JOHN W. SEDWICK, Senior District Judge.
At docket 12 Defendant Merrill Lynch, Pierce, Fenner & Smith (Merrill Lynch) moves the court to compel arbitration and enter a stay of this federal action, relying on account agreements executed by the decedent, John H. Snead. Plaintiffs Monique R. Snead and John G. Snead, in their various capacities (collectively Plaintiffs or the Sneads), oppose the request at docket 24. Lynch replies at docket 29. Oral argument was requested but denied as unnecessary.
This federal action involves a dispute about two Merrill Lynch accounts opened by John H. Snead, the father of Plaintiffs, who died in August of 2017. Plaintiffs allege that Defendant Guadalupe Wright, who had been in a long-term relationship with John H. Snead up through his death and an employee of Merrill Lynch at that time, unlawfully transferred funds from John H. Snead's Merrill Lynch trust accounts — the John H. Snead Revocable Trust (Revocable Trust) and the Snead Irrevocable Trust (Irrevocable Trust). The Sneads filed their complaint individually and as the beneficiaries of the Revocable Trust and Irrevocable Trust. John G. Snead also sued as the trustee of the Irrevocable Trust, and Monique Snead sued as the personal representative of her father's estate. This federal action includes one claim against Defendant Wright, alleging she unduly influenced John H. Snead near his death and wrongfully removed funds from the trusts. The other claims are brought against Merrill Lynch. The Sneads allege that Merrill Lynch breached its fiduciary duty and was negligent regarding the trusts, that it is vicariously liable for Defendant Wright's actions, and that it was negligent in hiring, training, and supervising Wright.
Merrill Lynch now moves to have the case stayed for arbitration. It relies on account forms John H. Snead signed wherein he agreed that any controversies between himself and Merrill Lynch would be arbitrated. The first form is Cash Management Account (CMA) Application and Agreement Form (CMA Form) signed in 1998 when the decedent opened a CMA with Merrill Lynch. Merrill Lynch asserts that the account was opened for the Revocable Trust. The second form is a Client Relationship Agreement (Client Agreement) that decedent signed in 2016 in conjunction with the opening of another Merrill Lynch account. Merrill Lynch asserts that this second account was opened for the Irrevocable Trust. Plaintiffs oppose the request for arbitration, arguing that they are not bound to arbitrate pursuant to the forms that they did not sign.
"A party seeking to compel arbitration has the burden under the [Federal Arbitration Act] to show (1) the existence of a valid, written agreement to arbitrate; and, if it exists, (2) that the agreement to arbitrate encompasses the dispute at issue."
As for the second element, whether the dispute between the parties is within the scope of the arbitration agreement, the Federal Arbitration Act creates a substantive body of law to apply to disputes about what issues are subject to arbitration; however, it does not entirely displace state law.
Merrill Lynch asks the court to stay this federal case in favor of arbitration. As noted above, Merrill Lynch bears the burden of demonstrating that arbitration is warranted. It argues that John H. Snead had agreed to arbitrate all disputes with Merrill Lynch when he opened his various trust accounts with the company and that the Plaintiffs, as beneficiaries and/or trustees of those trusts, are bound by his agreement to arbitrate. A party generally cannot be required to arbitrate under an agreement which he did not sign.
As noted above, this court must look to state law when determining whether a nonsignatory can enforce or be bound by an agreement to arbitrate. Neither Merrill Lynch nor Plaintiffs adequately address the issue of which state law to apply and how to best apply that law to this situation. Plaintiffs cite a Ninth Circuit case, Comer v. Micor, Inc.
The managers also argued that the plaintiff could be bound by the agreement to arbitrate based on a third-party beneficiary theory. The court noted that an arbitration agreement could be enforced against a nonsignatory under such a theory where "the contract reflects the express or implied intention of the parties to the contract to benefit the third party."
Under Comer, Plaintiffs are correct that equitable estoppel does not require arbitration because they are not seeking to enforce the terms of the bank agreements, and they cannot be forced to arbitrate as third-party beneficiaries because there is no evidence that they are the intended beneficiaries of the agreements themselves. While Comer does in fact support Plaintiffs position that they cannot be required to arbitrate as non-signatories to the contract, federal common law is no longer applicable to the determination of who is bound by an arbitration agreement.
Merrill Lynch, however, does not point to governing state law that would allow the court to find in its favor. It cites cases from New Jersey, California, New York, and Texas to argue that Plaintiffs should be required to arbitrate as trustees, beneficiaries, and personal representatives. However, Merrill Lynch fails to conduct the choice of law analysis that must be done to determine which state law to apply in the first instance. Indeed, the state law does not appear to be uniform on this issue.
This court must look to Alaska law to make a choice of law determination. Alaska courts use the Restatement (Second) of Conflict of Laws (Restatement) to guide choice of law issues.
Again, the parties did not conduct the requisite analysis, but the court's conclusion is that New York has no substantial relationship to the parties or the transaction and there is no other basis for the application of New York law here. Therefore, Alaska law should apply to the issue.
Based on the court's review, there does not appear to be any case law from the Alaska Supreme Court directly on point as to whether equitable estoppel or some other contract principle could bind a non-signatory to an arbitration agreement. Given this absence of controlling law, this court must predict how the Alaska Supreme Court would decide the issue.
Even if the applicable state law obligated beneficiaries or trustees to arbitrate under the circumstances the court cannot conclude that arbitration is warranted here based on the record provided.
Based on the preceding discussion, Defendant's motion to stay at docket 12 is DENIED.