We have previously looked at instances where trustees have sought to compel arbitration of claims brought against them. Today, we take a look at Wells Fargo Advisors, LLC v. Pritchard, a case from Mississippi where a marital trust brought negligent management and conversion claims against its financial services firm and financial advisor. There was, of course, a client agreement containing an arbitration clause. The interesting wrinkle was that the incidents giving rise to the complaint arose before the arbitration agreement was signed. Was this retroactive application of an arbitration clause enforceable?
The Mississippi trial court refused to enforce the arbitration clause, but the appellate court reversed.
Robert Pritchard and his wife, Janelle, opened a joint account with a financial services firm on November 8, 2005 and in February 2006 Robert opened a Living Trust account with the same firm. Robert died in May 2006. Joseph White, the successor trustee to Robert, and Janelle opened additional accounts with the same firm after Robert’s death, including a marital trust account.
On December 3, 2007, the marital trust account was opened, and on November 30, 2007, the co-trustees of the trust both signed a “Trustee Agreement and Certification of Trust Investment Powers” form that included a mandatory-arbitration provision. The agreement contained a lengthy arbitration disclosure and the following arbitration agreement printed in bold text:
I agree and, by carrying my account, [the financial services firm] agrees that all controversies between me and [the financial services firm] or any of its present or former officers, directors, agents, or employees will be determined by arbitration. Any arbitration under this agreement will be before the National Association of Securities Dealers, Inc., the New York Stock Exchange, Inc., or an arbitration facility provided by any other securities exchange of which [the financial services firm] is a member.
This arbitration provision applies to any controversy arising from events that occurred before, on or after I signed this agreement.
Notwithstanding the arbitration provision, the marital trust (and others) sued the financial services firm claiming that negligence and conversion began as early as February 2006 – before the agreements containing the arbitration provision were signed.
The Mississippi appellate court, however, joined with numerous courts in recognizing that an arbitration agreement providing that arbitration applies to events occurring prior to signature is enforceable if the agreement is otherwise enforceable under contract law.