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In interpreting the language of an arbitration agreement to determine substantive arbitrability, courts apply general principles of contract interpretation. A bedrock rule of contract interpretation is that ambiguities in a document are construed against its drafter. This rule has long been applied in Maine.
Laurence Barrett was referred to McDonald Investments, Inc. for investment advice. Kevin Sullivan, an investment advisor at McDonald, suggested to Laurence that he retire earlier than he had planned or increase his spending during retirement. Laurence decided to retire at his then current age of fifty-five. In February 2000, before McDonald accepted the Barretts’ money for investment, Laurence Barrett and Sullivan executed an IRA Director Plan Agreement. Edna Barrett, Laurence’s wife, was listed as the sole beneficiary. The Agreement disclaimed any fiduciary relationship and did not in any way describe McDonald or Sullivan as having any advisory roles. Furthermore, the Agreement provided for the arbitration of the parties’ disputes to be conducted before the New York Stock Exchange, Inc., the National Association of Securities Dealers, Inc., The Municipal Securities Rulemaking Board, or other self-regulatory organization of which [McDonald is a member" pursuant to the Federal Arbitration Act, 9 U.S.C.A. §§ 1-16. Due to Sullivan’s advice that a Manulife individual retirement annuity contract with a Guaranteed Retirement Income Plan (GRIP) rider would guarantee a minimum return of six percent on the initial investment regardless of the state of the stock market, the Barretts invested to the Manulife annuity. In 2001, the account’s value had diminished, and the Manulife representative explained that the GRIP rider did not guarantee six percent annual growth in the principal. In 203, the Barretts commenced the present action against McDonald, Sullivan, and Manulife, alleging claims of negligence, negligent misrepresentation, and fraud against McDonald and Sullivan. The Barretts also claimed they were entitled to punitive damages. In response, McDonald and Sullivan moved to stay and compel arbitration on the ground that the arbitration clause in their financial services contract with Laurence Barrett required the submission of the present disputes to an arbitrator. The Barretts objected to the motion to stay and compel arbitration. They argued that the dispute concerned the advice to purchase the Manulife policy, not conduct related to the Agreement by which the Barretts deposited their life savings into a custodial account with McDonald. After a hearing, the court denied the motion to stay and compel arbitration as to the tort claims against McDonald and Sullivan, reasoning that the language of the agreement did not communicate an express waiver of the Barretts' right to bring tort claims. McDonald and Sullivan have timely appealed, arguing that the language of their agreement with Laurence unambiguously mandated the arbitration of Barretts’ claims.
Did the parties’ agreement unambiguously mandate the arbitration of the Barretts’ claims against the defendants?
The state supreme court concluded that the arbitration agreement was ambiguous and had to be construed against the drafter, the investment company. According to the court, when a party drafted an agreement requiring arbitration, and offered it to individuals on a take-it-or-leave-it basis, the drafter bore the risk if its chosen language was found to be ambiguous in order to meet the reasonable expectations of the party in the inferior bargaining position. The court noted that in such cases, the party drafting the "take it or leave it" contract enjoyed all of the advantages, not only in choosing its words, but also in rejecting any changes to the language. Thus, in this case, none of the claims against defendants were required to be arbitrated.