Provencio v. Wma Securities, Inc.

Decision Date14 January 2005
Docket NumberNo. B171724.,B171724.
PartiesLinda PROVENCIO et al., Plaintiffs and Respondents, v. WMA SECURITIES, INC., Defendant and Appellant.
CourtCalifornia Court of Appeals Court of Appeals

Proskauer Rose LLP, Michael A. Firestein, and Joshua J. Pollack, Los Angeles, for Defendant and Appellant.

Law Offices of Jeffrey A. Kopczynski, and Jeffrey A. Kopczynski, Glendale, for Plaintiffs and Respondents.

RUBIN, J.

Defendant WMA Securities, Inc., appeals from the order denying its petition to compel arbitration of an action for fraud, breach of contract, and other related claims brought by plaintiffs Linda Provencio and Lori Berke. For the reasons set forth below, we affirm the order.

FACTS AND PROCEDURAL HISTORY

Linda Provencio and Lori Berke transferred their individual retirement accounts to defendant WMA Securities, Inc. (WMA), then relied on WMA for investment advice. Provencio and Berke sued WMA for breach of fiduciary duty, fraud, and breach of contract, along with other related causes of action, alleging that they were the victims of bad advice by WMA.1 In response to the complaint, WMA brought a petition to compel arbitration. (Code Civ. Proc., § 1281.2.)2 According to WMA, the investment services contracts that respondents signed with it required their dispute to be arbitrated by the National Association of Securities Dealers (NASD), pursuant to the NASD's rules and procedures. Respondents opposed the petition on several grounds, including one we find convincing—that WMA was out of business and no longer a member of NASD, thereby precluding arbitration by NASD without respondents' written consent. The trial court denied the petition, and WMA contends the trial court erred.3

DISCUSSION

Under section 1281.2, one party to a written arbitration agreement may petition the court to compel other parties to arbitrate a dispute that is covered by their agreement. (§ 1281.2.) This section creates a summary proceeding for resolving such petitions. The petitioner bears the burden of proving the existence of a valid arbitration agreement by a preponderance of the evidence. The party opposing the petition must meet the same evidentiary burden to prove any facts necessary to its defense. The trial court acts as the trier of fact, weighing all the affidavits, declarations, and other documentary evidence. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972, 64 Cal.Rptr.2d 843, 938 P.2d 903.) When there is no conflicting evidence regarding the interpretation of an arbitration agreement, we exercise our independent judgment to determine as a matter of law whether the agreement applies to a controversy. Where the trial court's decision of arbitrability is based on disputed facts, however, the substantial evidence standard applies. Under that test, we must: accept the trial court's resolution of disputed facts when supported by substantial evidence; presume the court found every fact and drew every permissible inference necessary to support its order; and defer to its determinations regarding the credibility of witnesses and the weight of the evidence. (NORCAL Mutual Ins. Co. v. Newton (2000) 84 Cal.App.4th 64, 71, 100 Cal.Rptr.2d 683.)

The right to arbitrate depends on the terms of a contract. (United Public Employees v. City and County of San Francisco (1997) 53 Cal.App.4th 1021, 1026, 62 Cal.Rptr.2d 440.) Respondents' contract provided that "unless unenforceable due to federal or state law, any controversy arising out of or related to [their] accounts, the transactions with WMA[], its officers, directors, agents, registered representatives and/or employees for [us] related to this agreement or breach thereof, shall be settled by arbitration in accordance with the rules then in effect of the [NASD]. Such arbitration shall follow the procedures as set forth by a national arbitration committee of the NASD." Pursuant to this provision WMA asked the court to compel respondents to arbitrate their dispute before the NASD.

Respondents did not dispute that the arbitration provision applied to the types of claims made in their complaint. Instead, they challenged its applicability on other grounds, including: (1) no agreement existed between Berke and WMA (2) the arbitration clause did not comply with certain securities industry rules; (3) the agreement between Provencio and WMA had not been authenticated and appeared to be a forgery; and (4) arbitration before the NASD was no longer possible because WMA had gone out of business and was no longer a registered NASD member.

The arbitration agreement was, by its terms, subject to NASD's rules. In opposition to WMA's petition, respondents submitted the declaration of securities lawyer Steve Buchwalter. According to the declaration, Buchwalter had represented clients in more than 500 matters before the NASD, was familiar with NASD's rules, and had testified before the United States Senate regarding NASD arbitrations. Attached to his declaration was a copy of NASD rule 10301(a), which stated that claims by customers against NASD members were "ineligible for submission to arbitration" as to: "(1) A member whose membership is terminated, suspended, canceled, or revoked; [¶] (2) A member that has been expelled from the NASD; or [¶] (3) A member that is otherwise defunct." In such cases, the claim may be heard by the NASD only if the customer agrees in writing to do so. Buchwalter said he had reviewed the NASD's membership records and learned that WMA was no longer a registered member of NASD. He supported this claim by including a photocopy print-out of a computer screen from the NASD's website showing that WMA was no longer registered as a member. He also supplied a declaration from a WMA official acknowledging that WMA had gone out of business in April 2002.

When the parties to a contract agree to arbitrate any disputes before a particular forum, that provision becomes an integral part of their contract. If that forum is not available to hear the dispute, then a petition to compel arbitration may not be granted. (Alan v. Superior Court (2003) 111 Cal.App.4th 217, 224, 227-228, 3 Cal.Rptr.3d 377 (Alan ).) In Alan our colleagues in Division One were confronted with a claim against a securities dealer where NASD arbitration was required, but might not be possible because NASD was no longer arbitrating in California due to a dispute over the application of the state's ethical rules for arbitrators. Because the arbitration agreement included a choice of forum clause, and because NASD was willing to arbitrate the dispute in other states, the court of appeal held the trial court should determine under applicable choice of law standards whether arbitration in other states was appropriate. If so, a forum was available and arbitration could proceed. If not, then the required...

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