The Deceased Mother's IRA, Her Two Sons, Her Deceased Daughter, Her Son In Law, and A Messy Estate Dispute with T. Rowe Price

April 1, 2022

In a recent federal lawsuit, we got a deceased mother, her two sons, the deceased mom's daughter (which makes her the the two sons' sister -- duh), and we got the daughter's husband, who, as you likely figured out is the deceased mother's son-in-law and, okay, sure, the sons' brother-in-law. Making matters worse, the daughter is now deceased. By way of recap, let's quickly set out the cast of characters:
  • Rhea Needle: Deceased mother
  • William A. Needle and Michael R. Needle (Plaintiffs): Sons of Rhea Needle
  • Susan Needle Dosik: Daughter (now deceased) of Rhea and sister of William and Michael
  • Edward Dosik (Defendant): Husband of the now-deceased Susan, son-in-law of Rhea, and brother-in-law of William and Michael -- and personal representative of the Susan's Estate
  • T. Rowe Price Group Inc., T. Rowe Price Associates, Inc. and T. Rowe Price Investment Services, Inc. (Defendants) 
William A. Needle and Michael R. Needle Plaintiffs, v. T. Rowe Price Group Inc., T. Rowe Price Associates, Inc. and T. Rowe Price Investment Services, Inc., and Edward Dosik, Defendants (Opinion, United States District Court for the Eastern District of Pennsylvania, 21-CV-4786 / March 28, 2022) (the "EDPA Opinion")

The POA and The IRA

In 2001 Rhea Needle executed a Power of Attorney ("POA") authorizing her son-in-law Edward Dosik to open on her behalf an Individual Retirement Account ("IRA"), and in furtherance of the POA, in 2002, Dosik opened an account at Defendant T. Rowe Price. Named as beneficiaries of Rhea's IRA were her children Michael, William, and Susan. 

Mother's Death in 2018

Until Rhea's death in September 2018, Dosik managed her IRA. Following Rhea's death, transfers were undertaken per the Uniform Transfer on Death Security Registration Act to the designated beneficiaries via IRA Distribution Forms pursuant to which T. Rowe Price created three separate beneficiary accounts into which the proceeds of the March 2019 liquidations of shares were deposited. All of which strikes me as "according to plan," but when we got family involved nothing ever seems to go smoothly:

Believing that the IRA proceeds should have been more than what was distributed, Plaintiffs filed this action against T. Rowe Price alleging securities fraud under the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq., and Rule 10b-5, 17 C.F.R. § 240.10b-5, and the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 Pa. Cons. Stat. §§ 201-1 et seq. Plaintiffs also assert claims against Dosik for his alleged mismanagement of the IRA. In their amended complaint, Plaintiffs also seek an order to stay this matter and compel T. Rowe Price to arbitrate their claims pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 3, 4. [ECF 23]. 

at Page 2 of the EDPA Opinion

FINRA Arbitration -- But Are You "Customers?"

In response to the federal lawsuit, T. Row Price filed a Motion for a Preliminary Injunction Enjoining the Arbitration, which was supposed to occur before the Financial Industry Regulatory Authority ("FINRA"). As EDPA framed the issues before it:

In its motion, T. Rowe Price argues, inter alia, that it is likely to succeed on the merits of its defense to Plaintiffs' claim to compel arbitration because there is no arbitration agreement between them or a statute that requires T. Rowe Price to arbitrate Plaintiffs' claims. Specifically, T. Rowe Price argues (1) that Plaintiffs were not and are not T. Rowe Price's "customers" with respect to Rhea Needle's IRA under FINRA Rule 12200, and (2) that no written arbitration agreement exists between Plaintiffs and T. Rowe Price that would compel arbitration. In their opposition, Plaintiffs posit two arguments: that they may enforce arbitration under FINRA Rule 12200 because they are T. Rowe Price's "customers" or, alternatively, that they may enforce to the Arbitration Clause of the New Account Form as the assignees of Rhea Needle's rights and as third-party beneficiaries of the contract. . . .

at Page 4 of the EDPA Opinion

FINRA Rule 12200

Let's quickly go to the old FINRA rulebook:

FINRA Code of Arbitration Procedure for Customer Disputes Rule 12200: Arbitration Under an Arbitration Agreement or the Rules of FINRA

Parties must arbitrate a dispute under the Code if:
  • Arbitration under the Code is either:
    (1) Required by a written agreement, or
    (2) Requested by the customer;

  • The dispute is between a customer and a member or associated person of a member; and
  • The dispute arises in connection with the business activities of the member or the associated person, except disputes involving the insurance business activities of a member that is also an insurance company.
"In Connection With" Test

T. Rowe Price argues that Plaintiffs do not fall under the FINRA Rule 12200 definition of "a customer," however, Plaintiffs argue that as a result of their having held the beneficiary accounts created by the firm that they do fall within the ambit of the term. Although only Defendant T. Rowe Price Investment Services, Inc. is a FINRA member firm, EDPA opted to refer to the three-shared-name Defendants under the collective term "T. Rowe Price." As EDPA disposed of the issue:

Importantly, Rule 12200 requires arbitration only where the dispute arises "in connection with the business activities of the member." Courts have interpreted this third requirement of Rule 12200 as only requiring arbitration of disputes "arising from the account" of the customer. See, e.g., Citigroup Glob. Mkts., 761 F.3d at 275. Regardless of whether Plaintiffs would be considered customers for another purpose, the dispute Plaintiffs presently seek to arbitrate against T. Rowe Price does not concern their own personal or beneficiary accounts, through which they arguably could be considered T. Rowe Price's "customers." Rather, Plaintiffs seek to compel the arbitration of disputes that allegedly arose from the management of their mother's IRA account. As T. Rowe argues, allowing a perceived customer to invoke Rule 12200 to arbitrate disputes arising from any customer's account would have "no apparent limiting principle." (Defs.' Br., ECF 31, at p. 14). This Court agrees and finds that, at this preliminary stage, T. Rowe Price has shown a likelihood of success on the merits of its defense to Plaintiffs' arbitration claim.

at Pages 5 - 6 of the EDPA Opinion

Predispute Arbitration Clause

Upon opening the Rhea Needle IRA, said account was subject to an executed New Account Form, which, in part, contained this Arbitration Clause:

Predispute Arbitration Clause. I agree to settle by arbitration any controversy between myself and Price [T. Rowe Price Investment Services, Inc.], its parent, or affiliates, and/or any such officers, directors, employees, agents or Price's clearing broker, relating to the Account Agreements, my account, or account transactions, or in any way arising from my brokerage relationship with Price . . . .

at Page 2 of the EDPA Opinion

Rights and Obligations

Notwithstanding Plaintiffs assertions that they are third-party/intended beneficiaries of the IRA account agreement, EDPA rebuffs that argument [Ed: footnote omitted]:

[T]the Arbitration Clause relied on only provides that Rhea Needle agreed to arbitrate "any controversy between myself and [T. Rowe] Price." (New Account Form, ECF 31, at p. 64 (emphasis added)). Thus, the Arbitration Clause provides no expression of intent to arbitrate that could extend to claims between Plaintiffs and T. Rowe Price. Absent any such expression of intent to arbitrate, Plaintiffs' reliance on the Arbitration Clause is unfounded. 

Plaintiffs also argue that they can invoke the Arbitration Clause as the assignees of Rhea Needle's rights under her contract with T. Rowe Price. Specifically, Plaintiffs contend that upon Rhea Needle's death, her rights under the New Account Form passed to her named beneficiaries of the IRA-Plaintiffs and their sister-pursuant to the Uniform Transfer on Death Security Registration Act ("UTDSRA"), a statute adopted in Pennsylvania. 20 Pa. Cons. Stat. §§ 6401-13. Plaintiffs are again mistaken. 

The UTDSRA provides, in relevant part: "On death of a sole owner or the last to die of all multiple owners, ownership of securities registered in beneficiary form passes to the beneficiary or beneficiaries who survive all owners." 20 Pa. Cons. Stat. § 6407. It is clear from the plain language of the UTDSRA that the statute concerns the transfer of the actual securities from an original owner to a named beneficiary upon the owner's death, not the transfer of rights under the underlying contract. See id. § 6407 ("On death of a sole owner . . . , ownership of securities registered in beneficiary form passes to the beneficiary or beneficiaries who survive all owners." (emphasis added)). As such, under the UTDSRA, upon Rhea Needle's death, Plaintiffs, as the named beneficiaries, became the owners of the securities held in Rhea Needle's account; they did not become owners of, or the "assignees" to, any rights and obligations associated with Rhea Needle's IRA.

For the foregoing reasons, T. Rowe Price has demonstrated a likelihood of success on the merits of its defense to Plaintiffs' claim to compel arbitration.

at Pages 7 - 8 of the EDPA Opinion

Having disposed of the two relatively substantive issues raised by Plaintiffs, EDPA makes short shrift of the remaining arguments citing irreparable harm, balance of hardships, and public interest. In the end, the Court enjoined Plaintiffs from proceeding with their FINRA arbitration and granted Defendant's Preliminary Injunction. It is now left for the Court to rule on the arbitrability of the dispute.