On March 12, 2009, the Appellate Division issued a reported decision in the case if Sweeney v. Sweeney.. RBC Dain Rauscher Inc was also involved in the appeal. To view the case, click here.
The parties were married in 1991. In 1999, the wife sold a premarital business and building for $555,000 and kept the proceeds as her separate property. She invested the proceeds with RBC, signing a standard agreement containing an arbitration clause in the event of a dispute. The husband was a broker at and he became the broker for the wife’s account. He was already
the broker for the couple’s joint account and for two accounts held by RBC on behalf of the couple’s minor children.
The parties divorce in 2004. Their divorce agreement does not mention any of the parties’ brokerage accounts, but it contains a standard mutual release clause in which the
parties give up any and all claims that each might have against the other by reason of any matter.
In 2006, the wife filed with NASD (now FINRA) a Statement of Claim for Securities Arbitration against RBC, alleging, among other things, mismanagement of her accounts, breach of contract,
breach of fiduciary duty and breach of the duty to supervise. In response, RBC filed in the family court where the divorce was heard a post-judgment motion to intervene in the divorce action and to stay arbitration. RBC contended that as a result of the Judgment of Divorce, her arbitration claims were barred by res judicata and by the entire controversy doctrine. RBC also claimed that it is a third-party beneficiary of the Judgment of Divorce and that the release of the husband released RBC. The Wife filed a notice of cross-motion to compel arbitration.
Both the trial court and Appellate Division ruled in the wife’s favor.
In declining to acknowledge res judicata (an argument that the issue was already resolved) and the entire controversy doctrine (an argument that the issue should have been brought during the divorce). the court found that RBC was not a party to the divorce proceeding that no issues concerning the management of the margin accounts were raised in the divorce action. As such, RBC was not prejudiced by any decision or disposition of any issues in the parties’ divorce proceeding.
As to the issue of the release, it related to marital and testamentary rights and other rights or claims personal to the divorcing parties. The court found that the releases do not purport to release persons whose obligations arise from separate relations, contractual or otherwise.
I suspect that this case may have had a different result of the wife raised the issues in the divorce before it was settled. Because she seemingly did not, the result is not surprising.