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Maine Supreme Judicial Court Construes Standard Investment Agreement Against Drafter (Web)

The Supreme Judicial Court of Maine refused to enforce a broadly-worded arbitration clause, stating that vaguely-worded contract terms must be construed in favor of the non-drafting party, especially where the opposing party had unequal bargaining power in the drafting of the agreement.

In the superior court proceeding from which this appeal arose, the defendants in this case contended that the language of the arbitration agreement unambiguously mandated the arbitration of the plaintiff’s claims of negligence, negligent misrepresentation, fraud, and punitive damages based on alleged misrepresentations about a retirement annuity purchased by the Plaintiffs based on a recommendation by the Defendant’s employee.
The Plaintiffs objected to the motion to stay court proceedings and compel arbitration. They argued that the dispute concerned the advice to purchase the policy, not conduct related to the Agreement by which they deposited their life savings into a custodial account with the defendant.  After a hearing, the court denied the motion to stay and compel arbitration as to the tort claims against McDonald and Sullivan, reasoning that the language of the agreement did not communicate an express waiver of the Plaintiffs’ right to bring tort claims.
On appeal, the defendants argued that language of the arbitration clause referring to "all controversies" must be read to include tort disputes and that even if the Agreement was found to be ambiguous, the arbitration clause should be applied because it was susceptible to an interpretation that covers tort disputes.

The Court recognized that under V.I.P., Inc. v. First Tree Dev. Ltd. Liab. Co., 2001 ME 73, when two parties have included a provision requiring arbitration in their contract, a subsequent dispute should be deemed arbitrable "unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage."

In interpreting the language of an arbitration agreement to determine substantive arbitrability, however, the court applied general principles of contract interpretation, as required under Granger N., Inc. v. Cianchette, 572 A.2d 136 (Me.1990). The Court stated that a bedrock rule of contract interpretation is that ambiguities in a document are construed against its drafter. This rule has long been applied in Maine, for the reasons summarized in Monk v. Morton, 139 Me. 291 (1943):

The rule that an ambiguous contract will be construed more strongly against him who uses the words concerning which doubt arises, is more than an arbitrary rule. Its purpose is to give effect to the intention of the parties. To the maker of an instrument is available language with which to adequately set forth the terms thereof. It is presumed that he will not leave undeclared that which he would claim as his right under the agreement; and the absence of a requirement against the obligee is evidence that such requirement was not within the understanding of the parties. He who speaks should speak plainly, or the other party may explain to his own advantage.

The Court pointed out that the rationale for interpreting ambiguities against the drafter is particularly compelling in contracts where one party had little or no bargaining power.

The Agreement in the present case provided for the arbitration of "all controversies which may arise between [the parties] concerning any transaction or the construction, performance or breach of this or any other agreement between [them] pertaining to securities and any other property." The Court found that, notwithstanding the seemingly broad language of the arbitration clause, the Agreement within which this paragraph was contained characterized the defendant as acting purely at behest of the Plaintiffs and did not in any way address the giving of investment advice. Accordingly, in the context of the Agreement, the Court found that it was unclear whether the giving of investment advice constituted a "transaction" within the meaning of the arbitration clause and whether the giving of investment advice constitutes "any other agreement" between the parties. These uncertainties created ambiguities in determining the reach of the agreement to arbitrate.

In this context, where an individual with little leverage is entering into an agreement with a larger entity that offers its services on a "take it or leave it" basis, the Court concluded that the balance tipped in favor of applying the equitable rule favoring the construction of the contract against the drafter.  The Defendant inserted this arbitration clause into a contract that governed the agent’s custodial function in handling the Plaintiffs' money, rather than an advisory function in giving investment advice.

The Court refused to take a broad and expansive view of the arbitration clause in these circumstances to encompass claims that were unrelated to the substance of the Agreement. Because the arbitration agreement could be read to apply only to actions and transactions related to the defendant’s conduct as custodian, the Court concluded that it did not apply to the alleged wrongdoing related to professional advice given regarding the policy account.

In this retreat from a previously broad presumption in favor of arbitration, Maine joined other courts that have favored interpreting ambiguous arbitration clauses against the drafter. See, e.g., Seifert v. U.S. Home Corp., 750 So.2d 633, 641 (Fla.1999); Victoria v. Superior Court, 710 P.2d 833, 838-39 (Cal.1985). The Court stressed that this holding was not meant to affect the presumption favoring arbitrability when such provisions are actually negotiated, or when parties of equal bargaining power are involved. However, when a party drafts an agreement requiring arbitration, and offers it to individuals on a take-it-or-leave-it basis, the drafter bears the risk if its chosen language is found to be ambiguous.

Accordingly, although reaching its conclusion on different grounds than did the motion court, this Court affirmed the denial of the motion to stay and compel arbitration of the Plaintiffs’ tort claims.
The decision is available at 2005 WL 701272.