Mishal v. Venus Capital Management

Filed 7/24/07 Mishal v. Venus Capital Management CA2/5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FIVE

APPEAL from an order of the Superior Court of Los Angeles County, Gregory W. Alarcon, Judge. Affirmed.

Quintana Law Group, Andres F. Quintana, John M. Houkom and Taline M. Gulesserian for Defendants and Appellants.

Law Offices of Marc I. Zussman, Marc I. Zussman and Nazo S. Semerjian for Plaintiffs and Respondents.

___________________________

I. INTRODUCTION

This case arises out of the relationship between an investment advisor and individual investors. Defendants, Venus Capital Management, Inc. (Venus Capital) and Vikas Mehrotra, appeal from an order denying their motion to compel arbitration of the claims brought by plaintiffs, Devadatt (Dr. Mishal) and Surekha Mishal. We conclude there is no written arbitration agreement between plaintiffs and defendants. Accordingly, we affirm the order.

II. BACKGROUND

A. The Complaint

On April 13, 2006, plaintiffs filed a complaint against defendants for: fraud and deceit; negligent misrepresentation; breach of duty to disclose; fiduciary duty breach; professional negligence; and Corporations Code violations. Plaintiffs alleged as follows. In July 1997, Dr. Mishal met with Mr. Mehrotra, the chief executive officer of Venus Capital, an investment advisor. Dr. Mishal advised Mr. Mehrotra plaintiffs wanted to invest their: individual retirement accounts; employee retirement accounts; and profit sharing plan assets. Dr. Mishal explained plaintiffs sought low-risk investments and their objectives were modest growth and preservation of principal. Dr. Mehrotra acknowledged he understood the stated objectives, and defendantsVenus Capital and its chief executive officer, Mr. Mehrotrawould implement a suitable investment strategy. Mr. Mehrotra orally agreed defendants would act as plaintiffs agents for purposes of managing their retirement assets. Mr. Mehrotra also agreed to travel to Los Angeles every three months to keep plaintiffs informed of their accounts status. Plaintiffs subsequently deposited substantial funds in three accounts with defendants. Defendants invested all of those assets in shares of the Venus Value Fund. The Venus Value Fund was a private mutual fund. Defendants managed the Venus Value Fund. Defendants falsely represented the Venus Value Fund met plaintiffs investment goals. The true facts, which defendants knew, were that the Venue Value Fund was an unsuitable investment; it was risky and speculative. If plaintiffs had known the true facts, they would not have invested with defendants. Due to defendants misconduct, plaintiffs lost over $200,000.

B. The Motion to Compel Arbitration

On June 20, 2006, defendants filed a motion to compel arbitration. Mr. Mehrotra declared: from August 1995 through June 1999, he worked as a sales representative for Lombard Securities Incorporated (Lombard); in May 1997, plaintiffs each executed a client account agreement with Lombard; in June 1999, Mr. Mehrotra left Lombard and joined WallStreet Electronica Inc. (WEI) as a broker; and at that time, plaintiffs both signed customer agreements with WEI. In support of their motion to compel arbitration, defendants relied on the arbitration clauses in plaintiffs client account agreements with Lombard and WEI. Plaintiffs opposed the motion to compel arbitration. Plaintiffs argued they had no arbitration agreement with defendants. Rather, the motion to compel arbitration relied on plaintiffs arbitration agreements with third parties. Mr. Mehrotra filed a further declaration in reply. He asserted that all of the investments he secured for plaintiffs were within the scope of his employment with Lombard and later with WEI. The trial court denied the motion to compel arbitration. The trial court ruled there was no arbitration agreement between the parties.

III. DISCUSSION

A. United States Arbitration Act

The parties have not discussed whether the limited preemptive effect of the United States Arbitration Act applies in this case. Generally, cases involving securities transactions in interstate commerce are governed by chapter 1 of the United States Arbitration Act. (9 U.S.C. 1 et seq.; Reed v. Mutual Service Corp. (2003) 106 Cal.App.4th 1359, 1366, fn. 4; Strotz v. Dean Witter Reynolds, Inc . (1990) 223 Cal.App.3d 208, 212, fn. 3, overruled on another point in Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 407; Lewis v. Prudential-Bache Securities, Inc. (1986) 179 Cal.App.3d 935, 940.) But even if an arbitration agreement between these parties would fall within the United States Arbitration Act, it is well settled that the threshold question whether they agreed to arbitrate is governed by state contract law. (Perry v. Thomas (1987) 482 U.S. 483, 492; Banner Entertainment, Inc. v. Superior Court (1998) 62 Cal.App.4th 348, 356-357; Cione v. Foresters Equity Services, Inc. (1997) 58 Cal.App.4th 625, 632-633, fn. 6, 634; Cheng-Canindin v. Renaissance Hotel Associates (1996) 50 Cal.App.4th 676, 683; Chan v. Drexel Burnham Lambert, Inc. (1986) 178 Cal.App.3d 632, 640; Baker v. Aubry (1989) 216 Cal.App.3d 1259, 1263; see Platt Pacific, Inc. v. Andelson (1993) 6 Cal.4th 307, 313 [Private arbitration is a matter of agreement between the parties and is governed by contract law].)

B. Standard of Review

Code of Civil Procedure section 1281.2 states in 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 . . . . (Italics added.) The arbitration agreement must be in writing. (Magness Petroleum Co. v. Warren Resources of Cal., Inc. (2002) 103 Cal.App.4th 901, 907; Law Offices of Ian Herzog v. Law Offices of Joseph M. Fredrics (1998) 61 Cal.App.4th 672, 677.) The Courts of Appeal have held: [A petition to compel arbitration under Code of Civil Procedure section 1281.2] is simply a suit in equity seeking specific performance of a contract to arbitrate. (Engineers & Architects Assn. v. Community Development Dept. (1994) 30 Cal.App.4th 644, 653.) (Banner Entertainment, Inc. v. Superior Court, supra, 62 Cal.App.4th at p. 356; Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284.) The party seeking an order to arbitrate bears the burden of establishing that a valid arbitration clause exists. (Rosenthal v. Great Western Fin. Securities Corp., supra, 14 Cal.4th at p. 413; Banner Entertainment, Inc. v. Superior Court, supra, 62 Cal.App.4th at p. 356.) If there is no agreement to arbitrate, the petition to compel arbitration must be denied. (Banner Entertainment, Inc. v. Superior Court, supra, 62 Cal.App.4th at p. 356; Engineers & Architects Assn. v. Community Development Dept., supra, 30 Cal.App.4th at p. 653.) As the Court of Appeal has held: [T]he policy favoring arbitration . . . does not extend to those who are not parties to [an arbitration] agreement. [Citation.] (Boys Club of San Fernando Valley, Inc. v. Fidelity & Deposit Co. (1992) 6 Cal.App.4th 1266, 1271, citing Rhodes v. California Hospital Medical Center (1978) 76 Cal.App.3d 606, 609; accord, Banner Entertainment, Inc. v. Superior Court, supra, 62 Cal.App.4th at p. 356.) When, as here, there is no conflicting extrinsic evidence, our review of the trial courts order is de novo. (Bono v. David (2007) 147 Cal.App.4th 1055, 1061-1063; Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 266-267.)

C. There Is No Arbitration Agreement Between The Parties

Defendants frame the question in this case as, [W]hether an agent or employees acts in servicing clients of his employer are entitled to the protection of an arbitration agreement entered into between the client and the corporate employer. Defendants assert: plaintiffs began their association with defendants in the same year the Lombard arbitration agreements were signed; those agreements bind the parties agents or employees; Mr. Mehrotra was still working with plaintiffs when he moved from Lombard to WEI; and plaintiffs then signed the WEI arbitration agreements. Defendants argue: a corporation can and must only act through its employees; the acts of Lombard and WEI and Mr. Mehrotra were the same; having the corporations enter into the [arbitration agreements] with Plaintiffs is tantamount to having [Mr.] Mehrotra enter into the same agreements; and plaintiffs claims arise out of alleged acts which occurred while the arbitration agreements were in effect.

The flaw in defendants argument is that plaintiffs claims are not against Lombard or WEI; they are against Venus Capital and Mr. Mehrotra. Whether Mr. Mehrotra would be entitled to the protection of arbitration agreements between plaintiffs and Lombard or WEI is irrelevant. The question in this case is whether there is a written agreement to arbitrate between plaintiffs and defendants, Venus Capital and its chief executive officer, Mr. Mehrotra. If plaintiffs had entered into a contract containing an arbitration clause with Venus Capital, Mr. Mehrotra could argue he was entitled to the benefit of that agreement. (See, e.g., Dryer v. Los Angeles Rams (1985) 40 Cal.3d 406, 418; Michaelis v. Schori (1993) 20 Cal.App.4th 133, 139.) But here, the asserted arbitration agreements are in contracts between Lombard and WEI. Plaintiffs have not alleged breach of any contract with Lombard or WEI. Plaintiffs have not alleged breach of any agreement Mr. Mehrotra entered into as an agent or employee of Lombard or WEI. Plaintiffs have not asserted Lombard or WEI engaged in any wrongful conduct. Plaintiffs allege breach of an agreement with Venus Capital and its chief executive officer, Mr. Mehrotra. There is no written arbitration agreement between the parties. Even if it would otherwise suffice, the oral agreement between plaintiffs and defendants did not include an arbitration provision. In short, there is no arbitration agreement between the parties to this action.

IV. DISPOSITION

The order denying the motion to compel arbitration is affirmed. Plaintiffs, Devadatt Mishal and Surekha Mishal, shall recover their costs on appeal jointly and severally from defendants, Venus Capital Management, Inc. and Vikas Mehrotra.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

TURNER, P. J.

We concur:

ARMSTRONG, J.

KRIEGLER, J.

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