Opinion
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of Los Angeles County No. BC382037 Aurelio Munoz, Judge.
Keesal, Young & Logan, Julie L. Taylor and Melanie L. Ronen for Defendant and Appellant.
Law Offices of Faryan Andrew Afifi and Faryan Andrew Afifi for Plaintiff and Respondent.
BIGELOW, J.
This appeal concerns an order denying a defendant-employer’s motion to compel a former employee to arbitrate work-related claims in accord with an arbitration agreement contained in a “Form U-4,” a standardized and required registration document used in the securities industry. We reverse the order.
FACTS
Background
At all times relevant to this case (from the 1990’s into the mid-2000’s), the National Association of Securities Dealers, Inc. (NASD) operated as a self-regulatory organization acting in a supervisory role within the securities industry. The NASD was then registered with, and subject to oversight by, the Securities and Exchange Commission (SEC), which approved the NASD’s rules and regulations.
Among its regulatory functions, the NASD maintained a centralized registration depository of records of its member securities firms and their registered agents, including data relating to the employment and termination of those registered agents. To that end, the NASD utilized, with SEC’s approval, a “Uniform Application for Securities Industry Registration or Transfer,” also known as “Form U-4.”
When a member securities firm employed a person as a securities broker, the firm was required by the NASD’s rules and regulations, and by federal and state regulations, to obtain a completed and signed Form U-4 from the person who had been hired, and to file the Form U-4 with the NASD. The governing regulations required the Form U-4 to be amended as needed to reflect any change in the registration information, including the disclosure of any customer complaint. (See generally McManus v. CIBC World Markets Corp. (2003) 109 Cal.App.4th 76, 83-84 (McManus); Cione v. Foresters Equity Services, Inc. (1997) 58 Cal.App.4th 625, 630-631 (Cione); and see, e.g., Cal. Code Regs., tit. 10, § 260.210.)
The Current Dispute
In August 1995, Kennedy, Cabot & Co. (Kennedy Cabot) hired Amir Ali Monsefi as a securities broker. As required by the NASD and myriad of complementary regulations applicable at that time, Monsefi signed a Form U-4 when he began his employment with Kennedy Cabot. The Form U-4 that Monsefi signed in 1995 specifically identified Kennedy Cabot as the securities firm for which Monsefi was beginning employment and included the following arbitration provision:
“[1] I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm... [2] that is required to be arbitrated under the rules, constitutions, or by-laws of the [NASD] as may be amended from time to time[,] and [3] that any arbitration award rendered against me may be entered as a judgement [sic] in any court of competent jurisdiction.” (Numeration and italics added.)
In 1997, Waterhouse Securities, Inc., purchased Kennedy Cabot, and, in October of that same year, Monsefi completed and signed a Waterhouse application for employment. The Waterhouse application for employment that Monsefi signed in 1997 included the following provision:
“I agree that any controversy, relating to my employment, that I have with you will be submitted to arbitration, conducted only under the provisions of the Constitution and Rules of the New York Stock Exchange, Inc. [NYSE] or pursuant to the Code of Arbitration of the [NASD].”
In the years following 1997, Waterhouse Securities, Inc., became TD Waterhouse Investor Services, Inc., and then TD Ameritrade, Inc. Monsefi remained employed at “Ameritrade” at all times between 1997 and 2006. In June 2003, Monsefi signed a Form U-4 amendment, apparently to disclose a customer complaint. In August 2003, Monsefi signed another Form U-4 amendment, again apparently to disclose a customer complaint. In May 2005, Monsefi signed yet another Form U-4 amendment, again apparently to disclose a customer complaint. In December 2006, Monsefi left Ameritrade and went to work for UBS Financial Services, Inc. (UBS). When Monsefi began his position with UBS, he completed and signed a new Form U-4.
In July 2007, the NASD and the NYSE consolidated their industry regulatory functions and changed their names jointly to the Financial Industry Regulatory Authority, Inc. (FINRA). (In re Series 7 Broker Qualification Exam Scoring (D.D.C. 2007) 510 F.Supp.2d 35, 36, fn. 1.) FINRA’s current rules and regulations carry forward the NASD’s former requirements regarding the use of Form U-4 in connection with employment in the securities industry.
Both parties have filed requests on appeal for judicial notice of FINRA’s regulations and rules. We hereby grant those requests.
In December 2007, Monsefi sued Ameritrade for money damages. His complaint alleges seven causes of action: breach of contract, breach of the covenant of good faith and fair dealing, interference with the economic relations between him and his clients, violation of the Labor Code, book account and account stated, fraud, and violation of the Unfair Competition Law (UCL; Bus. & Prof. Code, § 17200 et seq.). All of Monsefi’s causes of action are based on common allegations establishing the following foundation for his claims: (1) he worked for Kennedy Cabot from 1995 to 1997 under an employment contract that was partially written and partially oral, and that promised him certain compensation and benefits; (2) he “reasonably expected that the terms of his employment with Kennedy Cabot would continue with [Ameritrade]” when Ameritrade purchased Kennedy Cabot; (3) “from 1997 to 2006,... [Ameritrade] stepped into the shoes of Kennedy Cabot and [was] obligated to fulfill the obligations of Kennedy Cabot” under his employment contract; and (4) Ameritrade failed to pay him compensation and benefits that he was due in accord with the terms of his employment with Ameritrade nee Kennedy Cabot.
In March 2008, Ameritrade filed a motion to compel arbitration of all of Monsefi’s claims in accord with the Form U-4 that he had signed in 1995 when he began working for Kennedy Cabot. Monsefi opposed the motion, arguing that the Form U-4 applied only “to Kennedy Cabot and was not assigned or intended to be assigned to [its] successors.”
On April 16, 2008, the trial court denied Ameritrade’s motion for the following stated reasons: “[Monsefi]’s... employment contract, which is the basis for this lawsuit, was with Kennedy Cabot, a firm which is no longer in existence. The arbitration agreement was... not a part of the actual employment contract. That separate agreement required [Monsefi] to arbitrate any disputes with [Kennedy Cabot]. However, because that firm is no longer in existence the arbitration agreement cannot be enforced against [Monsefi]. (See Provencio[] v. WMA Securities, Inc. (2005) 125 Cal.App.4th [1028].) This is to be contrasted with Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, where the plaintiff brought suit on the very contract that required arbitration between him and his employer. In that case, even though the defendant was a subsequent employer, the plaintiff was estopped from repudiating the arbitration agreement.”
Ameritrade filed a timely notice of appeal.
DISCUSSION
I.
Ameritrade contends the Form U-4 which Monsefi signed in 1995 –– when he was hired by Ameritrade’s predecessor, Kennedy Cabot –– requires him to arbitrate his claims against Ameritrade. We agree.
General Legal Principles and Standard of Review
The arbitration provision found in Monsefi’s Form U-4 is governed by the Federal Arbitration Act (FAA; 9 U.S.C. § 2 et seq.) because it affects interstate commerce. (McManus, supra, 109 Cal.App.4th at pp. 85-86.) The FAA implements a “federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary.” (Moses H. Cone Hospital v. Mercury Constr. Corp. (1983) 460 U.S. 1, 24.) To accomplish its ends, the FAA provides that a trial court “shall” compel arbitration “upon being satisfied that the making of the agreement for arbitration... is not in issue,” and that, “[i]f the making of the arbitration agreement... be in issue, the court shall proceed summarily to the trial [of the ‘making’ issue].” (9 U.S.C. § 4; see also O’Donnell v. First Investors Corp. (S.D.N.Y. 1995) 872 F.Supp. 1274, 1276.) The decision whether an enforceable arbitration agreement exists is determined under state law governing the formation and enforcement of contracts generally. (Cione, supra, 58 Cal.App.4th at pp. 634-635.)
In the case before us today, the trial court essentially found that Ameritrade did not establish the existence of an agreement obligating Monsefi to arbitrate his damages claims against Ameritrade. None of the parties’ briefs on appeal have satisfied us on the issue of the standard of review to be applied when, as in the current case, the trial court finds that an agreement to arbitrate did not exist. Based on our independent research, we have decided that the following rules best serve the standard of review on appeal: When the state of the facts is undisputed, the existence of an agreement to arbitrate becomes a question of law (cf. Robinson & Wilson, Inc. v. Stone (1973) 35 Cal.App.3d 396, 407 [discussing general contract law]), and, as such, our review on appeal is de novo. On the other hand, where the evidence on the existence of an agreement to arbitrate is in conflict, or admits of more than one inference, the trier of fact must determine whether an agreement did in fact exist (ibid.), and we will review the trier of fact’s findings under the substantial evidence test.
As a starting point for Monsefi’s current appeal, we find the facts in his case are not in conflict. There is no dispute about when Monsefi started work for Kennedy Cabot, or when he signed the Form U-4 at issue, or when Ameritrade purchased Kennedy Cabot, or when Monsefi worked for Ameritrade, or what documents he did or did not sign while he worked for Ameritrade. There is no dispute about FINRA’s rules and regulations, and no dispute whether those rules and regulations apply in this case. Given this undisputed state of facts, we will examine the legal consequent of the undisputed facts as a matter of law.
Monsefi Must Arbitrate His Claims Against Ameritrade
The Form U-4 that Monsefi signed in 1995 never constituted a binding agreement between him and Kennedy Cabot to arbitrate their employment-related disputes. On the contrary, as explained in Cione, supra,58 Cal.App.4th at pages 635-636, a Form U-4 is an agreement between a securities broker and FINRA, the organization that regulates his or her employment. In other words, by signing his or her Form U-4, a securities broker enters into an agreement with FINRA to submit any employment-related disputes to the arbitration forum that FINRA has established, and the securities firm who has employed the broker –– and who is identified on broker’s Form U-4 –– is merely an intended third party beneficiary of the agreement between the broker and FINRA. (O’Donnell v. First Investors Corp., supra, 872 F.Supp. at p. 1276 [accord].)
Given the nature of the Form U-4, Monsefi’s case comes down to this bottom line question: Is Ameritrade an intended third party beneficiary of the Form U-4 that Monsefi signed in 1995? It is a difficult question to answer, but, in the final analysis, we find the answer is, “yes.”
Whether the parties to a contract intended that a third party is a beneficiary of the contract is a question of construction, and the intent of the parties must be gathered from reading their contract as a whole, under the light of the circumstances under which it was entered. (Walters v. Calderon (1972) 25 Cal.App.3d 863, 870-871; see also Cione, supra, 58 Cal.App.4th at p. 636.) “The test is whether an intent to benefit the third party appears from the terms of the contract.” (Walters v. Calderon, supra, 25 Cal.App.3d at p. 870.) In the case before us today, the intent of Monsefi and FINRA to benefit Kennedy Cabot appears on the face of Monsefi’s Form U-4 itself, which contained this term: “I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm,” and specifically identified Kennedy Cabot as the firm which was employing him. There can be no doubt that, if Kennedy Cabot was moving to compel Monsefi to arbitrate his claims for unpaid compensation, it would be entitled to an order compelling arbitration. (Cione, at pp. 636-637.) But where does Ameritrade stand in this mix?
Ameritrade’s arguments, fairly construed and boiled down to their essence, float the proposition that the words “my firm” as they are used in Monsefi’s Form U-4 should be interpreted to mean “my firm and its successors,” thus showing an intent to secure to Ameritrade the benefit of the arbitration provision found in the Form U-4. For his part, Monsefi counter-punches with the argument (supported by on his own declaration) that “no other entity in the security[ies] industry expects that a single signed U-4 form suffices to compel arbitration in perpetuity.” None of the published cases cited in the parties’ briefs directly address this issue, and we now write on a clean slate.
As noted above, a third party is entitled to performance under a contract when the language of the contract show that it was the intention of contracting parties to secure to the third party the benefits of contract’s provisions. After reviewing the language found in Monsefi’s Form U-4, including the original registration document which he signed in 1995 and the amendments which he signed in 2003 and 2005, and after considering that language under the light of the circumstances under which the Form U-4 contract was entered, we are satisfied that it reflects an intention on the part of Monsefi and FINRA to secure to Ameritrade the benefits of the form’s arbitration provision.
First, Monsefi’s Form U-4 did not expressly exclude Kennedy Cabot’s successors as intended third party beneficiaries of its arbitration provision. Second, arbitration is the rule, not the exception, in the securities industry, and Monsefi cannot be surprised that he would be subject to the arbitration provision, and cannot reasonably expect that he may avoid arbitrating his work-related disputes based on the happenstance of his employer’s purchase by another firm. Third, the common meaning of the words “my firm” plainly refer to the firm for which Monsefi was working, and, since he regularly amended his Form U-4 during the time he was working for Ameritrade, he must have understood that he was, with each amendment to his Form U-4, extending the third party benefit of its arbitration provision to Ameritrade.
We reject Monsefi’s argument that acceptance of Ameritrade’s position means he is locked into arbitration of any and all disputes in perpetuity so long as he is employed in the securities industry, regardless of who his employer may be in the future. In the event Monsefi moves to a new firm (as he has), his new firm will not be entitled to compel him to arbitrate a work-related controversy unless he has signed a new Form U-4 showing his intent to secure to his new employer the benefits of its arbitration provision.
II.
Having concluded that Ameritrade is entitled to compel Monsefi to arbitrate his claim against the firm in accord with the arbitration agreement in Monsefi’s Form U-4, we need not and do not address Ameritrade’s alternate argument that Monsefi is required to arbitrate his claims against the firm under the terms of his registration with FINRA.
III.
Having determined that Ameritrade is entitled to compel Monsefi to arbitrate his claims against the firm in accord with the arbitration agreement in Monsefi’s Form U-4, we need not address Ameritrade’s argument that Monsefi is estopped from “repudiating” the arbitration agreement in his Form U-4. We note only that Monsefi’s attempt to render his Form U-4 a nullity after Ameritrade purchased Kennedy Cabot in 1997 seems to us to include implicitly what is tantamount to an admission or an accusation that he was not properly registered with NASD at any time while he was working at Ameritrade between 1997 and 2006.
DISPOSITION
The trial court’s order dated April 16, 2008, denying Ameritrade’s motion to compel Monsefi to arbitrate the claims in his complaint is reversed. The parties are to bear their own costs on appeal.
We concur: RUBIN, Acting P. J., FLIER, J.