Preview:

FOR PUBLICATION

FILED
Jun 22 2012, 9:06 am
of the supreme court, court of appeals and tax court

CLERK

ATTORNEYS FOR APPELLANTS: DAVID WILLIAMS RUSSELL DAVID I. RUBIN Harrison & Moberly, LLP Indianapolis, Indiana

ATTORNEY FOR APPELLEE: MARIETTO V. MASSILLAMANY Starr Austen & Miller, LLP Logansport, Indiana

IN THE COURT OF APPEALS OF INDIANA
GERMAN AMERICAN FINANCIAL ADVISORS & TRUST COMPANY d/b/a GERMAN AMERICAN INVESTMENT SERVICES, PRIMEVEST FINANCIAL SERVICES, INC., and JEFFERY W. TOOLEY, Appellants-Defendants, vs. DENNIS M. REED, Appellee-Plaintiff. ) ) ) ) ) ) ) ) ) ) ) )

No. 19A01-1110-PL-428

APPEAL FROM THE DUBOIS CIRCUIT COURT The Honorable William E. Weikert, Judge Cause No. 19C01-0904-PL-172

June 22, 2012

OPINION - FOR PUBLICATION

NAJAM, Judge

STATEMENT OF THE CASE German American Financial Advisors & Trust Company d/b/a German American Investment Services ("GAFA"), PrimeVest Financial Services, Inc. ("PrimeVest"), and Jeffrey W. Tooley (collectively "Appellants") appeal the trial court's denial of their second motion to compel arbitration of Dennis M. Reed's claims against them. Appellants present the following issues for our review: 1. Whether the trial court erred when it denied their motion to compel arbitration. Whether, assuming the trial court erred when it denied the motion to compel arbitration, Reed can be compelled to arbitrate his claims against GAFA.

2.

We reverse and remand with instructions. FACTS AND PROCEDURAL HISTORY On March 13, 2003, Tooley, an employee of GAFA and PrimeVest,1 assisted Reed in opening an IRA account with PrimeVest. Reed filled out a document entitled "IRA New Account Application" ("2003 application") on that date, and the following language appeared directly above Reed's signature: I have read, understand and agree to the Important Disclosures and the Customer Agreement that are a part of this New Account Application packet, as well as the separate Privacy Policy. I AM AWARE THAT SECTION 20 OF THE CUSTOMER AGREEMENT CONTAINS AN AGREEMENT TO ARBITRATE DISPUTES.

PrimeVest is a "registered securities broker/dealer" and had a "commission sharing agreement" with GAFA at all times relevant to this appeal. Appellant's App. at 27. On appeal, the parties provide no further information regarding the relationship between PrimeVest and GAFA.
1

2

Appellants' App. at 60. And Section 20 of the Customer Agreement incorporated by reference in the application provided in relevant part that Reed agreed that "ANY DISPUTE BETWEEN PRIMEVEST AND [REED] ARISING OUT OF THIS AGREEMENT SHALL BE SUBMITTED TO ARBITRATION[.]" Id. at 48. On April 19, 2006, Tooley advised Reed that he should "roll over" his existing IRA accounts into a variable rate annuity, which Reed did. Id. at 12.2 Tooley told Reed that the return on that investment after three years would be approximately $100,000. And Tooley stated that Reed would be able to withdraw the full amount from the account, without penalties, at that time. But when Reed sought to withdraw all of the funds from the annuity in 2009, after Tooley had left his employment with GAFA, Frederick Mattingly, a GAFA employee, informed Reed that he "would only be able to withdraw a portion of the account without incurring significant penalties." Id. at 13. On April 15, 2009, Reed filed a complaint against Appellants alleging that they: violated the Indiana Uniform Securities Act; committed fraud; committed constructive fraud; were negligent; and breached their fiduciary duty. On June 10, Appellants filed their first motion to compel arbitration. In support of that motion, Appellants submitted the following: a copy of a new account application Reed had signed on March 11, 2008 ("2008 application");3 and an affidavit executed by Andrew Krempp, the vice president of GAFA. In support of his response in opposition to the motion to compel arbitration,

Reed's complaint alleges facts that Appellants dispute. For purposes of this appeal, we need not resolve the factual disputes. For ease of discussion, we set out the basic facts as set out in Reed's complaint.
2

Reed had signed a new account application in 2003, but Tooley asked him to sign another application in 2008.

3

3

Reed argued in part that "the clear language of the New Account Application's arbitration clause shows it is prospective only, not retroactive, and therefore does not apply to the allegations of this lawsuit." Appellee's App. at 32. In particular, Reed signed the 2008 new account application approximately two years after Tooley had advised Reed to purchase the annuity, which was the subject matter of the lawsuit. On July 23, 2009, Appellants filed their Reply in Support of Motion to Compel Arbitration, and they attached as Exhibit I the 2003 application signed by Reed. In addition, Appellants included a copy of the "Customer Agreement" incorporated by reference in the new account application. Appellants argued that by signing the 2008 new account application, Reed "ratified" his 2003 agreement to arbitrate. Id. at 45. After deposing Krempp, Reed filed a "Surreply in Opposition to Motion to Compel Arbitration and Motion for Sanction Against Defendants of Denial of Their Motion to Compel Arbitration Based on Defendant's Submission of False Affidavits to the Court in Support of that Motion." In deposing Krempp, Reed had learned that neither Krempp nor PrimeVest had maintained a complete copy of Reed's new account applications in their files. In particular, while the signature page of each application was maintained in the files, a copy of the Customer Agreement incorporated by reference in those applications was not kept in Reed's files. And Krempp admitted during his

deposition that the copies of the Customer Agreement submitted to the trial court in support of their motion to compel arbitration and reply in support of motion to compel arbitration were not the correct versions of the Agreement.4 In other words, Appellants

4

PrimeVest modified the terms of the Customer Agreement periodically over the years.

4

had not yet produced an accurate copy of the document purporting to contain an arbitration clause. And when Krempp submitted his affidavit identifying the attached Customer Agreement as the one that was incorporated by reference in the application Reed had signed, Krempp had been mistaken. Following a hearing, the trial court denied Appellants' motion to compel arbitration and denied Reed's motion for sanctions. On December 4, 2009, PrimeVest and Tooley filed a second motion to compel arbitration, and, on November 12, 2010, GAFA joined that motion.5 In support,

Appellants submitted the affidavits of Tooley; Mark Stieve, President and CEO of GAFA at all times relevant to Reed's complaint; and Kimberly Holweger, Director of Operations of PrimeVest, as well as "a true and correct copy of the IRA New Account Application (the "Application") executed by Dennis M. Reed ("Reed") dated March 13, 2003, with attached Customer Agreement (the "Agreement") in which account, in 2006, Mr. Reed purchased the John Hancock annuity at issue in this litigation." Appellants' App. at 42. Section 20 of the Customer Agreement provided that "any dispute between PrimeVest and [Reed] arising out of this agreement shall be submitted to arbitration[.]" Id. at 48. In his response in opposition to that motion, Reed argued in relevant part: Defendants now want to convince the Court that they have finally cobbled together the correct document [containing the arbitration clause]. Nevertheless, one of their current affiants, Kimberly Holweger, the Director of Operations of PrimeVest Financial Solutions has been forced to admit "under the PrimeVest record retention policy, only the account application form is filmed and retained as a film business record." PrimeVest does not retain the customer agreements that their clients review prior to signing the account application form. Therefore, how can Defendants bear their burden of proving that Jeff Tooley had Denny Reed sign an account application over seven years ago that had attached to it an arbitration agreement when
GAFA was delayed in filing its motion to compel arbitration due to initial confusion as to whether it was a properly named party in Reed's complaint.
5

5

no one kept copies of the documents that were actually attached to Denny's signature page? In light of the fact that the Defendants filed two false affidavits earlier, why should any of us believe that they have now "got it right"? Furthermore, the Defendants have offered no evidence why the current affidavits they are submitting are any more accurate than the two earlier affidavits submitted by Andrew Krempp. Is it too much to ask that if the Defendants want to take away a client's constitutional right to a jury, they should at least be required to keep a complete, signed copy of any agreement requiring arbitration? How much weight can truly be given to the Defendants' new affidavits since none of us have any reliable way of actually knowing what if any forms were attached to the signature pages of the application that Denny signed seven years ago? Thus far, the Defendants have kept guessing as to the wrong documents because of its incredibly poor business decision of not keeping copies! Appellants' App. at 127-28. arbitration. This appeal ensued. DISCUSSION AND DECISION Issue One: Motion to Compel Appellants first contend that the trial court erred when it denied their second motion to compel arbitration. In Williams v. Orentlicher, 939 N.E.2d 663, 667-68 (Ind. Ct. App. 2010), we set out the applicable standard of review: The trial court's denial of a motion to compel arbitration is reviewed de novo. The party seeking to compel arbitration must demonstrate the existence of an enforceable arbitration agreement and that the disputed matter is the type of claim that is intended to be arbitrated under the agreement. Whether the parties agreed to arbitrate any disputes is a matter of contract interpretation, and most importantly, a matter of the parties' intent. Courts in Indiana have long recognized the freedom of parties to enter into contracts and have presumed that contracts represent the freely bargained agreement of parties. Thus, imposing on parties a policy favoring arbitration before determining whether they agreed to arbitrate could frustrate their intent and freedom to
6

The trial court denied the second motion to compel

contract. We will decide whether the dispute, on its face, is covered by the language of the arbitration provision. In doing so, we will apply ordinary contract principles governed by state law. If we determine that the parties have agreed to arbitrate, Indiana policy favors arbitration. Med. Realty Assocs., LLC v. D.A. Dodd, Inc., 928 N.E.2d 871, 874 (Ind. Ct. App. 2010) (quotations and citations omitted). Further, when construing arbitration agreements, "every doubt is to be resolved in favor of arbitration, and the parties are bound to arbitrate all matters, not explicitly excluded, that reasonably fit within the language used." Bielfeldt v. Nims, 805 N.E.2d 415, 418 (Ind. Ct. App. 2004) (quotations omitted), trans. denied. Here, Appellants maintain that they have satisfied their burden to show (1) the existence of an enforceable arbitration agreement and (2) that the disputed matter is the type of claim that is intended to be arbitrated under the agreement. See id. Thus, they contend the trial court erred when it denied their second motion to compel arbitration. Indeed, our review of the record shows that when Reed signed the 2003 application, he agreed to arbitrate "any dispute" with PrimeVest arising out of their agreement. Appellants' App. at 48. But Reed asserts that Appellants "have not demonstrated the existence of an enforceable agreement." Brief of Appellee at 10. In particular, Reed points out that the evidence shows that: neither Krempp nor PrimeVest retained a copy of the Customer Agreement with Reed's files; the Customer Agreement has been altered "dozens of times" over the years; and "this is the [Appellants'] fourth attempt" to provide an accurate copy of the relevant Customer Agreement. Id. at 10-11. Reed maintains that the version of the Customer Agreement submitted with Appellants' second motion to compel arbitration "has insufficient indicia of reliability and trustworthiness" and cannot,
7

therefore, support a finding that the parties had a valid arbitration agreement. Id. at 12.6 In essence, Reed urges us to hold that, because Appellants had previously provided the trial court with incorrect versions of the Customer Agreement and had provided false testimony in affidavits submitted to the court, Appellants have not met their burden to prove the existence of an enforceable arbitration agreement. We are not persuaded that Appellants' failure to provide an accurate copy of the Customer Agreement prior to the filing of their second motion to compel arbitration has any bearing on the admissibility of the evidence submitted in support of that motion. Indeed, while the previous versions of the Customer Agreement submitted by Appellants were proven to be incorrect versions of the parties' agreement, the version submitted with their second motion to compel arbitration has significant indicia of reliability. The copies of both the 2003 application signature page and the Customer Agreement submitted with the second motion to compel arbitration include the same copyright notice: "

Download 06221202ewn.pdf

Indiana Law