Arbitrate, don't litigate, Texas SC rules in Merrill Lynch case

By Rob Luke | Aug 28, 2007

Justice Scott Brister

AUSTIN -- Investors suing two brokerage affiliates must arbitrate with the parent company brokerage instead, the Texas Supreme Court ruled in a split decision Friday, Aug. 24.

In Merrill Lynch Trust Company FSB, Merrill Lynch Life Insurance Company, and Henry Medina, Relators, docket# 04-0865, the Supreme Court overturned a trial court order not to force the plaintiff Alaniz family and the defendant Merrill Lynch to arbitrate.

Merrill Lynch (ML) argued that the plaintiffs' agreement with it binds them to arbitrate any disputes with any ML affiliate rather than litigate. The Texas Supreme Court, with three partial dissents, agreed to ML's petition for writ of mandamus.

"Because [the plaintiffs'] claims against the employee are in substance claims against Merrill Lynch, we hold those claims must be arbitrated," wrote majority author Justice Scott A. Brister.

"Accordingly, we hold the trial court abused its discretion in failing to compel arbitration of the plaintiffs' claims."

Justice Nathan Hecht, joined by Justice David Medina and in part by Justice Harriet O'Neill, argued that by agreeing to arbitrate all claims again ML companies plaintiffs also agreed to arbitrate those against ML agent Henry Medina.

However, ML can't be held "vicariously liable for Medina's actions, as it might ordinarily be, because the Alanizes have affirmatively disclaimed such liability," Hecht wrote in partial dissent.

"Accordingly, I would hold that the lower courts correctly refused to compel arbitration of any of the Alanizes' claims."

Similarly Justice Phil Johnson, joined by Justice Dale Wainwright, disagreed with the majority's decision not to direct the trial court to arbitrate the case against its agent, Medina.

"While I agree that arbitration must be based on an agreement to arbitrate by the parties and no such agreement exists or can be relied on by ML Trust and ML Life, I do not consider that we write on a clean slate with these facts and this issue," Johnson wrote in partial dissent.

The opinion also ruled that all litigation in the case be stayed until all arbitration between the parties has completed.

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