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FMR Corp. v. Howard

Supreme Court of Alabama

January 13, 2017

FMR Corp. n/k/a FMR LLC, et al.
Elizabeth Ann Howard n/k/a Elizabeth Ann Hart

         Appeal from Pike Circuit Court (CV-14-000014)

          STUART, Justice.

         FMR Corp. n/k/a FMR LLC, Fidelity Management Trust Company, and Fidelity Brokerage Services LLC (hereinafter referred to collectively as "Fidelity") appeal the order of the Pike Circuit Court denying their motion asking the court to compel Elizabeth Ann Howard n/k/a Elizabeth Ann Hart ("Hart") to arbitrate Fidelity's dispute with her regarding her responsibility to indemnify Fidelity for losses it might suffer if Hart's stepchildren prevail on claims they have asserted against Fidelity that are the subject of a separate pending arbitration proceeding. We reverse and remand.


         On July 31, 2006, Hart's husband, Frederick Howard, opened an online individual retirement account with Fidelity ("the Fidelity IRA"), funding it with approximately $1.2 million that had previously been held in a retirement account administered by Howard's former employer, BellSouth Corporation. Although Howard had previously designated his three children from a prior marriage -- John Troy Howard, Jennifer Howard Brown, and Reed Howard (hereinafter referred to collectively as "the Howard children") -- as the beneficiaries of the BellSouth retirement account, he did not designate any beneficiary for the Fidelity IRA at the time it was opened or at anytime thereafter.

         On January 31, 2011, Howard died; his death certificate listed the cause of his death as Parkinson's disease, which he had suffered from since at least 2003. Howard's will left all his personal property to the Howard children, explaining therein that no provision was being made in the will for Hart because "she has a sizeable separate estate of her own" and because upon his death she would take ownership of the marital residence and certain other monetary accounts that she and Howard had held as joint tenants with the right of survivorship. However, because Howard never designated a beneficiary for the Fidelity IRA, Fidelity distributed the approximately $1.4 million held in that account to Hart in accordance with the terms of the Fidelity IRA, which provided that any assets in the account would become the property of a surviving spouse when the account holder died if no beneficiary had been named. The Howard children unsuccessfully challenged that distribution in the Pike County Probate Court.

         On October 10, 2012, the Howard children sued Fidelity and Hart in the Shelby Circuit Court, asserting claims of undue influence, fraud, and conversion against Hart and a claim of negligence against Fidelity. The gravamen of their claims was that Howard was incompetent at the time the Fidelity IRA was opened and that Hart was the impetus behind the online opening of the Fidelity IRA, while Fidelity was alleged to be negligent for failing to implement adequate procedures governing its online-account-opening process that would prevent either fraudulent activity or invalid actions by incompetent individuals. Upon being served, Fidelity requested an extension of time within which to file an answer, which the circuit court granted, noting in its order doing so that "[t]his extension of time does not waive, and specifically reserves [Fidelity's] right to arbitrate any claims in this matter." Meanwhile, Hart's first action was to file a motion asserting that the proper venue for the Howard children's claims was the Pike Circuit Court and requesting a transfer of the case to that forum.

         On February 7, 2013, Fidelity, rather than file an answer to the Howard children's complaint, moved the Shelby Circuit Court to compel arbitration, noting in its motion that Howard, Hart, and the Howard children had all executed documents related to accounts with Fidelity that contained arbitration provisions. Specifically, Fidelity noted that at the time of his death Howard owned multiple investment accounts with Fidelity besides the Fidelity IRA and that those accounts listed Hart and the Howard children as co-beneficiaries. Upon Howard's death, Hart and the Howard children opened their own accounts with Fidelity to receive their respective shares of the funds held in those other accounts, and, in the process of doing so, Hart and the Howard children agreed to an arbitration provision providing, in relevant part:

"All controversies that may arise between you and us concerning any subject matter, issue, or circumstance whatsoever (including, but not limited to, controversies concerning any account, order, or transaction, or the continuation, performance, interpretation, or breach of this or any other agreement between you and us, whether entered into or arising before, on, or after the date this account is opened) shall be determined by arbitration through the Financial Industry Regulatory Authority (FINRA) ...."

         The Shelby Circuit Court did not immediately rule on Fidelity's motion to compel arbitration, instead allowing Hart and the Howard children to litigate the venue issue, upon which Fidelity took no position. See generally Unum Life Ins. Co. of America v. Wright, 897 So.2d 1059, 1076 (Ala. 2004) (indicating that parties have the right to establish the proper venue before the issue of arbitration is considered).

         On February 25, 2014, the Shelby Circuit Court entered orders ruling on the two motions pending before it. In the first order, the court granted Fidelity's motion to compel arbitration and ordered the Howard children to submit their claim against Fidelity to the Financial Industry Regulatory Authority ("FINRA") for arbitration. In the second order, the court granted Hart's motion for a change of venue, agreeing that the Pike Circuit Court was the proper forum to hear the claims asserted against Hart by the Howard children. The Pike Circuit Court thereafter conducted the necessary proceedings and, on December 19, 2014, entered a final judgment resolving all claims asserted by the Howard children against Hart. Neither the Howard children nor Hart appealed that judgment, and that judgment is not the subject of this appeal.

         In May 2015, the Howard children initiated arbitration proceedings against Fidelity by filing a statement of claim with FINRA. In August 2015, Fidelity filed with FINRA its response to the Howard children's statement of claim, in which it also asserted a third-party claim against Hart for indemnification, noting that the customer agreement she had agreed to abide by when opening her Fidelity accounts contained both an indemnification clause and the previously quoted arbitration provision. Hart responded by filing a motion in the Pike Circuit Court seeking a judgment declaring, essentially, that Fidelity could not compel her to participate in the arbitration proceedings involving Fidelity and the Howard children.

         On April 13, 2016, Fidelity moved the Pike Circuit Court ("the trial court") to compel Hart to arbitrate the issue whether she was obligated to indemnify Fidelity for any damages, costs, and expenses it might be ordered to pay the Howard children in arbitration as a result of Fidelity's distribution of the proceeds of the Fidelity IRA to Hart following Howard's death. Fidelity based its motion on the arbitration provision Hart had agreed to when she opened her own Fidelity accounts after Howard's death; as noted, that provision stated, in relevant part, that "[a]ll controversies that may arise between you and us concerning any subject matter, issue, or circumstance whatsoever ... shall be determined by arbitration." The trial court thereafter heard oral arguments on the issue and on June 22, 2016, entered an order holding that Hart could not be compelled to participate in arbitration at the current time, stating:

"Compelling [Hart] to now participate as a party in the arbitration of the claims asserted by [the Howard children] against [Fidelity] would be prejudicial to [Hart] as any claim [Fidelity] may have against [Hart] has not ripened at this time. Accordingly, the matters presently before the court are hereby stayed pending further order and [Hart] shall not, at this time, participate as ...

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