CITIGROUP SMITH BARNEY v. Henderson
250 P.3d 926
Or. Ct. App.2011Background
- Henderson opened an IRA with Citigroup Smith Barney and signed an agreement requiring arbitration of claims between Henderson and the firm.
- The IRA agreement chose New York law to govern the contract and its interpretation.
- Two beneficiary forms were filed: one naming Henderson's personal trust; a second, undated form naming his first wife’s children as beneficiaries, creating conflicting claims.
- Citigroup interpleaded the IRA funds to determine rightful ownership; Madge Henderson and the children counterclaimed for asserted breaches of fiduciary duty and contract.
- Plaintiff moved to compel arbitration of the counterclaims; Madge and the children argued the arbitration clause applies and that plaintiff waived arbitration by filing the interpleader.
- The trial court denied arbitration and the interpleader dismissal; this interlocutory appeal followed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the children bound as third-party beneficiaries to arbitrate? | Children derive benefit from contract; bound by arbitration clause. | Children should not be bound despite benefiting since they did not sign. | Yes; third-party beneficiaries are bound by the arbitration clause. |
| Who decides whether there was a waiver of the right to arbitrate? | Waiver issue is for the arbitrator under FAA standards. | New York-law choice dictates court, not arbitrator, decide waiver. | Arbitrator; waiver is a procedural issue presumptively for arbitration. |
| Does the New York governing-law clause affect who decides waiver questions? | FAA governs forum-related questions; New York law governs contract interpretation. | Choice-of-law clause implies New York courts decide waiver issues. | IRA agreement is silent on waiver forum; under Howsam, waiver is arbitrable, so arbitrator decides. |
Key Cases Cited
- Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995) (federal policy favoring arbitration; choice of state substantive law allowed)
- Southland Corp. v. Keating, 465 U.S. 1 (1984) (FAA preempts state law to enforce arbitration agreements)
- Volt Info. Sciences v. Leland Stanford Jr. Univ., 489 U.S. 468 (1989) (contractual choice of law valid if not undermining FAA goals)
- Industra/Matrix Joint Venture v. Pope & Talbot, 341 Or. 321 (2006) (state contract law governs arbitration questions when FAA applies)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) (state contract law for formation; enforce arbritration agreement)
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002) (waiver and other procedural questions presumptively for arbitrator)
- Diamond Waterproofing Sys., Inc. v. 55 Liberty Owners Corp., 4 N.Y.3d 247 (2005) (text requiring enforcement by New York law differs if 'and its enforcement' missing)
- All Metro Health Care Servs., Inc. v. Edwards, 25 Misc. 3d 863 (2009) (presumption of arbitrability for waivers under FAA principles)