, and Kathryn Dietrich Perreault of Bressler, Amery & Ross, P.C., Birmingham, for appellees/cross-appellants Raymond James Financial Services, Inc., and Bernard Michaud.

PER CURIAM.

In case no. 1130590, Kathryn L. Honea appeals from the denial of her motion to vacate an arbitration award entered in favor of Raymond James Financial Services, Inc. ("Raymond James"), and Bernard Michaud, an employee of Raymond James (hereinafter referred to collectively as "RJFS"). We affirm in part, reverse in part, and remand. In case no. 1130655, RJFS appeals the trial court's denial of its motion to dismiss for lack of jurisdiction; that appeal is dismissed.

Facts and Procedural History

Beginning in 1997, Honea opened several investment accounts with Raymond James. Honea and Raymond James executed a "client agreement" that included an arbitration provision. The arbitration provision stated, in pertinent part:

"Arbitration disclosures:

"Arbitration is final and binding on the parties.

"The parties are waiving their right to seek remedies in court, including the right to trial by jury.

"....

"Arbitration and Dispute Resolution: (a) In a dispute or controversy, either arising in the future or in existence now, between me and you (including your officers, directors, employees or agents and the introducing broker, if applicable) we agree to first endeavor to settle the dispute in an amicable manner by mediation at the request of either party. Thereafter, any unsettled dispute or controversy will be resolved by arbitration. ...

"(b) We agree that in any arbitration the arbitrators will resolve the dispute in accordance with applicable law and will be required to furnish us with a written decision which must explain the reasons for their decision. ...

"(c) A court of competent jurisdiction may enter judgment based on the award rendered by the arbitrators. We agree that both parties will have a right to appeal the decision of the arbitrators if the arbitrators award damages that exceed $100,000; the arbitrators do not award damages and the amount of my loss of principal exceeds $100,000; or the arbitrators award punitive damages. In each of the foregoing cases, a court having jurisdiction will conduct a 'de novo' review of the transcript and exhibits of the arbitration hearing."

On March 30, 2006, Honea filed a complaint in the Jefferson Circuit Court asserting that she had opened four accounts with Raymond James and that Michaud had acted as her financial advisor as to those accounts. She asserted that she had deposited approximately $1,200,000 in those accounts. She alleged that RJFS engaged in "abusive brokerage practices" in that her investments were not diversified, "were far too risky," and "were of poor quality." She claimed that, as a result of RJFS's actions, she lost $1,050,000. She thus sought damages for breach of contract, breach of fiduciary duty, negligence, wantonness, fraud, and violations of the Alabama Securities Act. Honea closed her accounts with Raymond James in April 2006.

Subsequently, Raymond James filed a motion to compel arbitration. The motion asserted that Honea did not oppose arbitration. The trial court granted the motion, and arbitration commenced. Michaud joined the arbitration proceedings.

The arbitration panel dismissed Honea's breach-of-fiduciary-duty, negligence, wantonness, fraud, and Alabama Securities Act claims and proceeded to hear the breach-of-contract claims. On January 3, 2008, the arbitration panel entered an award in favor of RJFS. The arbitration panel found that "Michaud did not sufficiently know his client nor make sufficient inquiry to attempt to know his client, her holdings, and/or her investment experience. These failures contributed to losses in [Honea's] account." However, the arbitration panel "denied" Honea's breach-of-contract claims, stating that they were "barred by the applicable statutes of limitations."

On January 14, 2008, Honea filed in the Jefferson Circuit Court a pleading entitled "Motion to Vacate Arbitration Award." See Horton Homes, Inc. v. Shaner, 999 So.2d 462, 467 (Ala. 2008) (discussing the process for appealing an arbitration award under Ala. Code 1975, § 6–6–15, and noting, among other things, that "[a] party seeking review of an arbitration award is required to file a motion to vacate" that award). She alleged that the arbitration award "manifest[ed] a disregard of the law" by holding that her breach-of-contract claims were barred by the statute of limitations. See Birmingham News Co. v. Horn, 901 So.2d 27, 50 (Ala. 2004) (noting that, in an appeal of an arbitration award under Ala. Code 1975, § 6–6–15, a "manifest disregard of the law" was a ground available for reviewing the award), overruled by Hereford v. D.R. Horton, Inc., 13 So.3d 375, 381 (Ala. 2009) ("[W]e hereby overrule our earlier statement in Birmingham News that manifest disregard of the law is a ground for vacating, modifying, or correcting an arbitrator's award ...."). Additionally, Honea, citing Ala. Code 1975, § 6–6–14, challenged the impartiality of the chairman of the arbitration panel. See § 6–6–15 (providing that, in an "appeal" of an arbitration award, "the court shall set aside the award for one or more of the causes specified in Section 6–6–14...."), and § 6–6–14 (providing that an arbitration award is final "unless the arbitrators are guilty of fraud, partiality, or corruption in making it"). What occurred next is described in this Court's previous decision in Raymond James Financial Services, Inc. v. Honea, 55 So.3d 1161 (Ala. 2010) (" Raymond James I"):

"The trial court originally scheduled a hearing for Honea's motion to vacate the arbitration award for March 28, 2008; however, for reasons including the difficulty the parties had in obtaining a transcript of the arbitration proceedings, that hearing was repeatedly continued. On October 17, 2008, Honea filed an additional motion with the trial court asking it to conduct a de novo review of the arbitration award pursuant to paragraph (c) of the arbitration provision in the client agreement, quoted supra, which specifically authorized such a review by the trial court if 'the arbitrators do not award damages and the amount of [the client's] loss of principal exceeds $100,000.' On October 31, 2008, RJFS filed its response, citing Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008), for the propositions (1) that manifest disregard of the law is not a valid ground for seeking the vacatur of an arbitration award; and (2) that the Federal Arbitration Act, 9 U.S.C. § 1 et seq. ('the FAA'), provides the exclusive grounds for seeking judicial review of arbitration awards in Alabama and parties may not expand those grounds by contract to provide for de novo judicial review of such awards. RJFS also repeated its argument that there was no evidence indicating that any of the arbitrators were biased in favor of RJFS.

"On November 7, 2008, the trial court held a hearing on Honea's motion to vacate the arbitration award. ... On July 20, 2009, the trial court issued an order concluding that Honea was entitled to a de novo review of the arbitration award .... The trial court accordingly vacated the award that had been entered in favor of RJFS and scheduled a future status conference for the purpose of setting the matter for trial. On August 27, 2009, RJFS filed this appeal. See Rule 71B(g), Ala. R. Civ. P."

55 So.3d at 1163–64.

In Raymond James I, RJFS argued that the trial court could vacate the arbitration award only if one of the grounds specified in 9 U.S.C. § 10(a) of the Federal Arbitration Act, 9 U.S.C. § 1 et seq. ("the FAA"), was established. This Court noted that, under the Supreme Court's decision in Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008), the grounds enumerated in § 10 of the FAA were the only grounds upon which an arbitration award could be vacated under the FAA. However, Honea argued that an arbitration award may also be vacated on grounds outside those enumerated in 9 U.S.C. § 10 of the FAA if those other grounds were recognized by state law.

This Court agreed with Honea. Specifically, part (c) of the arbitration provision in this case, as quoted above, states:

"(c) A court of competent jurisdiction may enter judgment based on the award rendered by the arbitrators. We agree that both parties will have a right to appeal the decision of the arbitrators if the arbitrators award damages that exceed $100,000; the arbitrators do not award damages and the amount of my loss of principal exceeds $100,000; or the arbitrators award punitive damages. In each of the foregoing cases, a court having jurisdiction will conduct a 'de novo' review of the transcript and exhibits of the arbitration hearing."

This Court held:

"[T]he holding of Hall Street is applicable only in a federal court and ... the provision providing for de novo review of the arbitration award by the trial court is enforceable under state law .... However, because the trial court vacated the arbitration award before conducting the de novo review required by the arbitration provision and contemplated by the parties, its judgment is nevertheless reversed and the cause is remanded for the trial court to conduct a de novo review of the transcript and exhibits of the arbitration hearing and to enter a judgment based on that review."

Raymond James I, 55 So.3d at 1170.

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