v. CAUSE NO CA-01920
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1 E-Filed Document Jun :40: CA SCT Pages: 10 IN THE COURT OF APPEALS OF THE STATE OF MISSISSIPPI PINNACLE TRUST COMPANY, L.L.C., EFP ADVISORS INC. AND DOUGLAS M. McDANIEL APPELLANTS v. CAUSE NO CA LISA BROCATO McTAGGART, INDIVIDUALLY, and as NATURAL PARENT AND NEXT FRIEND OF JONATHON ANTONE McTAGGART, JACOB ALEXANDER McTAGGART, and MADALYN ROSE McTAGGART, MINORS, and OLIVIA JUSTINE McTAGGART APPELLEES ON APPEAL FROM THE CHANCERY COURT OF MADISON COUNTY, MISSISSIPPI CAUSE NO (G) REPLY BRIEF OF APPELLANTS E. Stephen Williams (MSB #7223) John G. Corlew, Esq. (MSB #6526) J. Andrew Payne (MSB #103955) Kathy Smith, Esq. (MSB #10350) Attorneys for EFP Advisors Inc. Attorneys for Pinnacle Trust and Douglas M. McDaniel Company, L.L.C. YOUNG WELLS WILLIAMS P.A. CORLEW MUNFORD & SMITH, PLLC Post Office Box 6005 Post Office Box Ridgeland, MS Jackson, MS Telephone: (601) Telephone: (601) June 16, 2014 Oral Argument Requested i
2 TABLE OF CONTENTS TABLE OF AUTHORITIES... iii ARGUMENT... 2 I. Plaintiffs Response fails to distinguish Scruggs and fails to show that Plaintiffs are not bound by the arbitration provision in the WMA under the theory of direct-benefit estoppel II. The Plaintiffs Response failed to address the Defendants argument that the Plaintiffs are the direct beneficiaries of the WMA, not uninterested third-party beneficiaries CONCLUSION... 1 ii
3 TABLE OF AUTHORITIES Cases Scruggs v. Wyatt, 60 So. 3d 758 (Miss. 2011)... 1, 2 iii
4 ARGUMENT I. Plaintiffs Response fails to distinguish Scruggs and fails to show that Plaintiffs are not bound by the arbitration provision in the WMA under the theory of direct-benefit estoppel. The Plaintiffs brief in response (the Response ) fails to distinguish Scruggs v. Wyatt, 60 So. 3d 758 (Miss. 2011) and fails to show that the Plaintiffs are not bound by the arbitration provision in the EFP Wealth Management Agreement (the WMA ) under the theory of directbenefit estoppel. The Plaintiffs argument in the Response with regard to direct-benefit estoppel is that the Plaintiffs claims are based on Mississippi statutory law, not the WMA. However, this is not enough to negate the applicability of direct-benefit estoppel to the Plaintiffs in this matter. Direct-benefit estoppel binds non-signatories to a contract containing an arbitration provision when those non-signatories embrace the contract containing the arbitration provision despite their non-signatory status. Scruggs v. Wyatt, 60 So. 3d 758, 767 (Miss. 2011). A nonsignatory embraces a contract by, among other things, asserting claims that touch matters covered by the contract and that must be determined by reference to the contract. Id. at 768. The Plaintiffs argue that their claims do not touch matters covered by the WMA because they are based purely on Mississippi statutory law. However, in determining whether a claim touches a matter covered by a contract, the focus is on the actual factual allegations in the complaint, without regard for the actual labels attached to them. Id. at 767. The actual factual allegations made by the Plaintiffs in the Complaint are that EFP Advisors Inc. ( EFP ), Douglas M. McDaniel ( McDaniel, and together with EFP collectively, the EFP Defendants ), and Pinnacle Trust Company, LLC ( Pinnacle ) and together with the EFP Defendants collectively, the Defendants ) failed to prudently manage and invest the trust assets. (1 R. 8) Since the WMA governs the management of the funds at issue, it is clear that the Plaintiffs claims touch matters covered by the WMA. 1
5 The Plaintiffs also argue that the claims they assert do not have to be determined by reference to the WMA. However, the Plaintiffs do not address the fact that the WMA serves as the only source from which any liability of the EFP Defendants to the Plaintiffs could flow. The Plaintiffs maintain that the EFP Defendants are liable under Mississippi statutory law for breach of fiduciary duties pursuant to Miss. Code Ann However, the plain language of the Billie B. Brocato Family Trust (the Brocato Trust ) provides that the EFP Defendants shall have and maintain no fiduciary duties or liability with regard to the Trusts. (1 R. 20) (emphasis added) Since the Brocato Trust absolves the EFP Defendants from liability to the Plaintiffs for breaches of fiduciary duties, the only liability the Plaintiffs could assert against the EFP Defendants must be derivative of the EFP Defendants contractual relationship with Pinnacle, making the WMA the only source from which the EFP Defendants potential liability could flow. Since the WMA is the only source of liability of the EFP Defendants to the Plaintiffs, it is clear that the Plaintiffs claims must be determined by reference to the WMA. It should be pointed out that the Plaintiffs Response attempts to distinguish several other cases cited by the Defendants in their brief. However, these cases were only cited for the general proposition that non-signatories to contracts containing arbitration provisions can be bound by those arbitration provisions under Mississippi law. Scruggs is the main case relied on by Defendants for the proposition that the Plaintiffs are bound by the arbitration provision in the WMA under the theory of direct-benefit estoppel, and the Plaintiffs have failed to distinguish Scruggs from the facts presented in this case. II. The Plaintiffs Response failed to address the Defendants argument that the Plaintiffs are the direct beneficiaries of the WMA, not uninterested third-party beneficiaries. The Plaintiffs are bound by the arbitration provision in the WMA as direct beneficiaries of the WMA, and the Plaintiffs Response fails to address Defendants argument that the 2
6 Plaintiffs are direct beneficiaries of the WMA, not uninterested third-party beneficiaries. The Plaintiffs response summarily argues that the Chancellor below was correct in holding that the Plaintiffs were third-party beneficiaries of the WMA and not bound by the arbitration provision contained therein based on the language in paragraph 24 of the WMA. As established in Defendants brief, Mississippi law does not require one to be a signatory to a contract containing an arbitration provision to be bound by that arbitration provision. In this case, the Plaintiffs, though not signatories to the WMA, are bound by its arbitration provision because they are direct beneficiaries of the WMA, not third-party beneficiaries as stated by the Chancellor. This is evidenced by the relationships among the parties created by the Brocato Trust and the WMA. After Billie Brocato s ( Billie ) death, Plaintiff Lisa McTaggart, Billie s daughter, requested that Capital Trust Company of Delaware resign as Trustee and then designated Pinnacle as the new Trustee for the Brocato Trust. (1 R. 58, 60) The terms of the Brocato Trust gave Pinnacle the authority to employ investment advisors. (1 R. 23) Pinnacle exercised this authority when it hired the EFP Defendants and executed the WMA, and the reason Pinnacle entered into the WMA with the EFP Defendants was because Billie designated the EFP Defendants as the Trust Advisor in the Brocato Trust. (1 R. 20) Turning to the terms of the WMA, it is clear that Pinnacle executed the WMA for the benefit of the Brocato Trust. (1 R. 53) The WMA defines Client as Pinnacle Trust Company FBO Billie Brocato Family Trust. Since Pinnacle executed the WMA for the benefit of the Brocato Trust, the Plaintiffs, as beneficiaries of the Brocato Trust, are the direct beneficiaries of the WMA, not third-party beneficiaries. This is further evidenced by the fact that the party with whom Pinnacle contracted was designated by the Brocato Trust itself. 3
7 Finally, paragraph 24 of the WMA does not apply to the Plaintiffs since they are direct beneficiaries of the WMA. Paragraph 24 of the WMA is titled Third Party Beneficiaries, and it states, This Agreement does not and is not intended to confer any rights or remedies upon any person or entity other than the signatories. (1 R. 56) Based on the plain language of the WMA, that provision only applies to third parties, logically those having no interest in the Brocato Trust, and since Pinnacle executed the WMA exclusively for the benefit of the Brocato Trust and since the EFP Defendants were designated in the Brocato Trust to serve as Trust Advisor, it is clear that the Plaintiffs are direct beneficiaries of the WMA, not uninterested third-parties. Since the Plaintiffs are direct beneficiaries of the WMA and since Mississippi law does not require one to be a signatory to a contract containing an arbitration provision in order to be bound by the same, this Court should hold that the Plaintiffs are bound by the arbitration provision in the WMA. CONCLUSION Based on applicable Mississippi law, it is clear that the arbitration provision in the WMA is binding on the Plaintiffs under the theory of direct-benefit estoppel adopted by the Mississippi Supreme Court in Scruggs because the Plaintiffs claims against the EFP Defendants touch matters covered by and can only be determined by referencing the WMA since it is the source from which the EFP Defendants only potential liability to the Plaintiffs could flow. Additionally, the Plaintiffs are bound by the arbitration provision in the WMA because they are direct beneficiaries of 4
8 the WMA, not third-party beneficiaries. Accordingly, this Court should hold that the Plaintiffs are bound by the arbitration provision in the WMA even though they are not signatories to the same. Dated: June 16, Respectfully submitted, /s/ E. Stephen Williams /s/ Kathy Smith E. Stephen Williams (MSB #7223) John G. Corlew, Esq. (MSB #6526) J. Andrew Payne (MSB #103955) Kathy Smith, Esq. (MSB #10350) Attorneys for EFP Advisors Inc. Attorneys for Pinnacle Trust and Douglas M. McDaniel Company, L.L.C. YOUNG WELLS WILLIAMS P.A. CORLEW MUNFORD & SMITH, PLLC Post Office Box 6005 Post Office Box Ridgeland, MS Jackson, MS Telephone: (601) Telephone: (601)
9 CERTIFICATE OF FILING I certify that on the 16th day of June, 2014, a copy of the foregoing Reply Brief of Appellants was filed electronically. I understand that notice of this filing will be sent to all parties by operation of the Court s electronic filing system. Parties may access this filing through the Court s system. SO CERTIFIED, this the 16th day of June, /s/ E. Stephen Williams /s/ Kathy Smith E. Stephen Williams (MSB #7223) John G. Corlew, Esq. (MSB #6526) J. Andrew Payne (MSB #103955) Kathy Smith, Esq. (MSB #10350) Attorneys for EFP Advisors Inc. Attorneys for Pinnacle Trust and Douglas M. McDaniel Company, L.L.C. YOUNG WELLS WILLIAMS P.A. CORLEW MUNFORD & SMITH, PLLC Post Office Box 6005 Post Office Box Ridgeland, MS Jackson, MS Telephone: (601) Telephone: (601) steve.williams@youngwells.com jcorlew@cmslawyers.com apayne@youngwells.com ksmith@cmslawyers.com 6
10 CERTIFICATE OF SERVICE I hereby certify that on the 16th day of June, 2014, I forwarded a copy of the foregoing Reply Brief of Appellants, via United States Mail, postage prepaid, to the following: William P. Featherston, Jr. Attorney at Law P.O. Box 1105 Ridgeland, MS The Honorable Janace Harvey-Goree, Chancellor P. O. Box 39 Lexington, MS SO CERTIFIED, this the 16th day of June, /s/ E. Stephen Williams /s/ Kathy Smith E. Stephen Williams (MSB #7223) John G. Corlew, Esq. (MSB #6526) J. Andrew Payne (MSB #103955) Kathy Smith, Esq. (MSB #10350) Attorneys for EFP Advisors Inc. Attorneys for Pinnacle Trust and Douglas M. McDaniel Company, L.L.C. YOUNG WELLS WILLIAMS P.A. CORLEW MUNFORD & SMITH, PLLC Post Office Box 6005 Post Office Box Ridgeland, MS Jackson, MS Telephone: (601) Telephone: (601) steve.williams@youngwells.com jcorlew@cmslawyers.com apayne@youngwells.com ksmith@cmslawyers.com 7
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