KLOSS v EDWARD D JONES CO
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1X TtiE SU'ZREtlE COURT OF THE STXTE OF h10XTXTL4 i Plaintiff Appellant, i i L f ) a c ". ': ! ,..i," g:: & *><*itA e SUPREpaE P SVSCF 0 s wsrnlrq&tB ORDER I EDWNU) D. JOXES & CO., a limited partnership, and PAliL HUSTED, 1 1 ) Defendants;lRespondents. 1 The Respondents, Edward D. Jones & Co. and Paul Hustcd have petitroned t h ~ Court s pursuant to Rule 34, hl.R.App.P.. for rehearing. Rule 34 pro5ides in part: A petition for rehearing may be presented upon the follon-ing grounds and none other: That some facti material to the decision, or some question decisive of the case submitted by counsel, was overlooked by the court, or that the decision is in conflict with an express statute or controlling decision to which the attention of the court was not directed. Respondents raise several bases for rehearing. However, we limit our consideration to Respondents' contention that this Court overlooked a material fact when it stated in 1/ 36 of its Opinion that Jones and Husted had discretion to buy and rel! securities pursuant to Kloss's 1992 agreement with them. Respondents contend that although Kloss entered into a Full Sewice Agreement with Jones in 1992 and altho~tgh there was a provision in the agreement entitled "C~ustomer Loan ,r\greement" which did authorize Jones and Husted to buy and sell securities, moss did not exercise that option. In response. the Appellant, Alice P. Kloss, points out that whether or not she \vas a party to the "C:ustomer Loan Agreement" in 1992. a similar or identical provision giving Jolies and Husted discretion to buy and scll securities \+-asa part of her 1998 agreement and it is pursuant to that agreement that she contends that Respondents breached their fiduciary duty. Kloss is correct. Thcrcfore. ix;e deem it appropriahc to grant the Respondents' Petition for Rehearing to tllc extelir that the y:ar "ICSi:?" in the second Lire of(": 36 is stricken and the F a r ' ' I 998'' is substituted tl~crci'ore The Respondents' Petition for Rehearing n o t othew;se satisfsng the rrquirementi of Ruie 34, M.R.App.P., is DENIED. Thc Clerk of the Supreme Court is directed to mail a copy of this Order to Robert F. James, P.O. Box 17-16$ Great Palls, Montana 59403: and to Joseph C. Engel, P.O. Box 3222, Great Falls; Montana 59103. w DATED this &ss3ay of September, 2 0 0 2. Justices Justice W. W'illiarn 1-capkart dissenting. 1 woaldgra~~tilie petirion fir rehexing as it applies to Issue Xarnbr '-did the District Court err when it failed t consider cvhcrher Defendants owed Kloss a fiduciar:, duty to o explain the arbitration agreerncni? The Court cites Gar v. Piper, .inJj%ajK- iioptt:ood, Iizc. (1993), 261 tiont. 143, 153, 862 P.2d 26, 32, for the proposition that "[ijn the absence of discretionary authority by a stockholder to buy and sell in a customer's account, no fiduciary relationship is created in a broker-customer relationship." Turning then to the question ofwhether Mrs. Kloss' account was discretionav?the Court notes that under the 1998 Agreement, there \+-asa "Liquidation of Collateral or Account" section which authorizes the broker to sell the customer's propeny when, "in your discretion yo~tconsider it necessary for your protection." Given this provision. the Court, citing the "plain language" of the .kgreement, concludes that the hccount was discretionq. Since the Court deems the Account to have been discretionary, it goes on to conclude: "We hold that Husted owed Kloss a fiduciary duty which included explaining the consequences of the arbitration provision Jones now seeks to enforce." The Court has o~-erl-ooked fact material to the decision-that isl the "'l..iquidation of a Collateral or .4ccounti' section relied upon as the basis for imposing a fiduciary d-iity is not part of the general Customer Account Agreement. Rather, it is contained in the "Customer Loan Agreement." When put in its proper context, the "Liquidation of Collateral or hccount" clause is only triggered if the client opts to establish a creditor'debtor relatio~lship by exercising her option to borrow against her securities and take out a margin loan or a personal line of credit loan and if her equity in her collateral drops below the minimum levei specified by Regulation T of the federal regulations. In the present casc, there is no suggestion that Kioss borrowed against her margin account, and, thus, the Customer Loan &kgreement simply does not come into play in this analysis. The arbitration clause in question is contained in the Customer Account Lkgreement. The question of whether Jones had a fiduciary duty to explain the consequences of the arbitration provision ?nust be rc.solred by ioolting a the plain imguagc of the Customer ! iI.;cuunr .A.grcrnri.it t dctturminc whrtiier it ivas discrCtlo:lar:;. ?'her: i s nothing i the o n Customer Account .Xgrecrnent \x;hick gives the broker discretionary authority to biry and sell - c!ients7 securities_ ihe Customer Account Agreement is cimpiynot a discretions~rg." '4 account, and thc fact that the Customer Loan Agreement, a separate and distinct agreement, has a "Liquidation of Collateral or Acco~mt" provision is of no consequence. The Customer Loan Agreement was never activated since Kloss did not trade on margin. Kloss argues that Jones sold her securities without her permission and did so pursuant to the discretion granted under the Liquidation of Coilateral or Accou~~t provision. If that is proven, then that would constitute a violittion of the Customer Loan Agreement which grants discretion only in the event Kloss borrowed against her securities-u-hieh she did not. That breach, however, would not retroactively transform the Customer Account Agreement into a discretionary account whereby the broker was required to explain the consequences of the arbitration provision. The Customer Account Agreement was: from its inception and by its own terms, either discretionary or nondiscretionary. The Court has overlooked the fact that the Customer Account Agreement was nondiscretionary. Thus, under the holding in Choi-, it did not trigger a fiduciary obligation to explain the consequences of the arbitratioti provision. I would grant the petition for rehearing on this issue. Justice - Justice Jim Rice joins in the foregoing dissent of Jusrice Leaphart. /'
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