In Steer Wealth Mgmt., LLC v. Denson, Denson, in her individual capacity and as executor of her husband’s estate, sued Steer Wealth Management, LLC, for causes of action including breach of fiduciary duty, breach of contract and fraud arising out of the alleged improper transfer of assets from several of the Densons’ brokerage accounts. No. 01-17-00066-CV, 2017 Tex. App. LEXIS 8525 (Tex. App.—Houston [1st Dist.] September 7, 2017, no pet. history). After Mr. Denson’s death in 2013, Ms. Denson learned that her husband had allegedly transferred funds out of their joint brokerage accounts into accounts in his name, Tan Tang’s name, or in the name of entities controlled by him and Tang. Individuals that started Steer Wealth had a long relationship with Mr. Denson, and there was a contract between the Densons and a prior firm, LPL Financial, that required the arbitration of disputes. Denson asserted causes of action against Steer Wealth—but not against LPL Financial or Steer Wealth’s representative Varcados, who used to work with LPL Financial. Steer Wealth moved to compel arbitration and stay all trial court proceedings based on an arbitration clause contained in the contract between the Densons and LPL Financial. The trial court denied the motion. Steer Wealth appealed the order alleging that it could enforce the arbitration clause on the basis of third-party beneficiary status or direct-benefits estoppel.
Steer Wealth argued that it was a third-party beneficiary of the Densons’ contract with LPL Financial because the express language of the arbitration agreement provided that it applied to controversies “between [Denson] and LPL and/or your Representative(s),” which, it contended, refers to Steer Wealth and its representative. Steer Wealth contended that because it could act only through its sole manager, “[b]y its own terms, the LPL arbitration provision is intended to benefit Steer Wealth which is a DBA for Varcados, the ‘Representative’ identified in the arbitration provision.” The court of appeals disagreed:
Although there is evidence in the record that Varcados uses Steer Wealth to conduct his financial advising business for LPL Financial, there is also evidence in the record that Steer Wealth is a registered domestic limited liability company and is therefore a distinct legal entity from both Varcados and LPL Financial. We thus agree with Denson that Varcados and Steer Wealth cannot be conflated such that references in the Master Account Agreement—and its arbitration provision—to Denson’s “Representative” refer to both Varcados and the separate legal entity of Steer Wealth.
Steer Wealth also argued that it could enforce the arbitration agreement because Ms. Denson, in her claims against Steer Wealth, sought a benefit by holding it liable based on duties imposed by her contracts with LPL Financial, which contain arbitration clauses. The court noted that Texas law “requires a nonparty to arbitrate a claim ‘if it seeks, through the claim, to derive a direct benefit from the contract containing the arbitration provision.’” Id. If a plaintiff’s right to recover and her damages depend on the agreement containing the arbitration provision, the party is relying on the agreement for her claims. If, however, the facts alleged in support of the claim stand alone and are completely independent of the contract containing the arbitration provision, and the claim can be maintained without reference to the contract, the claim is not subject to arbitration. The court held that Denson’s claims arose from her own contracts with Steer Wealth and not with LPL Financial:
In light of Denson’s allegations that she and her husband had a contractual relationship with Steer Wealth in which Steer Wealth allegedly agreed to provide financial and investment advice and other services—allegations unrebutted by evidence to the contrary—we conclude that Denson’s allegations refer to a separate contractual agreement with Steer Wealth, as opposed to a contractual agreement with LPL Financial…Thus, although Denson’s claims against Steer Wealth may “relate to” Denson’s contracts with LPL Financial, her breach of contract and other claims against Steer Wealth “arise out of” and “directly seek the benefits of” a separate and independent alleged contract between Denson and Steer Wealth for the provision of financial services to Denson by Steer Wealth.
Id. So, the court of appeals affirmed the trial court’s decision to deny the motion to compel arbitration.