Ward v. Hilliard

2018 IL App (5th) 180214

116 N.E.3d 1011

426 Ill.Dec. 711

June M. WARD, Plaintiff-Appellee,

v.J.J.B. HILLIARD ; W.L. Lyons, LLC, d/b/a Hilliard Lyons, a Kentucky Corporation; and Michael Barnett, Defendants-Appellants.

NO. 5-18-0214

Appellate Court of Illinois, Fifth District.

Rule 23 Order Filed: September 6, 2018

Motion to Publish Granted: October 5, 2018

Opinion Filed: October 5, 2018

Glenn E. Davis, of Hepler Broom, LLC, of St. Louis, Missouri, and Janet P. Jakubowicz (pro hac vice) and Rachel A. Washburn (pro hac vice), of Bingham Greenbaum Doll, LLP, of Louisville, Kentucky, for appellants.

Nathaniel O. Brown, of Weilmuenster & Keck, P.C., of Belleville, for appellee.

JUSTICE OVERSTREET delivered the judgment of the court, with opinion.

¶ 1 This case is before us on an interlocutory appeal pursuant to Illinois Supreme Court Rule 307(a)(1) (eff. Nov. 1, 2017), from an order of the circuit court denying the defendants' motion to dismiss the plaintiff's complaint or, alternatively, to stay the lower court proceedings pending mandatory arbitration. The appeal stems from a complaint filed by the plaintiff, June M. Ward, in which she alleged that the defendants, J.J.B. Hilliard, W.L. Lyons, LLC d/b/a Hilliard Lyons (Hilliard Lyons), and Michael Barnett, were negligent in the management of her individual retirement account (IRA). The appeal centers on the issue of whether the parties' contract concerning the management of the IRA included an agreement to arbitrate disputes stemming from the contract. The defendants filed the motion seeking the dismissal or stay, alleging that their agreement required arbitration of the dispute. The circuit court, however, denied the defendants' request, holding that, under Kentucky law, the parties' agreement did not include an enforceable arbitration provision. The defendants now appeal from this interlocutory order. For the following reasons, we reverse and remand for further proceedings.

¶ 2 I. BACKGROUND

¶ 3 Hilliard Lyons is a Kentucky corporation engaged in the business of providing its customers investment management services, including the management of IRAs. It has a branch office in Marion, Illinois. In the spring of 2015, the plaintiff's husband, Archie Ward, came to Hilliard Lyons' Marion office and met with Barnett to open separate IRA accounts for himself and the plaintiff. Barnett provided Ward with two sets of documents, one set for Ward and one set for the plaintiff, in connection with opening the IRA accounts. The sets of documents included an account application and an "Account Terms of Service." Incorporated into the account application were (1) an individual retirement custodial account agreement and (2) disclosure statements. Therefore, the account application, individual retirement custodial account agreement, and the disclosure statements were all part of a single, 14-page document. A line for the account holder's signature appears on page four of this document.

¶ 4 The Account Terms of Service is a separate document and has no space for the account holder's signature or initials. In an affidavit attached to the defendants' motion to dismiss or stay, Barnett testified that after his meeting with Ward, he subsequently spoke with the plaintiff over the telephone and confirmed that she had received both of these documents.

¶ 5 On June 3, 2015, the plaintiff completed and signed the account application. Hilliard Lyons subsequently opened an IRA account on her behalf, and the defendants began managing the account. On December 6, 2016, the plaintiff filed her complaint against the defendants alleging that they were negligent and breached their fiduciary duties in managing the account.

¶ 6 The defendants subsequently filed the motion to dismiss or stay, which is the subject matter of the present appeal. In their motion, the defendants maintained that their agreement with the plaintiff included a provision that required them to arbitrate disputes. In her response, the plaintiff denied that she agreed to arbitrate any disputes.

¶ 7 As explained above, the only document that the plaintiff signed was page 4 of the 14-page account application. The first four pages of the account application required the plaintiff to answer various financial-related questions on topics that included income, net worth, investment goals, beneficiary designations, and other account-related matters. Immediately above the plaintiff's signature at the bottom of page four is the following: "The undersigned hereby accepts the Hilliard Lyons Retirement Account Custodial Agreement." Following the plaintiff's signature, pages five through eight of the document set out the terms of the "INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT AGREEMENT." The terms of the retirement custodial account agreement do not include any reference to arbitration. Pages 9 through 14 of the account application include a "DISCLOSURE STATEMENT" and a "FINANCIAL DISCLOSURE." Again, neither of these disclosures mentions arbitration.

¶ 8 The defendants' argument that the plaintiff agreed to arbitrate is based on an acknowledgement on the account application, above the plaintiff's signature, that reads as follows: "By signing this application, I acknowledge that I understand and have received a copy of the Account Terms of Service, which, in Sections 13 and 14, require arbitration to resolve disputes."

¶ 9 As stated above, the Account Terms of Service is a separate four-page document that Barnett furnished to the plaintiff along with the account application. The plaintiff's signature does not appear on this document, as the document itself does not have any lines for signatures. At the outset, the language of the Account Terms of Service states that Hilliard Lyons agreed to open and maintain "one or more investment accounts" and "[i]n exchange, you [the plaintiff] agree[d] to the following terms of service." It then further states, "We wish this could be shorter, but many of these terms are prescribed by law. You should read and agree to them in addition to the terms of service specific to the account(s) you are opening."

¶ 10 As referenced in the acknowledgement above the plaintiff's signature on the account application, paragraphs 13 and 14 of the Account Terms of Service require arbitration as follows:

"13. ARBITRATION GENERALLY: When you open an account with us, any disputes between you and us will be settled by arbitration rather than by going to court. Here is how arbitration in our industry works:

(a) You and we give up the right to sue each other in court, including the right to a trial by jury, except as provided by the Code of Arbitration Procedure for Customer Disputes of the Financial Industry Regulatory Authority (FINRA; below, the code is referred to as ‘FINRA's Code’).

(b) We are incorporating FINRA's Code and any future amendments to it into these Terms of Service as if they were set out in full. See www.finra.org/ArbitrationAndMediation for an overview of FINRA's Code and arbitration process.

(c) FINRA's Code requires a party to bring a claim for arbitration within six years after the event giving rise to the dispute occurred. In some cases, a claim not eligible for arbitration can be brought in court.

(d) You can choose an all-public panel or a majority-public panel of arbitrators. (A ‘majority public’ panel will have one arbitrator who participates in the financial services industry, one non-industry chairperson, and one non-industry arbitrator.)

(e) Your and our ability to obtain documents, to get statements from witnesses, and to conduct other discovery is more limited in arbitration than in court proceedings.

(f) Arbitrators do not have to explain the reasons for their award unless you and we submit to them a joint request for an ‘explained’ decision at least 20 calendar days before the first scheduled hearing date.

(g) Arbitration awards are final and binding. Courts will normally enforce them. Your and our ability to have a court reverse or modify an arbitration award is very limited.

14. MANDATORY ARBITRATION: You agree to arbitrate all controversies that may arise between us and our agents, representatives, affiliates, or employees on the one hand and you on the other hand concerning any transaction or the construction, performance, or breach of any agreement between us, whenever that transaction or agreement was or is entered into. Arbitration will be conducted before FINRA under FINRA's Code. The arbitrators' award will be final, and a party can enter judgment on the award in any federal or state court that has jurisdiction."

¶ 11 The circuit court conducted a hearing on the defendants' motion to dismiss or stay, and on March 7, 2018, it denied the motion. Applying Kentucky contract law, the court concluded that the Account Terms of Service was not incorporated into the parties' agreement by reference. The court stated: "The Application language drafted by Defendant Hilliard Lyons fails to show that Plaintiff assented to be bound by the Account Terms of Service, including the arbitration clause. Furthermore, it fails to incorporate by reference the Account Terms of Service into the Account Application." The court emphasized that the account application did not include language that the plaintiff "actually assents" to the Account Terms of Service but, instead, "merely acknowledges receipt of the terms." The circuit court held that, under Kentucky law, assent to be bound by the terms of an agreement must be express, and simply acknowledging the receipt of the document does not constitute assent to be bound.

¶ 12 The circuit court also held that the Account Terms of Service, as a stand-alone document, violated Kentucky's statute of frauds because it was not signed by the plaintiff and could not be performed within one year. The court found that the clear intent of the parties was that "the agreement or investment and brokerage services would not, and could not, be completed within one year." Therefore, the court concluded that it...