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Arbitration: Florida Appellate Finds Worldcom-Related Tort Claim Beyond the Reach (Web)

In Citigroup Inc. v. Boles, No. 4D04-3480, 2005 WL 2373885 (Fla. 4th Dist. Ct App. Sept. 28, 2005), the Florida Court of Appeals affirmed a trial court's order denying Citigroup's motion to compel arbitration when a plaintiff’s tort claim is wholly unrelated to a contract containing an arbitration agreement between the parties.

The three-judge appellate panel followed a Florida Supreme Court decision holding that arbitration clauses do not cover unrelated disputes between the parties and will only be enforced when there is "some nexus" between the dispute and the contract.

Plaintiff Danny Boles acquired stock in MCI Communications, which was acquired by Worldcom. He had no training in stock or investment matters, and claimed he relied upon investment publications. In particular, he said he read articles quoting telecommunications analyst Jack Grubman, formerly of Salomon Smith Barney, which was a wholly-owned Citigroup brokerage subsidiary. Worldcom later filed for bankruptcy; Grubman, accused of issuing fraudulent stock research, settled civil charges for $15 million, and accepted a lifetime ban from the securities industry.

Boles filed suit against Citigroup, alleging false information negligently supplied for the guidance of others, outrageous conduct, fraud and violation of Florida's Blue Chip laws. He argued that there was collusion between Salomon Smith Barney and Worldcom to give the company a positive investment rating.

The arbitration clause in question is located in the investment account contract where Boles kept his Worldcom stock. The contract included a broadly worded arbitration agreement that covered "all claims or controversies, whether such claims or controversies prior, on or subsequent to the date hereof, between [the account holders and Salomon Smith Barney] and/or any of its present or former officers, directors, or employees concerning or arising from . . . " the account, any transaction involving Salomon Smith Barney, and any other agreement or duty between the parties.

But Boles did not name the brokerage as a party to the litigation.

Arbitration clauses are either broad or narrow; the panel notes in the opinion. "[N]arrow clauses often use the language 'arising under,' and broader clauses use wording such as 'arising out of or relating to' in specifying covered disputes. CSE Inc. v. Barron, 620 So.2d 808, 809 (Fla. 2d DCA 1993). The arbitration agreement in the case is broad, covering all claims prior, current, or subsequent that involves Salomon Smith Barney or its present and former officers, directors, or employees.

The panel cites Seifer v. U.S. Home Corp., 750 So.2d 633. 642-43 (Fla.1999), where the Florida Supreme Court held that a wrongful death claim was not controlled by an arbitration clause in a contract between a home buyer and builder. The Court recognized that a "mere coincidence" is not enough to compel arbitration. Even in contracts with broad arbitration clauses, "the determination of whether a particular claim must be submitted to arbitration necessarily depends on the existence of some nexus between the dispute and the contract containing the arbitration clause."

Despite a broad arbitration clause, the Court found that Boles' claim "does not concern the agreement or any transaction or relationship of any kind" between the parties. His claim is grounded in tort law and could have been brought by any member of the public who had relied upon Jack Grubman's quotes. Grubman’s misrepresentations also were made long before the account was opened.

--Philip Sutter, CPR Intern