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Bates v. Morgan Stanley Smith Barney LLC

August 24, 2010

ERIC B. BATES, ON BEHALF OF HIMSELF, ALL OTHERS SIMILARLY SITUATED, THE GENERAL PUBLIC, AND AS AN "AGGRIEVED EMPLOYEE" UNDER THE CALIFORNIA LABOR CODE PRIVATE ATTORNEYS GENERAL ACT, PLAINTIFF,
v.
MORGAN STANLEY SMITH BARNEY LLC, A LIMITED LIABILITY COMPANY, CITIGROUP GLOBAL MARKETS INC., A CORPORATION FORMERLY DOING BUSINESS AS SMITH BARNEY, CITIGROUP GLOBAL MARKETS HOLDINGS, INC., A CORPORATION, AND DOES 1 THROUGH 50, 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 (1) plaintiff Eric B. Bates' ("plaintiff") motions for determination that defendants Morgan Stanley Smith Barney LLC ("MSSB"), Citigroup Global Markets Inc. f/k/a Smith Barney ("CGMI") and Citigroup Global Markets Holdings Inc. ("CGMI Holdings") (collectively, "defendants") cannot pursue arbitration of class claims (Docket #s 17 and 23)*fn1 and (2) defendants' motion to stay plaintiff's first amended complaint ("FAC") pending MSSB's arbitration proceedings before the Financial Industry Regulatory Authority ("FINRA") (Docket #29).*fn2 Plaintiff asserts five claims for relief*fn3 in this putative California-wide class action against defendants, including plaintiff's former employers, defendant CGMI and MSSB. By their motion, defendants ask the court to stay pending arbitration plaintiff's FAC in its entirety, arguing that all of plaintiff's claims, concerning the subject promissory notes signed by plaintiff and the class, should be stayed pending the related proceedings brought by MSSB before FINRA and plaintiff's other claims, to the extent they do not relate to the promissory notes, should nonetheless be stayed in the interest of judicial economy. Plaintiff contends by his motions that FINRA Rule 13204 precludes the arbitration of class claims, and MSSB's arbitration claims against plaintiff and Sevilla are encompassed within the instant class action and, thus, may not be arbitrated. Defendants respond, to the contrary, that Rule 13204 only prohibits defendants from forcing plaintiff or a class member to bring their class claims in arbitration; it does not apply to defendants' individual, affirmative claims against plaintiff or any class member such as Sevilla.

This case is related to Wright v. RBC Capital Markets Corp., et al., Civ. No. S-09-3601 FCD/GGH also pending before the undersigned ("Wright"). (Docket #12.) In a memorandum and order, filed June 24, 2010, this court stayed, in part, the Wright case pending the defendant's FINRA arbitration, finding Rule 13204 did not preclude the defendant's arbitration which was filed prior to Wright's action and did not involve the same claims as the class action. (Wright, Docket #39.) Defendants contend here that Wright controls and likewise mandates a stay of this action. Plaintiff argues that this case involves different facts, and thus, Wright is distinguishable and does not require entry of a stay in this case.

For the reasons set forth below, the court finds that Wright governs this case, and accordingly, a stay of the action is warranted, largely for the same reasons as set forth in the Wright memorandum and order. The court, therefore, grants defendants' motion for a stay, staying the entirety of the action in the interest of judicial economy.*fn4 Plaintiff's counter-motions are accordingly denied.

Plaintiff moves in the alternative, should his motions be denied, for an order granting an interlocutory appeal on the issue of Rule 13204's applicability. Plaintiff's motion is denied as the court cannot find that there is substantial ground for difference of opinion on the issue. 28 U.S.C. § 1292(b).

BACKGROUND

In May 2003, plaintiff became employed by defendant CGMI. (DeRobertis Decl., filed Aug. 6, 2010 [Docket #38], ¶ 3.)*fn5 At the time he was hired as a financial advisor, plaintiff was provided a loan of $183,879, and he executed a promissory note in connection with this loan. (Id. at Ex. A.) Under the terms of the note, plaintiff agreed to repay the loan in nine equal annual installments of $20,431 during his continued employment with CGMI. (Id.) These annual payments would be made pursuant to an agreement in which plaintiff would receive special compensation from CGMI in the annual amount due as long as he remained employed with CGMI. (Id.) However, if plaintiff resigned from his employment with CGMI before the expiration of nine years, the remaining principle balance of the loan plus interest immediately became due, and he would no longer receive the special compensation payments. (Id.)

In February 2004, alleged putative class member Sevilla became employed as a financial advisor by defendant CGMI. (Id. at ¶ 4.) At the time of his hire, Sevilla was provided with a loan of $220,434, and he executed a promissory note in connection with this loan. Sevilla agreed to repay the loan in eight equal annual installments of $27,554.25 during his continued employment with CGMI. (Id. at Ex. B.) Like plaintiff, these annual payments were made pursuant to an agreement in which Sevilla would receive special compensation from CGMI in the annual amount due as long as he remained employed with CGMI. (Id.) However, if he resigned from his employment with CGMI before the expiration of eight years, the remaining principle balance of the loan plus interest immediately became due, and Sevilla would no longer receive the special compensation from CGMI. (Id.)

On June 12, 2009, Sevilla resigned from his employment with MSSB*fn6 and went to work for Stifel Nicolaus & Co. (Id. at ¶ 6.) At the time of his resignation, the principle balance remaining on his loan was $82,662.75. (Id.) On June 15, 2009, plaintiff resigned from MSSB and also went to work for Stifel Nicolaus & Co. (Id. at ¶ 7.) At the time of his resignation, the principle balance remaining on his loan was $61,293. (Id.)

On July 17, 2009, MSSB sent Sevilla a demand letter requesting that he repay the principle balance on the loan. (Gottlieb Decl., filed Aug. 6, 2010 [Docket #39], Ex. E.) Sevilla refused to do so, and to date, he has not repaid the outstanding balance on the loan. (DeRobertis Decl., ¶ 8.)

On July 22, July 31, and August 10, 2009, MSSB sent plaintiff demand letters requesting that he repay the principle balance of his loan. (Gottlieb Decl., Exs. B, C, and D.) Plaintiff refused to do so, and to date, he has not repaid the outstanding balance on the loan. (Gottlieb Decl, Ex. E; DeRobertis Decl., ¶ 8.)

On August 21, 2009, plaintiff filed his putative class action complaint in California state court, alleging among other claims, a declaratory relief claim seeking to declare the "loans," provided by defendants to their financial advisors, void as an illegal attempt to recoup a signing "bonus" provided to the advisors. The complaint also set forth (1) a claim based on various wage and hour violations of the California Labor Code; (2) a claim for an injunction under the California Labor Code to remedy certain violations; and (3) a claim under California Business and Professions Code § 17200 based on certain Labor Code violations. (See Not. of Removal, filed Nov. 2, 2009.) On October 22, 2009, plaintiff filed a first amended complaint which set forth the same claims but added a claim based on California's PAGA. (FAC, ¶¶ 66--71, Ex. 3 to Not. of Removal.)

On November 2, 2009, defendants removed the case to this court under the Class Action Fairness Act. On November 17, 2009, Carl Wright, represented by the same counsel as plaintiff herein, filed a nearly identical class action in this court against his former employer, RBC Capital Markets (the aforementioned Wright case).

On January 29, 2010, the defendant in Wright filed a "Partial Motion to Dismiss or Stay" ("Wright Motion to Stay"), contending that (1) Wright's declaratory relief claim, and related derivative claims, seeking to declare similar promissory notes unenforceable as violative of the California Labor Code, should be stayed because RBC had ...


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