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Raymond James Financial Services v. Cary, No. 12-1053

Decided: March 8, 2013

The Fourth Circuit Court of Appeals affirmed the judgment of the district court in holding that appellants were not “customers” of Raymond James Financial Services (“RJFS”), and therefore the arbitration agreement was not binding on RJFS.

The appellants are several Inofin investors who sustained losses after acquiring unregistered promissory notes. Appellants met with David Affeldt, a tax attorney, to discuss the investment opportunity. Affeldt recommended that the appellants invest in these promissory notes. Affeldt was acting for Kevin Keough, who claimed to be an RJFS representative, at the time. Inofin ultimately filed for bankruptcy and the appellants brought an action against RJFS alleging violations of various state securities laws.  Appellants sought arbitration of their claims under an arbitration clause that requires RJFS to arbitrate disputes “between a customer and a member or associated person of a member.” The issue disputed was whether or not the appellants were customers of RJFS. The district court ultimately found that the relationship between RJFS and appellants was “insufficient” to bring the dispute within the scope of the arbitration agreement.

Appellants argued on appeal that their claims were subject to arbitration because Affeldt had connections with Keough who was a representative of RJFS. The court of appeals declined to find a customer relationship in the present case because the appellants made their decision to invest independently of any recommendation of RJFS.  Appellants argued that any ambiguities in the meaning of the word “customer” should be resolved in favor of arbitration because there is strong public policy favoring arbitration.  The court, however, affirmed the district court’s judgment and held that the appellants were not customers of RJFS and therefore had no right to arbitration.

Full Opinion

-Samantha James