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Kassell v. Crafton

United States District Court, Fifth Circuit

December 18, 2013

ROBERT BRADLEY KASSELL and MARCY KASSELL,
v.
WILLIAM CLAY CRAFTON, JR., SUNTRUST INVESTMENT SERVICES INC., SUNTRUST BANKS INC

REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE

ANDREW W. AUSTIN, Magistrate Judge.

Before the Court are all of the following motions:

• Defendant William Clay Crafton, Jr.'s Amended Opposed Motion to Compel Arbitration (Dkt. No. 68)
• Plaintiffs' Response to Defendant William Clay Crafton, Jr.'s Amended Opposed Motion to Compel Arbitration (Dkt. No. 101)
• Defendant William Clay Crafton, Jr.'s Reply to Plaintiffs' Response to Amended Opposed Motion to Compel Arbitration (Dkt. No. 96)
• Plaintiffs' Sur-Reply in Opposition to Defendants' Motions to Compel Arbitration (Dkt. No. 106)
• SunTrust Bank, and SunTrust Banks, Inc.'s and SunTrust Investment Services, Inc.'s Motion to Compel Arbitration and for Stay (Dkt. No. 71)
• Plaintiffs' Response to the Suntrust Defendants' Motion to Compel Arbitration and for Stay (Dkt. No. 102)
• SunTrust Bank and SunTrust Banks, Inc.'s and SunTrust Investment Services, Inc.'s Reply to the Plaintiffs' Response (Dkt. No. 104)
• Plaintiffs' Surreply in Opposition to Defendants' Motions to Compel Arbitration (Dkt. No. 106)
• SunTrust Investment Services, Inc.'s and SunTrust Banks, Inc.'s Motion for Summary Judgment (Dkt. No. 69)
• Defendants SunTrust Investment Services, Inc.'s and SunTrust Banks, Inc.'s Supplement to Their Motion for Summary Judgment (Dkt. No. 81)
• Plaintiffs' Response to SunTrust Investment Services, Inc.'s and SunTrust Banks, Inc.'s Motion for Summary Judgment (Dkt. No. 103); and
• Defendants SunTrust Investment Services, Inc.'s and SunTrust Banks, Inc.'s Reply (Dkt. No. 105)

The undersigned magistrate judge submits this Report and Recommendation to the United States District Court pursuant to 28 U.S.C. § 636(b)(1)(B), Federal Rule of Civil Procedure 72, and Rule 1(d) of Appendix C of the Local Rules of the United States District Court for the Western District of Texas, Local Rules for the Assignment of Duties to United States Magistrate Judges.

I. Background[1]

Plaintiff Brad Kassell is a former professional football player for the New York Jets. Plaintiffs' Second Amended Complaint at p. 1. Plaintiff Marcy Kassell is his wife. Id. In 2006, Kassell's teammate on the Jets referred him and his wife to William Crafton for investment advice. Id. at p. 3. Crafton focused his services on managing investments for athletes. Id. In 2006, Crafton was the president and sole owner of Martin Kelly Capital Management LLC ("MKCM"). Deposition of William Crafton at 17:15-19; Exhibit A to Crafton's Motion to Compel Arbitration. On October 6, 2006, the Kassells entered into a Financial Services Agreement with MKCM. Financial Services Agreement; Exhibit B to Crafton's Motion to Compel Arbitration. Between late 2006 and 2011, Crafton and the MKCM team invested and maintained approximately $700, 000 of the Kassells' money. Plaintiffs' Second Amended Complaint at p. 4. Beginning in 2007, Crafton and MKCM invested the Kassell's money in Westmoore Investments, LP and its affiliates, which the SEC ultimately sued, contending it was a Ponzi scheme. Id. at pp. 4-7.

In a written notice dated October 26, 2009, Crafton notified the Kassells of the planned acquisition of MKCM by SunTrust Bank and requested the Kassells' consent to the assignment of the Financial Services Agreement to SunTrust Bank, which the Kassells granted. Exhibit C to Crafton's Motion to Compel Arbitration. On November 19, 2009, SunTrust Bank acquired MKCM's assets pursuant to an Asset Purchase Agreement. Exhibit D to Crafton's Motion to Compel Arbitration. Crafton became an employee of SunTrust Bank on December 22, 2009. Deposition of William Crafton at 79:10-14; Exhibit A to Crafton's Motion to Compel Arbitration.

In 2010, Crafton advised that the Kassells take out a $400, 000 line of credit with SunTrust Bank, which they did. Id. The credit line was maxed-out for at least one year and accruing interest charges of approximately $1, 000 per month. The Kassells allege that Crafton and his associates advised that they take out the loan so that he could keep more of the Kassells' assets under management and earn commissions and/or fees on them, and that there was no reasonable financial benefit to the Kassells for taking out the loan. Id. at pp. 8-9. The Kassells allege that the three SunTrust Defendants-Bank, Corporate Parent, and Services-are affiliated entities, and that collectively, the entities contracted with them to provide professional services in the form of investment advice and management, and breached that contract when they failed to provide those services in compliance with their legal, ethical, and professional obligations. Id. at p. 12. The Kassells also allege claims against SunTrust and Crafton[2] for: breach of fiduciary duty; violations of the Texas Securities Act; common law fraud; statutory fraud; negligence and gross negligence; negligent misrepresentation; conspiracy; and violations of the DTPA. Id. at pp. 12-17. The Kassells assert that SunTrust is liable for the actions of Crafton through the theory of agency and/or respondeat superior. Id. at pp. 18-19.

II. Analysis

A. Background and Basic Principles

Crafton and the SunTrust Defendants each move the Court to compel arbitration of the Kassells' claims. (Dkt. Nos. 68 and 71). They rely upon the Financial Services Agreement ("MKCM Agreement") signed by the Kassells and MKCM, Crafton's prior firm. Exhibit B to Crafton's Amended Motion to Compel Arbitration. They also rely upon the Select Credit Line Agreement and Disclosure ("LOC"), pursuant to which the Kassells opened a line of credit with Bank in the amount of $400, 000.00. Exhibit E to Crafton's Amended Motion to Compel Arbitration.

Paragraph 17 of the Financial Services Agreement states:

Arbitration Provision. It is agreed that any controversy between the Adviser and the Client arising out of Adviser business or this agreement, shall be submitted to arbitration conducted under the provisions of the commercial arbitration rules of the American Arbitration Association. Arbitration must be commenced by service upon the other party of a written demand for arbitration or a written notice of intention to arbitrate, therein electing the arbitration tribunal. In the event the Client does not make such election within (5) days of such demand or notice, then the Client authorizes the Adviser to do so on the Client's behalf. Judgment upon any award rendered by the arbitrators shall be final and may be entered in any court having ...

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