WFP Sec., Inc. v. Davis

• Decision Date: 15 April 2014
• Docket Number: B244528
• Court: California Court of Appeals Court of Appeals
• Parties: WFP SECURITIES, INC. et al., Plaintiffs and Respondents, v. JAIMIE DAVIS, Defendant and Appellant.

WFP SECURITIES, INC. et al., Plaintiffs and Respondents, v. JAIMIE DAVIS, Defendant and Appellant.

B244528

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION SEVEN

Filed: April 15, 2014

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. BS136533)

APPEAL from an order of the Superior Court of Los Angeles County, Richard L. Fruin, Jr., Judge. Affirmed.

Law Offices of Melinda Jane Steuer and Melinda Jane Steuer for Defendant and Appellant.

Winget Spadafora & Schwartzberg, Brandon S. Reif, David Maurer, and Shanna Javaheri for Plaintiffs and Respondents.

INTRODUCTION

Appellant Jaimie Davis filed an arbitration against respondents WFP Securities, Inc. (WFP), John Evan Schooler, and Curtis J. Sathre, II, seeking to recover money she lost in bad investments they had recommended. The arbitration did not go well for her. The rulings by the three arbitrators who heard her claim were sometimes inconsistent, sometimes unaccompanied by an explanation, and ultimately adverse to her claims. If you bargain for and agree to arbitration, however, you get arbitration, and sometimes the kind of arbitration experience Davis had.

Davis now appeals from an order confirming the arbitration award in favor of WFP, Schooler, and Sathre, expunging all references to the arbitration from Schooler's and Sathre's records, and denying Davis' petition to vacate the award. Davis contends the award must be vacated due to erroneous exclusion of expert testimony and witness intimidation. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

A. The Arbitration

1. Davis' Statement of Claim

Davis initiated arbitration proceedings against respondents before the Financial Industry Regulatory Authority (FINRA).¹ WFP is a member of FINRA. Schooler is WFP's president, and Sathre is a registered representative with WFP.

In her claim, Davis alleged that she was 38 years old and invested almost her entire net worth with respondents. Respondents sold her certain investments,representing that they were safe, income-producing investments. In fact, the investments were unsafe and fraudulent. Had respondents acted with due diligence, they would have discovered the fraud and would have disclosed that information to Davis.

Davis further alleged that respondents placed over $1 million of her money in speculative, illiquid real estate and oil and gas investments, again misrepresenting them as safe, income-producing investments. Davis retired based on respondents' false representations regarding the income these investments would produce.

Davis also alleged that respondents were negligent in recommending and selling these investments to her, violated the duties they owed to her, and were motivated by their personal financial interests. As a result, Davis lost much of the money she had invested. She sought to recover from respondents compensatory damages of more than $2 million, plus punitive damages.

2. Respondents' Answer

In their answer, respondents alleged that Davis had a degree in finance, was a licensed real estate broker and experienced real estate investor, and was a knowledgeable investor who represented that she was able to evaluate investment risk. She was seeking to invest in alternatives to stock, bond, and mutual fund investments, such as investments in real estate and oil and gas. A friend of Davis who was satisfied with Sathre's services referred her to Sathre. Before investing with Sathre, Davis asked questions about the investments and represented that she had read the private placement memoranda or prospectuses describing the investments. During the course of her five-year professional relationship with Sathre, Davis indicated she was satisfied with his services, often reinvested investment proceeds in products he recommended, and referred new clients to him. The relationship changed only after the global financial crisis.

Respondents further alleged that they acted with due diligence in recommending investments to Davis and that the investments were suitable. Davis acknowledged the risks involved in making these investments after reading the private placement memoranda. Problems with some of the investments only surfaced after the economysuffered a financial crisis, and respondents were not responsible for that crisis. Respondents also asserted a number of affirmative defenses, including ratification, equitable defenses, and statute of limitations.

3. Expert Witness Douglas J. Schulz

The arbitration proceeded before a panel of three arbitrators. Two of them, Thomas R. Watkins, the chair of the panel, and Judith Porter, were public arbitrators. The third arbitrator, Gerald C. Tambe, was a non-public arbitrator.²

Davis listed Douglas J. Schulz as a witness on her witness list. Schulz is president of his company and provides professional money management services. According to his curriculum vitae, which Davis submitted as an exhibit, Schulz is a securities consultant who testifies regularly as an expert witness in federal and state courts. Parties retain him to testify about "rules, laws and regulations of the securities industry; norms and guidelines of brokerage firms; suitability of investments and investment strategies; order execution; evaluation of various investments; damage theories; supervision and compliance." He was previously licensed with the Securities and Exchange Commission and is currently licensed as a Registered Investment Advisor.

At an evidentiary hearing on Monday, October 3, 2011 counsel for respondents, Brandon S. Reif, noted that there had been discovery orders for the production of documents, some of which pertained to Schulz, and that Reif had not received them until the previous weekend. Reif stated that he had not had an opportunity to review the documents and wanted the arbitrators to exclude them. Counsel for Davis, William J.Brown, Jr., explained that he had misplaced some of the documents in his office and he had not received other documents until the weekend. When Watkins asked Brown about evidence suggesting that Brown had possession of some the documents in August 2011, Brown repeated that he was unaware the documents were in his office, denied there was "some sort of sandbag," and stated that he sent them to Reif as soon as he had discovered and reviewed them.

Watkins responded that he did not think Brown was trying to sandbag anyone, but stated: "I understand Mr. Reif's concern. I understand your position with respect to how you received them and you got them over. I think that should be acceptable." Reif stated, "That's fine." Watkins continued: "So we can just move on. I don't think they were trying to do anything intentionally to cause [respondents] not to receive the documents in a timely manner according to what Mr. Brown's statement is. I think that that's acceptable. I think we can just go forward now. Whether you're ready or not, that's a choice you will make. I'm not sure how important they are to you at this point given what you have already received and other things you may have been requesting." Reif pointed out that they were not dealing with voluntary production of documents but a discovery order. Watkins stated that he wanted to move forward with the hearing, and "[i]f there's anything that we need to resolve, we'll resolve it."

At the arbitration hearing the next day, October 4, 2011, Brown questioned Schulz about his qualifications, including his education, licensing, and experience. Schulz stated that he had "testified over 600 times under oath," in arbitrations, depositions, and in court. He had "testified on . . . the gamut of investing and securities rules and regulations."

With the panel's permission, Reif conducted a voir dire examination of Schulz. Reif asked Schulz how long it had been since he worked in the brokerage industry, whether he had sold products such as those involved in the arbitration, and about his licensing and experience. Reif also questioned Schulz about his involvement in other cases, his publications, and other aspects of his professional life.

Following the voir dire examination, Reif moved to exclude Schulz as an expert on the grounds "[h]e's got no relevant experience in the area of the brokerage industry to testify as an expert in this case, his NASD licenses are outdated. He hasn't been in the retail business for over 20 years . . . ." Reif also argued that Schulz had "never been a compliance officer in the brokerage industry. He's never supervised a registered representative and he's unqualified therefore to testify about supervision." There also was no evidence Schulz "ever conducted due diligence on any of the products that are at issue here or any products that are similar to the ones at issue here. Clearly based on his prior testimony representing just the claimants and the investing public, publishing a book on how to sue brokers, he's clearly biased." Reif added that "based on the disqualifications [as an expert witness in other cases], deemed untrustworthiness and withdrawal of prior opinions in the securities industry and one of the banking industry, that he's not an expert for purposes of this case and he shouldn't be allowed to provide expert testimony in this matter."

Brown opposed the motion, noting that Schulz had been qualified as an expert in 600 cases and that "[t]he other side was able to point out [only] a handful of cases in which his opinions were explicitly not accepted or somebody tried to exclude him as a witness." In addition, Brown argued that Reif was objecting to the content of Schulz's testimony rather than his qualifications as an expert witness. Brown concluded: "This witness is clearly very...