Cione v. Foresters Equity Services, Inc., D022836

• Citation: 58 Cal.App.4th 625,68 Cal.Rptr.2d 167
• Decision Date: 23 September 1997
• Docket Number: No. D022836,D022836
• Court: California Court of Appeals
• Parties: , 97 Cal. Daily Op. Serv. 8091, 97 Daily Journal D.A.R. 13,045 John Paul CIONE, Plaintiff and Respondent, v. FORESTERS EQUITY SERVICES, INC., Defendant and Appellant.

Page 167

68 Cal.Rptr.2d 167

58 Cal.App.4th 625, 97 Cal. Daily Op. Serv. 8091,

97 Daily Journal D.A.R. 13,045

John Paul CIONE, Plaintiff and Respondent, v. FORESTERS EQUITY SERVICES, INC., Defendant and Appellant.

No. D022836.

Court of Appeal, Fourth District, Division 1, California.

Sept. 23, 1997.

[58 Cal.App.4th 629] Morgan, Lewis & Bockius, Loyd P. Derby and John S. Battenfeld, Los Angeles, for Defendant and Appellant.

Matthew R. Rutherford, San Diego, for Plaintiff and Respondent.

KREMER, Presiding Justice.

Defendant Foresters Equity Services, Inc. (FESCO), appeals an order denying its motion to compel arbitration and stay plaintiff John Paul Cione's lawsuit for wrongful termination of employment. Asserting it was the third party beneficiary of an agreement by Cione to arbitrate the parties' dispute, FESCO contends the court should have compelled [58 Cal.App.4th 630] arbitration. We reverse and direct the superior court to enter an order granting FESCO's motion to compel arbitration.

I INTRODUCTION

Soon after going to work for FESCO, Cione applied for registration with a securities industry self-regulatory organization. As part of his registration application form, Cione agreed to arbitrate any dispute with FESCO required to be arbitrated under the regulatory organization's rules. About three years later, Cione and FESCO executed a written employment agreement containing no reference to arbitration or to Cione's industry registration form.

When a dispute arose about the circumstances surrounding Cione's separation from employment with FESCO, FESCO submitted the matter to industry arbitration. Cione filed this lawsuit against FESCO for wrongful termination. Based upon Cione's industry registration form, FESCO asked the superior court to compel arbitration. Denying FESCO's motion, the court concluded the parties' written employment agreement was an integrated contract not incorporating the arbitration provision of Cione's industry registration form or otherwise providing for arbitration.

II FACTS

On May 9, 1988, Cione began employment with FESCO, a "member" firm of the National Association of Securities Dealers, Inc. (NASD). ¹

On May 12, 1988, Cione signed a Uniform Application for Securities Industry Registration (Form U-4) requesting registration as a "registered options principal," "full registration/general securities representative," "general securities sales supervisor," "general securities principal," "municipal securities principal," and "agent." ² On the Form U-4, Cione identified FESCO as his employing "firm." The Form U-4 contained an arbitration clause providing: "I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that [58 Cal.App.4th 631] is required to be arbitrated under the rules, constitutions, or by-laws of the organizations with which I register, as indicated in item 10 as may be amended from time to time." In item 10 of the Form U-4, Cione registered with NASD.

On May 21, 1991, Cione and FESCO entered into a written employment agreement containing provisions involving the length of Cione's employment and methods for terminating the agreement. Among the stated reasons for termination for cause was Cione's "failure to maintain any license necessary for the performance of his duties hereunder." The written employment agreement between Cione and FESCO also included an "integration" clause providing: "This Agreement contains the entire understanding of the parties hereto with respect to the subject matter contained herein. There are no restrictions, promises, representations, warranties, covenants or undertakings, other than those expressly set forth or referred to in this Agreement."

On June 29, 1994, Cione resigned from his employment with FESCO, assertedly under threat of discharge. A dispute arose between Cione and FESCO about Cione's separation

from employment and the terms of his severance agreement

On September 30, 1994, FESCO submitted its dispute with Cione to NASD for arbitration. ³

III SUPERIOR COURT PROCEEDINGS

On October 6, 1994, Cione sued FESCO for wrongfully terminating his employment.

[58 Cal.App.4th 632] On October 28, 1994, FESCO filed a motion to compel arbitration and stay this lawsuit. (Code of Civ. Proc., § 1280 et seq.; ⁴ 9 U.S.C. § 1 et seq. (the Federal Arbitration Act (FAA)).) FESCO asserted that under Form U-4 Cione agreed to arbitrate any controversy arising between Cione and FESCO involving his employment and its termination.

On November 10, 1994, filing opposition to FESCO's motion to compel arbitration, Cione asserted his written employment agreement with FESCO was an "integrated contract" that set forth the parties' entire understanding about the terms of his employment with FESCO and did not contain any provision obligating him to arbitrate matters arising out of such written employment agreement.

On December 13, 1994, in further opposition to FESCO's motion, Cione executed and filed his declaration asserting that in dealing with written employment contracts during his employment in the securities industry for more than 25 years, his experience was that "NASD member firms insert specific arbitration clauses into such written employment contracts if in fact the parties agree to arbitrate their employment disputes and wish to insure that such disputes are in fact arbitrated." ⁵ Cione's declaration also asserted that the lack of an arbitration provision in his written employment agreement with FESCO "signifies the specific agreement between myself [sic] and FESCO that arbitration with the NASD was not to be the sole forum for resolution of employment related disputes."

On December 16, 1994, in the superior court, counsel orally argued FESCO's motion to compel arbitration and stay this lawsuit.

On December 20, 1994, the superior court entered an order denying FESCO's motion. ⁶

FESCO appeals.

[58 Cal.App.4th 633]

IV DISCUSSION

FESCO contends the superior court erred in concluding that, although silent on the issue of arbitration, Cione's written employment agreement with FESCO negated Cione's separate written agreement (Form U-4) with NASD to arbitrate his employment dispute with FESCO. FESCO asserts federal and state law compelled a conclusion that Form U-4 obligated Cione to arbitrate.

In response, Cione essentially contends the written employment agreement's silence on the issue of arbitration, together with its integration clause, mandated a conclusion such agreement superseded the Form U-4 arbitration clause. However, as we shall explain, in light of the strong public policies favoring arbitration, on this record the superior court should have granted FESCO's motion to compel arbitration.

A ANALYSIS

"Congress enacted the FAA 'to reverse the longstanding judicial hostility to arbitration agreements....' [Citation.] 'Its primary substantive provision states that "[a] written provision in any ... contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." ' [Citations.]" (Spellman v. Securities, Annuities & Ins. Services, Inc. (1992) 8 Cal.App.4th 452, 458, 10 Cal.Rptr.2d 427, quoting 9 U.S.C. § 2.) " 'Section 2 is a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary.' [Citations.] [p] ' "In enacting § 2 of the federal Act, Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration." [Citation.]' [Citation.]" (Spellman v. Securities, Annuities & Ins. Services, Inc., supra, at pp. 458-459, 10 Cal.Rptr.2d 427.)

"It is well settled that disputes between a member of a national stock exchange and its employee are governed by the [FAA] where there is a [58 Cal.App.4th 634] binding arbitration agreement. [Citations.] In such instances, questions concerning the construction and scope of the arbitration clause are determined by federal law. [Citation.] However, the 'existence of a valid agreement to arbitrate involves general contract principles, and state law governs disposition of that question. [Citations.]' [Citation.]" (Baker v. Aubry (1989) 216 Cal.App.3d 1259, 1263, 265 Cal.Rptr. 381.)

Similarly, in Heily v. Superior Court (1988) 202 Cal.App.3d 255, 258, 248 Cal.Rptr. 673, the appellate court observed that "in Perry v. Thomas (1987) 482 U.S. 483, 107 S.Ct. 2520, 96 L.Ed.2d 426 ..., the court directly confirmed that the FAA controls lawsuits brought by employees against securities brokerage firms." "[S]tate law, whether of legislative or judicial origin, is applicable if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally." (Id. at p. 259, 248 Cal.Rptr. 673.)

In deciding whether Cione's employment dispute claims against FESCO were arbitrable, we must determine (1) whether an agreement to arbitrate existed, (2) whether FESCO waived its right to compel arbitration, and, if not, (3) whether Cione's claims came within the scope of such arbitration agreement. (Wojcik v. Aetna Life Ins. & Annuity Co., supra, 901 F.Supp. at p. 1286, citing Gilmer v. Interstate/Johnson Lane Corp. (1991) 500 U.S. 20, 24-34, 111 S.Ct. 1647, 1651-56, 114 L.Ed.2d 26; accord Hall v. MetLife Resources (S.D.N.Y.1995) Fed. Sec. L. Rep. (CCH) p 98,742, p. 2, 1995 WL 258061.)

1

FORMATION OF CONTRACT TO ARBITRATE

"The right to arbitration depends upon contract; a petition to compel arbitration

is simply a suit in equity seeking specific performance of that contract. [Citations.] There is no public policy favoring arbitration of disputes which the parties have...