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Boyko v. Benning Financial Group

August 9, 2010

GREGORY R. BOYKO, AN INDIVIDUAL; JEAN S. BOYKO, AN INDIVIDUAL; MAXINE F. SWAN, AN INDIVIDUAL; GREGORY R. AND JEAN S. BOYKO, AS TRUSTEES OF THE BOYKO REVOCABLE FAMILY TRUST DATED APRIL 27, 2001; MAXINE F. SWAN AND JEAN BOYKO, AS TRUSTEES OF THE SWAN FAMILY TRUST DATED JANUARY 13, 1978, PLAINTIFFS,
v.
BENNING FINANCIAL GROUP, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY; RANDY C. BENNING, AN INDIVIDUAL; EPLANNING SECURITIES, INC., A CALIFORNIA CORPORATION; FIDELITY BROKERAGE SERVICES LLC, A DELAWARE LIMITED LIABILITY COMPANY, AND DOES 1-100, INCLUSIVE, DEFENDANTS.



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

MEMORANDUM AND ORDER

This matter is before the court on defendants Benning Financial Group, LLC ("BFC") and Randy C. Benning's ("Benning") (collectively "defendants") motion to stay action and compel arbitration.*fn1 Plaintiffs oppose the motion. For the reasons set forth below,*fn2 defendant's motion is GRANTED in part and DENIED in part.

BACKGROUND

This case arises out of a serious of contracts plaintiffs entered into with defendants. Plaintiffs allege that in and prior to January 2004, Benning approached and solicited plaintiffs to open accounts with defendants and to permit defendants to invest plaintiffs' money in securities that defendants represented were known to be safe and proven. (Compl., Ex. 2 to Notice of Removal, filed Apr. 26, 2010, ¶ 11.) On or about January 16, 2004, Gregory R. Boyko and Jean S. Boyko (the "Boykos") executed and entered into a contract titled "Investment Consulting Agreement" with BFG, providing for a flat fee to be paid to BFG in the amount of $15,000.00 for "Business Consulting." (Id. ¶ 12.) On that same date, the Boykos, individually and as trustees of the Boyko Revocable Family Trust dated April 27, 2001 (the "Boyko Trust"), and Jean Boyko, as trustee of the Swan Family Trusts A and B dated January 13, 1978*fn3 (the "Swan Trusts"), executed and entered into contracts titled "Investment Consulting Agreements" with Benning on behalf of BFG. (Id. ¶¶ 13-14.) These agreements provided for an annual percentage fee based on the value of the portfolio. (Id.) The Investment Consulting Agreements did not contain provisions mandating arbitration. (See Exs. A-C to Ex. 2 to Notice of Removal.)

Subsequently, on or about January 1, 2006, the Boykos, individually and as trustees of the Boyko Trust, executed and entered into a contract titled "Advisory Agreement" with Benning on behalf of BFG for "financial planning" and "portfolio management" services. (Id. ¶ 15.) That same day, Jean Boyko, as trustee of the Swan Trusts, executed and entered into a similar contract. (Id. ¶ 16.) These Advisory Agreements provided for an annual percentage fee based on the value of the portfolio in exchange for "non-discretionary" investment advice. (Id. ¶¶ 15-16.) Pursuant to the contract, the clients would make all decisions to buy, sell, exchange or hold cash securities in the clients' accounts, and BFG would execute transactions only upon the oral or written instruction of the clients. (Id.)

The Advisory Agreements contained arbitration provisions. (Ex. D to Ex. 2 to Notice of Removal, at 8; Ex. E to Ex. 2 to Notice of Removal, at 8.) Specifically, paragraph 19 of each agreement sets forth in bold-faced font that "[t[he parties are waiving their right to seek remedies in court, including the right to jury trial," and that arbitration is final and binding. (Id.) The provisions also delineate the types of disputes subject to arbitration:

Any controversy or dispute which may arise between the Client and Advisor concerning any transaction or the construction, performance or breach of the Agreement shall be settled by arbitration.

(Id.)

On or about May 31, 2005, the Boyko Trust opened an investment account with BFG in the amount of $1,541,608.00. (Id. ¶ 17.) As of December 31, 2007, the net value of the Boyko Trust was $1,072,694. (Id.) As of August 31, 2008, the value of the account had fallen to $736,997, and as of October 31, 2008, the net value of the account was $4,001. (Id.) On or about June 30, 2005, the Swan Trusts opened in investment account with an initial deposit of $1,009,421. (Id. ¶ 18.) As of December 31, 2007, the net value of the Swan Trusts were $1,233,562. (Id.) However, as of August 31, 2008, the value of the account had fallen to $978,250, and as of October 31, 2008, the net value of the account was $292,581. (Id.)

Plaintiffs contend that prior to and during 2008, BFG and Benning executed trades and transactions within the account without the instruction, approval, or consent of the plaintiffs. (Id. ¶¶ 17-18.) Plaintiffs also contend that defendants engages in trades and transactions that were highly leveraged, speculative, risky and unsuitable given the sophistication, experience, risk tolerance, investment objectives, and financial position of the plaintiffs. (Id.)

Plaintiffs assert defendants knew of plaintiffs' lack of sophistication and knowledge and failed to properly explain how to read and interpret statements concerning the accounts. (Id. ¶ 19.) Plaintiffs further assert that defendants knew that they lacked sufficient investment experience and financial acumen to make informed decisions about the purchase and sale of securities. (Id.) Moreover, plaintiffs allege that defendants failed to disclose the actual risk and unsuitability involved in the transactions recommended or entered into by defendants on plaintiffs' account. (Id.)

More specifically, plaintiffs allege that defendants violated the agreements entered into by the parties by effecting trades without specific authorization of plaintiffs. (Id. ¶ 20.) Plaintiffs further allege that defendants also violated the agreements by executing transactions that were unsuitable for plaintiffs' accounts in light of the nature of the account, plaintiffs' financial situation and needs, and plaintiffs' investment objectives. (Id. ¶ 21.)

On February 26, 2010, plaintiffs filed a complaint for legal and equitable relief in the Superior Court of the State of California, in and for the County of Solano, alleging claims for

(1) breach of contract; (2) accounting; (3) fraud and misrepresentation; (4) negligence; (5) breach of fiduciary duty; (6) breach of implied covenant of good faith and fair dealing; (7) declaratory relief; (8) violation of various state and federal statutes; and (9) intentional and/or negligent infliction of emotional distress. Defendants removed the case to federal court ...


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