Date: 08-08-2008

Case Style: Curly and Coy Bernard, et al. v. Gregory James Hildebrand and Peter E. Dahlstrom

Case Number: 2008 CA 0268

Judge:

Court: Court of Appeals of Louisiana, First Circuit on appeal from the 19th Judicial District Court, Parish of East Baton Rouge

Plaintiff's Attorney: Aub Ward, Naquin & Ward, Baton Rouge, Louisiana and Lee Bowie, Jackson, Mississippi

Defendant's Attorney: Thomas K. Potter, III, Nashville, Tennessee and Rayna E. Jackson, Baton Rouge, Louisiana

Description: Plaintiffs herein are employees of Kansas City Southern Railroad and their spouses. They contracted with brokers Gregory Hildebrand and Peter Dahlstrom to manage their retirement accounts Alleging fraud and negligence plaintiffs filed a claim against their brokers on August 4 2005 with the Dispute Resolution Division of the National Association of Securities Dealers NASD under its Code of Arbitration Procedure. In so doing each of the plaintiffs voluntarily signed an NASD Arbitration Uniform Submission Agreement that contained the following language:

The undersigned parties hereby submit the present matter in controversy as set forth in the attached statement of claim to arbitration in accordance with the Constitution By Laws Rules Regulations and or Code of Arbitration Procedure of the sponsoring organization.

The undersigned parties hereby state that they have read the procedures and rules of the sponsoring organization relating to arbitration.

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The undersigned parties further agree to abide by and perform any award is rendered pursuant to this Submission Agreement.

Hildebrand and Dahlstrom answered the arbitration also signing and submitting identical Uniform Submission Agreements. Thereafter the parties selected an arbitration panel participated in an initial prehearing conference and began conducting discovery.

At some point the arbitration panel requested that the parties produce any pre dispute arbitration agreement existing between them Neither of the parties was able to produce such an agreement. Consequently by letter dated May 19 2006 the plaintiffs advised the arbitration panel that a pre dispute agreement could not be found Plaintiffs further informed the panel that based upon the lack of any pre dispute agreement they were withdrawing their uniform submission agreements and requesting that the arbitration proceeding be dismissed without prejudice.

On May 31 2006 NASD issued a letter to all of the parties advising them that it had been notified that the parties had either settled or withdrawn the matter and informing them that the matter was being removed from the arbitration docket The letter continued:

If this case has not settled or should not have been withdrawn please notify this office by June 8 2006 After June 8 2006 has elapsed NASD Dispute Resolution will not reopen this case.

On June 7 2006 the defendants wrote to NASD forcefully objecting to the plaintiffs request to withdraw their uniform submission agreements and to have their claims dismissed without prejudice The defendants argued that the Uniform Submission Agreements constituted binding arbitration agreements in and of themselves They further argued that because they had answered the arbitration and proceedings were already underway the plaintiffs claims could only be dismissed with prejudice NASD s response dated November 16 2006 provided in pertinent part as follows

The Panel has determined that it does not have the authority to grant a dismissal with prejudice In addition the Panel has determined that there is insufficient evidence to grant any additional relief.

NASD Dispute Resolution procedure will permit a Withdrawal without Prejudice after Respondents have answered only if the parties agree to a Withdrawal without Prejudice Pursuant to NASD Dispute Resolution procedure this matter has been closed as "Withdrawn with Prejudice."

Pending the foregoing response by NASD the plaintiffs had filed suit against Hildebrand and Dahlstrom in the Nineteenth Judicial District Court asserting the same facts and claims that they originally had submitted to arbitration The defendants responded to the lawsuit by filing a motion to stay and compel arbitration proceedings however after receiving NASD s response the defendants filed a revised motion to stay and to dismiss Therein the defendants argued that the Uniform Submission Agreements bound the plaintiffs to arbitrate their claims They further claimed that NASD s act of closing the arbitration as withdrawn with prejudice operate d as an adjudication on the merits

Accordingly they did not seek to have the trial court compel arbitration but rather requested that the trial court mirror what the arbitration panel did and dismiss the plaintiffs' claims.

Following a hearing the trial court denied the defendants motion to stay but granted their motion to dismiss According to its written reasons for judgment the trial court concluded that the Uniform Submission Agreements constituted binding irrevocable agreements to arbitrate Because the plaintiffs withdrew the matter from arbitration the forum in which it should have been heard the trial court decided to dismiss the suit Thus on April 12 2007 the trial court signed a judgment dismissing the plaintiffs claims with prejudice Plaintiffs filed a motion for new trial that was subsequently denied. This appeal followed.

DISCUSSION

The purpose of arbitration is to allow parties to achieve speedy settlement of their differences out of court The positive law of Louisiana favors arbitration and any doubt concerning the scope of arbitrable issues should be resolved in favor of arbitration Arkel Constructors Inc v Duplantier Meric Architects L L C 2006 1950 2006 1951 p 7 La App 1 Cir 725 07 965 So 2d 455 459 Such favorable treatment echoes the Federal Arbitration Act FAA 9 US C S 1 et seq which unquestionably embodies a liberal federal policy favoring arbitration agreements. Id.

On appeal plaintiffs argue that the trial court erred in finding that by virtue of the Uniform Submission Agreements they executed they were bound to arbitrate their claims Rather they contend that a pre dispute arbitration agreement is required. We respectfully disagree.

Pursuant to LSA RS 9 4201

A provision in any written contract to settle by arbitration a controversy thereafter arising out of the contract or out of the refusal to perform the whole or any part thereof or an agreement in writing between two or more persons to submit to arbitration any controversy existing between them at the time of the agreement to submit shall be valid irrevocable and enforceable save upon such grounds as exist at law or in equity for the revocation of any contract. (Emphasis added.)

In addition LSA C C art 3099 provides:

A submission is a covenant by which persons who have a law suit or difference with one another name arbitrators to decide the matter and bind themselves reciprocally to perform what shall be arbitrated.

Louisiana Civil Code article 3102 further states:

Parties may submit either all their differences or only some of them in particular and likewise they may submit to arbitration a lawsuit already instituted or only in contemplation and generally every thing which they are concerned in or which they may dispose of.

Despite plaintiffs assertions to the contrary the plain language of the foregoing provisions clearly allows for post dispute agreements to arbitrate 2 Thus parties may agree to the submission to arbitration of existing controversies without any previous contract to do so General Motors Corp v Pamela Equities Corp 146 F 3d 242 246 5th Cir 1998

Moreover numerous courts have found Uniform Submission Agreements containing the exact same language as those executed herein to constitute binding irrevocable and enforceable agreements to arbitrate See Dean Witter Reynolds Inc v Fleury 138 F 3d 1339 1342 11th Cir 1998 Benacquisto v American Express Financial Corp 373 F Supp 2d 966 968 D Minn 2005 Mayo v Dean Witter Reynolds Inc 258 F Supp 2d 1097 1116 N D Cal 2003 First Montauk Securities Corp v Menter 26 F Supp 2d 688 689 S DN Y 1998 Accordingly we agree with the trial court s finding that by virtue of their Uniform Submission Agreements the plaintiffs obligated themselves to arbitrate their claims against their brokers.

Nevertheless we do find merit in the plaintiffs assertion that the trial court erred in dismissing the present matter with prejudice 3 According to Louisiana s Binding Arbitration Law LSA RS 9 4201 4217 when a valid arbitration agreement exists pendinl an arbitration award a court is expressly authorized to stay proceedings andor compel the parties to proceed to arbitration upon the application of one of the parties 4 See LSA RS 9 4202 4203 Once an arbitration award has been rendered the award is res judicata and must be confirmed unless grounds are established in accordance with arbitration law for the vacation modification or correction of the award See Farmers Cotton Co Inc v Savage 30 289 p 4 La App 2 Cir 6 26 98 714 So 2d 926 928 writ denied 98 2322 La 11 20 98 728 So 2d 1288 Louisiana Physician Corp v Larrison Family Health Ctr LLC 2003 1721 p 3 La App 3 Cir 4704 870 So 2d 575 578 Thus subseauent to the rendition of an arbitration award a court may only confirm vacate or modify andor correct an award. See LSA R S 9 4209 4211.

An award ordinarily concludes and binds the parties as to the merits of all matters properly within the scope of the award and intended by the arbitrators to be finally decided Housing Authority of New Orleans v Henry Ericsson Co 197 La 732 756 2 So 2d 195 203 1941 Furthermore LSA RS 9 4208 requires that an award be in writing and be signed by the arbitrators or by a maiority of them Emphasis added In the instant case there has been no award s The defendants argument on appeal that NASD s November 16 2006 letter constituted an award is belied by the fact that defendants did not file a motion to confirm the alleged award or an exception of resjudicata in the trial court.

Accordingly by default the defendants remedy in this matter is controlled by LSA R S 9 4202 and 4203 See Lincoln Builders Inc v Raintree Investment Corporation Thirteen 37 965 La App 2 Cir 128 04 866 So 2d 326 where the court refused to lift stay and allow the parties to litigate even though the arbitrator closed the case and dismissed the arbitration prior to the rendition of an award because the parties had failed to pay arbitration fees The court noted that the proper remedy in such a situation is set forth in LSA R S 9 4203.

According to LSA R S 9 4202 a court shall stay the trial of an action in order for arbitration to proceed if any party applies for such a stay and shows that there is a written arbitration agreement and 2 the issue is referable to arbitration under that arbitration agreement as long as the applicant is not in default in proceeding with the arbitration International River Center v Johns Manville Sales Corp 2002 3060 p 3 La 12 3 03 861 So 2d 139 141 Pursuant to LSA RS 9 4203 a party in default is a party who has fail ed or refus ed to perform under a written agreement for arbitration d In the case sub judice we find the plaintiffs withdrawal of their claims to be tantamount to a default.

Pursuant to LSA R S 9 4203 which addresses the remedy in case of default the court must determine 1 whether there is a dispute as to the making of the agreement and 2 whether a party has failed to comply with the agreement

If it determines that those two facts are not in issue the court shall issue an order directing the parties to proceed to arbitration in accordance with the terms of the agreement Because dismissal with prejudice is a result not contemplated by the applicable statutes we find the trial court s judgment to be in error.

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http://www.la-fcca.org/Opinions/Pub2008/2008-08/2008CA0268Aug2008.Pub.12.pdf

Outcome: Accordingly we reverse the judgment and remand the matter for further proceedings consistent with the opinions expressed herein Costs of this appeal are to be shared equally by the parties REVERSED AND REMANDED

Plaintiff's Experts:

Defendant's Experts:

Comments: