On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-12369-04.
The opinion of the court was delivered by: Lihotz, J.T.C. (temporarily assigned).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Kestin, Graves and Lihotz.
Defendant Deutsche Bank AG (DB) appeals, on leave granted, from an October 6, 2006 Law Division order denying its motion to compel arbitration of the dispute initiated by plaintiff John L. Alfano. We are asked to determine whether resolution of the parties' dispute is subject to arbitration pursuant to the Federal Arbitration Act (FAA), 9 U.S.C.A. § 1-16.
Alfano alleges that in 1998, he was solicited by his accountants, BDO Seidman, LLP (accountants), to participate in a tax strategy to shelter a $150 million capital gain he realized from the sale of his business. The plan, known as an off-shore portfolio investment strategy (OPIS), was effectuated through investment advisor defendants Presidio Advisors, LLC, and Presidio Growth, LLC (collectively, Presidio). OPIS required Alfano to enter into a series of transactions to borrow funds from DB and then buy stock and options in DB, individually and through a Cayman Islands limited partnership, for which he would realize more than a $100 million loss to offset the gain realized from the sale of his business. Alfano asserts he was told the investment was unique to his needs and afforded him the necessary tax avoidance to shelter his gain.
The accountants introduced Alfano to attorney R.J. Ruble of Sidley Austin Brown & Wood, LLP, formerly Brown & Wood (attorneys), who provided legal assistance and a tax opinion letter to Alfano, which he suggests represented that OPIS fully complied with federal tax laws.
The Internal Revenue Service (IRS or Service), after auditing Alfano, ascertained that the tax shelter was "abusive," and disallowed most of the claimed costs and losses, requiring Alfano to pay capital gains taxes, interest and penalties. Ultimately, Alfano explains, he learned that OPIS was a nationally marketed, generic, unregistered, abusive tax shelter, that defendants had promoted on approximately 600 prior occasions. Alfano maintains that neither the accountants nor attorneys issued independent tax or legal advice to him regarding the legitimacy of the tax shelter because they had designed the scheme and received fees for its promotion.
Alfano's complaint recites causes for relief which include: fraud, constructive fraud, aiding and abetting fraud, consumer fraud, negligence, malpractice, violation of the New Jersey Racketeer Influenced and Corrupt Organizations Act (RICO), N.J.S.A. 2C:41-1 to -6.2, civil conspiracy, breach of fiduciary duty, breach of contract, and unjust enrichment. Alfano seeks indemnification, fee disgorgement, money damages and other relief arising from [d]efendants' development, promotion and implementation of a tax strategy" which caused him to expend excessive fees and to incur an income tax liability.
DB filed a motion to compel arbitration based upon the arbitration clause contained in the October 14, 1998 Customer Account Agreement between Deutsche Bank Securities, Inc. (DBSI) and Alfano. DB, although not a signatory to the Customer Account Agreement, asserts DBSI was acting as DB's agent in carrying out the transactions, which was a fact known and acknowledged by Alfano. Based upon this agency DB seeks to require Alfano to abide by his agreement to arbitrate.
The DBSI securities account Alfano opened was used to buy and sell the DB stock and options. The Customer Account Agreement advised Alfano that DBSI would "act as brokers for the undersigned [Alfano] in the purchase of sales of securities and/or commodities [sic]." The agreement's arbitration provision states:
The UNDERSIGNED AGREES, and by carrying an Account of the Undersigned you agree, that except as inconsistent with the foregoing, all controversies which may arise between us concerning any transaction of construction, performance, or breach of this or any other agreement between us, whether entered into prior, on or subsequent to this date hereof, shall be determined by arbitration. Any arbitration under this agreement shall be determined pursuant to the rules then in effect of the National Association of Securities Dealers, Inc. [(NASD)] . . . . The award of the arbitrators or of the majority of them, shall be final and judgment upon the award rendered may be entered in any court, state, or federal, having jurisdiction.
DB maintains it is the parent company and DBSI is a separately incorporated indirect subsidiary. A letter dated December 15, 1998, signed by Alfano and a managing director of DB, disclosed that DB was "not registered as a broker-dealer under the U.S. Securities Exchange Act of 1934. [DBSI] has acted as [DB's] agent in connection with this transaction." DB asserts that because DBSI is its agent, DB can compel arbitration.
The Law Division orders dated October 6, 2006, denied the motion to compel arbitration, and the accompanying request to stay the litigation pending arbitration. Leave to appeal was granted by order dated November 15, 2006. The trial court submitted written findings of fact and ...