Frame v. Merrill Lynch, Pierce, Fenner & Smith, Inc.

• Decision Date: 19 October 1971
• Citation: 20 Cal.App.3d 668,97 Cal.Rptr. 811
• Parties: , 1971 Trade Cases P 73,748 Ronald FRAME, a former employee of Merrill Lynch, Pierce, Fenner & Smith Incorporated, on behalf of himself and all other former employees similarly situated, Plaintiff and Respondent, v. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, a corporation, Defendant and Appellant. Civ. 28135.
• Court: California Court of Appeals Court of Appeals

Page 811

97 Cal.Rptr. 811

20 Cal.App.3d 668, 1971 Trade Cases P 73,748

Ronald FRAME, a former employee of Merrill Lynch, Pierce, Fenner & Smith Incorporated, on behalf of himself and all other former employees similarly situated, Plaintiff and Respondent, v. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, a corporation, Defendant and Appellant.

Civ. 28135.

Court of Appeal, First District, Division 4, California.

Oct. 19, 1971.

Richard J. Lucas, W. Reece Bader, Orrick, Herrington, Rowley & Sutcliff, San Francisco, for defendant and appellant.

Robertson, Alexander & Luther, Menlo Park, for plaintiff and respondent.

Herzstein, Maier & Lippett, Goldstein, Barceloux & Goldstein, San Francisco, amicus curiae in support of the contentions of all respondents.

CHRISTIAN, Associate Justice.

Merrill Lynch, Pierce, Fenner & Smith, Inc. appeals from an order denying its petition for arbitration of issues raised in an action brought by respondent Ronald Frame.

Respondent, a former employee of appellant, commenced an action seeking a determination that a portion of a purported agreement between appellant and respondent, which provides for forfeiture of profit-sharing rights by any employee of appellant who resigns and then engages in competition with appellant, is void as a restraint on competition condemned by Business and Professions Code section 16600. Appellant pleaded as a defense that respondent had executed an agreement to arbitrate any dispute. Concurrently, appellant petitioned the court for an order requiring arbitration of all issues (see Code Civ.Proc., § 1281.2). The trial court denied appellant's petition for arbitration, upon the determination (made on affidavits) that 'there is no binding agreement between Ronald Frame and defendant to arbitrate this controversy.' The present appeal followed. We have concluded that it was error to withhold giving effect to the arbitration clause.

We note preliminarily that the order denying arbitration was based on no findings of fact or conclusions of law other than the recital that 'there is no binding agreement * * * to arbitrate this controversy.' Although Code of Civil Procedure section 1291 might appear to create an absolute requirement of findings to support such an order, it has been held that the requirement of section 1291 must be read as conforming to the general rules governing findings of fact in civil actions. (All-state Ins. Co. v. Orlando (1968) 262 Cal.App.2d 858, 867, 69 Cal.Rptr. 702.) Here neither party requested findings of fact or conclusions of law; therefore the court's failure to make findings was not error. (Code Civ.Proc., § 632.) Therefore, the order denying arbitration is to be upheld if the record supports it on any theory.

It was a condition of respondent's employment that he be approved by the New York Stock Exchange, of which appellant is a member. Respondent admits that he signed a stock exchange application form which contained an agreement to arbitrate 'any controversy between me and any member or member organization arising out of my employment or the termination of my employment by and with such member or member organization * * *' Respondent contends that the agreement to arbitrate was unenforceable because there was no mutual assent to that provision. Specifically he contends that he was unaware of the clause because he did not read it. But failure to read a contract before signing is not in itself a reason to refuse its enforcement. (Oakland Bank of Commerce v. Washington (1970) 6 Cal.App.3d 793, 800, 86 Cal.Rptr. 276.)

Respondent claims that appellant cannot enforce the agreement to arbitrate because appellant was not a party to it. The arbitration agreement was indeed contained not in a contract form but in a New York Stock Exchange form, entitled 'APPLICATION FOR APPROVAL OF EMPLOYMENT OF REGISTERED REPRESENTATIVE.' But the form was an indispensable part of the arrangements by which respondent was employed by appellant. The subject matter of the 'application' was the approval of respondent's employment by appellant, the form was witnessed by an officer of appellant, and investigation and substantiation of the fact assertions in the application were entrusted to appellant. The application was part of the larger transaction by which appellant and respondent entered into a continuing employment relationship. Therefore, the arbitration provision is not unenforceable because of lack of mutuality.

Respondent next attempts to invoke the doctrine of adhesion contracts to invalidate the arbitration clause. It is true that where the bargaining strength of contracting parties is unequal a contractual provision may be construed to give effect to the reasonable expectations of the weaker party when necessary to avoid injury or unfair imposition which it is shown would be the result of giving literal effect to the terms of the contract. (See Comment (1967) 1 U.S.F.L.Rev. 306.) Here, assuming that the contract was adhesory, it is not shown that arbitration would be contrary to the reasonable expectations of any party or that any loss or unfair imposition would result. Therefore no basis exists in the present case for using the doctrine of adhesion contracts to avoid arbitration. (Cf. Federico v. Frick (1970) 3 Cal.App.3d 872, 875, 84 Cal.Rptr. 74.)

Respondent asserts that because he brought his action in behalf of the class of persons affected by the contract arbitration should not be required. But if all employees similarly situated have signed the same arbitration agreement as that which respondent challenges, all are equally bound. If the agreement is valid, it is valid as to all members of the class. It would be inappropriate to allow respondent and the other members of the class he claims to represent to evade the terms of the agreement simply by bringing their action together as a 'class' rather than as individuals.

The profit-sharing plan under which respondent claims benefits contains a provision that an employee who voluntarily terminates his employment and works for a competitor forfeits his right to benefits under the plan. ¹ Respondent contends that the forfeiture provision is unlawful as...