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Alex Brown v. Anthony D. Delfre and Wealth Capital Management Group

March 29, 2012

ALEX BROWN,
PLAINTIFF-APPELLEE,
v.
ANTHONY D. DELFRE AND WEALTH CAPITAL MANAGEMENT GROUP, LLC, DEFENDANTS-APPELLANTS
(THE PLAYERS GROUP, LLC, DEFENDANT).



Appeal from the Circuit Court of Lake County. No. 10-L-829 Honorable Margaret J. Mullen, Judge, Presiding.

The opinion of the court was delivered by: Presiding Justice Jorgensen

PRESIDING JUSTICE JORGENSEN delivered the judgment of the court, with opinion. Justices Bowman and Hutchinson concurred in the judgment and opinion.

OPINION

¶ 1 Plaintiff, Alex Brown, filed a complaint against defendants, Anthony D. Delfre, Wealth Capital Management Group, LLC (WCMG), and The Players Group, alleging malfeasance relating to investments plaintiff made with defendants. Defendants moved the trial court to dismiss the complaint and compel arbitration or, alternatively, to stay the proceedings and compel arbitration. On October 20, 2011, the trial court denied defendants' motion. Defendants Delfre and WCMG appeal.*fn1 For the following reasons, we reverse and remand the cause.

¶ 2 I. BACKGROUND

¶ 3 According to the complaint, plaintiff lived in Lake County and played professional football for the Chicago Bears. Delfre is a registered securities broker who owns WCMG, an Ohio company that provides investment advice. Delfre also owns Players Group, a Utah company with its principal office in Ohio. Plaintiff's trusted financial advisor, Jason Jernigan, had a professional relationship with Delfre and, via that relationship, Delfre acquired detailed information regarding plaintiff's investment and financial background. Jernigan and Delfre worked closely together such that, on statements for some of plaintiff's accounts, WCMG was identified as plaintiff's advisor. Ultimately, in 2009, Delfre and plaintiff worked together directly regarding investment opportunities. Delfre met with plaintiff at plaintiff's home and, based upon Delfre's representations, plaintiff invested $750,000 with Players Group. The investment did not prove profitable and, in fact, plaintiff alleged that Delfre and Players Group dissipated and misused his investment. Plaintiff's complaint alleged breach of fiduciary duty and violations of the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1 et seq. (West 2008)) and sought an accounting and constructive trust. Plaintiff also sought $750,000 in compensatory damages and $2.25 million in punitive damages, as well as costs and attorney fees.

¶ 4 On June 9, 2011, defendants moved pursuant to section 2-619 of the Code of Civil Procedure (735 ILCS 5/2-619 (West 2010)) to dismiss the complaint and to compel arbitration or, alternatively, to stay proceedings pursuant to section 3 of the Federal Arbitration Act (Act) (9 U.S.C. § 3 (2010)) and section 2 of the Uniform Arbitration Act (710 ILCS 5/2 (West 2010)). Defendants argued that, on April 13, 2009, plaintiff and WCMG entered into a wealth management services agreement that states that WCMG would serve as plaintiff's investment advisor and provide investment and financial services. The agreement includes the following "governing law" provision:

"This agreement will be governed by and construed in accordance with the laws of the State of Ohio without giving effect to any of its conflict or choice of law provisions ***. WCMG is not a broker/dealer or member of the National Association of Securities Dealers, Inc. (NASD) and is not subject to the jurisdiction of the NASD or other self-regulatory organization.

Notwithstanding the forgoing, any dispute or controversy between Client and WCMG or any of WCMG's officers, directors, agents, or employees, arising out of or relating to this Agreement or the relationship created hereby, shall be submitted to binding arbitration conducted by and according to the securities arbitration rules then in effect of the NASD in arbitration proceedings to be conducted in Cleveland, Ohio. Client is aware of and by signing this Agreement acknowledges that: (1) arbitration is final and binding on the parties;

(2) Client and WCMG are waiving their right to seek remedies in court, including the right to a jury trial, except to the extent such a waiver would violate applicable law; (3) pre-arbitration discovery is generally more limited than and different in form and scope from discovery typically available in court proceedings; (4) the arbitrators' award is not required to include factual findings or legal reasoning and a party's right to seek modification or appeal from arbitrators' rulings is strictly limited; and (5) the panel of arbitrators may include arbitrators who were or are affiliated with the securities industry. In any arbitrations conducted hereunder, the arbitrators shall award the prevailing party, in addition to any other relief that may be awarded, its or their reasonable attorneys' fees, costs, and expenses (including, but not limited to, fees charged by any expert witness)." (Emphases added.)

¶ 5 After defendants filed their motion, plaintiff wrote to the Financial Industry Regulatory Authority (FINRA) (the successor to NASD),*fn2 inquiring whether it would administer an arbitration involving a nonmember entity, such as WCMG. FINRA responded that it would administer an arbitration only where at least one party was a FINRA member and that, otherwise, it lacked jurisdiction to act. Thus, plaintiff responded to defendants' motion to compel arbitration and argued that: (1) the arbitration provision was void and unenforceable because FINRA would not administer the arbitration; and (2) defendants had waived arbitration.

¶ 6 On October 20, 2011, the trial court entered its written order, determining that the arbitration provision required that any disputes between the parties to the agreement be "conducted by and according to" the rules of NASD/FINRA. Accordingly, the court determined, the agreement required the arbitration to be "conducted by" NASD/FINRA and, therefore, the designation of NASD/FINRA as arbitrator was an integral part of the provision. The court noted that FINRA has specialized knowledge regarding investments and securities and that it had refused to arbitrate the instant dispute. Therefore, the court found that the arbitration clause was unenforceable, and it denied defendants' motion to dismiss the complaint and to compel arbitration or, alternatively, to stay the proceedings and compel arbitration. The court further found that defendants did not waive their right to invoke the arbitration provision. Defendants Delfre and WCMG appeal.

¶ 7 II. ANALYSIS

ΒΆ 8 A. Standard ...


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