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Schwarz v. Gierke

August 30, 2010

NICOLE SCHWARZ, STEVEN SCHWARZ, AND CHRISTOPHER SCHWARZ, PLAINTIFFS AND APPELLEES
v.
DEANNE J. GIERKE, DEFENDANT AND APPELLANT



Appeal from the District Court of Mercer County, South Central Judicial District, the Honorable Gail H. Hagerty, Judge. REVERSED AND REMANDED.

The opinion of the court was delivered by: Crothers, Justice.

[¶1] Deanne J. Gierke appeals the district court's order denying her motion to compel arbitration. We reverse and remand to the district court for entry of an order compelling arbitration of the dispute because we conclude the district court erred in holding the relevant arbitration provision does not apply.

I.

[¶2] Nicole Schwarz, Steven Schwarz and Christopher Schwarz ("Schwarzes"), the children and beneficiaries of Jodee Schwarz, commenced this action against Deanne Gierke for her alleged negligence in assisting Jodee Schwarz to terminate two life insurance policies and to secure a purportedly unsuitable policy. Gierke is a financial advisor with the Edward Jones brokerage firm's office in Beulah, North Dakota. Edward Jones is not a party to this action. Gierke is also a licensed insurance producer. Although Schwarzes maintain Gierke was licensed to independently sell insurance policies for numerous companies, including Protective Life Insurance Company ("Protective"), the parties do not dispute that Gierke worked as an Edward Jones financial advisor at the time of the insurance transactions.

[¶3] Before the insurance transactions occurred, Jodee Schwarz in July 2007, opened an Edward Jones client account through Gierke. Jodee Schwarz signed an Edward Jones account agreement providing that Edward Jones and its agents offered a broad range of financial products and services, including insurance services. As part of the client agreement, Jodee Schwarz signed an "Account Authorization and Acknowledgment Form." This authorization in bold print states: "The Edward Jones Account Agreement and Disclosure Statement contains, on page 19, paragraph 1, a binding arbitration provision which may be enforced by the parties."

[¶4] The binding arbitration provision found on page 19 of the account agreement is titled "ARBITRATION AGREEMENT" and states, in part, that "[a]ll parties to this Agreement are giving up the right to sue each other in court, including the right to a trial by jury, except as provided by the rules of the arbitration forum in which a claim is filed." The arbitration agreement further states:

"I agree that this Agreement shall be governed by the laws of the State of Missouri without giving affect to the choice of law or conflict of laws provisions thereof. Any controversy arising out of or relating to any of my accounts or transactions with you, your officers, directors, agents, and/or employees for me, to this Agreement, or to the breach thereof, or relating to transactions or accounts maintained by me with any of your predecessor or successor firms by merger, acquisition or other business combinations from the inception of such accounts shall be settled by arbitration."

[¶5] On page one of the account agreement, under "GENERAL ACCOUNT PROVISIONS," there is set forth the "Services Provided by Edward Jones Under the Terms of this Agreement," which in addition to brokerage services, states in part:

"You may also provided [sic] me with related services and information, such as investment research, investor education, financial tools (including financial calculators and asset allocation analysis), recommendations about whether to buy, sell, or hold securities, as well as other information about financial products and services. I understand that you will not charge a separate fee for these services and that they are part of your brokerage services. I understand that your brokerage and related services do not constitute financial planning or any other investment advisory service." (Emphasis added.) Additionally, following the heading "PERIODIC TRANSACTIONS PROGRAM," there is a section on page 15 of the agreement entitled, "Systematic Insurance Transactions." This section provides the applicable terms for such insurance transactions, "[i]f I have authorized and instructed [Edward] Jones to begin and continue until further notice from me periodic transactions concerning insurance policies, including but not limited to, annuities, life insurance, long-term care insurance, and disability insurance (the 'policy' or 'policies') issued to me."

[¶6] Before executing the account agreement, Jodee Schwarz on May 2006 had signed an "Edward Jones Individual Retirement Account Authorization, Adoption Agreement and Beneficiary Designation" naming the Schwarzes as primary beneficiaries. This account authorization and agreement specifically refers to and contains a binding arbitration provision, identical to the arbitration agreement found in the account agreement Jodee Schwarz executed in July 2007.

[¶7] In November 2007, Gierke assisted Jodee Schwarz in terminating two Prudential life insurance policies each with a $100,000 death benefit that named her children as beneficiaries, transferring the cash surrender value into a life insurance policy from Protective. The Protective policy had a $200,000 death benefit and named her children as beneficiaries. On March 31, 2008, Jodee Schwarz committed suicide. Protective subsequently denied payment of the death benefit under the policy because the policy contained a "suicide exclusion," a one-year exclusionary period under which the policy's death benefit would not be paid in the event of the insured's suicide. Protective instead paid Schwarzes an amount significantly less than the policy's death benefit, constituting a refund of the policy premiums paid.

[¶8] On April 8, 2008, Nicole Schwarz, Steven Schwarz and Christopher Schwarz each signed an "Edward Jones Individual Retirement Account Authorization, Adoption Agreement and Beneficiary Designation" form, containing the same binding arbitration provisions. On April 2, 2009, Schwarzes commenced this action against Gierke, asserting the following in their complaint:

"5. Jodee Schwarz had two Prudential life insurance policies insuring her life for $100,000, with her three children, Nicole Schwarz, Steven Schwarz, and Christopher Schwarz, named as the named beneficiaries.

"6. On or about November 9, 2007, Gierke assisted Jodee Schwarz in terminating the two Prudential life insurance policies and transferring the cash surrender value into one Protective Life Insurance Company (Protective) life insurance policy. Jodee Schwarz's three children were still the named beneficiaries of the $200,000 death benefit.

"7. The Protective life insurance policy contained a one-year exclusionary period under which the policy's death benefit would not be paid out if Jodee Schwarz committed suicide. Unfortunately, on March 31, 2008, Jodee Schwarz committed suicide and Protective denied payment of the $200,000 death benefit.

"8. There was no issue with respect to disqualification or exclusion for payment of the two $100,000 Prudential life insurance policies, notwithstanding Jodee Schwarz's suicide.

"9. Gierke breached her duty to Jodee Schwarz and the beneficiaries of the life insurance policies by securing for Jodee Schwarz ...


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