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Wright v. RBC Capital Markets Corp.

June 24, 2010


The opinion of the court was delivered by: Frank C. Damrell, Jr. United States District Judge


This matter is before the court on (1) defendant RBC Capital Markets Corporation's ("defendant" or "RBC") partial motion to dismiss or stay plaintiff Carl Wright's ("plaintiff" or "Wright") first amended complaint (Docket #18) and (2) plaintiff's counter- motion for determination that defendants cannot pursue arbitration of class claims (Docket #25). Plaintiff asserts five claims for relief*fn1 in this putative California-wide class action against RBC, plaintiff's former employer. In defendant's motion, it asks the court to dismiss on the merits or stay pending arbitration all but one of plaintiff's claims.

More specifically, defendant moves to dismiss plaintiff's first claim for relief, alleging various pay violations of the California Labor Code, under the "first-to-file rule," on the ground that these claims are the subject of another putative California class action that has been pending in Minnesota since 2006. Plaintiff opposes the motion, arguing the parties and claims are not substantially similar in the two actions, and thus, there is no basis for dismissal under the first-to-file rule.

Defendant moves to stay plaintiff's fourth claim for relief, seeking to declare the subject promissory notes signed by plaintiff and the class unenforceable as violative of the California Labor Code, pending a Financial Industry Regulatory Authority ("FINRA") arbitration. Prior to plaintiff's filing of this action, defendant filed an arbitration claim with FINRA seeking to collect more than $192,000 on the promissory note plaintiff signed while employed by RBC. Defendant asserts plaintiff filed this class action in response to defendant's arbitration claim in an effort to "block" RBC's pursuit of that claim. Plaintiff contends, by his counter-motion, that FINRA Rule 13204 precludes the arbitration of class claims, and defendant's arbitration claim is encompassed within the instant class action and, thus, may not be arbitrated. Defendant maintains, to the contrary, that Rule 13204 only prohibits RBC from forcing plaintiff to bring his putative class action in arbitration; it does not apply to RBC's individual, affirmative claim against plaintiff, filed in advance of any class action. As such, RBC contends plaintiff's fourth claim for relief, and his related, derivative claims, including his second and, in part, his third and fifth claims for relief,*fn2 should be stayed pending its arbitration.*fn3

Defendant alternatively moves to dismiss, under Federal Rule of Civil Procedure 12(b)(6), plaintiff's fourth claim for relief, and the related derivative claims, arguing the claims fail, as a matter of law, because even on a motion to dismiss, the court should not accept as true allegations that are contradicted by unambiguous language in the subject documents; namely, the Promissory Notes and related Loan Agreements. Those documents, defendant contends, fully comply with California law.

The court heard oral argument on the motions on June 4, 2010. By this order, it now renders its decision on the motions. Ultimately, the court does not reach defendant's alternative Rule 12(b)(6) argument because for the reasons set forth below, it finds that plaintiff's fourth claim for relief and related derivative claims should be stayed pending the FINRA arbitration. The court also finds in defendant's favor as to plaintiff's first claim for relief; said claim is properly dismissed under the first-to-file rule.


RBC is a registered broker dealer in the United States and holds itself out as providing investment banking and investment services to high-net-worth individuals. RBC maintains that as is customary within the financial services industry, in order to help a financial consultant transition to a new firm and as a recruitment inducement, the consultant often receives a loan by the new employer that is secured by a promissory note. Typically, those loans are forgiven during the course of a consultant's employment but become immediately due and payable in any remaining amount, in the event the employee leaves, for any reason, before the maturity date of the note.

In this case, on October 27, 2006, plaintiff, a financial consultant, and RBC entered into an Employment Agreement, pursuant to which RBC provided plaintiff a forgivable loan in the amount of $202,000. (RBC's RJN [Docket #19], filed January 29, 2010, Ex. D.) Also on October 27, 2006, plaintiff executed a Promissory Note. The Note was for $202,000, was payable over six years, and had an interest rate of 4.71 percent per annum. Pursuant to the Employment Agreement, 1/72 of the principal and interest was to be forgiven each month over six years. The Note also provided that plaintiff shall repay any unpaid balance of the principal sum plus accrued interest in full, if his employment by RBC terminated for any reason, with the amount coming due as of the date of termination. (Id. at Ex. D., ¶ 2.)

On October 31, 2006, plaintiff received a check from RBC for $202,000. (Id. at Ex. I at Ex. A at Ex. 3.) Each month for 26 months between the end of December 2006 and the end of January 2009, 1/72 of the principal and interest ($2,806 per month) was forgiven on plaintiff's Note balance. By the end of January 2009, the balance was $129,056. (Id. at Ex. I at Ex. A, p. 2.)

On January 13, 2009, RBC offered plaintiff an opportunity to refinance his Note at a lower interest rate. He accepted, and on January 13, 2009, he entered a second Loan Agreement with RBC. (Id. at Ex. E.) Under the second Loan Agreement, RBC agreed to loan plaintiff $129,055 pursuant to a new Promissory Note, which plaintiff also executed on January 13, 2009. (Id. at Ex. F.) By the Note, plaintiff again promised to repay the unpaid portion of the loan plus accrued interest in full, if his employment with RBC terminated for any reason, with the amount coming due as of the date of his termination. (Id. at Ex. F, ¶ 2.)

Effective January 30, 2009, plaintiff's employment with RBC terminated. (Id. at Exs. A, I.) RBC contends that pursuant to the above-described 2009 agreements, the unforgiven portion of the Note became immediately due. (Id. at Exs. E, F.) The principle amount remaining on the Note as of plaintiff's termination date was $129,055.44. Interest is accumulating at a rate of 2.04% per annum since the date of the termination.

RBC made a demand upon plaintiff for payment of the default amount by letter of February 3, 2009. To date, no payment has been made.

On July 13, 2009, RBC filed a Statement of Claim before FINRA, alleging that plaintiff breached his contractual obligations to RBC. (Id. at Ex. I at Ex. A.) RBC demanded plaintiff repay the $129,055.44 plus interest that he owed on the 2009 Promissory Note. (Id.)

Four months later, on November 17, 2009, plaintiff filed a class action complaint in the Sacramento County Superior Court, which RBC timely removed to this court. Plaintiff thereafter filed a first amended complaint. (Docket #s 1, 2, 14.) By this action, plaintiff seeks a declaration that his and the class' "bonuses" paid by defendants were earned upon delivery of their "books" of business to defendants and that any so-called "promissory notes" executed in connection with the bonuses are void and unenforceable. (FAC ¶ 5.) He pleads five alternative theories challenging the Notes' enforceability, four of which are based on the California Labor Code. (Id. ¶s 59-68 [¶s 61, 63, asserting that in violation of Cal. Labor Code § 221 defendants seek to collect on "bonuses" previously earned by plaintiffs since the subject monies do not represent loans from defendants but bonuses earned by plaintiffs for moving customers, plaintiffs' "books of business," to RBC]; [¶ 64, alleging the purported loan structure violates Cal. Labor Code § 2802 because it requires plaintiffs to pay RBC's business expenses]; [¶ 65, asserting the purported "loans" violate Cal. Labor Code § 402 by requiring plaintiffs to contribute property, in the form of a book of business, to secure employment].) Plaintiff's final theory challenging the enforceability of the promissory notes asserts that defendants engaged in unfair business practices designed to make continued employment with defendants "economically unfeasible" in an effort to "squeeze smaller producers out of the firm," while simultaneously accelerating payment on the notes and keeping the transferred books of business. (Id. at ¶ 62.)

Plaintiff seeks to represent a class of "past and present employees of [RBC] with the State of California who also signed so-called 'promissory notes' or similar agreements in connection with receiving 'bonuses' for moving from a competitor to defendants and/or delivering all or part of their 'books' of business to defendants." (FAC ¶ 16.)

The same day he filed his complaint, plaintiff wrote to FINRA asserting the class action complaint divested FINRA of jurisdiction to hear RBC's arbitration claim. (Def.s' RJN at Ex. I at Ex. B.) On December 3, 2009, FINRA advised the parties that the question of whether RBC's earlier filed note collection action was precluded by plaintiff's later filed class action complaint would be referred to an arbitration panel. (Id. at Ex. I at Ex. C.)

On December 15, 2009, plaintiff filed in superior court a "Motion for Determination that Defendants Cannot Pursue Arbitration of Class Claims," requesting an order that his filing of the class action against RBC divested FINRA of its authority to arbitrate RBC's claim and further barred RBC from enforcing promissory note agreements against any putative class member. Plaintiff informed FINRA of its motion. (Id. at Ex. G.) Thereafter, FINRA responded that RBC's arbitration "will be held in abeyance until the issue is resolved by the court." (Id. at Ex. K.)

After removing the instant action to this court, on January 29, 2010, RBC filed its partial motion to dismiss or stay plaintiff's first amended complaint. On March 10, 2010, plaintiff filed ...

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