Fine Living Trust v. Merrill Lynch























Filed 5/20/13 The Fine Living Trust v. Merrill Lynch CA2/7

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>NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

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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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115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
SEVEN




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THE FINE LIVING TRUST et al., Plaintiffs and Respondents, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, Defendant and Appellant.

B240869 (Los Angeles County Super. Ct. No. BC476759)

APPEAL from
an order of the Superior Court
of href="http://www.adrservices.org/neutrals/frederick-mandabach.php">Los Angeles
County, Rolf M. Treu, Judge.
Affirmed.

Crowe &
Dunlevy, Tara A. LaClair; Arnold & Porter, Laurence J. Hutt and Eric D.
Mason for Defendant and Appellant.

Arthur
Fine, in pro. per.; and Douglas W. Bordewieck for Plaintiffs and Respondents.



_______________________

>INTRODUCTION



Defendant Merrill Lynch, Pierce, Fenner & Smith
appeals from an order denying its motion
to compel arbitration.href="#_ftn1"
name="_ftnref1" title="">^[1] We affirm.



BACKGROUNDhref="#_ftn2"
name="_ftnref2" title="">^[2]>



In 1982,
Leslie Fine and Lucy Fine, husband and wife, executed The Fine Living Trust
(the Trust). Around 2001, Leslie and
Lucy gave their son, Larry Fine, power of attorney to act on behalf of the
Trust. After Leslie and Lucy died, Larry
took steps to liquidate trust assets, pay remaining debts and divide the cash
proceeds amongst himself and his siblings, plaintiff Arthur Fine, Richard Fine
and Wendy Fine, the beneficiaries of the Trust.

In January
2012, plaintiffs—the Trust, Larry and Arthur—filed a verified complaint for href="http://www.fearnotlaw.com/">breach of contract, breach of fiduciary duty,
conversion, unjust enrichment and intentional infliction of emotion distress
against defendant. This action was
instituted after defendant froze an investment account the Trust maintained
with defendant, thereby precluding the trustee from distributing the funds to
the intended beneficiaries following the death of the last trust settlor. Plaintiffs sought compensatory and punitive
damages.

Defendant
thereafter filed a motion to compel arbitration and to stay the proceedings, as
well as a memorandum of points and authorities in support of its motion. The motion was set for hearing on April 13, 2012.

Defendant
maintained that at the time the investment account was opened, the settlors and
original trustees of the trust, Leslie and Lucy, signed a Client Relationship
Agreement (CRA), which contained a mandatory arbitration provision. A copy of the CRA purportedly signed by the
original trustees was attached to the motion as Exhibit A, but defendant did
not provide a declaration authenticating the CRA.

Above the
signatures, the following language appears:
“BY SIGNING BELOW, I AGREE TO THE
TERMS OF THE MERRILL LYNCH CLIENT RELATIONSHIP AGREEMENT ON THE REVERSE SIDE
AND:
[¶] . . . [¶]
2. THAT IN ACCORDANCE WITH
PARAGRAPH 11 OF THE CLIENT RELATIONSHIP AGREEMENT I AM AGREEING IN ADVANCE TO
ARBITRATE ANY CONTROVERIES THAT MAY ARISE WITH
YOU; . . . .”

Paragraph
11 of the CRA states: “I agree that all
controversies that may arise between us shall be determined by
arbitration. Such controversies include,
but are not limited to, those involving any transaction in any of my accounts
with you, or the construction, performance or breach of any agreement between
us, whether entered into or occurring prior, on or subsequent to the date
hereof.” Paragraph 11 further stated
that “[a]rbitration is final and binding on the parties” and that “[t]he
parties are waiving their right to seek remedies in court, including the right
to jury trial.”

Plaintiffs
opposed the motion arguing (1) defendant failed to authenticate the CRA;
(2) defendant failed to submit the entire agreement between the parties of
which the CRA was a part; (3) the arbitration provision was unreasonably
overbroad and unenforceable; (4) the arbitration provision should be construed
only to require arbitration of claims arising out of defendant’s provision of
brokerage services; and (5) the purported jury trial waived in the CRA is
invalid and thus unenforceable. In a
declaration, Arthur stated he was “unable to determine in any definitive sense
whether the signatures appearing on the CRA are the signatures of my parents,”
thereby placing the authenticity of the CRA in issue.

Defendant
thereafter filed a reply. Among other
things, defendant argued, in reliance on Condee
v. Longwood Management Corp. (2001) 88 Cal.App.4th 215 (>Condee), that it was not required to
authenticate the CRA.

On April
11, two days prior to the hearing, the trial court issued its tentative
decision denying defendant’s motion to compel arbitration on the ground that it
failed to authenticate the CRA and thus did not meet its initial burden of
establishing the existence of a valid arbitration agreement by a preponderance
of the evidence. It therefore did not
reach plaintiffs’ challenges to the enforceability of the arbitration
agreement.

On the day
of the hearing, defendant filed an ex
parte application and supporting declaration in which it attempted to
supply the evidentiary proof deemed missing by the trial court in its tentative
decision. Plaintiffs, having been
advised by defendant that the ex parte application would be forthcoming,
opposed the application in writing.

At the
hearing, the trial court denied defendant’s ex parte application and motion to
compel arbitration. The court stated its
reasoning as follows: “The court has
read and considered the various documents supporting and opposing the motion
and has listened to the arguments of counsel and the court is going to stand by
its tentative ruling on the issue. The
point being made is that the court has issued a tentative ruling. The court would be inundated by additional
paperwork if on any case in which it has indicated a tentative ruling
indicating that there is a failure of proof in the moving papers if it were
then to permit ex parte amendment to those papers without the opportunity of
the opposing party to respond to same which would require a continuance,
further expenditure of time and effort.
The court does not feel that the substantive issues of the motion, i.e.,
arbitration versus some other area of law, would give deference to arbitration
motions as opposed to other motions before the court. It’s a matter of court management, case
management, and the court will not so permit.
Therefore, the tentative remains the order of the court and the motion
is denied. With or without prejudice,
the motion is denied. Whatever counsel
wishes to do with respect to that denial, it is certainly up to them, but the
motion is denied as per the tentative ruling.”
This appeal followed.



DISCUSSION



An order
denying a motion to compel arbitration is appealable. (Code Civ. Proc., § 1294, subd.
(a).) Such an order is reviewed for
abuse of discretion unless a pure question of law is presented. In that case, the order is reviewed de
novo. (Gorlach v. Sports Club Co. (2012) 209 Cal.App.4th 1497, 1505; >California Parking Services, Inc. v. Soboba
Band of Luiseño Indians (2011) 197 Cal.App.4th 814, 817.) In this case, the trial court determined that
defendant failed to authenticate the parties’ purported agreement and therefore
failed to demonstrate that an agreement to arbitrate actually existed. This presents a legal question, which we
review de novo. (Gorlach, supra, at p.
1505; California Parking Services, >supra, at p. 817.)

“On
petition of a party to an arbitration
agreement alleging the existence of a written agreement to arbitrate a
controversy and that a party thereto refuses to arbitrate such controversy, the
court shall order the petitioner and the respondent to arbitrate the controversy
if it determines that an agreement to
arbitrate the controversy exists,” unless an enumerated exception
applies. (Code Civ. Proc.,
§ 1281.2, italics added.)

California
Rules of Court, rule 3.1330, entitled “Motion
concerning arbitration” provides:
“A petition to compel arbitration or to stay proceedings pursuant to
Code of Civil Procedure sections 1281.2 and 1281.4 must state, in addition to
other required allegations, the provisions of the written agreement and the
paragraph that provides for arbitration.
The provisions must be stated verbatim or a copy must be attached to the
petition and incorporated by reference.”

In >Rosenthal v. Great Western Fin. Securities
Corp. (1996) 14 Cal.4th 394 (Rosenthal),
the California Supreme Court enunciated the procedures governing the trial
court’s determination of a petition to compel arbitration. (Id.
at p. 402.) “[W]hen a petition to compel
arbitration is filed and accompanied by prima facie evidence of a written
agreement to arbitrate the controversy, the court itself must determine whether
the agreement exists and, if any defense to its enforcement is raised, whether
it is enforceable. Because the existence
of the agreement is a statutory prerequisite to granting the petition, the
petitioner bears the burden of proving its existence by a preponderance of the
evidence. If the party opposing the
petition raises a defense to enforcement—either fraud in the execution voiding
the agreement, or a statutory defense of waiver or revocation [citation]—that
party bears the burden of producing evidence of, and proving by a preponderance
of the evidence, any fact necessary to the defense. [Citation.]”
(Id. at p. 413.) The high court reiterated these procedures in
Engalla v. Permanente Medical Group, Inc.
(1997) 15 Cal.4th 951, 972 and noted, “[i]n these summary proceedings, the
trial court sits as a trier of fact, weighing all the affidavits, declarations,
and other documentary evidence, as well as oral testimony received at the
court’s discretion, to reach a final determination.” (Ibid.,
citing Rosenthal, >supra, at pp. 413-414.)

Relying on >Condee, supra, 88 Cal.App.4th 215, defendant challenges the trial court’s
determination. In Condee, the trial court denied a petition to compel arbitration on
the ground that the agreement to arbitrate had not been authenticated properly
even though the authenticity of the signatures had not been challenged and the
parties had not challenged the existence or validity of the arbitration
agreement. The Court of Appeal held that
the burden of proof under Code of Civil Procedure section 1281.2 is met simply
by alleging the existence of an arbitration agreement and either reciting the
provisions of the agreement in the petition or attaching a copy of the
agreement to the petition as required by California Rules of Court 3.1330,
formerly rule 371. (Condee, supra, at
pp. 218-219.) Condee held that once the petitioner alleged the existence of an
arbitration agreement, the burden shifts to the respondent to prove falsity of
the agreement. (Id. at p. 219.)

In >Toal v. Tardif (2009) 178 Cal.App.4th
1208, Division Three of the Fourth District Court of Appeal, the same court
that decided Condee, citing >Auto Equity Sales, Inc. v. Superior Court
(1962) 57 Cal.2d 450, 455, noted that “[t]o the extent Condee conflicts with Rosenthal,
our Supreme Court’s decision is controlling.”
(Toal, supra, at p. 1219, fn. 8.)
It noted that “our Supreme Court has clearly stated that a court, before
granting a petition to compel arbitration, must
determine the factual issue of ‘the existence or validity of the arbitration
agreement.’ (Rosenthal, supra, 14
Cal.4th at pp. 402, 413.) In this
way, a court’s role, though limited, is critical. ‘There is indeed a strong policy in favor of
enforcing agreements to arbitrate, but there is no policy compelling persons to
accept arbitration of controversies which they have not agreed to arbitrate and
which no statute has made arbitrable.’
[Citation.]” (>Toal, supra, at pp. 1219-1220.)

Here, the
trial court aptly noted that Condee
had been called into doubt by Toal. More fundamentally, the court noted that our
high court in Rosenthal stated that
the petitioner had the burden of proving the existence of an arbitration
agreement by a preponderance of the evidence, a burden the court repeated in >Engalla v. Permanente Medical Group, Inc.,
supra, 15 Cal.4th at p. 972. Then, applying the burden of proof enunciated
in Rosenthal, the court determined
that in the absence of an authenticating declaration, defendant “necessarily
fail[ed] to meet the initial burden” of proving the existence of the
arbitration agreement by a preponderance of the evidence. We find no fault with the trial court’s
reasoning or its result and therefore uphold its order denying defendant’s
motion to compel arbitration.

While
neither Rosenthal or >Engalla involved the issue of whether
the petitioner or moving party need authenticate the agreement containing the
arbitration provision, they do state in no uncertain terms that the existence
of an agreement to arbitrate is a statutory condition to granting a petition to
compel arbitration and that the burden of proving that such an agreement exists
is on the moving party. At the very
least, this requires proof that the document attached to the petition is what
it purports to be. To the extent >Condee holds that authentication is not
required, we respectfully disagree. That
Code of Civil Procedure section 1281.2 or California Rules of Court, rule
3.1330 are silent on the issue of authentication does not compel a contrary
result. Before a writing may be
considered evidence, it must be authenticated.
(Evid. Code, § 1401, subd. (a); Continental
Baking Co. v. Katz (1968) 68 Cal.2d 512, 525-526.) To authenticate a writing, the proponent of
the document must introduce “evidence sufficient to sustain a finding that it
is the writing that the proponent of the evidence claims it is” or establish
“such facts by any other means provided by law.” (Evid. Code, § 1400.) Defendant did neither of these. As such, defendant failed to support its
motion with evidence establishing the
existence of an agreement to arbitrate.

Defendant
contends the trial court should have directed the parties to present evidence
regarding the validity of the arbitration agreement. We disagree.
Having determined that defendant failed to meet its burden of proving by
a preponderance of the evidence the existence of an arbitration agreement, the
validity and enforceability of the agreement were nonissues.href="#_ftn3" name="_ftnref3" title="">^[3]



DISPOSITION



The order
is affirmed. Plaintiffs are awarded
costs on appeal.





JACKSON,
J.





We concur:







WOODS,
Acting P. J.







ZELON,
J.