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ALICE P. KLOSS, Plaintiff and Appellant, v. EDWARD D. JONES & CO., a limited partnership, and PAUL HUSTED, Defendants and Respondents.

No. 00-507

SUPREME COURT OF MONTANA

2002 MT 129; 310 Mont. 123; 54 P.3d 1; 2002 Mont. LEXIS 223

October 11, 2001, Submitted on Briefs 

June 13, 2002, Decided

SUBSEQUENT HISTORY:  Petition for Rehearing Denied September 25, 2002. Released for Publication September 26, 2002.  Rehearing granted by, in part, Rehearing denied by, in part Kloss v. Edward D. Jones & Co., 2002 MT 129A, 310 Mont. 147, 310 Mont. 147A, 57 P.3d 41, 2002 Mont. LEXIS 413 (2002)

US Supreme Court certiorari denied by, Motion granted by Edward D. Jones & Co. v. Kloss, 2003 U.S. LEXIS 2696 (U.S., Mar. 31, 2003)

PRIOR HISTORY: APPEAL FROM: District Court of the Eighth Judicial District, In and for the County of Cascade, The Honorable Julie Macek, Judge presiding.

DISPOSITION: Judgment reversed.

LexisNexis (TM) HEADNOTES - Core Concepts:

COUNSEL: For Appellant: Joseph C. Engel, III, P.C., Attorney at Law, Great Falls, Montana.

For Respondents: Robert F. James, Ugrin, Alexander, Zadick & Higgins, Great Falls, Montana, For Amicus (Montana Trial Lawyers Association): Paul J. Petit, Petit and Schultz, PLLP, Missoula, Montana.

For Amicus: Dane J. Durham, Attorney at Law.

JUDGES: Justice Terry N. Trieweiler delivered the Opinion of the Court. We Concur: PATRICIA COTTER, JAMES C. NELSON, W. WILLIAM LEAPHART. Justice W. William Leaphart specially concurring. Justice Jim Rice joins in the concurring opinion of Justice Leaphart. Justice James C. Nelson specially concurs. Justices Terry N. Trieweiler, W. William Leaphart and Patricia O. Cotter join.

OPINIONBY: Terry N. Trieweiler

OPINION:  [**125]   [***3]

Justice Terry N. Trieweiler delivered the Opinion of the Court.  [*P1]

The Appellant, Alice P. Kloss, opened financial services accounts with the Defendants, Edward D. Jones & Co. and Paul Husted, in 1992 and 1998. The agreement between Kloss and Jones contained pre-dispute arbitration clauses. After Kloss filed a complaint in the District Court for the Eighth Judicial District in Cascade County in which she sought damages caused by Husted's wrongful conduct, Jones filed a Motion to Compel Arbitration. The District Court granted the motion and Kloss appealed. While the appeal was pending, Jones located Kloss' 1998 brokerage agreement which was at issue in the District Court. This Court remanded this matter to the District Court for supplemental findings of fact and conclusions of law based on the 1998 account agreement. Following an evidentiary hearing, the District Court granted Jones' Motion to Compel Arbitration. Kloss now appeals from the order compelling arbitration. We reverse the order of the District Court.

 [*P2]  Of the issues presented on appeal, we find the following to be dispositive:

 [*P3]  1. Did the District Court err when it concluded that the arbitration clauses contained in the 1992 and 1998 Full Service Agreements were enforceable?

 [*P4]  2. Did the District Court err when it failed to consider whether Defendants owed Kloss a fiduciary duty to explain the arbitration agreement?

 [*P5]  3. Did the District Court err when it denied Kloss' motion for attorney's fees and costs?

FACTUAL BACKGROUND

 [*P6]  The Appellant, Alice P. Kloss, is a 95 year old widow who was referred to Defendant Paul Husted in 1985. Husted has been employed by Defendant Edward D. Jones & Co. in Great Falls, Montana, as a stockbroker since 1981. Kloss opened a full service brokerage account with Jones on July 30, 1989, which permitted her to purchase securities and maintain a money market account.

 [***4]   [*P7]  Kloss established a living trust account with Jones in April of [**126]  1992. Like the 1989 account, the living trust account agreement contained a mandatory arbitration provision which required that "any controversy arising out of or relating to any of my accounts or transactions with you, your officers, directors, agents and or/employees . . . shall be settled by arbitration . . . ."

 [*P8]  In early 1998, Kloss went to Husted's office to discuss investment options for a bond that had matured and Husted informed her that she had quite a bit of money and should set up a charitable trust with her bond proceeds. Husted then arranged for Kloss to meet with an attorney, who drafted the documents which created an irrevocable charitable trust.

 [*P9]  On May 28, 1998, Kloss activated the charitable trust account by executing a Customer Account Agreement for Full Service and Customer Loan Accounts (hereinafter 1998 Agreement). The 1998 Agreement also contained a pre-dispute arbitration clause but was not signed by Kloss. Rather, Kloss signed a detachable signature card that acknowledged she received a copy of the 1998 Agreement and incorporated the Agreement's arbitration clause by reference:

The Full Service Account and the Customer Loan Account Agreements contain a pre-dispute arbitration clause that is incorporated by reference from the general account provisions on pages 1 and 2. By my signature below, I acknowledge that I have received a copy of this document.

The agreements themselves included the following explanations of rights waived by submission of disputes to arbitration:

The 1992 "Customer Account Agreements for Full Service and Customer Loan Accounts-General Account Provisions" contains a section as follows:

ARBITRATION

1. Arbitration is final and binding on the parties.

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

3. Pre-arbitration discovery is generally more limited than and different from court proceedings.

4. The arbitrators' awards is not required to include factual findings or legal reasoning, and any party's right to appeal or to seek modification of rulings by the arbitrators is strictly limited.

5. The panel of arbitrators will typically include a minority of arbitrators who were or are affiliated with the securities industry.

 [*P10]  After the charitable trust was executed, Husted selected and sold assets from Kloss' living trust to fund the charitable trust. The assets  [**127]  sold for approximately $ 352,000.00, which Husted deposited into a charitable remainder trust in the name of Alice P. Kloss.

 [*P11]  In July 1998, Kloss began to have second thoughts about the charitable trust. She contacted her nephew and requested that he come to Montana, where she gave him power of attorney and decided to revoke the charitable trust. She then obtained counsel and filed a petition to revoke the charitable trust. After a hearing, Judge Kenneth Neill granted her petition.

 [*P12]  Kloss then filed this complaint in the District Court for the Eighth Judicial District in Cascade County on December 28, 1998. Kloss alleged that Jones violated Montana statutes regarding the sale of securities, was negligent, committed unfair and deceptive business practices, breached its fiduciary obligations, and committed fraud.  Kloss sought attorney fees, costs, expenses, and taxes incurred from the creation and revocation of the charitable trust. Jones filed a Motion to Compel Arbitration and Stay Proceedings on February 17, 1999. Evidentiary hearings were held on October 27, 1999, and February 1, 2000

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