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Steer Wealth Management, LLC v. Denson

Court of Appeals of Texas, First District

September 7, 2017

STEER WEALTH MANAGEMENT, LLC, Appellant
v.
MARGARET DENSON, A TEXAS RESIDENT INDIVIDUAL, SUING INDIVIDUALLY AND AS EXECUTOR OF THE ESTATE OF JOHN DAVID DENSON, Appellee

         On Appeal from the 80th District Court Harris County, Texas Trial Court Case No. 2016-11913

          Panel consists of Chief Justice Radack and Justices Keyes and Massengale.

          OPINION

          Evelyn V. Keyes Justice.

         In this interlocutory appeal, Margaret Denson, in her individual capacity and as executor of the estate of her late husband, John David Denson, sued Steer Wealth Management, LLC, for causes of action including breach of contract and fraud arising out of the alleged improper transfer of assets from several of the Densons' brokerage accounts. Steer Wealth moved to compel arbitration and stay all trial court proceedings, and the trial court denied the motion. In one issue, Steer Wealth contends that the trial court erred in denying its motion because it can compel arbitration as a third-party beneficiary to an arbitration agreement the Densons had signed with another entity and it can compel arbitration under the doctrine of direct-benefits estoppel. We affirm.

         Background

         In the early 2000s, Jack Varcados, who was employed by Morgan Stanley at the time, became the financial advisor for John and Margaret Denson and opened numerous brokerage accounts for them, including joint accounts, trust accounts, accounts in John Denson's name, and accounts in Margaret Denson's name. Varcados was later employed by Merrill Lynch and then by LPL Financial, LLC, and each time he switched employers the Densons transferred their brokerage accounts to his new firm. Varcados began opening brokerage accounts for the Densons with LPL Financial in 2009, and the Densons continued applying for new brokerage accounts with LPL Financial through January 2013.

         Each account application contained a provision directly above the signature lines that stated:[1] "This account is governed by and I acknowledge receipt of the predispute arbitration clause that is located in the last numbered section of the Account Agreement . . . which is incorporated by reference into the Account Application." The account applications were signed by the Densons and Varcados, on behalf of LPL Financial. The "LPL Master Account Agreement" included the following arbitration provision:

         ARBITRATION AGREEMENT

         Disclosures

         By signing this Arbitration Agreement the parties agree as follows:

(A) All parties to this agreement are giving up the right to sue each other in court, including the right to a trial by jury, except as provided by the rules of the arbitration forum in which a claim is filed.
(F) The rules of some arbitration forums may impose time limits for bringing a claim in arbitration. In some cases, a claim that is ineligible for arbitration may be brought in court.
(G) The rules of the arbitration forum in which the claim is filed, and any amendments thereto, shall be incorporated into this agreement.
In consideration of opening one or more accounts for you, you agree that any controversy between you and LPL and/or your Representative(s) (whether or not a signatory(ies) to this Master Account Agreement or Arbitration Agreement), arising out of or relating to your account, transactions with or for you, or the construction, performance, or breach of this agreement whether entered into prior, on or subsequent to the date hereof, shall be settled by arbitration in accordance with the rules, then in effect of the Financial Industry Regulatory Authority. Any arbitration award hereunder shall be final, and judgment upon the award rendered may be entered in any court, state or federal, having jurisdiction. You understand that you cannot be required to arbitrate any dispute or controversy nonarbitrable under federal law.

         The Master Account Agreement defined "Representative" as the customer's "registered representative."

         In May 2011, Varcados, with the assistance of Tan Tang, the initial organizer, formed Steer Wealth, a domestic limited liability company, and he is the sole manager of this entity. Varcados's "BrokerCheck" Report with the Financial Industry Regulatory Agency ("FINRA") lists Steer Wealth as a "DBA for LPL business (entity for LPL business)." Steer Wealth presented evidence indicating that LPL Financial had approved Varcados's use of Steer Wealth as an "outside business." The record does not contain any contracts between the Densons and Steer Wealth, and it is undisputed that Steer Wealth is not a signatory to any contracts between the Densons and LPL Financial.

         John Denson died in November 2013. After his death, Margaret Denson discovered that John Denson had allegedly transferred millions of dollars' worth of assets from their joint brokerage accounts at LPL Financial into accounts in either his name or in the name of companies that he owned. John Denson designated Tan Tang, his law partner and alleged mistress, as the beneficiary of those accounts. Margaret Denson filed suit against Tang in December 2013, seeking damages for breach of fiduciary duty, conversion, and fraud on the community. In this lawsuit, Denson also sought a temporary restraining order and temporary injunction prohibiting Tang and LPL Financial, among other entities, from transferring any assets held in an account on which John Denson was a signatory. Steer Wealth was not a party to this lawsuit. Ultimately, Denson nonsuited her claims against LPL Financial after that entity moved to compel arbitration. Denson, Tang, and LPL Financial reached a settlement, pursuant to which the beneficiary designations in favor of Tang on seven brokerage accounts held with LPL Financial were set aside and the accounts were transferred to Denson at a different financial institution.

         In February 2016, Denson sued Steer Wealth in the underlying suit. Denson alleged that Steer Wealth and Varcados, who is not a defendant in the underlying suit, were financial advisors to John Denson, Tang, and their law firm. Denson alleged that she, her husband, Tang, and Tang and John Denson's law firm were all clients of Steer Wealth. Denson further alleged that Steer Wealth assisted Tang "in improperly depleting the Denson community estate of its financial assets, and concealing these actions from Mrs. Denson."

         Denson asserted a cause of action against Steer Wealth for breach of contract, alleging:

The Densons entered into one or more oral and/or written agreements with Mr. Varcados, through his company, [Steer Wealth], under which [Steer Wealth] would act as the Densons' financial and investment advisor and provide the Densons other financial services. [Steer Wealth] therefore owed Mrs. Denson, as its client, numerous contractual (as well as legal, equitable, and ethical) duties. These included, but were not limited to, the contractual obligation to act for Mrs. Denson's financial ...

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