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John Simmons v. Morgan Stanley Smith Barney

May 24, 2012

JOHN SIMMONS PLAINTIFF,
v.
MORGAN STANLEY SMITH BARNEY, LLC; DOES 1 THROUGH 50, INCLUSIVE, DEFENDANTS.



The opinion of the court was delivered by: Hayes, Judge:

ORDER

The matters before the Court are the Motion to Compel Arbitration and Stay Litigation filed by Defendant Morgan Stanley Smith Barney, LLC (ECF No. 9) and the Motion for Preliminary Injunction filed by Plaintiff John Simmons (ECF No. 12).

I. Background

On December 1, 2011, Plaintiff John Simmons initiated this action in the Superior Court of California for the County of San Diego. On December 12, 2011, Defendant Morgan Stanley Smith Barney, LLC ("Morgan Stanley") removed the matter to this Court. (ECF No. 1).

The Complaint alleges that Plaintiff was offered employment by Morgan Stanley as the Executive Director and District Manager in the Global Wealth Management Department on January 7, 2008. The Complaint alleges that the letter offering Plaintiff employment at Morgan Stanley stated that he would be entitled to a forgivable loan of $1,000,000, relocation benefits, and an award of stocks. The Complaint alleges that on February 22, 2008, Plaintiff accepted employment by signing the offer letter and a sign-on agreement. Plaintiff entered into Promissory Notes and Bonus Agreements with Morgan Stanley on February 29, 2008 and May 8, 2009. The Complaint alleges that: "Despite the fact that the Plaintiff performed at a very high level ... the Plaintiff was not paid in accordance with the terms of his employment agreement." (ECF No. 1-1 at 4).

The Complaint alleges that Plaintiff is a member of the Church of Jesus Christ of Latter Day Saints and that employees of Morgan Stanley "made remarks to the Plaintiff regarding his religious beliefs .... includ[ing] references to multiple wives, polygamy, and the fact that the Plaintiff was a teetotaler...." Id. at 5. The Complaint alleges: "In February of 2011, the Plaintiff informed [his supervisor] that [Plaintiff] was aware of the fact that he was paid less than other co-workers with similar duties, but who were not members of the Church of Jesus Christ of Latter Day Saints." Id. The Complaint alleges that on March 10, 2011, Plaintiff's employment with Morgan Stanley was terminated. The Complaint alleges that: "The discrimination claims are inextricably related to the allegations of violation of the [February 29, 2008 and May 8, 2009 Promissory Notes and Bonus Agreements] as the Plaintiff was illegally terminated before he was able to fully perform his obligations thereunder." Id. at 11.

Plaintiff asserts statutory claims for discrimination pursuant to Cal. Govt. Code section 12940(a), for violation of 42 U.S.C. § 2000e (Title VII), and non-statutory claims of wrongful termination in violation of public policy, fraud, breach of contract, and "temporary restraining order, preliminary, and permanent injunction." (ECF No. 1-1).

On September 20, 2011, Defendant initiated a Statement of Claim with the Financial Industry Regulatory Authority ("FINRA") seeking to arbitrate a claim of violation of the Bonus Agreements and Promissory Notes between Plaintiff and Defendant.

On December 22, 2011, Defendant filed a Motion to Compel Arbitration. (ECF No. 9). Plaintiff filed an opposition. (ECF No. 13). Defendant filed a reply. (ECF No. 17). Plaintiff also filed objections to the Declaration of Sasha Price. (ECF Nos. 16, 18). Defendant filed oppositions to the objections. (ECF No. 22, 24). Plaintiff filed replies. (ECF Nos. 26-27, 29).

On January 10, 2012, Plaintiff filed a Motion for Preliminary Injunction asserting that Plaintiff should not be compelled to arbitrate the claims that Defendant initiated with FINRA on September 20, 2011. (ECF No. 12). Defendant filed an opposition. (ECF No. 14). Plaintiff filed a reply. (ECF No. 15). Defendant also filed "Objections to a Request to Strike New Evidence and Argument Submitted with Plaintiff's Reply." (ECF No. 30). Plaintiff filed an opposition to the request to strike. (ECF No. 31). This Court denied the Request to Strike, but permitted Defendant to file a surreply. On March 7, 2012, Defendant filed a surreply. (ECF No. 33).

On April 27, 2012, this Court heard oral argument.

II. Factual Background

On January 7, 2008, Margaret Black Scott, Managing Director of Morgan Stanley sent a letter to Plaintiff stating "I am pleased to extend to you an offer of employment at Morgan Stanley ... [as] Executive Director and District Manager in the Global Wealth Management Department." (Ex. to Decl. Simmons, ECF No. 12-3 at 5). The letter states in part that "[f]or fiscal 2008 (sic), your Total Reward will be a minimum of $1,150,000." Id. at 5. The letter states: "The Firm will make you a one-time award of Morgan Stanley Restricted Stock Units intended to offset the stock award(s) you forfeited at your previous employer. Subject to our receipt of satisfactory documentation ... the value of your Morgan Stanley Restricted Stock Unit award will be determined based on the value of your Merrill Lynch stock award(s) that are actually forfeited, ... not [to] exceed $525,000." Id. The letter states: "[Y]ou will be entitled to a forgivable loan in the amount of $1,000,000. To evidence the loan, you will sign a six-year promissory note prior to the disbursement of proceeds, the note will be in the form of the acknowledgment attached to this letter."*fn1 Id. at 6. The letter also states: "You will be eligible for full relocation benefits." Id. The letter states: "Nothing in this letter should be construed as a guarantee of any particular level of benefits, of your participation in any benefit plan, or of continued employment for any period of time." Id. at 7. The letter states: "Morgan Stanley reserves the right to amend, modify or terminate ... all benefit and compensation plans in effect from time to time." Id.

The letter was accompanied by a Sign-on Agreement which required Plaintiff to provide Morgan Stanley with advanced written notice if he decided to terminate his employment, required Plaintiff to maintain confidentiality, and prevented Plaintiff from soliciting or hiring Morgan Stanley clients or employees for a period of time after his termination. Id. at 8-12.

On February 29, 2008, Plaintiff and Defendant entered into a Bonus Agreement which provided bonus payments totaling $1,187,500 from March 14, 2009 through March 14, 2017. Id. at 13. The Bonus Agreement states: "Any controversy or claim arising out of or relating to this Agreement shall be settled by arbitration in accordance with the rules of the Financial Industry Regulation Authority and judgment upon the award entered by the arbitrator(s) may be entered in any court having jurisdiction thereof." Id. at 14.

On February 29, 2008, Plaintiff and Defendant entered into a Promissory Note which states that Plaintiff promises to pay Defendant a principal sum of $1,000,000 with payments due from February 28, 2009 to February 28, 2017. Id. at 15. The Promissory Note states: "Any controversy or claim arising out of or relating to this Note shall be settled by arbitration in accordance with the rules of the Financial Industry Regulation Authority and judgment upon the award entered by the arbitrator(s) may be entered in any court having jurisdiction thereof." Id. at 16.

On March 13, 2008, Plaintiff signed a Form U4 Uniform Application for Securities Industry Registration or Transfer which states: "I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the SROs [registered in the Form U4] as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction." (Ex. E to Decl. Price, ECF No. 9-3 at 29).

On May 8, 2009, Plaintiff and Defendant entered into a Bonus Agreement which provided for a total of $431,500 in bonus payments from May 15, 2010 through May 15, 2015. (Ex. to Decl. Simmons, ECF No. 12-3 at 17). The Bonus Agreement states: "Any controversy or claim arising out of or relating to this Agreement shall be settled by arbitration in accordance with the rules of the Financial Industry Regulation Authority and judgment upon the award entered by the arbitrator(s) may be entered in any court having jurisdiction thereof." Id. at 18.

On May 8, 2009, Plaintiff and Defendant entered into a second Promissory Note which states that Plaintiff promises to pay Defendant a principal sum of $400,000 with payments due from May 1, 2010 to May 1, 2015. Id. at 20. The Promissory Note states: "Any controversy or claim arising out of or relating to this Note shall be settled by arbitration in accordance with the rules of the Financial Industry Regulation Authority and judgment upon the award entered by the arbitrator(s) may be entered in any court having jurisdiction thereof." Id. at 22.

III. Motion to Compel Arbitration

Defendant seeks an order compelling Plaintiff to arbitrate his claims. Defendant contends that it has not waived its right to seek arbitration of Plaintiff's claims. Defendant contends that each of Plaintiff's claims are subject to arbitration pursuant to the February 29, 2008 and May 8, 2009 Promissory Notes and Bonus Agreements. Defendant contends that Plaintiff's non-statutory claims including wrongful termination in violation of public policy, fraud, breach of contract, and the "request for temporary restraining order, preliminary, and permanent injunction" are subject to arbitration pursuant to the Form U4 that Plaintiff completed when he registered as a securities representative.

Plaintiff contends that Defendant has waived its right to seek arbitration and has consented to this Court's jurisdiction over the issue of whether Plaintiff's discrimination claims are arbitrable by "arguing the merits of the issue in the Motion to Compel." (ECF No. 13 at 14). Plaintiff contends that the February 29, 2008 and May 8, 2009 Promissory Notes and Bonus Agreements are unenforceable on the grounds that there was no new consideration.

Plaintiff contends that the arbitration provisions in the February 29, 2008 and May 8, 2009 Promissory Notes and Bonus Agreements are procedurally and substantively unconscionable. Plaintiff contends that he is not obligated to arbitrate his statutory discrimination claims pursuant to Cal. Govt. Code section 12940(a) and 42 U.S.C. § 2000e (Title VII), without "expressly agreeing to do so." Id. at 15. Plaintiff contends that the United States Supreme Court's recent decision in Concepcion does not alter the requirement that Plaintiff must expressly agree to arbitrate statutory discrimination claims.

A. Waiver

In determining whether arbitration has been waived pursuant to California law, the court may consider the following factors:

(1) whether the party's actions are inconsistent with the right to arbitrate; (2) whether the litigation machinery has been substantially invoked and the parties were well into preparation of a lawsuit before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place; and (6) whether the delay affected, misled, or prejudiced the opposing party.

Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1124 (9th Cir. 2008) (quoting St. Agnes Med. Ctr. v. PacifiCare of Cal., 31 Cal. 4th 1187, 1196 (2003)). The waiver inquiry "must be conducted in light of the strong federal policy favoring enforcement of arbitration agreements." Id. at 1125 (quoting Fisher v. A.G. Becker Paribas Inc., 791 F.2d 691, 694 (9th Cir. 1986)). "Because waiver of the right to arbitration is disfavored, any party arguing waiver of arbitration bears a heavy burden of proof." Fisher, 791 F.2d at 694 (quotation omitted); see also Sobremonte v. Superior Court, 61 Cal. App. 4th 980, 991 (1998) (quotation omitted).

In this case, Defendant filed a Motion to Compel Arbitration within ten days of removing the matter to this Court. The Court finds that the first factor (i.e., "whether the party's actions are inconsistent with the right to arbitrate") does not favor a finding of waiver. Cox, 533 F.3d at 1124 (quotation omitted). No dispositive motions have been filed and no trial date has been set. The Court finds that the second and third waiver factors (i.e., "whether the litigation machinery has been substantially invoked" and "whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay") do not favor a finding of waiver. Id. (quotation omitted). Defendants did not file a counterclaim, and there is no showing that Defendants have obtained discovery. Cf. id. (fourth and fifth waiver factors). The Court finds that Plaintiff has failed to show that Defendants acted inconsistently with a known right to arbitrate. See Fisher, 791 F.2d at 697. Plaintiff does not contend that he has been prejudiced.

After considering the relevant factors, the Court finds that Defendant has not waived its right to seek arbitration.

B. Federal Arbitration Act

In this case, Plaintiff asserts that the February 29, 2008 and May 8, 2009 Promissory Notes and Bonus Agreements do not encompass Plaintiff's statutory discrimination claims, including claim one for violation of Cal. Govt. Code section 12940(a) and claim two for violation of 42 U.S.C. § 2000e (Title VII). Plaintiff asserts that the February 29, 2008 and May 8, 2009 Promissory Notes and Bonus Agreements are not valid. With regard to the Form U4, Plaintiff asserts that the Form U4 does not encompass Plaintiff's statutory discrimination claims, including claim one for violation of Cal. Govt. Code section 12940(a) and claim two for violation of 42 U.S.C. § 2000e (Title VII). Plaintiff also asserts that arbitration provision in the Form U4 is not valid.

The Federal Arbitration Act ("FAA") "was enacted ... in response to widespread judicial hostility to arbitration agreements." Concepcion, 131 S. Ct. at 1745 (citation omitted). Section 2 of the FAA states: "A written provision in any ... contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. The Supreme Court has described Section 2 "as reflecting both a liberal federal policy favoring arbitration and the fundamental principle that arbitration is a matter of contract." Concepcion, 131 S. Ct. at 1745 (quotations omitted). "In line with these principles, courts must place arbitration agreements on an equal footing with other contracts, and enforce them according to their terms." Id. at 1745-46 (citations omitted).

"The final phrase of ยง 2 ... permits arbitration agreements to be declared unenforceable 'upon such grounds as exist at law or in equity for the revocation of any contract.' This saving clause permits agreements to arbitrate to be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability, but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue." Id. at 1746 (quotation omitted). "When state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA." Id. at 1747 (citation omitted). "But the inquiry becomes more complex when a doctrine normally thought to be generally applicable, such as duress or ... unconscionability, is alleged to have been applied in a fashion that disfavors arbitration." Id. (citation omitted). "[A] court ...


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