McInnes v. LPL Financial, LLC
466 Mass. 256
| Mass. | 2013Background
- Plaintiff McInnes sued her financial advisor McGhee and LPL alleging fraud, breach of fiduciary duty, violations of the Uniform Securities Act and G. L. c. 93A, arising from sale and maintenance of a variable universal life policy that later lapsed.
- Defendants sought to stay the Superior Court action and compel arbitration under an account agreement containing a pre-dispute arbitration clause; defendants produced a 2003 account application in which McInnes acknowledged and accepted the Master Account Agreement and its arbitration provision.
- The trial judge denied the first motion relying on Hannon v. Original Gunite (Mass.), holding G. L. c. 93A § 9 claims cannot be compelled to arbitration; a second motion invoking FAA preemption was also denied on grounds of disputed factual issues about existence and alleged fraud in obtaining the arbitration agreement.
- Defendants appealed interlocutorily; the Supreme Judicial Court granted direct appellate review.
- The SJC analyzed whether the Federal Arbitration Act (FAA) governs the arbitration clause (contract involved interstate commerce) and whether federal law preempts Massachusetts precedent (Hannon) that categorically refused to force arbitration of § 9 claims.
- The court concluded McInnes validly agreed in 2003 to arbitrate all account-related disputes, there was no evidence the arbitration clause itself was procured by fraud, and the FAA preempts any state rule that categorically bars arbitration of § 9 claims where the FAA applies.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a G. L. c. 93A § 9 claim may be compelled to arbitration despite Hannon | Hannon bars compelled arbitration of § 9 claims; McInnes need not arbitrate | FAA preempts state rules that categorically prohibit arbitration of certain claims; federal law governs here | FAA governs because contract affects interstate commerce; Hannon does not apply where FAA governs; § 9 claims must be arbitrated when FAA applies |
| Whether a valid arbitration agreement exists binding the parties | McInnes disputes existence of a binding arbitration agreement (points to missing 1996 forms) | Defendants produced a 2003 signed account application expressly accepting the Master Account Agreement including arbitration | Court found 2003 signed acknowledgment established an agreement to arbitrate account-related disputes covering prior and subsequent claims |
| Whether issues of fact (existence, fraud in inducement) precluded compelling arbitration | McInnes asserted factual disputes about whether she ever agreed and whether agreement was fraudulently induced | Defendants argued the record (uncontroverted affidavit and signed 2003 form) resolved those issues and plaintiff presented no opposing evidence | Court held judge should have held expedited evidentiary hearing if material facts were disputed; here no opposing evidence existed and defendants were entitled to compel arbitration |
| Whether fraud in the inducement of the underlying contract invalidates arbitration clause | McInnes alleged general fraud underlying her claims | Defendants argued fraud must be directed to the arbitration clause itself to avoid arbitration; general fraud is for the arbitrator if clause is severable | Court applied federal law: arbitration clause must be challenged specifically; plaintiff did not allege the arbitration provision itself was procured by fraud, so clause is enforceable |
Key Cases Cited
- Hannon v. Original Gunite Aquatech Pools, Inc., 385 Mass. 813 (Mass. 1982) (Mass. precedent holding § 9 consumer claims need not be arbitrated)
- AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) (FAA preempts state rules that prohibit arbitration of particular claims)
- Nitro-Lift Techs., L.L.C. v. Howard, 133 S. Ct. 500 (2012) (sever and evaluate validity of arbitration provision itself; federal law governs arbitrability)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006) (challenges to contract validity generally go to arbitrator unless challenge is to arbitration clause itself)
- Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287 (2010) (court must determine whether parties agreed to arbitrate before ordering arbitration)
- Preston v. Ferrer, 552 U.S. 346 (2008) (FAA supplies federal substantive law applicable in state courts on arbitrability)
- Warfield v. Beth Israel Deaconess Med. Ctr., Inc., 454 Mass. 390 (Mass. 2009) (Massachusetts procedure under G. L. c. 251 § 2 governs motions to compel arbitration)