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Irene Mastick v. Td Ameritrade

October 9, 2012

IRENE MASTICK, PLAINTIFF AND RESPONDENT,
v.
TD AMERITRADE, INC. ET AL., DEFENDANTS AND APPELLANTS. IRENE MASTICK, PLAINTIFF AND RESPONDENT,
v.
OAKWOOD CAPITAL MANAGEMENT, LLC ET AL., DEFENDANTS AND APPELLANTS.



(Super. Ct. No. 1343412) Thomas P. Anderle, Judge Superior Court County of Santa Barbara

The opinion of the court was delivered by: Gilbert, P.J.

CERTIFIED FOR PUBLICATION

(Santa Barbara County)

When federal and state laws involve the same subject matter, their provisions may conflict. When they do, the doctrine of federal pre-emption often resolves the issue which law applies. We answer the question when it does with judges' and lawyers' habitual, exasperating response: it all depends.

In these related appeals, the Federal Arbitration Act (FAA) (9 U.S.C. §§ 1-16) conflicts with the California Arbitration Act (CAA) (Code Civ. Proc., § 1280 et seq.)*fn1 in one case but not the other. Why? As we will explain . . . it all depends.

Irene Mastick brings this professional negligence action against Oakwood Capital Management, LLC, and its officers, Elliot Hollingsworth and Bruce Mandel (collectively Oakwood) and TD Ameritrade, Inc. and Paul Sullivan (collectively TD Ameritrade). Oakwood and TD Ameritrade appeal an order denying their petitions to compel arbitration. (§ 1281.2, subd. (c).) We conclude that the FAA does not preempt application of the CAA to an arbitration agreement in which the parties have agreed to be governed by California law. The FAA does preempt, however, when they have not so agreed. We reverse in part and affirm in part.

FACTUAL AND PROCEDURAL BACKGROUND

Mastick brought this action in superior court against her accountant, Michael E. Safris and M.E. Safris & Company, LLC (collectively Safris). She alleged that Safris, along with representatives of Oakwood and TD Ameritrade, met with her in her home in November 2008. Safris advised her to surrender her whole life insurance policies for cash value and invest the proceeds with Oakwood. She alleged that Safris gave her bad advice about ensuing tax consequences.

Safris, a citizen of New Jersey, removed the case to federal court. Mastick amended the complaint to add Oakwood and TD Ameritrade. In federal court, Oakwood and TD Ameritrade petitioned to compel arbitration. The federal court remanded the case to superior court for lack of diversity, and denied the petitions without prejudice.

Upon remand, Oakwood and TD Ameritrade filed petitions to compel arbitration. Oakwood sought to compel arbitration before the American Arbitration Association (AAA) and to dismiss Mastick's action. TD Ameritrade sought to compel arbitration before the Financial Industry Regulatory Authority (FINRA) and to stay Mastick's action.

The investment management agreements between Oakwood and Mastick provide that the parties will be governed by California law and disputes between them will be resolved through arbitration in accordance with the AAA rules. The client agreements between TD Ameritrade and Mastick provide that the parties will be governed by Nebraska law and disputes between them will be resolved through arbitration in accordance with the FINRA rules.

The trial court denied both petitions because of the risk of inconsistent rulings. (CAA, § 1281.2, subd. (c).) It found that the CAA was not preempted by the FAA because "the parties have agreed that their arbitration agreement[s] will be governed by state law." The court found that Mastick's claims against Safris, Oakwood, and TD Ameritrade arose out of the same transaction or series of transactions, and that the arbitration agreements, if enforced, would require Mastick to litigate her claims in three different forums. The court found that "the present case is exactly the situation Section 1281.2[, subdivision] (c) was designed to deal with, where there is the potential for conflicting rulings because some of the defendants have an arbitration agreement with plaintiff and others do not. The interest of justice simply would not be served by having three actions proceeding concurrently, or one after the other." The court declined to stay any part of the action because to do so "would not resolve the potential for inconsistent rulings in the different forums."

DISCUSSION

We ordinarily review a court's order denying arbitration under section 1281.2, subdivision (c) for abuse of discretion. (Rodriguez v. American Technologies, Inc. (2006) 136 Cal.App.4th 1110, 1116.) But the question whether the CAA applies to an arbitration agreement, "is a question of law involving interpretation of statutes and the contract (with ...


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