Wendt v. UBS
Financial Services
Filed 8/6/13
Wendt v. UBS Financial Services CA2/1
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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115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 ONE
MARGARET A. WENDT,
Plaintiff and
Appellant,
v.
UBS FINANCIAL SERVICES, INC.,
Defendant and
Respondent.
B241887
(Los Angeles County
Super. Ct. No. BC421811)
Appeal from a judgment of the Superior Court of Los
Angeles County, David L. Minning, Judge. Affirmed.
Law Office of Jed Gladstein and Jed Gladstein for
Plaintiff and Appellant. Keesal,
Young & Logan, Neal S. Robb, Bentley P. Stansbury III, and Bryan A. Gless
for Defendant and Respondent.
——————————
Plaintiff Margaret
Wendt appeals from the trial court’s order compelling her to arbitrate her
dispute with defendant UBS Financial Services, Inc. (UBS) and the judgment confirming
the resulting arbitration award. Plaintiff contends no agreement to arbitrate
exists because as a result of her multiple sclerosis, she cannot read documents
and UBS knowingly failed to inform her the brokerage contracts she executed
with it contained an arbitration provision.
She further contends that we may conduct a review of the arbitration
award because it implicated her nonwaivable
will disclose that the trial court erred in confirming the arbitration
award. We affirm.
FACTUAL BACKGROUND AND PROCEDURAL
HISTORY
A. Motion to Compel Arbitration
1. Plaintiff’s Complaint
On September 15, 2009, plaintiff filed a complaint alleging that she
had suffered losses in connection with her brokerage account with UBS that was
handled by UBS representative Stanford Baer (Baer). Plaintiff’s operative first amended complaint
filed November 9, 2009,
alleged that she suffers from Multiple Sclerosis (MS) and as a result, has a
cognitive dysfunction making it difficult for her to read and understand
documents—in particular documents involving numbers and financial matters. Plaintiff alleged she had originally worked
with Baer at Wells Fargo Bank, where she had an investment account he handled
for her. Baer knew of plaintiff’s
cognitive difficulties, and that plaintiff was in special need of his personal
fidelity and sober business judgment.
Plaintiff told Baer that she did not want to lose a nickel of her money
and would rather invest in bonds.
At an unspecified time, at Baer’s urging, plaintiff moved
her account from Wells Fargo to UBS, where Baer continued to handle her
account. Sometime in the summer of 2007,
plaintiff received information that led her to believe it was not safe to be
invested in financial securities, and asked Baer to divest her of all such
holdings. Baer told plaintiff she was
mistaken, but told her he would sell such securities; however, he did not do
so. On the contrary, plaintiff alleged
that Baer invested an additional $50,000 in a new financial security issued by
Lehman Brothers. By having plaintiff so
heavily invested in the stock market, UBS failed to honor her conservative
investment objectives.
In July 2008, Baer left UBS and moved to Merrill
Lynch. Unbeknownst to plaintiff while
she was at UBS, at Baer’s behest, she had replaced an ordinary Wells Fargo
mortgage with one requiring repayment in full upon transfer of her
account. UBS would not permit plaintiff
to follow Baer to Merrill Lynch until she paid off her mortgage. As a result, plaintiff was unable to transfer
her account at a time when stock values were falling and she was prevented from
divesting her account of risky securities, resulting in a substantial loss of
her investment portfolio. At this time,
UBS assigned plaintiff’s account to Robert Lovitt, who refused to trade any of
plaintiff’s holdings unless she signed a document cancelling her transfer to
Merrill Lynch. Plaintiff sustained
substantial losses as a result of Lovett’s continuing refusal to sell her
securities during the period July to September 2008.
Plaintiff’s first amended complaint stated claims for
negligence, breach of fiduciary duty, negligent misrepresentation, intentional
misrepresentation, intentional infliction of emotional distress, invasion of
privacy, financial elder abuse, and discrimination in violation of the Unruh
Civil Rights Act.
2. UBS’s Motion to Compel Arbitration
On December 9, 2009, UBS filed a motion to compel arbitration and
stay proceedings. UBS asserted that
plaintiff had signed a total of eight valid agreements to arbitrate with UBS
between May 2004 and January 2008. The
first four were signed in May 2004 when plaintiff opened four investment
accounts with UBS. Each of the
arbitration agreements was contained in plaintiff’s brokerage agreements.
subsequent agreements were executed in September 2005, October 2005, September
2007, and January 2008.
Plaintiff’s opposition asserted that due to her
long-standing MS, she never understood that in signing the brokerage agreements
that she had also agreed to arbitrate all disputes, and UBS’s fraud in
misrepresenting their contents negated her consent. She made her disability clear to Baer, and he
understood that she would not be able to read any documents he asked her to
sign; in turn, plaintiff reasonably relied on Baer’s statements regarding the
contents of the documents. Under
Corp. (1996) 14 Cal.4th 394 (Rosenthal),
her agreement to arbitrate was void as the product of fraud in the execution.
Plaintiff’s declaration stated that she is a television
producer, reporter, and spiritual journalist.
Her television shows focus on the paranormal, which is her area of
expertise. She suffers from MS and as a
result has cognitive impairment; she is unable to understand or read numerical
concepts or process numbers. Plaintiff
cannot use a computer or read complicated materials. Reading numbers causes her to have panic
attacks; she cannot balance a checkbook or use a calculator. Although her symptoms became apparent at age
18, she was not diagnosed with MS until age 30, and at the time of the motion
to compel was 60 years old. Until 1997,
she was married to Ben Webster, a successful entrepreneur who handled the
couple’s finances. In 1998, she was
widowed, and inherited a small portion of Webster’s estate. She employs Marvin Grossman, an accountant,
at a salary of $5,000 per month to review her bank statements and bills. She trusted Baer to keep her advised of her
financial portfolio.
As a result of plaintiff’s condition and the death of her
husband, she relies heavily on financial advisors to inform her verbally
regarding documents she is executing.
She entrusted her money to Bank of America, and later Wells Fargo after
her advisor Brian McDermott moved there.
McDermott introduced plaintiff to Stanford Baer, stating Baer was one of
the best advisors at Wells Fargo.
Plaintiff instructed Baer that she preferred conservative
investments. Baer told her that he was
moving to UBS, and from what he had told plaintiff, she believed her account
was doing well.
When Baer moved to UBS, he requested that she sign
documents that he explained were to transfer her account to UBS. She signed whatever documents he requested
her to sign without reading them and signed them based upon his
explanation. Some of the documents were
just the signature page, and Baer seemed to be in a rush to have her sign
them. Had she known the UBS agreements
contained an arbitration clause, she would not have signed them. Further, the papers specified her investment
objective was “moderate,†rather than “conservative.†Plaintiff is not a sophisticated investor.
In reply, UBS asserted it never misrepresented the nature
of the brokerage contracts to plaintiff.
On the contrary, UBS was not under a duty to explain the documents to
her; rather, plaintiff had a duty to read and review the agreement before
signing it. UBS submitted declarations
contesting plaintiff’s inability to read documents. Baer’s declaration stated he began serving as
plaintiff’s financial advisor in November 2003, and moved to UBS in April 2004. Baer left UBS in July 2008 and moved to
Merrill Lynch. When plaintiff opened her
UBS account, Baer did not explain the terms of the account application or
account agreement. At the time plaintiff
executed the agreement, Baer believed she had been investing for many years and
had transferred her account to different brokers a number of times and thus did
not need, nor did she request, that he explain the terms of the agreements to
her. Most importantly, at no time that
Baer handled the account did plaintiff tell him that she had trouble processing
numbers or numerical concepts. Although
Baer did not recall whether plaintiff told him she had MS, he did recall that
she never informed him of any cognitive difficulties.
In July 2008, another Merrill Lynch advisor, Robert
Lovitt, took over plaintiff’s account.
Lovitt, who handled plaintiff’s account from July 2008 to January 2009,
did not recall plaintiff ever telling him that she had any cognitive
impairments or difficulty processing numbers.
In August 2008, he attended a meeting with plaintiff and her accountant
Marvin Grossman at which they discussed a cash flow report, a sector allocation
report, an asset allocation report, and a snapshot of her account. Lovitt personally observed plaintiff
reviewing the documents and she did not mention having any difficulty doing so.
At the hearing, UBS pointed out that, as the moving
party, it did not have the burden to establish the plaintiff’s failure to read
the documents was reasonable. Rather,
plaintiff needed to establish her failure to read the agreements was reasonable
given her condition. In that regard,
plaintiff failed to submit admissible evidence that she suffered from a
recognized medical condition that would prevent her from reading words on a
page; there was no medical declaration from her physician. Thus, plaintiff’s condition—an aversion to
reading numbers—was not tantamount to blindness and thus did not bring her
within the holding of Rosenthal,
requested the court to postpone its ruling to give her an opportunity to
present evidence of her medical history, and she had a right to rely on Baer
because he was her fiduciary. UBS
countered that plaintiff had ample opportunity to procure her medical records.
The court granted the motion
to compel arbitration and stay plaintiff’s pending superior court
action. The court found there was no
medical documentation to support plaintiff’s claim that she suffered from MS
and as a result had cognitive difficulties understanding numbers; further, there
was no evidence from which the court could find her failure to read the
agreements was not the result of negligence.
Rather, plaintiff was confronted with eight arbitration agreements which
contained arbitration provisions, and admitted that she paid Grossman $5,000
annually to manage her money and administer her checking account—all of which
indicated that plaintiff could have learned of the terms of the UBS agreements
had she chosen to do so.
Motion for Reconsideration
Plaintiff filed a motion for reconsideration in which she
argued that the admissibility of her declaration was not raised by UBS, the
relevant law on the issue was not before the court when it considered UBS’s
motion to compel. As a result, plaintiff
submitted additional evidence and additional legal authorities on the issue of
a party’s ability to testify to his or her own illness in support.
Plaintiff submitted the declaration of Joseph Francis
Hahn, M.D., who was not her treating physician and who is not a neurologist, in
which he stated that he was neighbors with plaintiff when she was stricken with
MS in 1982. Dr. Hahn stated that MS can
affect many parts of the nervous system, and some sufferers of MS have
cognitive impairment. Often such people
do not appear to have anything wrong with them, but with cognitive impairment
caused by MS, such people might not be able to make sense of financial
documents.
Plaintiff also submitted the declaration of Marvin
Grossman, plaintiff’s personal accountant.
In that capacity, Grossman reviewed her bank and investment statements
but did not make investment decisions for plaintiff. Plaintiff did not have a financial background
and did not have the ability to manage her financial affairs, and based on
Grossman’s observations, she did not understand financial documents. At the time plaintiff moved her account to
UBS, Grossman witnessed plaintiff being shown financial documents by Baer, who
did not explain them to her; plaintiff did not read the documents, which were
not filled out. No one at UBS asked
Grossman to review the documents, and plaintiff did not ask him to do so
because she was relying on UBS to explain the documents to her.
Plaintiff submitted the declaration of Albert Thomas
Wendt, her husband during the period 1969 to 1989. Wendt observed plaintiff was not able to
function well with numbers, and first manifested this inability in 1970. Plaintiff could not read the menus in
restaurants, and could not handle money at the market. When in restaurants, she would hold up a menu
and pretend to read it, and then order what others ordered or what the waiter
suggested. After the birth of their
third child in 1980, plaintiff had difficulty seeing, slurred her speech, and
had trouble walking. In 1982 plaintiff
collapsed and spent several weeks at the Cleveland Clinic, where she was
diagnosed with MS. Wendt helped
plaintiff with her professional work by transcribing documents which plaintiff
would verbally edit. After they divorced
and plaintiff moved to California, Wendt helped her with the purchase of her
home.
Plaintiff submitted medical documentation establishing
she suffered from MS.
Plaintiff’s declaration discussed the onset of MS and her
development of coping mechanisms.
Plaintiff was a straight-A student in college, and would have obtained a
degree at Elmhurst College in Illinois except that her husband Tom Wendt was
transferred to Iowa. Over the course of
her 40-year professional career, plaintiff has been a fashion manager at
Carson, Tiere, Scott (a department store chain in Chicago), did a morning
television program for NBC, and a North Coast Magazine Sunday morning
television show for CBS, which was the lead-in for Charles Kurault’s Sunday “On
the Road†show. Plaintiff worked on
CBS’s PM Magazine, a syndicated television show in which she did the style,
society, and entertainment segments.
Plaintiff was also a medical and consumer reporter for the nighttime
news. After her divorce from Wendt,
plaintiff moved to California and began producing her own documentaries
emphasizing spiritual topics, people, and events. She partnered with Roland Perkins of CAA to
create, write and co-produce Psychic Chronicles for Paramount Pictures. When she married Ben Webster, she moved to
Canada for five years, where she helped her husband as his vice president of
human resources. Although all of these
positions required her to function at a high level, none of them required her
to read and make sense of financial and legal documents. She relies on other people to explain legal
and financial documents related to her job duties because she is incapable of
reading them.
When she was widowed in 1997 and moved back to
California, she had accumulated a nest egg and contacted Bank of America to set
up an account with Brian McDermott. When
McDermott moved to Wells Fargo, she moved with him. McDermott gave the account to Baer. Plaintiff did not have occasion to mistrust
Baer, and he seemed genuinely concerned about plaintiff’s well being and the
need to preserve her life savings. She
explained her problem reading financial documents to Baer. Her relationship and dealings with Baer were
very good while she had her accounts at Wells Fargo. However, after she went to UBS, she lost her
savings.
She remembered signing the contracts with UBS. Baer insisted on signing the documents on a
particular day, although plaintiff was busy.
She made time for him, but he was late, and when he arrived, plaintiff
was ready to leave. They hurriedly
signed the papers, and plaintiff remembers only being handed signature pages.
Plaintiff’s attorney’s declaration stated that he
attempted to compile medical records relating to plaintiff’s long-standing
affliction with MS in response to the motion to compel arbitration, but many of
the medical records were more than 20 years old and had been destroyed, and her
initial treating physician in 1982 was deceased. However, several days before the hearing,
they received plaintiff’s medical records from 1982 establishing plaintiff’s
initial diagnosis with MS.
Jane Wang, M.D., a doctor specializing in neurology, was
plaintiff’s treating physician, and had known plaintiff since 2005 and assisted
her in connection with plaintiff’s diagnosis of MS.
UBS’s opposition asserted that plaintiff could not rely
on Rosenthal, supra, 14 Cal.4th 394 because
plaintiff did not allege that Baer misrepresented the nature of the contract,
but instead asserted Baer’s failure to interpret the contract for her, and in
any event, she could not demonstrate reasonable reliance on any purported
misrepresentations because she had eight opportunities to review the contract
before signing it.
In reply, plaintiff submitted a declaration in which she
claimed she told Lovitt about her cognitive problems, and disputed his version
of events. Her attorney submitted a
declaration in which he detailed his efforts to obtain plaintiff’s 1982 medical
records. A colleague of plaintiff
submitted a declaration stating that she knew of plaintiff’s disability and observed
that plaintiff became very flustered and disoriented when required to read
documents having to do with figures and financial information.
At the hearing, plaintiff argued that a party may testify
to their own medical condition. The
trial court denied plaintiff’s motion for reconsideration because there was no
new evidence or law.
B. UBS’s Motion for Confirmation of
Arbitration Award
Arbitration Briefs
Plaintiff’s statement of claim filed in the
arbitration stated she has suffered from MS for over 30 years, which causes her
to have difficulty reading certain kinds of documents, including contracts and
other writings relating to her finances and investments. When she attempts to read such documents, the
letters start to move around on the page, she becomes disoriented and dizzy,
and goes into a panic. As a result, she
is dependent upon others to explain the meaning of documents.
Following the death of her husband in 1997, plaintiff
invested her life savings in bonds with Wells Fargo, where Baer became her
financial advisor. She relied on Baer
for all matters connected with her portfolio, and told Baer about her
disability. In early 2004, Baer left
Wells Fargo to work for UBS. At that
time, Baer asked plaintiff to move her portfolio to UBS. Baer put some papers in front of her and
asked her to sign the signature pages, stating the papers would allow him to
move her account to UBS. He did not show
her the rest of the documents, nor did he explain them. It was not until 2010 when plaintiff filed
this action that she saw the account agreements and learned that her level of
acceptable risk was “moderate†instead of “conservative†and her secondary risk
profile was “aggressive/speculative†rather than “conservative.†Plaintiff never agreed to these account
profiles. Indeed, following his move to
UBS, Baer put plaintiff’s money in over 120 stocks without her knowledge and
consent, and concealed this fact from her.
Baer convinced her to pay off her Wells Fargo mortgage and replace it
with a UBS mortgage with a rate that he claimed was better, and he failed to
tell her the mortgage would need to be paid off if she ever left UBS. When Baer wanted to move to Merrill Lynch in
2008, she could not move with him unless she paid off the mortgage. In August 2008, she met Lovitt and for the
first time learned her money was in 120 different stocks. While the market was in a state of
precipitous decline, Lovitt refused to allow her to sell her stocks unless she
received authorization to transfer her portfolio to Merrill Lynch—a move which required
her to pay off the UBS mortgage.
Therefore, for several weeks, she struggled to make enough money to pay
off the mortgage and a line of credit.
In January 2009, she was finally able to do so, but in the interim, she
had lost about $750,000. During this
time, plaintiff alleged that Lovitt and other UBS employees acted with
indifference to plaintiff’s financial welfare and in disregard of her physical,
mental, and emotional wellbeing. When
plaintiff learned that a large portion of her savings had been lost, she asked
UBS to assume financial responsibility for her losses, and UBS’s attorney
responded, “[w]e didn’t leave you enough money to sue us.â€
Plaintiff asserted claims for
intentional misrepresentation, unauthorized trading, unsuitable investing,
invasion of privacy, failure to supervise, intentional infliction of emotional
distress, financial abuse of a dependent adult, unfair and deceptive business
practices, and violation of the Unruh Civil Rights Act. Plaintiff asserted that UBS and its
employees, including Baer and Lovitt, failed to invest her money properly, and
UBS failed to properly supervise Baer and Lovitt, and that its conduct caused
her severe emotional distress. Plaintiff
sought economic and noneconomic damages of $750,000, $750,000 for pain and
suffering, and statutory treble damages for $2.250 million for unfair business
practices, punitive damages, interest, and attorney fees.
UBS responded that plaintiff executed numerous documents
stating that her investment objectives and risk tolerance were moderate and
that she sought income and capital appreciation. Further, plaintiff had served as vice
president of finance for Helix Investments, her husband’s investment company;
served as the vice president of a Fortune 500 company; and served as the host
of a radio program and television producer, writer and reporter for over 25
years. During the time plaintiff had her
investments at UBS, she invested through Goldline International and hosted an
internet program devoted to investing in precious metals through Goldline.
Baer first served as plaintiff’s financial advisor in
November 2003. Her first investment was
$100,000, which she discussed in detail with Baer. In May 2004, when Baer moved to UBS,
plaintiff met with him to address the objectives of her account. She represented that she had a $4 million net
worth, 10 years experience investing, and executed numerous documents
expressing her investment objectives as moderate-aggressive-speculative; her
risk tolerance appeared on her account statements every month. Plaintiff transferred approximately $2
million in a diversified portfolio from Wells Fargo to UBS. Plaintiff spoke with Baer about all transactions
in her account, and plaintiff’s monthly statements detailed the allocation of
her investments. During the period May
2004 to December 2007, plaintiff saw her account profit by $540,000. In October 2004, plaintiff took out a $1
million credit line with UBS with a variable interest rate. Initially plaintiff borrowed $25,000 against
the credit line, and an additional $263,000 in October 2007.
In January 2008, plaintiff opened additional accounts
with UBS valued at approximately $264,000 containing UBS stock, a Wells Fargo
bond, and a structured product linked to a currency basket. Plaintiff did not conduct many transactions
in this account. In January 2008, she
used profits from this account to buy a Lehman Brothers structured product; in
September 2008, Lehman Brothers filed for bankruptcy protection.
At the time Baer left UBS in July 2008, plaintiff elected
to transfer her accounts along with him.
Plaintiff had a $250,000 loan collateralized by the investments she
intended to transfer out of UBS; thus, she could not transfer the collateral to
Merrill Lynch unless the loan was paid off.
When Lovitt took over plaintiff’s accounts, he met with plaintiff and
Grossman. Plaintiff elected to pay off
the UBS loan and by January 2009 had transferred her assets out of UBS.
UBS asserted that it consulted with plaintiff over all of
her investments and properly discharged any duties it owed to plaintiff.
2. Conduct of the Arbitration
The arbitration was conducted before a panel of
arbitrators of the Financial Industry Regulatory Authority (FINRA), and the
parties mutually selected FINRA arbitrators in March 2011. The arbitration took place in October and
November 2011. The proceedings were
recorded manually and on tape.
Plaintiff submitted a lengthy declaration dated August
18, 2011 in which she detailed her life with MS, explained why she cannot
understand financial documents, how she copes with MS, her dealings with Baer,
Lovitt, and UBS, how she was risk-averse financially, Baer’s departure from UBS
and her portfolio’s decimation.
Plaintiff detailed how she had found “coping mechanisms to do things
that other people can do normally. . . . I began to
watch every word people said, and to imprint what they said to my memory. That is one of the primary ways I have been
able to figure out what is going on in the world. And that particular skill served me
professionally . . . . It allowed me to develop a
career as an on-camera television personality
. . . . Fortunately, the networks allowed their ‘talent’
to put extra shows in the can in advance, so I was able to have three or four
shows ready to run if I had an attack that kept me from showing up at
work.†Plaintiff handled her condition
with discretion because she found out she would be fired if people knew she had
MS; she knew when to ask for help and when not to talk about it. The producers of her television shows
accommodated her disability, and she developed personality skills and got jobs
where she could memorize lines or ad-lib.
Later, plaintiff became a television producer and developer of her own
shows.
Plaintiff would suffer from severe stress, consisting of
hallucinations, panic attacks, vertigo, and fainting, when confronted with
personal matters of emotional importance.
Her first husband took care of her contracts and their legal and
financial matters during their marriage.
After her divorce, plaintiff had to rely on other persons to explain
documents to her. In 1996, plaintiff
married Ben Webster, a wealthy businessman who owned Helix Investments. During her two-year marriage to Webster, who
died in 1997, plaintiff’s finances were handled by Webster. Webster put plaintiff on the board of
directors of Helix and other companies; because he valued her people skills, he
made her director of human resources at Helix.
After Webster’s death, plaintiff returned to Los Angeles with about $3
million that she inherited from Webster.
Webster had told her never to put her money in stocks.
After her return to Los Angeles, plaintiff worked as a television
host, writer, producer, director, and consultant. She worked on television specials and series,
including American Idol, Band of Brothers, Into the Unknown, America’s Psychic
Past, and JFK: A Hero in Question.
Plaintiff’s day-to-day finances were handled by Bridgett Ryan and Marvin
Grossman became her accountant.
Plaintiff explained to Grossman that MS made it impossible for her to
read and understand everyday bills, bank statements and other financial documents. Grossman agreed to spend a few hours once or
twice a month with plaintiff going over her bills, but Grossman was not her
financial advisor.
Plaintiff told Baer she wanted to remain in conservative
investments, and they agreed that he would never let her principal drop below
$2 million. However, while at Wells
Fargo and UBS, he put her money in stocks.
Plaintiff had lost some money at Wells Fargo with a different broker,
and Baer told her he would make the money back at UBS. Baer had her sign a document in October 2004
that opened a line of credit at UBS, and in May 2006 she sent him a fax
authorizing her to borrow $10,000 on a UBS loan account, but she did not
understand what the documents were for.
Plaintiff put a numerology radio show on her website in 2007, and
consulted a numerologist who told her the stock market would be getting bad in
2008. She called Baer and asked that he
put her money in cash. He reassured her
that nothing would happen to the market and that he was putting her money in
cash. Up until the time Baer left UBS,
she believed her money was safe.
The first plaintiff learned of the UBS loan was in July
2008 when Baer left UBS. When she tried
to follow him to Merrill Lynch, UBS would not transfer her funds unless she
paid off a $230,000 loan on her daughter’s condominium. At the time in July 2008 when Baer told her
he was leaving UBS, he wanted to meet plaintiff at a restaurant. Grossman agreed to go with plaintiff. Baer was in a hurry and said he wanted to get
his clients out of UBS before it found out he was leaving. Baer gave her a piece of paper to sign, and
the next day came by with more papers for her to sign. Baer told her it would take a couple of days
to transfer her account to UBS and conditions were bad and he wanted to get her
money into cash. UBS called her but she
did not answer the phone. Grossman
advised her to answer the phone because he thought the situation with Baer was
“fishy.†The next time UBS called, she answered
the phone, and it was Lovitt. Lovitt
gave her a sales pitch. She told him she
was going with Baer. The next day Lovitt
called and told her the paperwork was not in order and what she had signed was
not valid. Plaintiff learned the truth
about the mortgage on the condo and that she would have to pay it off to leave
UBS. Baer told her none of it was true,
and told her to tell Lovitt to sell into the rally. She found out Lovitt did not sell her stocks
as she asked him. She did not know what
was going on with her money or her account, or how much money she was
losing. Lovitt called her and called her
names and was very insulting. She found
his behavior to be sleazy, and she later learned Lovitt had called Grossman to
complain about her. Later, Lovitt called
to apologize, but during the month of July 2008 he continued to tell her that
she could not transfer her money without paying off the loan. At the end of July she learned that Baer had
put her money in stocks.
During July 2008, because she could not trade, her assets
dwindled. Plaintiff enlisted the help of
a friend to get her money out of UBS.
When she got her money, she only had $732,000 left. During the time she was with UBS, it violated
her privacy by sending her statements to her children. As a result of UBS’s conduct, she has
suffered from emotional distress and physical problems, including aggravation
of her MS, high blood pressure, and stomach ulcers. In 2008, she fell three times, broke her
ankle and leg on separate occasions, and in January 2009, she had a heart attack.
After the presentation of plaintiff’s case in chief
before the arbitrators, on November 23, 2011, UBS moved to dismiss on the
grounds plaintiff had presented no evidence that her investment accounts lost
money while at UBS. UBS argued that plaintiff
admitted making false statements in her declaration filed in the trial court
because she believed she would lose her case.
UBS argued that plaintiff had presented no evidence that it was
negligent, breached a fiduciary duty, made misrepresentations, conducted any
unauthorized transactions in her account, made unsuitable investments, invaded
her privacy, or engaged in any other wrongful conduct. On the contrary, the evidence contradicted
plaintiff’s claims and showed that she presented no evidence in support of
them: for example, she sent an email in
November 2006 stating, “should I take a loan from my line of credit or take
stock money†and she permitted her son to receive copies of her
statements. Finally, plaintiff presented
no evidence in support of her damages.
Plaintiff’s opposition argued that the arbitrators were
ignoring her evidence, the UBS attorneys were causing plaintiff emotional
distress, the arbitrators ignored plaintiff and refused to listen to her, one
of the arbitrators was always looking at his computer, and plaintiff felt
belittled and demeaned. Plaintiff
disputed the factual basis of the motion, contending that when she left UBS,
she only had $750,000 left.
On December 8, 2011, the arbitrators heard the motion to
dismiss by way of telephonic hearing. On
December 9, 2011, the arbitrators granted the motion to dismiss.
In December 2011, plaintiff made a request for immediate
suspension of the arbitrators based upon bias and other wrongful conduct of the
arbitrators. On January 18, 2012,
FINRA responded to plaintiff’s letter, denying her request but offering
plaintiff the opportunity to challenge
the panel pursuant to FINRA Rules. FINRA
requested a response by January 25, 2012.
On January 26, 2012, plaintiff declined by fax to challenge the
arbitrators.
2. The Arbitrator’s Award, Motions for
Confirmation and Vacation
On February 3, 2012, the arbitrators served their
award, finding in favor of UBS and dismissing plaintiff’s claims in their
entirety. The award contained no
findings of fact or other written analysis of plaintiff’s case. The arbitrators charged $22,200 in forum fees
to plaintiff, and $1,800 to UBS.
On March 12, 2012, UBS moved to confirm the
award. Simultaneously, plaintiff moved
to vacate the award, contending she was compelled to go to arbitration in
violation of law, and FINRA panel of arbitrators harbored bias. Her counsel’s declaration stated that
“despite the expedited nature of the arbitration due to plaintiff’s Multiple
Sclerosis, the arbitrators postponed the hearing for months in order to accommodate
the vacation plans of UBS’[s] counsel.
The unctuous deference with which the arbitrators treated counsel for
UBS was so blatant that when objections were made to his behavior during the
course of the hearing, the arbitrators pronounced rulings without giving
plaintiff the opportunity to be heard on the
objections. . . . Despite their claim to have read
plaintiff’s pleadings and considered her evidence, the statements of the
arbitrators on the record showed that they did not do so. And when they thought they were in a private
session but forgot to turn off a live video feed to an adjacent room, the
arbitrators were caught on television admitting that they would not read and
consider some of the most cogent and compelling evidence showing how UBS was
able to deceive and defraud the plaintiff due to her MS cognitive
disabilities.â€
In opposition to
plaintiff’s motion to vacate, UBS argued that plaintiff failed to establish
that the award was procured by bias, fraud, corruption, or other undue means,
and instead only offered vague and conclusory allegations. On the contrary, the arbitrators rescheduled
hearings at plaintiff’s request; installed audio/visual equipment so that
plaintiff could have her own room to watch the proceedings via closed-circuit
television; permitted plaintiff to present some testimony by way of her lengthy
declaration; and scheduled the arbitration to accommodate UBS’s counsel’s need
to attend a meeting during one week. UBS
also contended that plaintiff failed to specify what evidence the arbitrators
refused to admit and failed to make any showing of evidence that would have
affected the arbitrators’ conclusion.
On April 5, 2012, the trial court confirmed the
arbitration award in favor of UBS, and on April 25, 2012, entered judgment in
favor of UBS.
DISCUSSION
I. Formation
of Arbitration Agreement
Plaintiff argues that the
motion to compel arbitration established fraud in the execution of the UBS
agreements signed May 3, 2004; on this issue the evidence established she was
incapable of reading and understanding the signature page Baer handed to her to
sign. Further, the evidence established
Baer had a confidential relationship with plaintiff because he had handled her
account prior to her coming to UBS, and she was not negligent for failing to
consult her accountant concerning the meaning of the UBS agreement because her
accountant only handled her checking account.
Finally, she argues the trial court erred in denying her motion for
reconsideration because she had the right to testify to the symptoms of her
disease, and in ignoring the declarations she submitted in support of her
opposition. UBS counters that plaintiff
never informed either broker (Baer or Lovitt) that she had difficulty
processing numbers or a cognitive
aversion to financial documents, nor was there any medical documentation to
support her claim of such a cognitive difficulty, and plaintiff’s motion for
reconsideration did not put forth any new facts or law and was properly denied.
to Arbitrate
Code of Civil Procedure section 1281
are “valid, enforceable and irrevocable, save upon such grounds as exist for
the revocation of any contract.†Under
section 1281.2, a party may petition the court to order arbitration of a
controversy; the court may deny the petition if it finds the party resisting
arbitration did not agree to arbitrate.
Such petitions are determined in the manner provided by law for the
making and hearing of motions.
(§ 1290.2.) The petitioner
bears the burden of proving an arbitration agreement. The party claiming a defense bears the burden
of proving the defense. (
413.) We review the trial court’s
resolution of factual issues for substantial evidence. (NORCAL
Mutual Ins. Co. v. Newton (2000) 84 Cal.App.4th 64, 71.)
A court can consider a claim that a party was
fraudulently induced to include an arbitration clause (as is the case here) in
a contract. (Prima Paint v. Flood &
Conklin (1967) 388 U.S. 395, 402–404 [87 S.Ct. 1801, 18 L.Ed.2d 1270];
15 Cal.4th 951, 973.) Parties dealing at
arm’s length generally owe no duty to explain the terms of a contract. A party’s failure to explain to the other the
meaning and effect of an arbitration clause is ordinarily not a fraudulent
nondisclosure of facts. (
Cir. 1988) 841 F.2d 282, 286–287; Madden
v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 710 [party is presumed
to have read contract and know its contents].)
“California law . . . requires that the plaintiff,
in failing to acquaint himself or herself with the contents of a written
agreement before signing it, not to have acted in an objectively unreasonable
manner. One party’s misrepresentations
as to the nature or character of the writing do not negate the other party’s
apparent manifestation of assent, if the second party ‘had reasonable
opportunity to know of the character or essential terms of the proposed
contract.’†(Rosenthal, supra,
execution, . . . plaintiffs must show their apparent assent
to the contracts—their signatures on the client agreements—is negated by fraud
so fundamental that they were deceived as to the basic character of the
documents they signed and had no reasonable opportunity to learn the
truth.†(Id. at p. 425.)
However, a special relationship may exist between the
parties such that one party has the duty to explain the terms of the contract
to the other party, such as the relationship between a broker and a
client. The scope of the fiduciary duty
between brokers and clients varies with the facts of the relationship. (Rosenthal,
agreements to arbitrate, claiming they were deceived about the nature of the
agreements. The bank led customers to
believe a securities salesman worked for the bank; the salesman led the
customers to believe agreements containing arbitration clauses were actually
mere formalities to open an account.
With respect to some of the plaintiffs, their reliance on what the
salesman told them was not a defense to enforcement because of their negligence
in failing to read the agreements.
However, other plaintiffs who were illiterate and blind, because they
had a prior relationship with the defendant, could claim fraud in the
inducement because a duty arose on the part of the bank to explain the terms of
a contract to them. (
Here, plaintiffs seeks to bring herself within the second
group of Rosenthal plaintiffs by
asserting that UBS had a duty to explain the contract to her because of her
MS. This argument fails for two
reasons. First, the trial court, sitting
as factfinder, was within its powers to disbelieve her statements that she had
a disability that prevented her from reading financial documents, and that she
made her disability known to UBS brokers Baer or Lovitt; the trial court was
within its powers as factfinder to credit the statements of Baer and Lovitt in
their declarations that they had no knowledge of any disability of plaintiff
such that they would be required to inform her of the terms of the account
agreement. If UBS had no knowledge of
plaintiff’s disability, or its consequences, its lack of notice of any duty
arising therefor is fatal to her claim of fraud in the inducement. Second, the trial court, sitting as
factfinder, was within its powers to conclude that plaintiff, given her
inability to read financial documents, should have shown the documents to her
accountant Grossman or some other person to learn their contents, or asked Baer
or Lovitt to explain the account agreements to her in sufficient detail to
acquaint her with their contents but without going beyond her level of
comprehension given her cognitive difficulties.
The trial court was therefore justified in concluding plaintiff was
negligent in failing to learn the bare bones of the account agreements and thus
because she failed to make her disability known and failed to seek to learn the
contents of the documents, she is not within the holding of
for Reconsideration
Section 1008, subdivision (a) provides in relevant part
that a party may apply for reconsideration of a prior court ruling on the basis
of “new or different facts, circumstances, or law.†The party must demonstrate “what new or
different facts, circumstances, or law are claimed to be shown.†(§ 1008, subd. (a).) Section 1008 is jurisdictional; “[n]o
application to reconsider any order or for the renewal of a previous motion may
be considered by any judge or court unless made according to this
section.†(§ 1008, subd. (e).) Section 1008 is intended to reduce the number
of reconsideration motions heard by judges.
(Le Francois v. Goel (2005) 35
Cal.4th 1094, 1098.) The party seeking
reconsideration based on new or different facts must also provide a
satisfactory explanation why the evidence was not presented sooner. (Jones
v. P.S. Development Co., Inc. (2008) 166 Cal.App.4th 707, 724.) We review the trial court’s ruling under the
abuse of discretion standard. (
(2005) 135 Cal.App.4th 206, 212.)
Here, the trial court did not err in denying plaintiff’s
motion for reconsideration. Even
assuming the additional medical information would have helped her case given
the trial court’s finding that plaintiff did not seek to make her disability
known or to learn the contents of the documents, plaintiff presented no reason
why the medical records could not have been presented earlier aside from the
fact they dated from 1982 and were difficult to obtain. It is unlikely that plaintiff had not seen a
doctor for over 30 years concerning her MS, a very serious illness, such that
diagnosis and treatment was not ongoing and contemporary medical information
from her current treating physician would be easily obtained.
II. Confirmation
of Arbitrator’s Award
Plaintiff’s appeal focuses on three of her claims
(her claims for financial abuse, unfair business practices, and unlawful
discrimination in violation of the Unruh Act) and contends the arbitrators
prevented her from vindicating these unwaivable statutory rights and issued an
award with insufficient factual and legal findings to enable this court to
determine whether plaintiff was able to vindicate such statutory rights;
further; the award here, which was without reason or fact and rendered by
partial arbitrators, exceeded the power of the arbitrators; and the arbitrators
dismissed her statutory claims under an unconstitutional rule.
The scope of judicial review of arbitration awards is
extremely narrow because of the strong public policy in favor of arbitration
and according finality to arbitration awards.
We will not review an arbitrator’s decision for errors of fact or law,
evaluate the validity of an arbitrator’s reasoning, or consider the sufficiency
of the evidence supporting an arbitrator’s
award. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 11.) As our Supreme Court recognized as early as
1852, “‘The arbitrators are not bound to award on principles of dry law, but
may decide on principles of equity and good conscience, and make their award
just and good].’†(Ibid., quoting Muldrow v.
Norris (1852) 2 Cal. 74, 77.)
As a result, the grounds for vacating or correcting an
arbitration award are strictly limited by statute. Under section 1286.2, the grounds on which a
court may vacate an award are if it was (1) procured by corruption, fraud,
or undue means, (2) issued by corrupt arbitrators, (3) affected by
prejudicial misconduct on the part of the arbitrators, or (4) in excess of the
arbitrators’ powers. (
44 Cal.4th 1334, 1340; § 1286.2, subd. (a).) There is a presumption in favor of the
validity of the award, and the challenger bears the burden of establishing a
claim of invalidity. (
919, 923.) Absent conflicting extrinsic
evidence, whether the arbitrator exceeded his or her powers in granting relief,
and thus whether the award should have been vacated on that basis, is reviewed
on appeal de novo. (Reed v. Mutual Service Corp. (2003) 106 Cal.App.4th 1359, 1365
[“whether the award was made in excess of the arbitrators’ contractual powersâ€
is a question of law].)
Generally, because we may not review the merits of the
controversy between the parties, the validity of the arbitrator’s reasoning, or
the sufficiency of the evidence supporting the arbitration award, “‘it is
within the power of the arbitrator to make a mistake either legally or
factually. When parties opt for the
forum of arbitration they agree to be bound by the decision of that forum
knowing that arbitrators, like judges, are fallible.’†(Moncharsh,
unless the arbitration agreement provides otherwise, arbitrators have no
obligation to state reasons for their award.
(Severtson v. Williams
Construction Co. (1985) 173 Cal.App.3d 86, 92.) Thus, the arbitrator is usually not required
to submit findings of fact or detail the process by which the result was
reached or give any reasons for the award:
“It is not the finding on issues that is required; it is the
determination thereof.†(
103 Cal.App.3d 853, 860.) The
parties may, by agreement, require the arbitrator to issue with the “award a
written discussion sufficient to [allow] limited judicial review to enforce or
vacate the . . . award.â€
(Biller v. Toyota Motor Corp.
(9th Cir. 2012) 668 F.3d 655, 666.)
A private arbitration award does not constitute state
action and there is no due process right to judicial review. (Rifkind
& Sterling, Inc. v. Rifkind (1994) 28 Cal.App.4th 1282, 1292.) We review the trial court’s order de novo,
while the arbitrator’s award is entitled to deferential review. (Advanced
Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 376, fn. 9.)
A. Unwaivable Statutory Rights
Although we may not review the arbitrators’
decision for errors of fact or law, an arbitrator exceeds his or her power
within the meaning of section 1286.2 and the award is properly vacated where
granting finality to the arbitration would be inconsistent with a party’s
unwaivable statutory rights. (
Court (2010) 48 Cal.4th 665, 677 (Pearson
Dental).) In such instance, a
reviewing court may set aside the award for manifest errors of law. (Id. at
pp. 679–680.) Whether a statutory right
is unwaivable in an arbitration context is determined based on the context and
purpose of the specific statute in question.
(Bickel v. Sunrise Assisted Living
(2012) 206 Cal.App.4th 1, 13.)
Generally, such unwaivable rights include claims for elder abuse (Welf.
& Inst. Code, § 15600 et seq.) (Bickel,
California Fair Employment and Housing Act (Gov. Code, § 12900 et seq.)
and the Labor Code, as well as Tameny
public policy. (See Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1081–1085;
Cal.4th 443, 455.) Although such claims
may be subject to arbitration (Boghos v.
Certain Underwriters at Lloyd’s of London (2005) 36 Cal.4th 495, 506–508),
arbitrator’s rulings regarding such rights are not entitled to the normally
deferential standard of review. (
679–680.)
Specifically addressing the issue of unwaivable statutory
rights in the context of “a mandatory employment arbitration agreement, i.e.,
an adhesive arbitration agreement that an employer imposes on the employee as a
condition of employment,†the Supreme Court has recognized “‘that an
arbitration agreement cannot be made to serve as a vehicle for the waiver of
statutory rights created by the FEHA’ [citation], because the enforcement of
such rights was for the public benefit and was not waivable.†(Pearson
Dental, supra, 48 Cal.4th at
p. 677; see also Board of Education
v. Round Valley Teachers Assn.
(1996) 13 Cal.4th 269, 272–277 [judicial review and vacatur of arbitration
award is proper when upholding arbitrator’s decision would be inconsistent with
the protection of a party’s clear statutory rights].) To ensure full vindication of an employee’s
statutory rights in an arbitral forum, there must be both a written decision
and judicial review “‘“‘sufficient to ensure the arbitrators comply with the
requirements of the statute.’â€â€™â€ (
The Court in Pearson
Dental declined to opine broadly as to the appropriate level of judicial
review required in every case involving an employee’s unwaivable statutory
rights. However, the Court emphasized
the arbitrator’s written decision should not be viewed as “an idle act, but
rather as a precondition to adequate judicial review of the award so as to
enable employees subject to mandatory arbitration agreements to vindicate their
rights under FEHA.†(
Crafting only a rule sufficient to resolve the case before it, the Court
concluded the arbitrator’s “clear legal error†in finding the employee’s FEHA
claim to be time-barred, thus precluding any hearing on the merits of the
claim, and the corresponding failure to provide a written decision revealing
“‘the essential findings and conclusions on which the award [was] based,’â€
required the award’s vacatur. (
Here, plaintiff waived any contention that the
arbitrators failed to explain the reasoning and factual basis for their award
sufficient to enable her to seek review of the panel’s ruling on her unwaivable
statutory rights. Plaintiff failed to
raise the issue of the insufficiency of the arbitrator’s award vis-à -vis
findings on unwaivable statutory rights in the trial court when she sought
vacation of the award. Waiver is the
relinquishment of a known right, but can also refer to “loss of a right as a
result of a party’s failure to perform an act it is required to perform.†(St.
Agnes Medical Center v. PacificCare of California (2003) 31 Cal.4th 1187,
1195, fn. 4.) A party to an arbitration
who has knowledge of irregularity in the proceedings cannot sit by and take
part in the proceedings and later object on the basis of the irregularity; such
party “‘waives any objection on account of such irregularity for he cannot thus
take the chance of a favorable [outcome].’â€
(Blatt v. Farley (1990) 226
Cal.App.3d 621, 629.)
In addition, aside from the fact plaintiff cites no
statutory ground for overturning the arbitration award, plaintiff fails to
explain by reference to fact and law, other than through conclusory statements,
why the FINRA panel’s ruling against her resulted in her being unable to
vindicate her nonwaivable statutory rights.
Even without factual findings in the award, the motion to dismiss was
clear on plaintiff’s failure to make a prima facie case on these unwaivable
claims, or to establish that UBS wrongfully put her money in stocks without her
knowledge. Plaintiff presents no
developed argument on why the Panel’s dismissal was erroneous. “‘The reviewing court is not required to make
an independent, unassisted study of the record in search of error or grounds to
support the judgment. . . . [E]very brief should
contain a legal argument with citation of authorities on the points made. If none is furnished on a particular point,
the court may treat it as waived, and pass it without consideration.’ [Citation.]â€
(McComber v. Wells (1999) 72
Cal.App.4th 512, 522–523.) In any event,
our review of the record indicates that in spite of her medical condition,
plaintiff failed to present evidence to establish that she did not know her
monies were in stocks, or that her professed ignorance of the contents of her
UBS portfolio was only dispelled when she attempted to move to Merrill Lynch
and she was unable to liquidate her portfolio.
Under FINRA Rules, rule 12504(b)
Plaintiff argues that FINRA Rules, rule 12504(b),
the rule under which UBS moved to dismiss the arbitration, is
unconstitutionally vague and ambiguous because it does not provide notice of
the standards that must be met in order to avoid or defeat such a motion. We disagree.
FINRA Rules, rule 12504(b) provides only that a motion to
dismiss may be made. However, the FINRA
Arbitrator’s Guide provides that the “respondent may ask the Panel to dismiss
the claim on the grounds that the claimant failed to prove the allegations in
the statement of claim or failed to prove a right to recovery.†(FINRA 2013 Arbitrator’s Guide at p.
39.) The Guide also provides that the
evidence shall be viewed in the light most favorable to the claimant. (Ibid.) These standards track those applied to a
motion for nonsuit under section 581c, which also must be made on a noticed
motion. Under section 581c, the test is
whether plaintiff has presented a prima facie case, namely, whether the
evidence introduced is sufficient to support a verdict for plaintiff on
appeal. “A nonsuit in a jury
case . . . may be granted only when disregarding
conflicting evidence, giving to the plaintiffs’ evidence all the value to which
it is legally entitled, and indulging every legitimate inference that may be
drawn from the evidence in the plaintiffs’ favor, it can be said that there is
no evidence to support a jury verdict in their favor.†(Elmore
v. American Motors Corp. (1969) 70 Cal.2d 578, 583; County of Kern v. Sparks (2007) 149 Cal.App.4th 11, 16.) Thus, FINRA Rules, rule 12504(b) providing
for a dismissal of an arbitration where the claimant has failed to make out a
prima facie entitlement to relief after the claimant’s presentation of his or
her case-in-chief is not unconstitutionally vague.
of Arbitrators
Plaintiff requests that if we reverse and remand, that we
order a jury trial because she cannot get a fair hearing in front of the FINRA
arbitrators. She contends that after the
conclusion of the arbitration, she initiated an investigation into the FINRA
arbitrators and FINRA administration by the Securities Exchange Commission, the
Civil Rights Division of the Office of the United States Attorney, and the
California Office of the Attorney General and the Office of the Los Angeles
County District Attorney. Due to these
investigations, it “stretch[es] credulity beyond the breaking point†to believe
that the FINRA arbitrators would be neutral.
“‘An impression of possible bias in the arbitration
context means that one could reasonably form a belief that an arbitrator was
biased for or against a party for a
particular reason.’
[Citation.]†(
Cal.4th 372, 389.) Section 1281.91,
subdivision (d) provides that if any ground specified in section 170.1 for
disqualification of a judge, including on grounds of bias or prejudice toward a
party, section 170.1, subdivision (a)(6)(B) exists, “a neutral arbitrator
shall disqualify himself or herself upon the demand of any party made before
the conclusion of the arbitration proceeding.â€
“The standard for disqualification under subdivision (a)(6)(C) of
section 170.1 is objective. [Citation.] Thus, an award may be vacated if
‘ . . . the record reveals facts which might create an
impression of possible bias in the eyes of the hypothetical, reasonable
person. [Citation.]’ [Citation.]
Actual bias is not required.
[Citation.] ‘Where the average
person could well entertain doubt whether the [adjudicator] was impartial,
appellate courts are n
| Description | Plaintiff Margaret Wendt appeals from the trial court’s order compelling her to arbitrate her dispute with defendant UBS Financial Services, Inc. (UBS) and the judgment confirming the resulting arbitration award. Plaintiff contends no agreement to arbitrate exists because as a result of her multiple sclerosis, she cannot read documents and UBS knowingly failed to inform her the brokerage contracts she executed with it contained an arbitration provision. She further contends that we may conduct a review of the arbitration award because it implicated her nonwaivable statutory rights, and that such review will disclose that the trial court erred in confirming the arbitration award. We affirm. |
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