March v. Presidential Brokerage, Inc.

THIS OPINION HAS NO PRECEDENTIAL VALUE.  IT SHOULD NOT BE
CITED OR RELIED ON AS PRECEDENT IN ANY PROCEEDING EXCEPT AS PROVIDED BY RULE
239(d)(2), SCACR.

THE STATE OF SOUTH CAROLINA

In The Court of Appeals

David H. March and Christine A. March,       
Respondents,

v.

Presidential Brokerage, Inc., Scott Key, P. Georgia French, and Mark
French,        Appellants.

Appeal From Charleston County

A. Victor Rawl, Circuit Court Judge

Unpublished Opinion No. 2004-UP-431

Submitted June 9, 2004 – Filed July 15, 2004

REVERSED

Stephen Lynwood Brown, of Charleston, for Appellants.

David and Christine March, of St. Helena, for Respondents.

PER CURIAM: Presidential Brokerage, Inc.,
Scott Key, P. Georgia French, and Mark French (collectively “Presidential”)
appeal from an order denying their motion to compel arbitration.  We reverse. [1]

FACTS

This case arises out of a dispute concerning
brokerage services Presidential agreed to perform for investors David and Christine
March.  In September 1998, the Marches opened four brokerage accounts with Presidential. 
For each account, the Marches were required to sign various documents that set
forth the terms governing their relationship with the company. 

One of these documents, the “Medallion Account
Agreement,” contained the following notice in bold, capital letters: “I acknowledge
that the agreement’s terms and conditions contain a predispute arbitration clause
on page 24 and acknowledge receipt of a copy of those terms and conditions.”
The arbitration clause referred to was contained in a separate booklet entitled
“Medallion Account Terms & Conditions.”  The clause provided that “all controversies
which may arise between [the Marches and Presidential] concerning any transaction
or the construction, performance, or breach of this or any other agreement between
us . . . shall be determined by arbitration.” The Marches do not dispute that
they signed all of the documents presented to them by Presidential representatives,
including the Medallion Account Agreement.

By 1999, Presidential had lost a significant portion
of the money in the Marches’ investment accounts.  Shortly thereafter, the Marches
closed their Presidential accounts.  A subsequent review of Presidential’s brokerage
actions convinced the Marches that Presidential had mismanaged their money. 
In October 2001, they initiated the present action against Presidential alleging
causes of action for fraud, breach of fiduciary duty, negligence, and violations
of the South Carolina Securities Act.

Presidential denied the allegations and filed a
motion to dismiss and compel arbitration pursuant to the arbitration clause
contained in the Medallion Account Agreement signed by the Marches.  Shortly
thereafter, the Marches amended their original complaint to allege Presidential
fraudulently induced them to sign all of the documents pertaining to the brokerage
agreement, including the document containing the arbitration clause.  Specifically,
the Marches added a fifth cause of action for “Fraud and Constructive Fraud
in Plaintiff’s Signatures on Arbitration Provisions and Investment Incentive
Provisions.”  Under this claim, they alleged, in pertinent part:

46.  After the funds were transferred
[to Presidential], on several occasions the Defendant Scott Key [a representative
of Presidential and named defendant in this action] came by the Plaintiff’s
house with various papers that were to be signed.  He would generally uncover
only the part of the paper for a signature and told the Plaintiffs that they
needed to be signed for access to their accounts.  The Plaintiffs were never
given copies of the papers, were never given the option to read the papers and
any explanations given about the content of the papers were falsely answered.

47.  The Plaintiffs were forwarded
copies of the papers after this suit was filed and found that numerous items
on the papers had been put in that were not there when the Plaintiffs signed
them.  The dates on the papers were changed or made up and numerous of these
papers were signed by Georgia French, who the Plaintiffs have never met.

48. The representations and actions
by the Defendants to the Plaintiffs to induce them to sign these papers was
to obtain their consent to arbitration and their argument[ [2] ] to allow speculative investments by the Defendants.

In the circuit court, the Marches argued
the determination of whether the arbitration clause was valid could not itself
be subject to arbitration but was rather a question for the court to decide. 
The circuit court agreed, allowing discovery to proceed on the sole issue of
the enforceability of the arbitration clause.  All of the other claims raised
by the Marches as to Presidential’s performance under the terms of the brokerage
agreement were held in abeyance pending the court’s determination on arbitration.

LAW/ANALYSIS

Presidential argues the circuit court erred in
denying its motion to compel arbitration.  We agree.

In Prima Paint Corporation v. Flood & Conklin
Manufacturing Co., 388 U.S. 395, 406 (1967), the United States Supreme Court
held that general allegations of fraud in the inducement of a contract are insufficient
to prevent the invocation of the arbitration provision of the contract.  Our
state supreme court has explained how the rule of Prima Paint should
be applied by our courts:

We join the jurisdictions which
have rejected limiting the holding in Prima Paint. We hold a party cannot
avoid arbitration through rescission of the entire contract when there is
no independent challenge to the arbitration clause. Fraud as a defense to
an arbitration clause must be fraud specifically as to the arbitration clause
and not the contract generally.

South Carolina Pub. Serv. Auth. v. Great W. Coal (Ky.),
312 S.C. 559, 562-63, 437 S.E.2d 22, 24 (1993) (emphasis added).

In this case, although the Marches amended their
complaint to separately plead a cause of action for fraudulent inducement of
the arbitration agreement, the allegations set forth in both the complaint and
the Marches’ affidavits only support their claim that they were fraudulently
induced to sign the entire contract, not specifically the arbitration clause.
[3]   Under the rule of Prima Paint and Great Western Coal,
therefore, it was improper for the circuit court to rule that the validity of
the arbitration clause was for the court’s determination. 

Accordingly, the decision of the circuit court
is

REVERSED.

HEARN, C.J., STILWELL, J. and CURETON,
A.J., concur.

[1] We decide this case without oral argument pursuant
to Rule 215, SCACR.

[2] This is probably a typographical error that was
most likely intended to be “agreement” rather than “argument.”

[3] In their joint affidavit, the Marches asserted: “We were totally
and completely deceived with the entire matter of opening this account and
what was going to occur in connection with it.”