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

• Decision Date: 15 March 1972
• Citation: 100 Cal.Rptr. 791,24 Cal.App.3d 35
• Court: California Court of Appeals Court of Appeals
• Parties: , 1972 Trade Cases P 74,136 David WARE, on behalf of himself and all others similarly situated, plaintiff and Respondent, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., a corporation, Defendant andAppellant. Civ. 28875.

Page 791

100 Cal.Rptr. 791

24 Cal.App.3d 35, 1972 Trade Cases P 74,136

David WARE, on behalf of himself and all others similarly situated, plaintiff and Respondent, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., a corporation, Defendant andAppellant.

Civ. 28875.

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

March 15, 1972.

Hearing Denied May 10, 1972.

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

Joseph C. Barton, Feeney & Sparks, San Francisco, for respondent.

BRAY, Associate Justice. ^*

Defendant Merrill Lynch, Pierce, Fenner & Smith, Inc. appeals, pursuant to Code of Civil Procedure section 1294, subdivision (a), from order denying petition to order arbitration.

Questions Presented

1. Was there an arbitration agreement?

2. Is the forfeiture provision of the arbitration agreement legal?

3. Does Labor Code section 229 prohibit arbitration in this dispute?

Record

Plaintiff, a former employee of Merrill Lynch, Pierce, Fenner & Smith, Inc. (hereinafter Merrill Lynch), on behalf of himself and other former employees similarly situated, filed this action for declaratory relief and damages. The gravamen of the complaint involves a provision, Article 11.1, in the Merrill Lynch Profit Sharing Plan for Employees. The complaint seeks (1) a declaration that Article 11.1 is invalid under applicable law (Bus. & Prof.Code, § 16600), and (2) that defendant is obligated to pay to plaintiff the amount of the profit sharing rights which Merrill Lynch claims were forfeited and to which plaintiff claims to be entitled. Merrill Lynch answered and filed a petition for order of arbitration. Plaintiff then filed a motion for order determining that the action is maintainable as a class action, and filed affidavits in support of five individuals moving to have themselves made parties of record as members of the class. The petition for arbitration was denied. The motion for class action and to admit the five persons submitting affidavits as plaintiffs was granted. Merrill Lynch appeals from the order denying arbitration.

Facts

In July 1958 plaintiff Ware became an employee of Merrill Lynch at its San Francisco office as an account executive, remaining such until March 1969 when he voluntarily terminated his employment. He then became an employee of another securities broker, competitive with Merrill Lynch. As a full-time employee of Merrill Lynch he was eligible to participate in its profit sharing plan. From time to time Merrill Lynch made contributions to this plan (employees did not contribute) which were credited to plaintiff's account in the profit sharing trust fund. At the termination of his employment plaintiff's account in the fund was credited with 733 vested units and 1,258 unvested units. When plaintiff became eligible to participate in the plan he was given an explanatory brochure and a copy of the plan.

Article 11.1 of the plan provides:

'A Participant who, in the determination of the Committee, voluntarily terminates his employment with the Corporation . . . and engages in an occupation which is, in the determination of the Committee, competitive with the Corporation . . . shall forfeit all rights to any benefits otherwise due or to become due from the Trust Fund with respect to units credited for fiscal years subsequent to the fiscal year ended December 30, 1960.' On April 18, 1969 the Administrative Committee of the plan made a determination that plaintiff had voluntarily terminated his employment with Merrill Lynch and had entered into competitive employment. The committee thereupon caused to be forfeited any and all rights plaintiff had in the plan.

Merrill Lynch is a member of the New York Stock Exchange which is registered under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. § 78f) which act authorizes the enforcement of rules and by-laws promulgated by said exchange.

Rule 345 of the exchange requires the registration and approval by the exchange of any person employed by a member in the capacity of a registered representative. Plaintiff executed a written application for approval of employment on Form RE--1 of the exchange and was approved and registered. Paragraph 30j of the RE--1 form executed by plaintiff states:

'I agree that any controversy between me and any . . . member organization arising out of my employment on the termination of my employment by and with such . . . member organization shall be settled by arbitration at the instance of any such party in accordance with the Constitution and rules then obtaining of the New York Stock Exchange.'

Defendant alleged in its petition for arbitration that all members of the class were subject to the above arbitration provision since each had individually executed the RE--1 form. This is not denied. Plaintiff contends that a class action cannot be arbitrated. Defendant claims that it is not trying to arbitrate a class action but seeking to arbitrate the dispute with the representative of the class under an agreement that also applies to all other members of the class as each has signed a similar agreement. Defendant's contention in this regard is well answered in Frame v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1971) 20 Cal.App.3d 668, 672, 97 Cal.Rptr. 811, 813, where the identical contract was attacked by a former employee of Merrill Lynch: '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.'

Section 1281.2 of the Code of Civil Procedure provides in relevant part: 'On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists unless it determines that: (a) The right to compel arbitration has been waived by the petitioner; or (b) Grounds exist for the revocation of the agreement.' No contention is made that defendant waived its right to arbitration as stated in paragraph 30j of the RE--1 form.

On the record there is no substantial conflict in the facts. Where, as here, the issue is one of law only, findings of fact are not required. (Allstate Ins. Co. v. Orlando (1968) 262 Cal.App.2d 858, 867, 69 Cal.Rptr. 702.) In Loscalzo v. Federal Mut. Ins. Co. (1964) 228 Cal.App.2d 391, 39 Cal.Rptr. 437, where petition for arbitration was denied without the trial court's indicating the basis for denial, and in Bianco v. Superior Court (1968) 265 Cal.App.2d 126, 71 Cal.Rptr. 322, where petition for arbitration was granted without the court's indicating the basis for such order, it was held that the reviewing court must determine the correctness of the ruling from the record, and in doing so must determine if the record supports any of the contentions of the parties opposing the arbitration. We proceed to make such determination.

Plaintiff opposed the granting of the petition for arbitration on three basic grounds: (1) no written agreement to arbitrate existed; (2) the contract was an adhesive one and therefore revoked; (3) the issue in dispute and the legality of the forfeiture provision cannot be arbitrated.

1. Arbitration agreement.

The written agreement to arbitrate did exist. (See Frame v. Merrill Lynch, Pierce, Fenner & Smith, Inc., Supra, 20 Cal.App.3d 668, 671--672, 97 Cal.Rptr. 811.) The RE--1 form expressly referred to the rules and regulations and constitution of the exchange, and contained an express representation by plaintiff to abide by them. At the time the RE--1 form was executed by plaintiff a rule of the exchange (Rule 347(b)) provided for arbitration between members and their employees arising out of the termination of the employment relationship. (2 CCH New York Stock Exchange Guide, par. 2347b.) Moreover, the RE--1 form which plaintiff admitted executing set forth in its entirety the arbitration clause 30j. Plaintiff's express representation to abide by the exchange rules charged him with the duty of knowing what the rules are. See Gear v. Webster (1968) 258 Cal.App.2d 57, 65 Cal.Rptr. 255, where the appellant became a member of an association of realtors whose bylaws required submission to arbitration of controversies between members. '(B)y agreeing to abide by the bylaws appellant was bound to arbitrate her dispute with another member, here, respondent.' (258 Cal.App.2d at p. 61, 65 Cal.Rptr. at p. 257.)

In Larrus v. First National Bank (1954) 122 Cal.App.2d 884, 266 P.2d 143, the plaintiffs opened a bank account and signed signature cards containing a printed statement that they agreed to be governed by the bylaws of the bank. Their attention was not called to the clause in dispute nor were they advised of the bank's rules. The court held the agreement binding. A reasonable person seeking employment in an industry as highly regulated as the securities exchange with knowledge of a registration requirement cannot escape the binding effect of arbitration rules referred to and expressly set forth in the RE--1 form, which he has signed, by claiming lack of knowledge of the rules integrated into the form.

The RE--1 form is a contractual agreement, even though it is headed 'Application.' In the application plaintiff stated 'I have read the Constitution and Rules of the Board of Governors of the New York Stock Exchange and, if approved, I...