Hotvet v. First Wilshire Sec. Mgmt., Inc.
| Decision Date | 06 March 2018 |
| Docket Number | B271092 |
| Parties | JILL BRIGHTWELL HOTVET, Plaintiff and Respondent, v. FIRST WILSHIRE SECURITIES MANAGEMENT, INC., Defendant and Appellant. |
| Court | California Court of Appeals Court of Appeals |
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Los Angeles County Super. Ct. No. EC064430)
APPEAL from an order of the Superior Court of Los Angeles County, Ralph C. Hofer, Judge. Affirmed in part, reversed in part and remanded with directions.
Linda Van Winkle Deacon; Ervin Cohen & Jessup, Michael C. Lieb and Leemore L. Kushner for Defendant and Appellant.
Strauss & Strauss and Michael Strauss for Plaintiff and Respondent.
Jill Brightwell Hotvet sued her former employer First Wilshire Securities Management, Inc. (Management) for wrongful termination in violation of public policy, breach of contract and violation of multiple Labor Code provisions intended to protect employees from wage theft and retaliation. Management petitioned to compel arbitration of Hotvet's complaint in accordance with rules requiring members and associated persons of the Financial Industry Regulatory Authority (FINRA)1 to arbitrate their disputes arising out of the business activities of a FINRA member or associated person of a FINRA member. The superior court denied the petition, ruling there was no agreement to arbitrate and, in any event, Management had not carried its burden to demonstrate it was a FINRA member or that the dispute fell within the scope of the arbitration agreement. The court's ruling is only partially correct.
Management demonstrated it had been a FINRA member during most, albeit not all, of Hotvet's employment and Hotvet had agreed to arbitrate disputes arising out of her business activities as an associated person of a FINRA member. Several of Hotvet's causes of action, including her wrongful termination claim, fall outside the scope of the arbitration agreement becausethey indisputably arose after Management had terminated its FINRA membership in 2012. As to those plainly nonarbitrable claims, we affirm the order denying arbitration. However, other claims (the fifth through 10th and 12th causes of action) were premised on Management's conduct when it was a FINRA member and, on the face of the complaint, come within the scope of the arbitration agreement. To the extent Hotvet asserts she was not acting as an associated person of a FINRA member but as an investment advisor not subject to FINRA's arbitration rules, Hotvet bore the burden to demonstrate those claims fall outside the scope of the arbitration provision. She failed to meet that burden. Accordingly, as to those claims, we reverse the order denying arbitration and remand to the superior court to issue a new order compelling arbitration of the fifth through 10th and 12th causes of action and to exercise its discretion under Code of Civil Procedure section 1281.2, subdivision (c), to determine when the arbitration should proceed.
Hotvet alleged in her complaint that Management hired her in 2003 on a commission-only basis as director of client relations. She worked hard and helped to grow the company. In 2010 Management changed Hotvet's compensation formula, resulting in a significant reduction in her earnings. In February 2015, after Management insisted Hotvet assume financial responsibility for losses caused by a client's redemption request and withheld $21,000 from her earned commissions for this purpose, Hotvet complained to her supervisors that Management's actions were illegal. On February 13, 2015Management placed Hotvet on administrative leave and on February 27, 2015 terminated her employment.
Hotvet's complaint, which named Management as the only defendant, alleged causes of action for wrongful termination in violation of public policy, breach of contract, breach of the implied covenant of good faith and fair dealing and various Labor Code violations—unlawful retaliation (Lab. Code, § 1102.5), unlawful deductions of an employee's earned wages (Lab. Code, §§ 221, 224), failure to itemize payments due (Lab. Code, § 226) and failure to pay minimum wage, overtime and wages due at termination (Lab. Code, §§ 1197, 510, 203). Hotvet also sought indemnification for business-related losses she allegedly incurred in performing her job duties (Lab. Code, § 2802) and a declaration that the revised commission agreements she signed with Management in October and December of 2010 were unconscionable and unenforceable. (Hotvet attached three employment agreements as exhibits to her complaint.)2
Management petitioned to compel arbitration of all Hotvet's claims. It argued Management was Hotvet's employer from 2003 to February 2015; throughout Hotvet's employment Management was a member of FINRA; Hotvet was an associated person of a FINRA member; and FINRA rule 13200 requiredindustry-related disputes between a FINRA member and an associated person to be arbitrated.3
In support of Management's petition, Scott W. Hood, the president and chief executive officer of both Management and Management's wholly owned subsidiary, First Wilshire Securities, Inc., stated in a declaration without distinguishing between First Wilshire Management and First Wilshire Securities: "First Wilshire is a brokerage firm and has been a member firm of [FINRA] for all times relevant in this action." Hood explained, when Management hired Hotvet in March 2003, she signed a uniform application for securities industry registration or transfer form, known as a U4 application, which all associated persons of broker-dealers are required to sign before engaging in securities transactions. (See Cal. Code Regs., tit. 10, § 260.210, subd. (a) [].) The U4 application was attached as an exhibit to Hood's declaration. Management was identified in the application as Hotvet's employer and the member "filing firm." Section 15A of the U4 application contained an arbitration provision requiring Hotvet to arbitrate any dispute, claim or controversy "that mayarise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the SROs [(self-regulated organizations)] indicated in Section 4 (SRO REGISTRATION) as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction." Section 4 listed multiple SROs with boxes for the applicant to check to indicate the applicable organizations. None was marked because, as Hotvet stated in her U4 application, she was seeking registration "only as an investment adviser representative" and not to "become a broker-dealer representative." However, in April 2003 Hotvet filed a U4 amendment changing her original registration from investment adviser only to "Full Registration/General Securities Representative" and checked the box in section 4 identifying the National Association of Securities Dealers (NASD), FINRA's predecessor, as the applicable SRO. The U4 amendment was also attached as an exhibit to Hood's declaration.
Hood further declared that Hotvet filed U4 amendments as needed throughout her employment with Management, each time attesting to her status as a representative of a broker-dealer of securities governed by FINRA. Hood also included with his declaration "the most recent" U4 amendment that Hotvet filed in 2014 prior to her termination.
In opposition Hotvet insisted there was no agreement to arbitrate. She argued the arbitration provision in her initial U4 application was enforceable only if she had designated FINRA (or the NASD) as her governing SRO in the application; she had not done so. In any event, she contended, any agreement to arbitrate contained in the initial U4 application had beensuperseded by subsequent U4 filings that did not contain arbitration provisions.
Hotvet also argued FINRA arbitration rules were inapplicable because Management was not a FINRA member. To support this assertion, Hotvet included with her opposition papers a copy of a computer-generated printout from FINRA's website dated February 10, 2016 listing all firms regulated by FINRA. First Wilshire Securities was included; Management was not. In addition, Hotvet observed, the 2014 U4 amendment included with Management's moving papers identified First Wilshire Securities as a FINRA member firm, not Management. Management was identified in the 2014 amendment as an "affiliated firm" under common ownership and control with First Wilshire Securities. With respect to Management, Hotvet explained, she had sought registration as "an investment adviser representative" only; and Management was an investment advisory firm regulated by the Securities and Exchange Commission (SEC), not FINRA. That distinction was critical, Hotvet argued, because SEC rules do not mandate arbitration of industry disputes.
In its reply in support of its petition to arbitrate, Management attempted to clarify the ambiguity Hotvet had identified in its initial papers relating to its FINRA membership. In a supplemental declaration Hood stated that from December 26, 1973 to May 26, 2012 Management was a registered member of FINRA (or the NASD), providing services as both a broker-dealer of securities as regulated by the NASD and an investment adviser regulated by the SEC. In 2012 Management spun-off the broker-dealer part of...
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