Opinion
A145092
07-24-2018
EDWARD REIDY, Plaintiff and Respondent, v. HARRY BONN et al., Defendants and Appellants.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (City & County of San Francisco Super. Ct. No. CGC-14-542979)
Defendants Harry Bonn and Bonn Financial and Insurance Services (collectively Bonn), Metropolitan Life Insurance Company (MetLife), and New England Life Insurance Company (New England Life) (collectively defendants) appeal the denial of their motion to compel arbitration of plaintiff Edward Reidy's complaint for, among other things, fraud and negligence in connection with the purchase of a life insurance policy and an annuity. Although defendants challenge the court's ruling in a number of respects, we need not address the merits of most of their arguments because the motion to compel was properly denied on the ground that defendants did not establish that Reidy's claims against them are subject to arbitration under a contract Reidy entered with New England Securities Corporation (New England Securities or NES), not a party to the action. Accordingly, we shall affirm the denial of the motion to compel.
Although this issue was argued in the trial court and the parties' appellate briefing, to clarify the issue we requested supplemental briefing regarding the language of the arbitration agreement. The parties letter briefs have been filed and considered by the court.
Factual and Procedural History
On December 2, 2014, Reidy filed his complaint alleging causes of action for fraudulent and negligent misrepresentation, professional negligence, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, fraudulent inducement to contract, fraudulent inducement to hold, violation of California Business and Professional Code section 17200 et seq., and rescission. The complaint alleges that between 1989 and 2007, Bonn provided advice to Reidy concerning his investment in various financial products, including mutual funds, life insurance policies and an annuity. In June 2007, Bonn advised Reidy to terminate an existing life insurance policy and roll the cash value of the policy into a new life insurance policy with MetLife and New England Life. Thereafter, in November 2010, Bonn recommended that Reidy convert his existing annuity into an annuity with MetLife and New England Life. The complaint alleges that Bonn made fraudulent and negligent misstatements in convincing him to purchase these financial products and that Reidy subsequently lost money on his investments.
The complaint alleges that New England Life is an affiliate of MetLife.
On February 4, 2015, defendants filed a motion to compel arbitration. The motion asserts that Reidy's claims are subject to arbitration under an "Investment Account Application & Agreement" (contract) entered in October 2003 between Reidy and New England Securities. Under the terms of the contract, Reidy acknowledged that "an account would be opened for him at New England Securities . . . to buy and sell securities" and that "[a]ll brokerage services" would be provided by New England Securities, a subsidiary of MetLife. Reidy also acknowledged and agreed "to the Predispute Arbitration Agreement (located on the back of this application)."
The arbitration agreement reads: "I agree that any controversy concerning this or any other account maintained with you, whether arising before, on, or after the date this account is opened and arising out of or relating to this agreement or any transaction between me and NES or Pershing, their employees, directors, agents, officers or affiliates shall be determined by arbitration before the [National Association of Security Dealers (NASD)] Dispute Resolution, Inc." Defendants' motion to compel arbitration alleged that the arbitration agreement could be enforced by Bonn because he signed the contract as a registered representative of New England Securities and could be enforced by MetLife as an affiliate of New England Securities.
Under the contract, Reidy's account was to be "maintained by Pershing, LLC."
In July 2007, the NASD was consolidated into the Financial Industry Regulatory Authority (FINRA). (Valentine Capital Asset Management, Inc. v. Agahi (2009) 174 Cal.App.4th 606, 608, fn. 2.)
Reidy opposed the motion. He disputed defendant's contention that he had agreed to arbitrate and argued alternatively that the arbitration clause is procedurally and substantively unconscionable and therefore unenforceable. He also argued, "even if the arbitration agreement was not unconscionable and unenforceable, the four defendants here are not parties to the agreement — and thus have no right to invoke it. The agreement purports to be between Mr. Reidy, on the one hand, and non-parties NES or Pershing. The arbitration agreement purports to extend to controversies arising out of 'this agreement' or any transactions between Mr. Reidy and NES or Pershing, their employees, directors, agents, officers or affiliates. Even assuming Mr. Bonn was an employee, director, agent, or officer of NES, he is not a party to the alleged arbitration agreement, nor is his company, Bonn Financial and Insurance Services. Likewise, the agreement does not extend to defendants New England Life Insurance Company or Metropolitan Life Insurance Company, neither of whom was a party to the agreement."
Following a hearing on April 9, 2015, the court denied the motion. The court explained, "The motion does not establish that the arbitration agreement was presented to plaintiff - he neither signed or initialed the agreement and does not recall seeing it; defendant Bonn's declaration on this point is conclusory. Under California's law, which applies due to its public policies against adhesive contracts, the agreement is unconscionable and unenforceable on several grounds: (1) it is take-it-or-leave-it boilerplate; (2) the NASD arbitration rules were not attached or otherwise provided; (3) its comparison of 'pre-arbitration discovery' with 'court proceedings' is misleading; (4) it would effectively bar depositions in a case where they will likely be crucial to ascertainment of the truth; and (5) its seeks to bar claims after six years, though they may be intertwined with newer claims in a pattern of misconduct and not time-barred." Although the court's tentative decision indicated that defendants failed to prove that they were parties to the arbitration agreement, that sentence was removed from the final order.
Defendants timely filed a notice of appeal.
On appeal, defendant's challenge the trial court's findings that they failed to establish that the arbitration agreement was presented to Reidy when he signed the contract and that the arbitration provision is unconscionable. We do not reach these issues. --------
Discussion
"The statutory provisions governing contractual arbitration 'create a summary proceeding for resolving' petitions or motions to compel arbitration. [Citation.] 'The petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence, and a party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense.' [Citation.] To satisfy the moving party's initial burden, the petition or motion must be 'accompanied by prima facie evidence of a written agreement to arbitrate the controversy' in question. [Citation.] In ruling on the petition or motion, 'the court must determine whether the parties entered into an enforceable agreement to arbitrate that reaches the dispute in question, construing the agreement to the limited extent necessary to make this determination.' " (Molecular Analytical Systems v. Ciphergen Biosystems, Inc. (2010) 186 Cal.App.4th 696, 705-706.)
" 'The scope of arbitration is a matter of agreement between the parties.' [Citation.] 'A party can be compelled to arbitrate only those issues it has agreed to arbitrate.' [Citation.] Thus, 'the terms of the specific arbitration clause under consideration must reasonably cover the dispute as to which arbitration is requested.' [Citation.] For that reason, 'the contractual terms themselves must be carefully examined before the parties to the contract can be ordered to arbitration' by the court." (Molecular Analytical Systems v. Ciphergen Biosystems, Inc., supra, 186 Cal.App.4th at p. 705)
Here, defendants argue "there should be no dispute" that "the conditions of the arbitration agreement are met, making plaintiff's lawsuit arbitrable pursuant to the agreement he signed." According to defendants, the arbitration agreement "applies if two conditions are met: (1) there is a controversy regarding any account maintained by plaintiff and (2) the controversy arises out of or relates to the agreement or any transaction between plaintiff and NES, Pershing, their . . . agents . . . or affiliates." They suggest that "[b]oth of these conditions are satisfied here. Plaintiffs lawsuit involves a controversy regarding his account where he purchased MetLife life insurance policy and annuity. And the controversy relates to plaintiff's purchasing of the life insurance policy and annuity." However, defendants' argument reads the critical word "you" out of the first clause of the arbitration agreement.
Under the arbitration agreement, assuming he signed it, Reidy agreed to arbitrate "any controversy concerning this or any other account maintained with you . . . ." In our request for supplemental briefing we asked the parties whether this reference to "you" includes MetLife. The parties agree that under the contract, "you" is defined as "the broker, bank or other financial institution which opened or provides services for my account." They disagree, however, whether Met Life meets this definition.
Under the express terms of the contract, New England Securities was the broker that opened the account and provided all brokerage services for the account. Plaintiff has not alleged, nor do defendants assert, that the life insurance policies or annuity at issue in this case were purchased through the account Reidy held with New England Securities. Nonetheless, defendants suggest that MetLife is included in the definition of "you" because it is an affiliate of New England Securities. The contract, however, does not define "you" as "the broker, bank or other financial institution, or its affiliates, which opened or provides services for my account." (Italics added.) It is not relevant that Reidy opened and maintained a separate account with MetLife. As Reidy explains in his letter brief, the word "account" in the definition of "you" is singular. "It is concerned solely with the account opened for Reidy at New England Securities . . . [w]hether or not Reidy had another, separate account with MetLife is irrelevant." Accordingly, MetLife is not included within the definition of "you" and is not a party to the agreement.
Defendants argue that "even if MetLife did not qualify as 'you' in the arbitration agreement, MetLife can enforce the arbitration agreement for all the reasons identified in appellants' briefs." In their briefs, defendants argue that the arbitration agreement is enforceable by Bonn as an agent of New England Securities and third-party beneficiary of the contract and that MetLife can enforce the agreement as an affiliate of New England Securities.
"The general rule is that only a party to an arbitration agreement may enforce it." (Ronay Family Limited Partnership v. Tweed (2013) 216 Cal.App.4th 830, 837 (Ronay).) However, "the law recognizes exceptions to the general rule and allows a nonparty to enforce an arbitration agreement provided the nonparty has ' "a sufficient 'identity of interest' " ' with a party to the agreement. [Citations.] In particular, an agent may enforce an arbitration agreement to which its principal is a party. [Citations.] Also, a third party beneficiary of an arbitration agreement may enforce it." (Id. at p. 838.) "Ultimately, 'the foundation of any right the third person may have is the promisor's contract.' " (Id. at p. 841.) Where the facts are not disputed, the question of whether a nonparty has the right to enforce an arbitration agreement against a plaintiff is a question of law, which we review de novo. (Id. at p. 837.)
While Bonn's status as a "registered representative" of New England Securities might entitle him to compel arbitration in a claim involving his actions as an agent for New England Securities (See Ronay, supra, 216 Cal.App.4th at p. 834), Reidy's claims are not based on actions taken by Bonn as an agent of New England Securities. At the hearing on the motion to compel, Reidy's counsel argued correctly, "there has to be a connection between . . . the arbitration agreement and the claims at issue that would give an agent an opportunity to take advantage of the principal's arbitration agreement" and Reidy's claims in this case are "outside of any relationship between Mr. Bonn and Mr. Reidy and NES." The same is true for MetLife. MetLife's liability in this case is not premised on its corporate relationship with New England Securities.
For this reason Ronay, relied on by defendants, is distinguishable. In that case, plaintiff's claims arose out of defendant's provision of advice concerning plaintiff's purchase of investments offered by CapWest Securities, Inc. (CapWest), for which defendants acted as registered representatives or agents. (Ronay, supra, 216 Cal.App.4th at p. 834.) To open plaintiff's account, plaintiff and defendants, as CapWest's registered representative, filled out a new account form and signed an account agreement and disclosure statement. The agreement contained an arbitration clause, required that " 'any controversy arising out of or related to my (our) accounts, the transactions with [CapWest], its officers, directors, agents, registered representatives and/or employees for me (us), or related to this agreement or breach thereof' " be submitted to FINRA arbitration. (Id. at p. 835.) Unlike the situation here, the parties agreed that the claims asserted by plaintiff arose out of or related to plaintiff's " 'transactions with [CapWest], its . . . agents, . . . [or] registered representatives, and therefore involve subject matter that falls within the scope of the applicable arbitration clause.' " (Id. at p. 836.)
Based on the record before us, Reidy's claims against defendants do not involve an account Reidy held with New England Securities or brokerage services provided by New England Securities. Because defendants and New England Securities do not share an identity of interest with respect to Reidy's claims, there is no basis for third party enforcement of the arbitration agreement.
Disposition
The order denying the motion to compel arbitration is affirmed.
/s/_________
Pollak, Acting P.J. We concur: /s/_________
Siggins, J. /s/_________
Jenkins, J.