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Verducci v. Coda

August 3, 2010

RICHARD J. VERDUCCI, DANA M. VERDUCCI, PLAINTIFFS,
v.
EDWARD CODA; HAWAII FINANCIAL SPECIALISTS, INC.; ET AL. DEFENDANTS.



The opinion of the court was delivered by: Honorable Janis L. Sammartino United States District Judge

ORDER: DENYING MOTION TO COMPEL ARBITRATION (Doc. No. 8)

Presently before the Court is Defendants' motion to compel arbitration. (Doc. No. 8.) Also before the Court are the parties' opposition and reply briefs. (Doc. Nos. 10 & 11.) For the following reasons, the motion to compel arbitration is DENIED.

BACKGROUND

This case involves tax and estate planning advice given by Defendant Edward Coda to Mr. John R. Verducci. Plaintiffs Richard Verducci and Dana Verducci proceed here as John Verducci's successors-in-interest, heirs, and beneficiaries.

Plaintiffs allege that Defendant Coda had a relatively longstanding relationship with John Verducci. (Compl. ¶ 11.) They assert that Defendant Coda encouraged John Verducci to create a "Private Family Foundation" as a way to minimize assets, provide money for his children, and donate to charity. (Id. ¶¶ 13--15.) This was allegedly done through the "National Heritage Foundation," which is "a large, controversial Virginia-based charity that has long battled federal tax officials regarding the tax benefits it purportedly provided to its donors." (Id. ¶ 17.)

In 2006, Plaintiffs claim that President Bush signed legislation "which made a number of significant changes to the regulatory framework" for this sort of investment. (Id. ¶ 20.) However, Defendant Coda did not inform John Verducci of these changes and their effect on his estate plan. (Id. ¶ 22.)

Further, according to Plaintiffs, "Defendant Coda has a history of giving incompetent and even fraudulent tax advice." (Id. ¶ 24.) Allegedly, a United States District Court for the District of Hawaii entered a judgment against the Defendants enjoining a tax-fraud scheme which involved creating false deductions and causing the under reporting of income on tax returns. (Id.) "The Disciplinary and Ethics Commission of the Certified Financial Planner Board of Standards [also] found that . . . [this conduct] violated Rule 102, 201 and 607 of the Board's Code of Ethics and Professional Responsibility." (Id. ¶ 26.) Again, "Defendant Coda never told Plaintiffs or . . John R. Verducci of the complaint filed by the U.S. Department of Justice, the Stipulated Final Judgment of Permanent Injunction to which he agreed as a result, or the disciplinary action taken by the Board of Standards." (Id. ¶ 27.)

Plaintiffs claim that if they had known any of these details allegedly not disclosed, they would not have acted in the way advised by Defendant Coda. (Id. ¶ 29.) Moreover, Plaintiffs allege that they would have retained another tax adviser. (Id.) Eventually, because of a judgment against the National Heritage Foundation, "$115,899.00 of John R. Verducci's life savings went to the bankruptcy estate of the National Heritage Foundation, without any benefit at all to Plaintiffs or the estate of the late John R. Verducci." (Id. ¶ 33.)

Plaintiffs' complaint alleges three causes of action: (1) breach of fiduciary duty, (2) professional negligence, and (3) financial elder abuse. They seek compensatory damages of $115,899.00, general damages, punitive damages, and attorneys' fees.

LEGAL STANDARD

The Federal Arbitration Act ("FAA") governs arbitration agreements in contracts involving transactions in interstate commerce. 9 U.S.C. § 1. Under the FAA, arbitration agreements "shall be valid, irrevocable, and enforceable, save upon such grounds that exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. The Act's provisions reflect a "liberal federal policy favoring arbitration agreements." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25 (1991) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)). This "national policy" is enforceable in both state and federal courts and preempts any state laws or policies to the contrary. Preston v. Ferrer, 552 U.S. 346, 349 (2008) (quoting Southland Corp. v. Keating, 465 U.S. 1, 10 (1984)).

A court interpreting an arbitration agreement must resolve ambiguities as to the scope of the arbitration clause in favor of arbitration. Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62 (1995); AT&T Techs. Inc. v. Commc'n Workers of Am., 475 U.S. 643, 650 (1986) ("[I]n the absence of any express provision excluding a particular grievance from arbitration . . . only the most forceful evidence of a purpose to exclude the claim from arbitration can prevail."). The FAA requires courts to "rigorously enforce agreements to arbitrate" even when such agreements implicate claims arising under federal statutes. Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226 (1987). Additionally, it "requires district courts to compel arbitration even where the result would be the possibly inefficient maintenance of separate proceedings in different forums." Fisher v. A.G. Becker Paribas Inc., 791 F.2d 691, 698 (9th Cir. 1986). The overall mandate for arbitration is defeated only where circumstances demonstrate "a contrary congressional command," with the burden on the party opposing arbitration "to show that Congress intended to preclude a waiver of judicial remedies for the statutory rights at issue." Id.

In determining whether to compel a party to arbitration, a district court may not review the merits of the dispute; rather, a district court's role under the FAA is limited "to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue." Cox v. Ocean View Hotel, Corp., 533 F.3d 1114, 1119 (9th Cir. 2008) (quotation and citation omitted). In construing the terms of an agreement, the Court "appl[ies] general state-law principles of contract interpretation, while giving due regard to the federal policy in favor of arbitration by resolving ambiguities as to the scope of arbitration in favor of arbitration." Wagner v. Stratton Oakmont, Inc., 83 F.3d 1046, 1049 (9th Cir. 1996). If the district court determines that a valid arbitration agreement encompasses the dispute, then the FAA requires the court to enforce the arbitration agreement according to its terms. Lifescan, Inc. v. Premier Diabetic Servs., Inc., 363 F.3d 1010, 1012 (9th Cir. 2004). Therefore, a district ...


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