Reicker v. Merrill Lynch et al.
Filed 6/20/13 Reicker v. Merrill Lynch et al. CA2/6
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opinion has not been certified for publication or ordered published for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
SIX
DANIEL A. REICKER,
Plaintiff and Respondent,
v.
MERRILL LYNCH PIERCE, FENNER
& SMITH, INCORPORATED et al.,
Defendants and Appellants.
2d
Civil No. B244285
(Super.
Ct. No. 1374101)
(Santa
Barbara County)
Appellants, Merrill
Lynch Pierce, Fenner & Smith Incorporated, Bank of America Investment
Services, Inc., and Charles Chester, appeal from an order denying their renewed
motion to arbitrate a fraud action involving the sale of a "vanishing
premium" life insurance policy.
(Code Civ. Proc., §§ 1008, subd. (b); 1294.) We affirm.
Services (2005) 35 Cal.4th 376, 393-394.)
Facts
In 1987, Michael Muench
and his wife Diane Muench purchased a "vanishing premium" life insurance
policy for the Muench Irrevocable Life Insurance Trust. Appellants (the broker defendants) sold the
policy as an estate planning device and said they would monitor the policy and
notify the trust if anything affecting the policy required action. The policy was issued by Manulife Financial
and its successors, Manufacturers Life Insurance Company and John Hancock Life
Insurance Company (collectively Manulife).
On February 23, 2011,
Daniel A. Reicker, trustee of the Muench Irrevocable Life Insurance Trust, sued
Manulife and appellants for misrepresentation,
concealment, breach of fiduciary duty, and unfair business practices. The first amended complaint states that
defendants falsely represented that the life insurance policy required a single
premium at time of purchase and subsequent premiums would be paid from
dividends credited to the policy or from loans against the policy. After the policy was sold, Manulife falsely
represented that the policy was performing in accordance with the original
projections. It is alleged that Manulife
and appellants failed to disclose that the policy would lapse in eight to nine
years unless cash premiums totaling hundreds of thousands of dollars were paid
to keep the policy afloat. .
Motion to Compel Arbitration
Appellants moved to
compel arbitration based on a Merrill Lynch Client Relationship Agreement to
arbitrate "all controversies that may arise between us. . . ." Reicker was a signator to the agreement but not
Manulife. On June 22, 2011, the trial
court denied the motion to compel arbitration on the ground that Manulife was
not a party to the arbitration agreement and there was a strong possibility
that arbitration would result in conflicting rulings on common issues of
law. (Code Civil Proc., § 1281.2, subd.
(c).)
Federal Injunction
The trial court stayed
the state court proceedings until a federal court ruled on Manulife's motion to
enforce a class action settlement. (Manufacturers
Life Insurance Company Premium Litigation (United States Dist. Ct.,
Southern District of Cal., Case No. 96-CV-230 BTM-AJB). In the federal action, Manulife was sued for
falsely marketing self-sustaining, "vanishing premium" life insurance
policies. After the federal action
settled in 1998, Manulife claimed the class action settlement barred Reicker's
state action.
On April 3, 2012, the
federal court enjoined Reicker from suing Manulife for false representations
made prior to December 21, 1998. The
order states that Reicker "is enjoined from proceeding against [Manulife]
in California state court on any claims based upon misrepresentations, made
prior to the entry of the Final Judgment, regarding the policies and practices
enumerated in the Final Judgment.
[Reicker] may proceed with the remainder of its claims that were not
released as part of the Class Settlement."
Renewed Motion to Compel
Arbitration
On June 28, 2012,
appellants renewed their motion to compel arbitration in state court. (§§ 1008, subd. (b); 1281.2.) The trial court denied the motion on the
ground that the 2011 order denying arbitration was a final order and the time
to appeal had expired. The court
concluded that "[s]ection 1008 may be invoked only if the order as to
which reconsideration is sought is an interim order, not a final
order."
As we shall explain, the
trial court was right for the wrong reason.
(See e.g., Schabarum v. California Legislature (1998) 60
Cal.App.4th 1205, 1216 [" 'a ruling or decision correct in law will not be
disturbed on appeal merely because it was given for the wrong reason'
"].) Section 1008 prohibits a party
from making a renewed motion when the party lacks new facts or law. (La
Francois v. Goel, supra, 35
Cal.4th at p. 1096.) A trial court does,
however, have the inherent authority to reconsider its own interim orders prior
to entry of final judgment. (
1096-1097.)
Citing Phillips
v. Sprint PCS (2012) 209 Cal.App.4th 758, appellants argue that a renewed
motion may be brought regardless of whether prior order denying arbitration is
interim or final. (
determines that there has been a change of law that warrants it to reconsider a
prior order it entered, it may do so on its own motion and enter a different
order.' [Citation.]" (Ibid.) Appellants, however, have not shown a change
of law or new or different facts or circumstances. (§ 1008, subd. (b); Lucas v. Santa Maria
Public Airport Dist. (1995) 39 Cal.App.4th 1017, 10127-1208.
Change of Law
The renewed motion to
arbitrate is based on KPMG LLP v. Cocchi (2011) __ U.S. __ [181 L.Ed.2d
323] (KPMG), which holds that arbitration agreements that are governed
by the Federal Arbitration Act (FAA; 9 U.S.C. § 1) must be enforced by state
and federal courts. Citing Dean
Witter Reynolds Inc. v. Byrd (1985) 470 U.S. 213 [84 L.Ed.2d 158], the KPMG
court held: "[W] hen a
complaint contains both arbitrable and nonarbitrable claims, the Act requires
courts to 'compel arbitration of pendent arbitrable claims when one of the
parties files a motion to compel, even where the result would be possibly
inefficient maintenance of separate proceedings in different forums.' [Citation.]" (KPMG, supra, __ U.S. at p. __
[181 L.Ed.2d at p. 327].)
KPMG summarizes
existing FAA law. It is not, however,
"new law" with respect to this case.
(See e.g., Oritz v. Schulman (2005) 133 Cal.App.4th 830, 848
[Ninth Circuit decision relying on earlier FAA decisions not "new
law" justifying reconsideration].)
Where there are arbitrable and nonarbitrable claims, the trial court
" 'shall direct the parties to proceed to arbitration on issues as
to which an arbitration agreement has been signed.' [Citation.]" (KPMG, supra, __ U.S. at p. __ [181 L.Ed.2d at p. 327].) The word "parties" refers to
signators to the arbitration agreement.
Manulife is not a party
or signator to the Merrill Lynch Client Relationship Agreement. "[T]he first principal that underscores
all of the Supreme Court's arbitration decisions is that '[a]rbitration is
strictly a matter of consent, and thus is a way to resolve those disputes - but
only those disputes - that the parties have agreed to submit to
arbitration.' [Citation.]" (Dialysis Access Center, LLC v. RMS
Lifeline, Inc. (1st Cir. 2011) 638 F.3d 367, 376.)
Under the FAA,
arbitration is a matter of contract and is governed by state law principles
regarding contract formation. (Arthur
Anderson LLP v. Carlisle (2009) 556 U.S. 624, 630-631 [173 L.Ed.2d 832,
839-840].) In California, only parties
to an arbitration contract may be compelled to arbitrate. (County of Contra Costa v. Kaiser
Foundation Health Plan, Inc.(1996) 47 Cal.App.4th 237, 244-245.) "There is no public policy favoring
arbitration of disputes which the parties have not agreed to arbitrate.
[Citation.]" (Engineers &
Architects Assn. v. Community Development Dept. (1994) 30 Cal.App.4th 644,
653.)
The rule is the same
under New York law, notwithstanding the argument that the Merrill Lynch Client
Relationship Agreement has a New York choice of law provision.
Communications Co. (1993) 596 N.Y.S.2d 223, 224; Republic of Iraq v. ABB
AG (S.D.N.Y. 2011) 769 F.Supp.2d 605, 610.)
"The point is that, while federal policy favors arbitration
generally, . . . the obligation to arbitrate nevertheless remains a creature of
contract [citation]." (Motorola
Credit Corp. v. Uzan (S.D.N.Y. 2003) 274 F.Supp.2d 481, 504.)
Change of Circumstances
Appellants argue that
the federal injunction narrows Reicker's claims, making it unlikely that
arbitration would result in conflicting rulings on common issues of law. The federal court enjoined Reicker from suing
Manulife for false representations made prior to December 21, 1998, but that is
not a new circumstance warranting a renewed motion for arbitration. (§ 1008, subd. (b).) The complaint and first amended complaint
allege that Manulife committed fraudulent acts and omissions after 1998 by
reporting that the policy was performing as projected. Manulife fraudulently represented that the
insurance amount was increasing each year, that the $5 million net death
benefit had not changed, and that the cash surrender value of the policy had
increased. Manulife failed to disclose
that the policy would lapse unless substantial cash premiums totaling hundreds
of thousands of dollars were invested in the policy.
These allegations
involve common issues of law and fact because appellant Charles Chester (the
Merrill Lynch broker who sold the policy) made similar statements after the class
action settlement. The first amended
complaint states that Chester failed to inform Reicker that the policy was not
performing as projected and failed to disclose that the cash value of the
policy and net death benefit had dropped in value. Appellants allegedly failed to advise Reicker
of the class action settlement and falsely told Reicker that a Manulife
dividend check issued after the demutualization of Manulife had nothing to do
with the policy. Appellants and Manulife
allegedly concealed that the policy loans exceeded the policy's borrowing
capacity and that the policy would lapse in the near future unless hundreds of
thousands of dollars were invested in the policy.
Conclusion
We reject the argument
that the federal injunction constitutes new facts or circumstances to warrant
reconsideration of the motion to compel arbitration. (§ 1008, subd. (a); Le Francois v. Goel, supra, 35 Cal.4th at p.
1096.) Nor have appellants have demonstrated that the trial court would have
ordered arbitration had had it reached the merits of the renewed motion. (See e.g., Robbins v. Los Angeles Unified
School Dist. (1992) 3 Cal.App.4th 313, 318.)
KPMG is a red
herring because the FAA does not preempt the application of section 1281.2,
subdivision (c) where an action is brought against nonsignators or parties not
bound the arbitration agreement.
"Section 1281.2(c) addresses the peculiar situation that arises
when a controversy also affects claims by or against other parties not bound by
the arbitration agreement. The
California provision giving the court discretion not to enforce the arbitration
agreement under such circumstances -- in order to avoid potential inconsistency
in outcome as well as duplication of effort -- does not contravene the letter
or sprit of the FAA. That was the
explicit holding in Volt [InfoSciences, Inc v. Leland Stanford Jr. U.
(1989) 489 U.S. 468 [103 L.Ed.2d 488]]. . . ." (Cronus Investments, Inc.v. Concierge Services, supra, 35 Cal.4th at p. 393; see Acquire II, Ltd. v. Colton
Real Estate Group (2013) 213 Cal.App.4th 959, 967-968 [FAA did not bar the
trial court from relying on section 1281.2 subd. (c) to deny motions to compel
arbitration].) (Mastick v. TD Ameritrade, Inc. (2012) 209 Cal.App.4th 1258, 1264
[FAA does not preempt application of section 1281.2, subdivision ©, where
parties agreed to be governed by California law.
The judgment (order
denying renewed motion to compel arbitration) is affirmed. Reicker is awarded
NOT TO BE PUBLISHED.
YEGAN,
J.
We
concur:
GILBERT, P.J.
PERREN, J.
Donna GH. Geck, Judge
Superior Court County of Santa Barbara
______________________________
Crowe
& Dunlevy; Tara A. LaClair and Charles B.Goodwin. Arnold & Porter; Laurence J. Hutt and
Eric D. Mason, for Appellants.
Eric
A. Woosley, Jordan T. Porter, Law Offices of Woosley & Porter, for
Respondent.
name="_ftn1" title="">[1] There is a split of authority on whether
orders denying reconsideration are appealable. (Ketchum v. Moses (2001)
24 Cal.4th 1122, 1140, fn 5; see e.g., Freeman v. State Farm Mut. Auto Ins.
Co. (1975) 14 Cal.3d 473, 477, fn. 2 [order denying reconsideration
appealable because motion "was made in part upon new grounds."] Because the trial court had the inherent
authority to reconsider the motion to compel arbitration (LE Francois v.
Goel (2005) 35 Cal.4th 1094, 1096-1097), the order denying
appellants' renewal motion is appealable.
name="_ftn2" title="">[2] All statutory references are to the Code of
Civil Procedure unless otherwise stated.
Section 1281.2, subdivision (c) provides that a trial court may deny a
petition to compel arbitration where: "A party to the arbitration
agreement is also a party to a pending court action or special proceeding with
a third party, arising out of the same transaction or series of related
transactions and there is a possibility of conflicting rulings on a common
issue of law or fact."
