Texas’ Ninth District Court of Appeals in Beaumont has ordered a dispute to arbitration based upon the doctrine of direct-benefits estoppel. In Raymond James Financial Services, Inc. and Timothy Carl Satre v. June Angelina Peveto f/k/a June Strange, No. 09-12-00472-CV (Tex. App. 9th March 28, 2013), John Robert Peveto created a family partnership named JRP Investments, L.P. (“JRPI”) and named himself the managing partner. He then opened an investment account at Raymond James Financial Services, Inc. (“Raymond”) where Timothy Carl Satre was employed as a financial adviser and broker. When he opened the account, Peveto signed a new account form which incorporated Raymond’s Client Agreement. The Client Agreement contained a provision that stated any and all disputes would be resolved through arbitration.
Together, Peveto and Satre created an overall estate plan that included June Strange. Eventually, JRPI purchased an annuity from Hartford Life and Annuity Insurance Company (“Hartford”) that named Peveto as the annuitant and Strange as the designated beneficiary. Peveto later entered into a written agreement with Strange that stated he would not revoke the annuity without substituting property of equal value. He then instructed Hartford to make Strange’s beneficiary designation irrevocable.
Before Peveto died, he and Strange married. Upon Peveto’s death, the Hartford annuity issued a check to JRPI pursuant to a clause in the annuity contract which voided Strange’s benefits upon the annuitant’s death. JRPI’s general partner ordered Raymond to issue a check for more than the value of the annuity to Strange but then told Raymond to stop payment on the check pending a dispute between Strange and her husband’s estate. After the dispute with the estate was settled, Strange filed a lawsuit against Raymond, Satre, and Hartford.
In her lawsuit, Strange alleged breach of contract, violations of the Texas Deceptive Trade Practices Consumer Protection Act and the Texas Insurance Code, fraud, and breach of fiduciary duty. Raymond and Satre responded by filing a motion to compel the dispute to arbitration. According to Raymond and Satre, Strange’s claims were based upon the Client Agreement Raymond entered into with JRPI. Strange argued that, as a nonsignatory, she was not bound by the Client Agreement and her claims were instead based upon JRPI’s contract with Hartford and an agreement she entered into with Peveto.
First, the Appeals Court stated although a party must normally sign an agreement to arbitrate in order to be bound by it, exceptions exist. The court stated,
The Texas Supreme Court has explained that nonsignatories may be bound under arbitration agreements on the following principles: incorporation by reference, assumption, agency, alter ego, equitable or direct-benefits estoppel, and third-party beneficiary.
The Beaumont court continued,
Under direct-benefits estoppel principles, a nonsignatory must arbitrate a claim if she seeks, through the claim, to derive a direct benefit from the contract containing the arbitration provision.
The court then scrutinized the relationship between Strange’s allegations and the Client Agreement. After examining the transaction, the Appeals Court held,
The plaintiff’s claims derive from the New Account Form/Client Agreement between Raymond James/Satre and Peveto/JRPI. The substance of Strange’s claim is that Satre advised Peveto in the selection and purchase of an annuity that, Strange contends, did not meet the requirements Peveto communicated to Satre. Strange seeks to hold Raymond James and Satre liable for investment advice to Peveto. The trial court abused its discretion in denying appellants’ motion to compel arbitration.
Because Strange’s claims arose out of JRPI’s contract with Raymond, Texas’ Ninth District Appeals Court reversed the trial court’s order and remanded the case with instructions to compel the dispute to arbitration.