Goldberg v. The Coggins
Co.
Filed 9/4/13
Goldberg v. The Coggins Co. CA2/2
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opinion has not been certified for publication or ordered published for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
TWO
STEPHEN GOLDBERG
et al.,
Plaintiffs and
Respondents,
v.
THE COGGINS COMPANY et al.,
Defendants and Appellants.
B245236
(Los Angeles County
Super. Ct. No. BC477765)
APPEAL
from an order of the Superior Court
of
County. Mary H.
Strobel, Judge. Affirmed.
Gartenberg
Gelfand Hayton & Selden, Edward Gartenberg and Jason Bluver for Defendants
and Appellants.
Christman,
Kelley and Clarke, Matthew M. Clarke and Dugan P. Kelley for Plaintiffs and
Respondents.
Defendants
and appellants Sanford Coggins (Coggins) and The Coggins Company (Coggins
Company) (collectively, defendants) appeal from an order denying their petition
to compel arbitration of claims brought against them by plaintiffs and
respondents Stephen Goldberg (Goldberg) and Victoria Pynchon (collectively,
plaintiffs). Because plaintiffs’ claims
do not come within the scope of the parties’ agreement to arbitrate, we affirm
the order denying the petition.
The parties and the investment services agreement
Coggins
Company is a financial advisory firm, and Coggins is its president. Plaintiffs are a married couple who engaged
defendants as their investment advisors.
On January 24, 2008,
plaintiffs signed an “Engagement of Investment Advisory Services†agreement
(the investment services agreement), in which defendants agreed to provide
fee-based investment services. The
investment services to be provided by defendants included defining plaintiffs’
major life goals, analyzing asset allocation, reviewing and selecting
investment products, and managing and monitoring plaintiffs’ portfolio. The investment services agreement contains no
provision for arbitration of disputes.
In
February 2008, plaintiffs informed defendants that Goldberg was ending a
long-term employment relationship and that he would be receiving approximately
$1.1 million from a pension plan maintained by his soon to be former employer. Defendants created a rollover IRA account at
Charles Schwab and Company for Goldberg’s benefit (Schwab IRA account) in which
the pension plan funds could be deposited.
The first Wildomar investment
In
March 2008, Coggins recommended that plaintiffs invest in an offering involving
certain real property in Riverside County, California. The property, called Wildomar
Square (Wildomar), was to be developed into a
retail shopping center. Defendants did
not disclose to plaintiffs that defendants also had an interest in Wildomar
that might constitute a conflict of interest.
Based on defendants’ recommendations, plaintiffs agreed to invest
$300,000 in Wildomar. Coggins thereafter
sent plaintiffs a private placement memorandum that described the Wildomar investment,
which consisted of membership interests in Wildomar Investors, LLC, a California
limited liability company that owned a 50 percent interest in Wildomar Square
Partners, LLC, a company formed for the purpose of acquiring approximately five
acres of land in an unincorporated area of Riverside
County. Plaintiffs signed an amended form of the
Wildomar private placement memorandum dated June 12, 2008, thereby authorizing
defendants to purchase on their behalf a $300,000 interest in Wildomar
(Interest No. 1), using funds from a joint living trust account plaintiffs had
established at Charles Schwab and Company.
The joint living trust account was separate and distinct from the Schwab
IRA account established for Goldberg.
On
June 20, 2008,
approximately $1.3 million was transferred from Goldberg’s prior pension fund
to his Schwab IRA account. On June 30, 2008, plaintiffs transferred
$100,000 from the Schwab IRA account to their joint living trust account and
wire transferred $300,000 from their joint living trust account to purchase
Interest No. 1.
The second Wildomar investment
Within
a few days after plaintiffs authorized the purchase of Interest No. 1,
defendants advised plaintiffs that there were tax advantages to owning their
$300,000 interest in Wildomar in a retirement account rather than through their
joint living trust account. Defendants
had not raised this issue before plaintiffs had authorized the purchase of
Interest No. 1 using funds from their joint living trust account. Coggins told plaintiffs that defendants would
either sell Interest No. 1 to a third party or simply roll Interest No. 1 into
a second transaction that would enable plaintiffs to hold that interest in a
retirement account. Coggins assured
plaintiffs that they would own only a single $300,000 interest in Wildomar, and
not two such interests.
Defendants
represented to plaintiffs that Goldberg’s Schwab IRA account could not own real
estate assets. They recommended that a
second retirement account be established for Goldberg with a custodian that
could hold real estate assets. With
plaintiffs’ approval, defendants opened a second retirement account for
Goldberg at Pensco Trust Company (the Pensco account). Defendants then recommended that plaintiffs
transfer $300,000 from Goldberg’s Schwab IRA account to the Pensco account in
order to purchase a second $300,000 interest in Wildomar (Interest No. 2) as a
substitute for Interest No. 1.
Defendants assured plaintiffs that Interest No. 2 would be a substitute
for Interest No. 1 and not an additional interest in Wildomar. Plaintiffs never agreed to a $600,000
investment in Wildomar.
On
July 8, 2008, upon receiving
the Schwab statement for their joint living trust account, plaintiffs learned
that funds from that account had been used to purchase Interest No. 1. Plaintiffs emailed Coggins asking whether
Interest No. 1 would be held by their joint living trust account or within a
retirement account as defendants had recommended. On July
29, 2008, Goldberg checked the balance in his Schwab IRA account
and discovered that defendants had transferred $301,000 from that account to
some other account or location. The
Schwab online statement did not indicate where those funds had been sent.
Goldberg
emailed defendants on July 30, 2008,
and asked for an explanation of the activity shown on the online statement for
his Schwab IRA account and whether the $301,000 fund transfer had anything to
do with Wildomar. Mickey Payne,
Coggins’s director of operations, informed plaintiffs that $300,000 had been
transferred from the Schwab IRA account to the Pensco account to purchase the
Wildomar interest. Goldberg responded to
Payne by stating that he was confused by the Wildomar investment and the
additional proposed purchase, noting that “it seems that we have paid twice for
this investment.†Coggins responded on August 1, 2008, by assuring plaintiffs
that they “did not pay double for Wildomar.â€
On
August 28, 2008, defendants
caused Pensco to purchase Interest No. 2 for the benefit of Goldberg’s Pensco
account, bringing their total investment in Wildomar to $600,000. On September
8, 2008, Coggins sent an email to “Wildomar Investors†asking them
to sign an escrow amendment extending the Wildomar offering to September 18, 2008. The email indicated that plaintiffs were to
sign the escrow agreement twice.
Goldberg responded to Coggins’ email on September 9, 2008, asking whether the $300,000 that had
been used to purchase Interest No. 1 had been refunded to plaintiffs’ joint
living trust account and why they were required to sign the escrow amendment
twice if they owned only one interest in Wildomar. Goldberg reiterated plaintiffs’ understanding
that they should have only a single $300,000 investment in Wildomar.
Coggins
responded on September 8 or 9, 2008, by explaining that he needed to purchase
Interest No. 2 in Goldberg’s Pensco account and that the transaction was merely
an “accounting function.†Based on
Goldberg’s representations and actions, plaintiffs believed that defendants had
either already sold Interest No. 1 to another purchaser or transferred that
interest into Goldberg’s Pensco account.
On
September 29, 2008,
plaintiffs wrote Coggins, asking whether they still owned Interest No. 1
interest in Wildomar. On September 30, 2008, Payne, not
Coggins, informed plaintiffs that they owned two interests in Wildomar for a
total of $600,000 and suggested that they speak with Coggins regarding the
“logistics†of that investment. The
Wildomar investment subsequently failed, and plaintiffs lost $600,000.
The Wildomar operating agreements
In
connection with the Wildomar offering, plaintiffs executed an operating
agreement for Wildomar Investors, LLC (the LLC). The operating agreement governs management
and control of the LLC; allocation of profits, losses, and distributions; and
the transfer and assignment of interests, among other things. It also contains an arbitration provision
that provides in relevant part:
“[A]ny controversy or
dispute arising out of this Agreement, the interpretation of any of the
provisions hereof, or the action or inaction of any Member or Manager hereunder
shall be submitted to arbitration in Los Angeles, California before a retired
Superior Court or Court of Appeal judge selected by the American Arbitration
Association (‘AAA’) under the commercial arbitration rules then obtaining of
the AAA. . . . No action at law or in
equity based upon any claim arising out of or related to this Agreement shall
be instituted in any court by any Member or Manager except (a) an action to
compel arbitration pursuant to this Section 14.11 or (b) an action to enforce
an award obtained in an arbitration proceeding in accordance with this Section
14.11.â€
petition to compel arbitration
Plaintiffs filed the instant action
on January 25, 2012, asserting claims for breach of oral and written contract,
breach of the covenant of good faith and fair dealing, professional negligence,
breach of loyalty and fiduciary duty, concealment and constructive fraud,
intentional and negligent misrepresentation, violation of Corporations Code
sections 25400 and 25401, unfair competition, and rescission.
Defendants
filed a petition to compel arbitration based on the arbitration clause contained
in the Wildomar operating agreement.
ground that plaintiffs’ claims regarding defendants’ allegedly deceptive
investment actions arose out of the investment services agreement, and not the
Wildomar operating agreement. The trial
court found that because plaintiffs’ claims did not arise out of the Wildomar
operating agreement, they were outside the scope of the arbitration provision
in that agreement. Defendants appeal the
denial of their petition to compel arbitration.
I. Applicable law and standard
of review
Before
a party may be compelled to arbitrate a claim, the petitioning party has the
burden of proving both the existence of a valid
arbitration agreement and that the dispute is covered by the
agreement. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951,
972.) The question before us is whether
the dispute as described in plaintiffs’ complaint is covered by the Wildomar
operating agreement’s arbitration clause.
We review that question de novo.
(See EFund Capital Partners v.
Pless (2007) 150 Cal.App.4th 1311, 1320 (EFund).)
The instant dispute is not within the scope of the Wildomar operating
agreement’s arbitration clause
The arbitration provision in the
Wildomar operating agreement states that “any controversy or dispute arising
out of this Agreement, the interpretation of any of the provisions hereof, or
the action or inaction of any Member or Manager hereunder shall be submitted to
arbitration . . . .†Defendants argue
that the instant dispute comes within the scope of the arbitration provision
because the gravamen of plaintiffs’ claims is that they would not have invested
in Wildomar but for defendants’ allegedly inaccurate representations.
The
Wildomar operating agreement concerns the formation of an LLC to acquire an
ownership interest in land to be developed, management of the LLC, and
allocation of profits, losses, and distributions associated with the
development. Plaintiffs’ claims against
defendants for breach of contract, professional negligence, breach of fiduciary
duty, fraud, misrepresentation, and other alleged misdeeds do not arise out of
the LLC or the conduct of the LLC’s manager or any of its members. Rather, they are premised on defendants’ acts
and omissions as plaintiffs’ investment advisors and breaches of duties and
obligations owed to plaintiffs under the investment services agreement.
In their causes of
action for breach of contract, plaintiffs specifically allege that defendants
breached the investment services agreement by advising them to invest in a high
risk venture, by purchasing two $300,000 interests in Wildomar even though
plaintiffs never intended to purchase more than a single interest, and by
failing to communicate with plaintiffs regarding the status of their
investments and the terms and conditions of the Wildomar investment. In their breach of fiduciary duty,
professional negligence, and fraud causes of action, plaintiffs allege that defendants
breached duties and standards of care owed to them as plaintiffs’ financial
advisors by failing to disclose that defendants themselves owned a 15 percent
interest in Wildomar and by misleading plaintiffs into purchasing two $300,000
interests in Wildomar when plaintiffs intended to purchase only a single
interest.
Plaintiffs’
complaint contains no allegations of mismanagement or fraud by the Wildomar LLC
or its manager, or of any breaches of the Wildomar operating agreement. None of plaintiffs’ claims arise out of the
Wildomar operating agreement or the interpretation of any of its
provisions. Plaintiffs’ complaint seeks
to vindicate rights created by the investment services agreement, not the
Wildomar operating agreement. Because
the Wildomar operating agreement does not form the basis of plaintiffs’
complaint, the arbitration provision contained within that agreement does not
cover this action. (Marsch v. Williams (1994) 23 Cal.App.4th 250, 257 (
The
circumstances presented here are similar to those in Marsch. In that case, the
parties had entered into separate partnership agreements concerning two
different real estate projects in La Jolla and in Rancho Santa Fe,
California. The Rancho Santa Fe
agreement contained an arbitration clause, whereas the La Jolla agreement did
not. (Marsch, supra, 23 Cal.App.4th at p. 252.) The plaintiff in Marsch filed two separate actions, the first seeking damages for
breach of contract, breach of fiduciary duty, fraud, and other tortious acts
based upon the defendant’s conduct in the Rancho Santa Fe partnership, and a
second subsequent action seeking damages for the same causes action based on
the defendant’s conduct in the La Jolla partnerships. The defendant successfully petitioned to
compel arbitration of the Rancho Santa Fe action, but not the La Jolla action.
In
denying the petition to compel arbitration of the La Jolla action, the court in
Marsch rejected the defendant’s
arguments that the arbitration clause contained in the Rancho Santa Fe agreement,
which required arbitration of “any controversy . . . arising out of or relating
to the contract . . .†was “sufficiently broad to include tort, as well as
contractual liabilities so long as the tort claims ‘have their roots in the
relationship between the parties created by the contract’†(
the La Jolla claims were rooted in the relationship created by the Rancho Santa
Fe agreement because the plaintiff alleged that the defendant’s conduct in the
Rancho Santa Fe partnership undermined operation of the La Jolla project. (Id. at
pp. 255-256.) The court in
Rancho Santa Fe agreements “were not closely connected in purpose, did not
incorporate one another’s terms, were not executed at the same time†and that
breach of one of the agreements did not necessarily lead to breach of the
other. (Id. at p. 256.) The court
concluded that because the parties had created “separate contractual
relationships, which involve separate enterprises and most importantly separate
commercial risks, an arbitration clause which governs one contractual
relationship cannot be imposed in the other relationship without undermining
the parties’ reasonable expectations.†(
The
same is true in the instant case. The
investment services agreement and the Wildomar operating agreement involved
separate enterprises, separate risks, and separate contractual relationships. Because plaintiffs’ complaint seeks redress
only under the investment services agreement, the arbitration provision in the
Wildomar operating agreement does not apply.
support for their position, is inapposite.
The court in EFund addressed
the scope of an arbitration clause contained within a contract that formed the
basis of the plaintiff’s complaint. The
plaintiff in EFund entered into an
agreement with RAP Technologies regarding acquisition of an equity interest in
RAP. The plaintiff later sued RAP’s
officers for fraud, alleging they had engaged in self-dealing. In finding that the claims were subject to
arbitration, the court in EFund held
that the broadly worded arbitration clause, requiring arbitration of “[a]ny
dispute or other disagreement arising from or out of this Consulting Agreementâ€
encompassed not only contract claims, but also “tort claims having their roots
in the contractual relationship.†(
agreement “established and governed plaintiff’s relationship with RAP
Technologies†and was the basis for the parties’ contractual obligations to one
another. (Id. at p. 1325.)
This
is not the case here. Unlike
separate agreements that establish separate contractual relationships that
govern separate enterprises and impose separate and distinct contractual
obligations. The Wildomar operating
agreement does not govern defendants’ duties and obligations as plaintiffs’
investment advisors and is not the subject of plaintiffs’ claims in this
case. The arbitration clause contained
in that agreement does not govern this dispute.
The
order denying the petition to compel arbitration is affirmed. Plaintiffs are awarded their
NOT
TO BE PUBLISHED IN THE OFFICIAL REPORTS.
___________________________,
J.
CHAVEZ
We concur:
___________________________, P. J.
BOREN
___________________________, J.*
FERNS
________________________________________________________________________
* Judge of the Los Angeles Superior Court, assigned by the
Chief Justice pursuant to article VI, section 6 of the California Constitution.
title="">[1] Defendants
also filed a previous petition to arbitrate based on arbitration clauses in the
parties’ subscription agreements, which the trial court denied on the ground
that defendants were not parties to those agreements. Defendants have not appealed the denial of
their previous petition to arbitrate.
