Opinion
2d Civil No. B230021 Super. Ct. No. 1343045
02-15-2012
GEORGE DECKER et al., Plaintiffs and Respondents, v. FILIPPINI FINANCIAL GROUP, INC. et al., Defendants and Appellants.
Amyx Merrill, and Monty H. Amyx for Plaintiffs and Respondents. Reicker, Pfau, Pyle & McRoy, Timothy J. Trager, Will Tomlinson for Defendants and Appellants.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Santa Barbara County)
George Decker and Pamela Decker (the Deckers) are unsophisticated investors living on a fixed income. Their financial advisor, Filippini Financial Group, Inc. (FFG) advised them to engage in unsound financial investments, causing them significant financial loss. The Deckers filed an action against FFG, who moved to compel arbitration.
The trial court found that an enforceable arbitration agreement existed, but refused to enforce it on the ground that the Deckers were involved in related litigation with a mortgage broker, which arose from the same set of facts. It concluded that allowing the matter to proceed to arbitration would create the possibility of conflicting rulings between the two proceedings. (Code Civ. Proc., § 1281.2, subd. (c).) We agree and affirm.
FACTS
George Decker and Pamela Decker, individually and as trustees of the Decker Family Trust (collectively the Deckers) filed an action against Filippini Financial Group, Inc., Alfred Filippini, Deborah Filippini, Ian Filippini (FFG) and Lawyers Mortgage and Investment Corporation (Lawyers Mortgage). The Deckers alleged causes of action in their first amended complaint for negligence, material misrepresentations in securities transactions, financial elder abuse and breach of fiduciary duty. Alfred Filippini died after the litigation was instituted.
Although Lawyers Mortgage is a defendant in the lawsuit, it is not a party to the arbitration agreement nor is it a party to the appeal. Mention of its alleged misconduct is relevant to our analysis because the Deckers are engaged in litigation with Lawyers Mortgage and contend that it knew of and participated in FFG's allegedly wrongful actions.
The Deckers receive social security income of $1,975 per month and earn a modest return on several annuities. FFG and Alfred Filippini served as their financial advisors from January 2000 to June 2009. In 2007, Alfred Filippini advised the Deckers to refinance their house so they would have funds available to invest. Alfred Filippini prepared a loan application, which he had them sign without giving them an opportunity to read it. The Deckers obtained a new mortgage through Lawyers Mortgage in the amount of $848,250.
Alfred Filippini advised the Deckers to invest $450,000 of their loan proceeds with FFG. He introduced them to his son, Ian (aka Iaian) Filippini. Ian suggested that the Deckers use $400,000 of the loan proceeds to purchase a note from Medical Provider Financial Corporation IV, and represented it would give the Deckers a return of 9.75 percent or $3,250 per month. He also advised the Deckers to purchase another $50,000 note from Medical Provider Financial Corporation III.
FFG required the Deckers to sign numerous documents without giving them an opportunity to read them, and did not provide them with copies. The Deckers state that FFG "prepared numerous papers and all of the paper work required to purchase said Notes, and then instructed [the Deckers] to sign said paperwork without reading it. [The Deckers] were assured by [FFG] that the paper work was properly filled out by [FFG] and [the Deckers] have never been provided with a copy of any of the numerous papers that were signed by them, at the [FFG] offices, in the process of purchasing each said note."
The Deckers began receiving monthly interests payments on the notes, but the payments stopped in early 2009. Several months later, they learned that their investments were part of a Ponzi scheme and they were unlikely to recover any portion of their investments.
In June 2009, the Deckers discovered that FFG had significantly overstated their income and assets on the loan application. It indicated that George Decker had been a self-employed investor for 30 years and was currently earning $14,000 per month. In fact, Decker had been employed as an engineer and retired before age 65.
The loan application misrepresented that the Deckers had $449,000 in stocks and bonds, when they had only $330,000 in annuities. It also overstated their net worth. The Deckers alleged in their first amended complaint that FFG and Lawyers Mortgage were aware of or had reason to know the application was false. They further alleged that FFG regularly worked with Lawyers Mortgage, originating loans with other investors in the same manner as they had with the Deckers.
The Deckers asserted that they have been unable to make their monthly mortgage payments of $4,895.77 and have placed their home on the market. They alleged damages of $450,000, representing the cost of the notes, and $300,000 in lost equity. FFG filed a motion to compel arbitration and to stay the proceedings. Lawyers Mortgage demurred.
The Deckers alleged causes of action against Lawyers Mortgage for negligence; financial elder abuse; and for processing the loan without ascertaining the Deckers' ability to repay it. (Fin. Code, § 4970 et seq.)
FFG's Motion to Compel Arbitration
1) Annuity Delivery Receipt
In its motion to compel, FFG relied on arbitration agreements in two separate documents--an annuity contract executed in 2005 and a New Account Application executed in 2007. In 2005, the Deckers had obtained an annuity through FFG that was issued by Equitrust Life Insurance Company. They signed a document entitled "Annuity Contract Delivery Receipt With Binding Arbitration and Client Agreement and Understanding" (Annuity Delivery Receipt). The other parties to the contract were FFG, Alfred Filippini, Ian Filippini and Equitrust Life Insurance Company.
2) ePlanning Account Application
On January 11, 2007, the Deckers executed a "New Account Application," to purchase the Medical Provider Financial Corporation notes. Displayed on the top of the document was the logo "ePlanning." A heading on the reverse side read, "Client Agreement," and contained an arbitration clause.
The declaration of Ian Filippini was attached to the motion to compel arbitration. He declared that, at the time the Deckers signed the Annuity Delivery Receipt and New Account Application it was, and is, his standard business practice to point out arbitration clauses in documents to clients and give them the opportunity to review the documents before signing them.
The Deckers' Opposition to Motion to Compel and FFG's Reply
The Deckers filed opposition to the motion to compel, alleging that they were unaware of the existence of the arbitration provisions in either document, thus they were unenforceable. In his declaration, George Decker stated that he and Pamela Decker signed the loan application at Alfred Filippini's request without reading it. Either Alfred Filippini or Ian Filippini gave them another stack of papers to sign and initial and, again, they were not given an opportunity to read them. No one at FFG ever mentioned anything about arbitration, a new contract or an agreement. FFG filed a reply to the Deckers' opposition, arguing that the arbitration provisions were enforceable under Code of Civil Procedure section 1281.2.
All further statutory references are to the Code of Civil Procedure.
Trial Court's Ruling
At a hearing on the motion to compel, the court noted that, although the Deckers argued strongly against the enforceability of the New Account Application, they provided little argument against the enforceability of the Annuity Delivery Receipt. It concluded that the arbitration clause in the Annuity Delivery Receipt was enforceable, and therefore mooted issues related to the New Account Application.
During the hearing, a question arose concerning the applicability of section 1281.2, subdivision (c). This subdivision addresses the propriety of arbitration when a party to the arbitration is also a party to a pending action with a third party, arising from the same transaction. The issue before the trial court was whether arbitration was precluded because the Deckers were proceeding against both FFG and Lawyers Mortgage in the same action. The court was uncertain whether the Deckers' dispute with FFG could properly proceed to arbitration, while the Deckers' dispute with Lawyers Mortgage was being decided in a court proceeding, given the overlapping claims against both defendants.
The trial court granted all parties leave to file a supplemental brief on the applicability of section 1281.2, subdivision (c), to determine whether the court should stay the action in its entirety pending arbitration, deny arbitration in its entirety to address all the claims in a single proceeding, or stay the action in part.
At the subsequent hearing, the court heard the demurrer of Lawyers Mortgage and FFG's motion to compel together. It first considered the demurrer, which it overruled. The grounds for the court's ruling are not relevant here.
The court sustained the demurrer as to the fifth cause of action for a violation of Financial Code section 4970, which the Deckers later dismissed.
Taking up FFG's motion to compel, the court determined that the action between the Deckers and Lawyers Mortgage constituted a third party action under section 1281.2, subdivision (c). The court noted that it was undisputed that the Deckers' action "against Lawyers Mortgage is a third party action arising out of the same transaction or series of related transactions within the meaning of section 1281.2, subdivision (c)." It concluded that there was a possibility of conflicting rulings on common issues of fact or law, and denied the motion to compel arbitration.
DISCUSSION
We review an order denying arbitration under section 1281.2, subdivision (c) for an abuse of discretion. (Whaley v. Sony Computer Entertainment America, Inc. (2004) 121 Cal.App.4th 479, 484.) Where it concerns proper application of section 1281.2, the issue becomes one of statutory construction, subject to our de novo review. (Birl v. Heritage Care LLC (2009) 172 Cal.App.4th 1313, 1318; Whaley, at p. 484.)
Pursuant to section 1281.2, if the trial court determines that a written arbitration agreement exists, it must order the matter to arbitration unless it determines that:
"(a) The right to compel arbitration has been waived by the petitioner; or
"(b) Grounds exist for the revocation of the agreement.
"(c) A party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact. . . . [¶] . . . [¶] If the court determines that a party to the arbitration is also a party to litigation in a pending court action or special proceeding with a third party as set forth under subdivision (c) herein, the court (1) may refuse to enforce the arbitration agreement and may order intervention or joinder of all parties in a single action or special proceeding; (2) may order intervention or joinder as to all or only certain issues; (3) may order arbitration among the parties who have agreed to arbitration and stay the pending court action or special proceeding pending the outcome of the arbitration proceeding; or (4) may stay arbitration pending the outcome of the court action or special proceeding."
The Annuity Delivery Receipt sets forth the following arbitration agreement:
In a provision entitled "Agreement for Mandatory Binding Arbitration" it states in part, "If a disagreement, or any cause of action of any kind or type, arises between any of the parties to this agreement[,] the parties hereto agree to be bound to binding arbitration as their sole remedy. Any dispute between the parties hereto and any dispute or claim arising in connection with the interpretation or enforcement of the provisions of this Agreement, or the application or validity thereof and any controversy or claim arising out of, or relating to, this Agreement, . . . in connection with services rendered hereunder . . . including any claims against Alfred L. Filippini, Ph.D., Iaian L. Filippini, RFC, . . . Filippini Financial Group, or any of their affiliates, staff or associates[,] based upon alleged malpractice or upon any other claim, including tort claims, shall be submitted to binding arbitration in the County of Ventura." The Deckers initialed a line at the beginning of this paragraph.
The Deckers also initialed a separate provision acknowledging that they had received the document. It read in part, ". . . I/we have read[,] understand and agree to be bound by this delivery receipt with binding arbitration[,] and client agreement and understanding document." It was signed by the Deckers in their individual capacities and as trustees of the Decker Family Trust.
The trial court reasoned that, because the Deckers and FFG are parties to the Annuity Delivery Receipt and are specifically referenced in the arbitration provision, that document is evidence of a written arbitration agreement. The Deckers presented no evidence to support a factual finding that the arbitration clause was unenforceable, that FFG waived arbitration, or that grounds existed for revocation of the agreement. (§ 1281.2, subds. (a) & (b).) The trial court was correct in determining that there were insufficient facts to support a finding that the arbitration agreement in the Annuity Delivery Receipt was unenforceable.
The trial court has discretion to refuse to enforce the arbitration agreement, where there is a possibility of conflicting rulings on common issues of law and fact. (Abaya v. Spanish Ranch I, L.P. (2010) 189 Cal.App.4th 1490, 1497; Henry v. Alcove Investment, Inc. (1991) 233 Cal.App.3d 94, 101.) FFG claims that the statute is inapplicable because there is no possibility of conflicting facts. It cites, in detail, the multiple factual assertions raised in the complaint and suggests how these facts might be interpreted to determine liability. Our role is limited to a determination of whether the trial court erred in denying FFG's motion to compel.
At oral argument, FFG cited an opinion in which the First District reversed the denial of a motion to compel arbitration. (Metis Development LLC v. Bohacek (2011) 200 Cal.App.4th 679.) In Metis, the trial court denied appellants' motion to compel arbitration on the ground that there was a possibility of conflicting rulings on common issues of law or fact. The court failed, however, to specify the nature of the common issues, and relied in part upon a mistaken factual finding. (Id., at pp. 691-692.) The Court of Appeal reversed and remanded the matter for reconsideration of the factors outlined in section 1281.2, subdivision (c). (Id. at p. 694.)
Metis is inapplicable because the trial court enumerated the common issues that might arise in the proceedings against FFG and Lawyers Mortgage. Moreover, there is no challenge to the accuracy of the court's factual findings. The Deckers' claims are based in large part upon the mortgage loan that they obtained. The Deckers made allegations concerning financial information they gave to FFG, and the information shared by FFG with Lawyers Mortgage. As the trial court noted, this raises the question of knowledge. Specifically, what FFG and Lawyers Mortgage knew concerning the source and accuracy of the Deckers' financial data, and how they intended to utilize that information.
These overlapping issues create a possibility of conflicting rulings between the Deckers' litigation with Lawyers Mortgage if the Deckers were ordered to arbitrate with FFG. The trial court correctly applied section 1281.2, subdivision (c) to these facts and acted within its discretion in determining that there was the possibility of conflicting rulings. It properly denied FFG's motion to compel arbitration and stay the proceedings.
DISPOSITION
The judgment is affirmed. Costs on appeal are awarded to Respondents. NOT TO BE PUBLISHED
Retired Associate Justice of the Court of Appeal, Second Appellate District, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
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GILBERT, P.J.
YEGAN, J.
James W. Brown, Judge
Superior Court County of Santa Barbara
Amyx Merrill, and Monty H. Amyx for Plaintiffs and Respondents.
Reicker, Pfau, Pyle & McRoy, Timothy J. Trager, Will Tomlinson for Defendants and Appellants.