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Bayles v. Evans

Bayles v. Evans

Case No. 
15-0600
Type of Proceeding: 
Appeal from Circuit Court of Marshall County (Judge Hummel)
Issues: 

Are the claims of a spouse who consented to transfer of a 401k, but did not sign any brokerage agreement relating to that transfer, subject to an arbitration clause in the brokerage agreement?

Background: 

Petitioner and her husband, W. Nelson Bayles, were married for 22 years.  Approximately a year before his death, Bayles and his daughter, Respondent, Kristina Nicholls, visited a financial adviser at Respondent, Ameriprise.  Petitioner alleges that Nicholls and Ameriprise fraudulently coerced her to consent to a rollover of her husband’s 401K investment into an IRA.  The beneficiary of the IRA was later changed from Petitioner to Nicholls, without Petitioner’s knowledge or consent.

After her husband’s death, Petitioner sued Nicholls, Ameriprise and others, alleging that they engaged in a fraudulent scheme to obtain the proceeds of the 401K.  Specifically, she asserted common law claims including breach of contract, negligence, and fraud.  Respondents then invoked an arbitration clause in the Ameriprise brokerage agreement.  Ameriprise moved to dismiss on that basis.  Initially, the trial court denied the motion, finding that one of the two brokerage agreements was not signed.  The Supreme Court reversed, but remanded the case for further proceedings relating to the arbitration issue. 

Following remand, the trial court entered an order dismissing all claims seeking recovery of the investment proceeds.  However, the trial court also ruled as follows:

“What, if any, causes of action Plaintiff, Debra K. Bayles has or may assert against Defendants relative to fraud or concealment following the passing of William N. Bayles are not subject to this dismissal.”

Thereafter, both parties appealed.  The issues from both appeals will be addressed together in this argument preview. 

Positions of the Parties: 

Petitioner:

Petitioner alleges that she is not a signatory to the brokerage agreement, is not a party to that agreement, and is not bound by its terms.   In West Virginia, “[a] party generally cannot be forced to participate in an arbitration proceeding unless the party has, in some way, agreed to participate.”  Chesapeake Appalachia LLC v. Hickman, 236 W.Va. 421, 781 S.E.2d 198, 216 (2015).  Petitioner acknowledges that there are theories under which a nonsignatory may be bound by an arbitration agreement, including (1) incorporation by reference, (2) assumption, (3) agency, (4) veil piercing, and (5) estoppel.  However, none of these exceptions to the general rule applies.  Petitioner also argues that the arbitration agreement is unenforceable because it is a byproduct of fraud and is unconscionable.

Respondents:

Respondents argue that Petitioner’s status as beneficiary makes the arbitration clause binding.  Respondent claims that Petitioner “cannot be a designated beneficiary without being subject to the terms of the accounts, which are the predicate of her claims.”  Respondents also invoke the alter-ego exception, arguing that Petitioner’s alter-ego is her beneficiary status on the accounts.  Finally, Respondents argue that Petitioner is estopped from avoiding the arbitration provisions:  “She cannot enjoy the account proceeds she seeks while avoiding the governing terms for an account.”  Regarding their own appeal, Respondents argue that the trial court erred by carving out the claims arising after the husband’s death.  Instead, all of Petitioner’s claims are subject to the arbitration clause.

 

Probable Impact: 

This case is one of many on the spring docket addressing arbitration issues.  Because it is designated as a Rule 19 case, we probably will not see any new syllabus points.  However, the Supreme Court’s decision will certainly provide us with a better understanding of the arbitration rules that apply to nonsignatories--a subject of great importance to practitioners in many different fields.

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