Wright v. Direct Capital Securities

Wright v. Direct Capital Securities

Filed 2/24/10 Wright v. Direct Capital Securities CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

FOURTH APPELLATE DISTRICT

DIVISION THREE

SCOTT WRIGHT, Plaintiff and Respondent, v. DIRECT CAPITAL SECURITIES, INC., Defendant and Appellant.

G041907 (Super. Ct. No. 30-2008-00104876) O P I N I O N

Appeal from an order of the Superior Court of Orange County, Derek W. Hunt, Judge. Affirmed.

Petillon Hiraide & Loomis, Mark T. Hiraide and Lisa M. Hiraide, for Defendant and Appellant.

Law Offices of John R. Marshall and John R. Marshall for Plaintiff and Respondent.

Direct Capital Securities, Inc. (Direct Capital), appeals from an order denying its motion to stay the lawsuit brought against it by Scott Wright, and sending the matter to arbitration. Direct Capital initially moved to compel arbitration early in the proceedings, but the court denied the motion without prejudice, due to Direct Capitals failure to demonstrate Wright had signed the arbitration agreement Direct Capital was seeking to enforce. The court suggested Direct Capital take Wrights deposition to generate the missing evidence, and it did so but not until more than seven months later. In the meantime, Direct Capital also conducted other discovery relating to the merits of Wrights claims.

Direct Capital then moved to compel arbitration again, scheduling the motion to be heard only a few days before trial was to commence. The court once again denied the motion, pointing out Direct Capital had provided it with no evidence demonstrating the scope of the arbitration provision Wright purportedly agreed to, and thus had failed to establish that the claim Wright was asserting in this case would fall within it. Based upon that determination, the court did not address the numerous other points made by Wright in his opposition to the motion.

On appeal, Direct Capital asks us take judicial notice of pertinent sections of the Financial Industry Regulatory Authority (FINRA) Code of Arbitration, which it contends provide the missing elements of the arbitration agreement it seeks to enforce here. However, Direct Capital did not request the trial court take judicial notice of these code sections, and has offered no explanation for its failure to do so nor any authority suggesting why we should agree to consider this evidence for the first time on appeal. We decline to do so.

Instead, we conclude the trial court ruled correctly, based upon the evidence before it, and affirm the order.

FACTS

Wright filed his initial complaint on April 3, 2008, alleging causes of action for wrongful termination in violation of public policy, and violations of the Labor Code. Direct Capital first moved to compel arbitration in July of 2008, arguing Wright was bound to arbitrate this dispute by the provisions of a Form U4 Uniform Application for Securities Industry Registration or Transfer document. A copy of that 15-page U-4 document was attached as an exhibit to the motion. However, that document bore no traditional signature of Wrights; instead, it contains a Signature Section, (Section 15) which begins with the explanation that [a] signature includes a manual signature or an electronically transmitted equivalent. For purposes of an electronic form filing, a signature is effected by typing a name in the designated signature field. By typing a name in the field, the signatory acknowledges and represents that the entry constitutes in every way, use, or aspect, his or her legally binding signature.

That explanation of a signature is followed by a separate subsection, styled 15A. Individual/Applicants Acknowledgment and Consent, which spans two full, single-spaced pages. Among the 10 provisions contained in this Acknowledgment and Consent, is one stating I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions or by-laws of the SROs indicated in Section 4 (SRO REGISTRATION)^[1] as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction. That provision, while contained in its own paragraph, with the number 5 next to it, is not otherwise rendered distinct from the other nine provisions in the section; e.g. no bold-faced or other attention-grabbing typeface, and no separate signature provision.

At the end of that two-page Acknowledgment and Consent subsection is the statement Applicant or applicantsagent has typed applicants name under this section to attest to the completeness and accuracy of this record. The applicant recognizes that this typed name constitutes, in every way, use or aspect, his or her legally binding signature. That statement is followed by a typed date of 08/09/2007, next to the typed name Scott F. Wright above a blank Signature line.

Following the Individual/Applicants Acknowledgment and Consent subsection is a separate subsection styled 15B. Firm/Appropriate Signatory Representations. That subsection includes none of the provisions agreed to by the individual/applicant in subsection 15A, but instead merely contains representations that to the best of the appropriate signatorys knowledge, the applicant is currently bonded, will be familiar with the appropriate rules of the agency, jurisdiction or SRO with which the application is being filed, and will be qualified for the position applied for. The appropriate signatory also represents that he or she has communicated with the applicants previous employers for the past three years, verified information contained in the application, and confirmed that the applicant has approved the information contained in the application and has signed the form.

Wright opposed the motion to compel arbitration, noting that Direct Capital had provided no evidence of a signed agreement, and had not established that the agreement proffered, even if valid, governed the instant dispute. Wright also argued that the proffered arbitration provision did not comply with the requirements set forth in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, for arbitration clauses governing an employees claims for damages based upon violations of public policy. Finally, Wright contended the proffered agreement was unconscionable in light of its adhesive nature, and its one-sided and oppressive provisions.

At the hearing, the court explained it could not order arbitration in the absence of a signed agreement. Although Direct Capital argued that its motion was supported by the standard NASD form, to which Wright had affixed an electronic signature, the court concluded there was no legal precedent allowing it to rely upon such a signature as evidence of an intent to arbitrate, and asked Wrights counsel if he was willing to stipulate to arbitration. When Wrights counsel declined to stipulate, the court suggested that Direct Capital take Wrights deposition, apparently to ascertain whether he had signed the agreement to arbitrate. The court then denied the motion to compel without prejudice.

On February 2, 2009, Wright filed a first amended complaint, alleging the same causes of action as contained in his original complaint, but including more specific factual allegations. Specifically, the first amended complaint alleges Wright was employed by Direct Capital pursuant to an agreement entitling him to compensation on a commission basis. However, shortly before his employment was terminated, he was allegedly informed by upper management at Direct Capital that the company was aware it owed him commissions, but was not going to pay him. Direct Capital then allegedly terminated his employment so as to avoid having to pay [him] commission wages earned and owed. Wrights first amended complaint sought compensatory damages, plus statutory penalties, punitive damages and attorney fees. On February 27, 2009, Wright requested dismissal of the first and third causes of action in his first amended complaint, without prejudice, leaving him with a single cause of action alleging violation of the Labor Code.

Direct Capital propounded a lengthy set of requests for admission to Wright in January of 2009, which included requests delving into the merits of his claims against it. Wright responded to those requests for admission in February of 2009, and then Direct Capital took Wrights deposition on March 3, 2009, more than seven months after its initial motion to compel arbitration had been denied. That deposition was also lengthy spanning at least 180 pages, and was not limited to the issue of whether Wright had signed the agreement to arbitrate which had been relied upon by Direct Capital in support of its earlier motion to compel.

Following the deposition, on March 23, 2009, Direct Capital filed a new motion to compel arbitration, setting it for hearing on April 15, 2009. At that point, trial was scheduled to commence on April 20, 2009, less than a week after the motion was set to be heard. Direct Capital again relied upon the form U4 document, this time supported by Wrights deposition acknowledgement that he had affixed an electronic signature to the form, and that he understood that doing so had the same effect as his ordinary signature.

Wright again opposed the motion, restating the arguments contained in his opposition to the earlier motion (other than the lack of any evidence of signature), and additionally asserting that any right to compel arbitration had been waived by Direct Capital because it had (1) unreasonably delayed in reasserting the claim; and (2) acted in a manner inconsistent with the intent to arbitrate by engaging in discovery authorized in connection with trial.

And the court again denied the motion. At the hearing, the court explained Direct Capital had not provided any evidence reflecting the scope of the arbitration provision it was relying upon, and thus had failed to demonstrate that Wrights claim for failure to pay compensation would fall within that scope. As the court noted, the language included in the U4 document merely stated that Wright was agreeing to arbitrate any disputes required to be arbitrated under the rules, constitutions, or by-laws of the SROs indicated in Section 4. However, nowhere in Section 4 (or elsewhere in the document) was there any explanation of what disputes were required to be arbitrated by any particular SRO, let alone the specific one (presumably the NASD) checked off by Wright on the form and Direct Capital had proffered no other evidence purporting to outline the arbitration requirements of that SRO. Consequently, the court concluded there was no basis upon which to determine that the wage claim asserted by Wright in this case would fall within the arbitration provision contained in the U-4 document. And in the absence of such evidence, Direct Capital had failed to sustain its burden of proving an enforceable agreement to arbitrate.

I

Relying upon Evidence Code sections 452 and 459, Direct Capital has requested we take judicial notice of pertinent sections of the Financial Industry Regulatory Authority (FINRA) Code of Arbitration Procedure for Industry Disputes. According to Direct Capital, FINRA is the successor to the NASD, and thus its arbitration requirements are the ones Wright agreed to be bound by when he signed the U-4 agreement that Direct Capital relies upon in this case.

Evidence Code section 452 governs matters of which the trial court may take judicial notice; however, the court is not required to do so unless a party requests it and provides (1) the opposing party with sufficient notice of the request; and (2) the court with sufficient information to enable it to do so. (Evid. Code,  453.) The problem here is that, as Direct Capital concedes, while it referred to those FINRA regulations in its points and authorities filed with the trial court, it never requested the trial court take judicial notice of them.

Moreover, under Evidence Code section 459, we are obligated to take judicial notice of only those matters of which the trial court either took judicial notice, or was required to take judicial notice. Evidence Code section 459, subdivision (a), imposing limited compulsory judicial notice upon a reviewing court, is inapplicable because the trial court was not required to take judicial notice of material never presented. (People v. Cunningham (2001) 25 Cal.4th 926, 1012, fn. 12.)

Direct Capital is thus apparently requesting we exercise our discretion to take judicial notice under Evidence Code section 459,^[2] but without offering us any particular justification for doing so. In effect, Direct Capital is simply making a motion for reconsideration, on appeal, based upon new evidence but without complying with the time limitations or making the type of showing that would have been required by Code of Civil Procedure section 1008 were it attempting to make such a motion in the trial court.

In the circumstances of this case, in which (1) Direct Capital has already had two separate chances in the trial court to demonstrate the existence of an enforceable arbitration agreement governing the claims at issue here; (2) it waited until the eve of trial to avail itself of that second chance in the trial court; and (3) Direct Capital has offered no justification for its failure to present the trial court with the evidence it now seeks to present here, we decline to give it yet another opportunity to sustain its burden of proof on appeal. We consequently reject the request for judicial notice, and will not consider the additional evidence proffered by Direct Capital.

II

In light of Californias strong public policy favoring arbitration as a method of dispute resolution, [c]ourts should indulge every intendment to give effect to such proceedings (Lewsadder v. Mitchum, Jones & Templeton, Inc. [(1973)] 36 Cal.App.3d 255, 259) and order arbitration unless it can be said with assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. (Retail Clerks Union, Local 775 v. Purity Stores, Inc. [(1974)] 41 Cal.App.3d 225, 231.) (Villacreses v. Molinari (2005) 132 Cal.App.4th 1223, 1229, quoting Pacific Inv. Co. v. Townsend (1976) 58 Cal.App.3d 1, 9-10.)

However, [a]rbitration is a matter of contract and a party cannot be required to arbitrate a dispute he has not agreed to submit. (Pacific Inv. Co. v. Townsend, supra, 58 Cal.App.3d at p. 9.) The burden is on the party seeking to compel arbitration to prove the existence of an arbitration agreement governing the dispute at issue (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972), and Californias general policy favoring enforcement of valid arbitration agreements is insufficient to warrant imposing a higher burden on a party opposing arbitration, especially when the existence and enforceability of the agreement to arbitrate is the very issue before the trial court. (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.)

In this case, despite two different attempts to compel arbitration, Direct Capital failed to offer the trial court any evidence establishing the specific terms of the arbitration agreement Wright had allegedly agreed to. The U-4 document relied upon by Direct Capital provided only that Wright would arbitrate whatever claims were required to be arbitrated by the SRO he had marked off, but nowhere specified what those claims were. Thus, Direct Capital failed to satisfy its burden of proving an enforceable agreement to arbitrate this particular dispute, and the trial court did not err in denying its motion.

III

But even if Direct Capital had successfully established the existence of an arbitration agreement which expressly governs this dispute, we cant help but note there are other substantial concerns raised by the attempt to enforce that agreement in this case. The agreement Direct Capital relies upon appears to be adhesive the U-4 document is described by Direct Capital as a mandatory form which must be completed by anyone working within the securities industry and its arbitration provision purports to bind only the employee, not the firm. Indeed, Direct Capital claims to be merely a third-party beneficiary of that provision. And because the agreement does not directly bind the firm to anything, there is certainly no provision requiring that Direct Capital, as opposed to Wright, bear any costs of this mandatory arbitration. These aspects of the agreement all raise the specter of unconscionability under Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th at pp. 113-114.

More significant, however is the specter of waiver. A petition to compel arbitration will be denied when the right has been waived by the proponents failure to properly and timely assert it. [Citation.] Courts consider a number of factors when assessing a waiver claim: (1) whether the partys actions are inconsistent with the right to arbitrate; (2) whether the litigation machinery has been substantially invoked and the parties were well into preparation of a lawsuit before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place; and (6) whether the delay affected, misled, or prejudiced the opposing party. (Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1478.)

In this case, it appears Direct Capital initially moved expeditiously to enforce its perceived right to compel arbitration; but when the trial court pointed out it had failed to sustain its burden of proving a signed agreement, and denied the motion without prejudice, Direct Capital seemingly abandoned the effort. It engaged in judicial discovery methods not available in an arbitration proceeding, and waited seven months to take Wrights deposition. When it did take that deposition, its questioning was in no way limited to ascertaining the evidence required to renew its motion to compel arbitration. And then Direct Capital moved to compel arbitration a second time, after discovery was completed, and only days before trial was scheduled to commence. Based upon the factors outlined above, we would have no difficulty viewing this course of conduct as a waiver of Direct Capitals right to enforce arbitration.

The order is affirmed. Wright is to recover his costs on appeal.

BEDSWORTH, J.

WE CONCUR:

SILLS, P. J.

RYLAARSDAM, J.

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[1] According to Direct Capital, SRO is an acronym for a self-regulatory organization, such as the National Association of Securities Dealers (NASD). In Section 4 of the U-4 document, which consists of a grid spanning two and a half pages, only one SRO box is checked, corresponding to NASD at the top, and GS Full Registration/General Securities Representative (S7) on the side. Presumably, then, the NASD is the relevant SRO for purposes of determining what claims are required to be arbitrated.

[2] Evidence Code section 459, subdivision (a) also provides that [t]he reviewing court may take judicial notice of any matter specified in section 452. (Italics added.)