Appellate court says dismiss or arbitrate case against AG Edwards

By Kelly Holleran | Jan 4, 2010


The Fifth District Appellate Court reversed Madison County Circuit Judge Daniel Stack who had denied arbitration in a case brought against A.G. Edwards and Sons.

Justice Stephen L. Spomer authored the court's decision, writing that the suit against A.G. Edwards should have been either dismissed or brought to arbitration instead of to circuit court.

Carol Hollingshead originally filed the complaint alleging a financial consultant at A.G. Edwards mismanaged an elderly woman's finances.

The finances in question belonged to Selma Elliott, who passed away at the age of 101 on Nov. 3, 2003, with shares in Merck stock. Controlling the stock was financial consultant Leonard Suess, who was Elliott's son-in-law.

By February 2001, Elliott had a value of approximately $985,000 in Merck stock. Using the value of Elliott's Merck stock, Leonard Suess opened a margin account and acquired numerous other stocks such as Ariel Corp., Digital Island, Eageltech, Qualcom and Vaxgen. However, the values of the stock began to decrease significantly, so Leonard Suess began selling Elliott's stock, according to the complaint.

By selling the stock, though, Elliott incurred a tax liability that could have been avoided had the stock been held until her death, the suit states.

In Hollingshead's complaint, she alleges breach of fiduciary duty, breach of contract and negligence against A.G. Edwards and Leonard Suess.

Defendants responded with a motion to either dismiss the complaint or compel it to arbitration. They contend Elliott's account was covered by numerous contracts, all of which contain arbitration provisions that mandate all disagreements between A.G. Edwards and its clients should be mediated by an arbitration panel.

However, Hollingshead argued the arbitration clauses of the contract should have been invalidated because Elliott was elderly and trusted her relatives when signing the contracts.

When Stack denied the defendants' motion to dismiss, the defendants filed a notice of interlocutory appeal, bringing the case before the Illinois Appellate Court.

At the Appellate Court, justices agreed with A.G. Edwards and Leonard Suess, finding the matter should have either been dismissed or rendered to arbitration.

"The plaintiff filed no counteraffidavits and presented no evidence to the circuit court regarding the facts and circumstances surrounding the making of the contracts," Spomer wrote.

"Rather, the plaintiff relies solely on the unverified general allegations of the complaint with regard to the decedent's age and the relationship of the parties to support the defenses that the plaintiff relies upon on appeal. The plaintiff did not provide the circuit court with any evidence regarding these facts. Accordingly, we find that the plaintiff did not meet her burden of proof regarding the contract defenses she has raised."

In addition, age alone is not sufficient evidence to show that Elliott was incapable of making an informed decision, the justices ruled.

"Other than the advanced age of the decedent and the familial relationship between the decedent and her broker, Leonard Suess, the court was presented with no evidence regarding the circumstances surrounding the decedent's signing of the contracts," Spomer wrote. "There is nothing procedurally unconscionable, per se, about the decedent executing a contract for an investment account merely because her relative was the broker. We find that, absent an evidentiary hearing, the circuit court could not have found the arbitration provisions at issue to be procedurally unconscionable based on the allegations of the complaint standing alone."

In her complaint, Hollingshead also argued Elliott was under undue influence when she signed the contracts with the arbitration clauses. However, the Illinois Appellate Court justices disagreed with that argument.

"There is no evidence in the record regarding what influence Leonard and Judy Suess exercised over the decedent at the time she executed the contracts," Spomer wrote.

Because arbitration would cost $1,575 and because arbitration is allegedly inherently in favor of the industry, Hollingshead argues the arbitration clauses were unconscionable and never should have been included in the contacts.

But the justices said Hollingshead did not present enough evidence to justify her case.

"Assuming, without deciding, that the allegations of cost and bias would support a finding of substantive unconscionability, the record is devoid of any evidence regarding the costs of arbitration, the estate's ability to pay the costs, or a comparison of the costs of arbitration versus the cost of litigation," Spomer wrote. "In addition, the plaintiff presented no evidence to support her allegations of bias on the part of the Financial Industry Regulatory Authority."

Illinois Appellate Court Justices Melissa A. Chapman and Bruce D. Stewart concurred with Spomer's Dec. 22 opinion.

Illinois Appellate Court case number: 5-09-0067.

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