Ronay Family Ltd. v. Tweed

• Decision Date: 23 May 2013
• Docket Number: D062195
• Citation: 216 Cal.App.4th 830,157 Cal.Rptr.3d 680
• Court: California Court of Appeals Court of Appeals
• Parties: RONAY FAMILY LIMITED PARTNERSHIP, Plaintiff and Respondent, v. Robert R. TWEED et al., Defendants and Appellants.

216 Cal.App.4th 830

157 Cal.Rptr.3d 680

RONAY FAMILY LIMITED PARTNERSHIP, Plaintiff and Respondent,

v.Robert R. TWEED et al., Defendants and Appellants.

D062195

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

Filed May 23, 2013

Certified For Partial Publication.^*

See 6 Witkin, Cal. Procedure (5th ed. 2008) Proceedings Without Trial, § 524 et seq.

(Super.Ct. No. 37–2011–00091226–CU–FR–CTL)

APPEAL from an order of the Superior Court of San Diego County, Joan M. Lewis, Judge. Reversed and remanded with directions.

Fields, Fehn & Sherwin, H. Thomas Fehn, Gregory J. Sherwin, Los Angeles, and Orly Davidi for Defendants and Appellants.

Law Offices of Timothy C. Karen and Timothy C. Karen, Del Mar, for Plaintiff and Respondent.

IRION, J.

Robert R. Tweed (Tweed) and his investment firm, Tweed Financial Services, Inc. (TFI), appeal the order denying their petition to compel arbitration of claims for damages asserted against them by Ronay Family Limited Partnership (Ronay). The claims arose out of Tweed's provision of advice concerning Ronay's purchase of investments offered by CapWest Securities, Inc. (CapWest), for which Tweed and TFI acted as registered representatives or agents. The trial court ruled that the rights of Tweed and TFI, as entities acting on behalf of CapWest, to compel arbitration derived from and depended upon the corresponding right of CapWest. The court further ruled that because CapWest is now defunct, and therefore under the rules of the Financial Industry Regulatory Authority (FINRA) ¹ cannot compel arbitration, Tweed and TFI cannot compel arbitration either. We disagree, reverse the challenged order, and remand for further proceedings.

I.FACTUAL BACKGROUND

Tweed is a financial adviser and the president of TFI, a financial and estate planning firm. Neither Tweed nor TFI has ever been a member of FINRA. ² Tweed, however, has at all relevant times been registered with FINRA as an associated person of a securities broker-dealer.³

Tweed opened an investment account for Ronay with CapWest, which at the time was a securities broker, investment adviser, and registered member of FINRA through which Tweed and TFI offered investments. To open the account, Ronay's general partner and Tweed, 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, which states in part:

“I (we) agree that unless unenforceable due to federal or state law, 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, shall be settled by arbitration in accordance with the rules then in effect of the National Association of Securities Dealers, Inc. (NASD). Such arbitration shall follow the procedures as set forth by a national arbitration committee of the NASD.”

Upon Tweed's recommendation, Ronay invested more than $4 million in several tenancy-in-common interests in real property offered by CapWest. Those investments failed.

II.PROCEDURAL BACKGROUND

Ronay sued Tweed, TFI, CapWest, and 13 other entities that participated in the investments in the tenancy-in-common interests. Ronay sought to recover damages and other relief on various theories, including breach of fiduciary duty, negligence, misrepresentation, and statutory unfair competition. The gist of Ronay's complaint is that Tweed and the other defendants misled Ronay about the risks of the tenancy-in-common investments and induced Ronay to make unacceptably risky investments, which ultimately failed.

Tweed and TFI filed a petition to compel arbitration in which they set forth the arbitration clause quoted above; alleged the existence of a controversy within the scope of the clause, and Ronay's refusal to submit the controversy to arbitration; and requested an order directing Ronay to arbitrate the controversy before FINRA. (See Code Civ. Proc., § 1281.2.) Tweed and TFI also moved for a stay of the action pending completion of arbitration. (See id., § 1281.4.)

Ronay opposed the petition and motion on the ground that the arbitration agreement was unenforceable because CapWest was defunct and FINRA had cancelled its membership. In support of this argument, Ronay relied on rule 12202 of FINRA's Code of Arbitration Procedure for Customer Disputes FINRA Rule 12202),⁴ which makes ineligible for arbitration claims by or against inactive members unless, after the claim arises, the customer agrees in writing to arbitrate. Ronay further argued that Tweed and TFI “cannot assert alleged contractual rights as an agent of [CapWest] which their principal [CapWest] itself does not have.”

In reply, Tweed and TFI conceded Ronay's claims against CapWest were ineligible for arbitration under FINRA Rule 12202, but contended that rule does not prohibit them from enforcing the arbitration agreement. They argued that FINRA Rule 12202 applies only to claims by or against former members of FINRA, and neither Tweed nor TFI has ever been a member of FINRA. Tweed also asserted that he is an associated person in good standing with FINRA, and he and his firm may enforce the arbitration clause of the account agreement between Ronay and CapWest under principles of agency and third party beneficiary.

After hearing oral argument, the trial court issued the following minute order:

“In this case the Court finds that Tweed's rights to compel arbitration are dependent on their principal's rights. Here, Tweed's principal was [CapWest]. It is undisputed that CapWest is defunct and no longer maintains the right—absent [Ronay's] agreement—to compel arbitration. See FINRA Rule 12202. Because [Ronay] has not agreed to proceed to arbitration and because CapWest has no right to compel arbitration, the Court denies the moving Defendants' petition to compel arbitration.”

From this order, Tweed and TFI filed a timely notice of appeal. (See Code Civ. Proc., § 1294, subd. (a) [aggrieved party may appeal order denying petition to compel arbitration].)

III.DISCUSSION

The parties do not dispute that the claims asserted by Ronay “aris[e] out of or relate[ ] to” Ronay's “transactions with [CapWest], its agents, ... [or] registered representatives,” and therefore involve subject matter that falls within the scope of the applicable arbitration clause. Rather, the primary disputed issue on appeal concerns who may enforce that clause. Tweed and TFI contend they have a right to enforce the clause because: (1) Tweed signed the account agreement in his individual capacity; (2) they are third party beneficiaries of the account agreement; and (3) they acted as agents of CapWest. Ronay counters that Tweed and TFI have no greater rights concerning arbitration than does CapWest; and since CapWest is defunct and cannot compel arbitration under FINRA's arbitration rules, Tweed and TFI cannot compel arbitration. Alternatively, Ronay argues that even if Tweed and TFI may enforce the arbitration clause, we may affirm the order denying their petition to compel arbitration because there are several other defendants not entitled to arbitration, the claims against all defendants arise out of related transactions, and there is a possibility of conflicting rulings on common questions of law or fact. (See Code Civ. Proc., § 1281.2, subd. (c).) As we shall explain, the trial court erred by denying the petition to compel arbitration.

A. Standard of Review

Although, as noted, the parties disagree over whether Tweed and TFI have the right to compel arbitration, they agree (as do we) that the relevant underlying facts are not in dispute. Therefore, whether Tweed and TFI have the right to enforce the arbitration clause of the account agreement between Ronay and CapWest presents a question of law, which we review de novo. (See, e.g., Thomas v. Westlake (2012) 204 Cal.App.4th 605, 613, 139 Cal.Rptr.3d 114 (Thomas ); Turtle Ridge Media Group, Inc. v. Pacific Bell Directory (2006) 140 Cal.App.4th 828, 833, 44 Cal.Rptr.3d 817.)

B. Tweed and TFI May Enforce the Arbitration Clause of the Account Agreement Between Ronay and CapWest as Agents or Third Party Beneficiaries

Tweed and TFI sought to compel arbitration pursuant to the arbitration clause of the agreement by which Ronay opened an investment account with CapWest. The general rule is that only a party to an arbitration agreement may enforce it. (DMS Services, Inc. v. Superior Court (2012) 205 Cal.App.4th 1346, 1352, 140 Cal.Rptr.3d 896 (DMS Services ); Thomas,supra, 204 Cal.App.4th at p. 613, 139 Cal.Rptr.3d 114; Smith v. Microskills San Diego L.P. (2007) 153 Cal.App.4th 892, 896, 63 Cal.Rptr.3d 608.) Although Tweed contends he is a party to the account agreement because he signed it in his individual capacity, the record belies this contention. The account agreement identified Ronay as the customer and CapWest as the brokerage firm with which Ronay opened the account. In addition, Tweed printed his name and placed his signature on lines for the “REGISTERED REPRESENTATIVE” of CapWest. Since it is apparent from the face of the account agreement that Tweed signed as the agent of CapWest, he is not a party to the agreement with rights and obligations thereunder. (See, e.g., Filippo Industries, Inc. v. Sun Ins. Co. (1999) 74 Cal.App.4th 1429, 1442–1443, 88 Cal.Rptr.2d 881 [agent that contracts for disclosed principal is not a party to contract]; Lippert v. Bailey 1966) 241 Cal.App.2d 376, 382, 50 Cal.Rptr. 478 [“ ‘Where the signature as agent and not as a principal appears on the face of the contract, the principal is liable and not the agent.’ ”].) Hence, Tweed does not come within the general rule that allows only parties to enforce an arbitration agreement.

That is not the end of the matter, however, because the law recognizes exceptions to the general rule and allows a nonparty to enforce an...