Quentin T. KRAMER, M.D., Individually and as Trustee for Various Pension Plans, Quentin T. Kramer, M.D., PA Defined Benefit Pension Plan and Quentin T. Kramer, M.D., PA, Money Purchase Pension Plan/Profit Sharing Plan, Plaintiffs-Appellants, v. SMITH BARNEY, formerly known as Shearson Lehman Brothers Inc., and Larry F. Robb, Defendants-Appellees.
No. 95-10441.
United States Court of Appeals, Fifth Circuit.
April 23, 1996.
Rehearing Denied June 28, 1996.
80 F.3d 1080 | 64 USLW 2738 | Pens. Plan Guide P 23919K
Before HIGGINBOTHAM and DUHE, Circuit Judges, and SCHWARZER, District Judge*.
Charles Watts Flynn, IV, Bradley W. Foster, Locke, Purnell, Rain & Harrell, Dallas, TX, for Barney and Robb.
Appeal from the United States District Court for the Northern District of Texas.
SCHWARZER, District Judge:
Dr. Quentin T. Kramer brought this action in Texas state court, alleging state law claims for fraud, negligence, securities violations, and breach of contract arising out of purchases of partnership interests from defendants Smith Barney, Inc. and Larry F. Robb. Defendants removed the action to the district court which then granted their motion to dismiss the action under
FACTS
Kramer brought this action as an individual and as trustee of two pension plans for the benefit of himself and his employees. Smith Barney is a licensed broker and Robb was its branch manager as well as a licensed broker and financial consultant. Through Robb, Kramer opened three accounts with Smith Barney: an IRA account in his individual capacity, a defined benefit pension plan account, and a money purchase pension plan/profit sharing plan account. He was the trustee of the latter two plans and, along with his employees, a beneficiary. From 1984 through 1989, Kramer purchased from Robb interests in limited partnerships for these accounts. He alleges that he relied on Robb for advice in making those purchases, and that a fiduciary relationship existed between them. He charges that Robb sold him unsuitable investments, made misrepresentations, failed to disclose the true risks, and concealed losses in these accounts which he alleges total one million dollars. On appeal from the granting of a
When Kramer opened the accounts with Smith Barney, he signed the standard customer agreement which provided that:
[A]ny controversy arising out of or relating to my accounts, to transactions with you for me, or to this agreement or the breach thereof, shall be settled by arbitration in accordance with the rules then in effect, of the National Association of Securities Dealers, Inc., or the Board of Directors of the New York Stock Exchange, Inc. and/or the American Stock Exchange, Inc. as I may elect.
Rule 605 of the American Stock Exchange (AMEX) states:
No dispute, claim or controversy shall be eligible for submission to arbitration in any instance where six (6) years shall have elapsed from the occurrence or event giving rise to the act or the dispute, claim or controversy.
Kramer initiated an arbitration proceeding under the customer agreement in July 1993, within two years after he discovered the true value of his investments but more than six years after he purchased most of them. Smith Barney filed a motion in New York state court to stay arbitration of the claims that were based on purchases made more than six years before the arbitration commenced. The court granted the motion and stayed arbitration of those claims. The Appellate Division of the New York Supreme Court affirmed. Kramer then abandoned the arbitration and filed the instant action in the Texas state court with respect to all of the purchases.
SUBJECT MATTER JURISDICTION
Under the well-pleaded complaint rule, a case does not “arise under” federal law and is not removable if the complaint asserts only state law causes of action. Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 10, 103 S.Ct. 2841, 2846-47, 77 L.Ed.2d 420 (1983). Nor will an anticipated federal defense, including a defense of preemption, support removal. Caterpillar Inc. v. Williams, 482 U.S. 386, 393, 107 S.Ct. 2425, 2430, 96 L.Ed.2d 318 (1987). Under the complete preemption doctrine, however, “Congress may so completely pre-empt a particular area that any civil complaint raising this select group of claims is necessarily federal in character.” Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63-64, 107 S.Ct. 1542, 1546, 95 L.Ed.2d 55 (1987). Consequently, a statute‘s preemptive force may “convert[ ] an ordinary state common law complaint into one stating a federal claim for purposes of the well-pleaded complaint rule.” Id. at 65, 107 S.Ct. at 1547. Smith Barney removed this case by invoking federal jurisdiction under the Employee Retirement Income Security Act of 1974 (ERISA),
Kramer filed this action on his own behalf and on behalf of the Kramer Defined Benefit Pension Plan and the Kramer Money Purchase Pension Plan/Profit Sharing Plan. These plans, as “employee benefit plans” within the meaning of ERISA, are covered by ERISA. See
Having concluded that Kramer‘s state law claims are preempted, we must next consider whether ERISA displaces those claims under the complete preemption doctrine. This appears to be a question of first impression. Taylor involved the issue of whether ERISA section 502(a)(1)(B) preempted and displaced plaintiff‘s state law claims to recover benefits under an ERISA plan. See Id. at 63-66, 107 S.Ct. at 1546-48;
Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses to the plan resulting from each such breach....
ARBITRABILITY OF KRAMER‘S CLAIMS
A. The ERISA claims.
The arbitration clause of the customer agreement is subject to the Federal Arbitration Act (“Arbitration Act“) as “[a] written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract.”
In Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 238, 107 S.Ct. 2332, 2343-44, 96 L.Ed.2d 185 (1987), the Supreme Court held that an arbitration clause was enforceable under the Arbitration Act with respect to claims under section 10 of the Securities Exchange Act of 1934 (“Exchange Act“), even though the Exchange Act gives district courts exclusive jurisdiction over actions brought under the Act.3 The Court held arbitration agreements to be enforceable with respect to statutory claims in the absence of evidence of “congressional intent to exclude ... [those] claims from the dictates of the Arbitration Act.” Id. at 238, 107 S.Ct. at 2343-44; see also Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989) (enforcing agreement to arbitrate claims under the Securities Act of 1933); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625, 105 S.Ct. 3346, 3353, 87 L.Ed.2d 444 (1985) (enforcing agreement to arbitrate antitrust claims: “[W]e find no warrant in the Arbitration Act for implying in every contract within its ken a presumption against arbitration of statutory claims.“). Although this circuit has not confronted the issue, the three circuits to have done so have held that Congress did not intend to prohibit arbitration of statutory ERISA claims, and that arbitration is appropriate “[s]o long as the prospective litigant effectively may vindicate his or her statutory cause of action in the arbitral forum.” Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, 7 F.3d 1110, 1119 (3rd Cir.1993) (citation omitted) (relying on McMahon and Rodriguez, court held arbitration agreement binding with respect to claims of fiduciary breaches under ERISA); see also Bird v. Shearson Lehman/American Exp., Inc., 926 F.2d 116 (2nd Cir.1991) (same), cert. denied, 501 U.S. 1251, 111 S.Ct. 2891, 115 L.Ed.2d 1056 (1991); Arnulfo P. Sulit, Inc. v. Dean Witter Reynolds, 847 F.2d 475 (8th Cir.1988) (same).
We agree that Congress did not intend to exempt statutory ERISA claims from the dictates of the Arbitration Act. Accordingly, we hold that the customer agreement mandates arbitration of Kramer‘s ERISA claims.
We now reach the question whether AMEX Rule 605 applies to the arbitration of those claims. That rule, incorporated by reference into the customer agreement, renders ineligible for arbitration claims where “six (6) years shall have elapsed from the occurrence or event giving rise to the act or the dispute, claim or controversy.” The New York court ruled most of Kramer‘s claims ineligible under this rule.
ERISA contains its own statute of limitations. It bars claims:
[A]fter the earlier of--
(1) six years after (A) the date of the last action which constituted a part of the breach or violation, or ... (2) three years after the earliest date (A) on which the plaintiff had actual knowledge of the breach or violation ...;
except that in the case of fraud or concealment, such action may be commenced not later than six years after the date of discovery of such breach or violation.
Under this statutory structure, an agreement to waive the judicial forum allowed for in section 1132(e) in favor of arbitration does not carry with it the waiver of any substantive duties or liabilities, and thus, no fiduciary has been impermissibly relieved of any “responsibility, obligation, or duty” imposed by [ERISA].
847 F.2d at 478 (citations omitted); see also Soler, 473 U.S. at 628, 105 S.Ct. at 3354 (“By agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute....“); De Coninck v. Provident Life and Accident Ins. Co., 747 F.Supp. 627, 633 (D.Kan.1990) (applying ERISA limitations period despite shorter limitations period in parties’ insurance contract); compare Calabria, 855 F.Supp. at 175 (AMEX rule binding where no ERISA claim involved). Because application of Rule 605 to render Kramer‘s ERISA claims ineligible for arbitration would impair his substantive rights, we hold it void with respect to those claims.
We reject defendants’ contention that those claims are barred by collateral estoppel on the basis of the New York court‘s ruling. The courts of the United States give the judicial proceedings of a state court “the same full faith and credit ... as they have by law or usage in the courts of such State.”
B. Kramer‘s personal claims.
Kramer‘s non-ERISA claims, over which the court has supplementary jurisdiction, are subject to the arbitration clause and AMEX Rule 605. Those claims that arose out of transactions that occurred more than six years before the arbitration are ineligible. Kramer is collaterally estopped by the New York judgment to contend that the claims are arbitrable because of fraudulent concealment.5 The New York court held specifically that “[t]hese [AMEX] rules are substantive eligibility requirements, not statutes of limitations, and may not be tolled. The arbitration therefore may not proceed insofar as it concerns partnership interests purchased six years or more prior to the commencement of the original arbitration.” Shearson Lehman Bros., Inc. and Larry F. Robb v. Quentin T. Kramer, No. 101339/93, 5 (N.Y.Sup.Ct. Nov. 16, 1993). We are bound to give full faith and credit to this final decision of a state court. Raju v. Rhodes, 7 F.3d 1210, 1214 (5th Cir.1993) (“[O]nce a court of competent jurisdiction decides an issue of fact or law necessary to its judgment, the same parties to that judgment cannot relitigate that issue in a different action.“).
Kramer contends, however, that he is entitled to litigate in court claims ineligible for arbitration. This too appears to be an issue of first impression in the courts of appeals, though several district courts have ruled on it. Arbitration is a creature of contract and the scope of the parties’ obligation to arbitrate must be determined by reference to the terms of the agreement. Commercial Metals Co. v. Balfour, Guthrie, and Co., 577 F.2d 264, 266 (5th Cir.1978). The customer agreement provides that “[u]nless unenforceable due to federal or state law, any controversy arising out of or relating to [transactions between the parties] ... shall be settled by arbitration.” The intention underlying the agreement quite plainly is to require the submission of all claims to arbitration, subject only to the express exemption for claims not arbitrable under federal or state law. It would be bizarre to interpret the agreement to exempt stale claims from arbitration. We hold the customer agreement to bar litigation of the claims that are ineligible for arbitration.
CONCLUSION
We REMAND to the district court with directions to enter judgment directing the parties to submit the ERISA claims to arbitration and dismissing with prejudice all remaining claims.
SCHWARZER
District Judge