Where an agent of the defendant changed material terms in a contract that were never agreed to by the plaintiffs, there was no binding contract and the defendant could not enforce the arbitration clause in the agreement.
Sandeva “Sandy” Morris and Sandy Morris Financial LLC, or SMF, challenge the district court’s denial of their motion to compel arbitration of Barry and Donna Rowland’s North Carolina contract and tort claims.
Based on the undisputed evidence submitted by both parties, there was no meeting of the minds—and thus no contract—because both parties did not agree to the same terms. Mr. Rowland signed the asset management agreement, or AMA, which he submitted into evidence. Morris and SMF did not dispute that the Rowland AMA was in fact the version that Mr. Rowland signed. Morris and SMF also submitted into evidence the AMA that their agent signed. Mr. Rowland never received a copy of the SMF AMA and did not dispute that the version SMF submitted was the version that they signed.
Those two AMAs differed as to a number of terms. In particular, an unknown employee at SMF added an extra account to be managed and filled in Mr. Rowland’s investment objectives and risk preferences, which according to the contract, were to govern how SMF managed his money. There was no evidence in the record that Mr. Rowland ordered them to do so or was even informed that they made such changes. There was no evidence that he reviewed or initialed those changes.
These discrepancies are not minor—they are material differences in the agreement between the parties. An investment advisor cannot unilaterally add another account for it to manage. The investment objectives and risk tolerance of the client are not insignificant preferences; rather, they set the ground rules for how SMF was to manage the plaintiffs’ money.
The designation of which accounts were to be managed and how they were to be managed would be of paramount importance for any couple turning over its hard-earned savings to a financial firm for management. SMF did not bother to solicit from Mr. Rowland this information after he submitted the signed form, when it easily could have done so.
Either one of the above omissions was sufficient to make for a material difference defeating the formation of the contract. Together they undoubtedly did so. Because the difference in material terms in the AMA prevented a meeting of the minds on the essential elements of the contract, no contract between the parties was formed.
Although not dispositive, it is important to note the difference in sophistication of the parties. The Rowlands are individuals without extensive personal experience in finance or investing. Morris is a certified financial professional and her firm is in the business of managing money. The documents were so technical and voluminous as to daunt, and perhaps overwhelm, persons with the plaintiffs’ level of experience. The court is not saying that volume or difference in sophistication is sufficient to defeat the formation of a contract, but the firm changing terms of an agreement after the customer signs it certainly does not add to the impression of fairness that one hopes to get from a financial institution managing an individual investor’s portfolio. Unilateral unratified material changes on the part of Morris and her firm prevented the formation of a contract.
Rowland v. Sandy Morris Financial & Estate Planning Services LLC (Lawyers Weekly No. 001-074-21, 13 pp.) (J. Harvie Wilkinson III, J.) Case No. 20-1187. April 7, 2021. From W.D.N.C. (Kenneth D. Bell, J.) Donald R. Pocock for Appellant. Brooke A. Howard, James A. Roberts III and Matthew D. Quinn for Appellees.