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Rogers v. Nelson

United States District Court, S.D. California

May 1, 2017

BOB ROGERS, Plaintiff,
ROBERT NELSON et al., Defendants.



         Pending before the Court in this breach of fiduciary duty action is Defendants' motion to compel arbitration and stay this action. Plaintiff filed an opposition, and Defendants replied. The Court decides this matter on the briefs without oral argument. See Civ. L. R. 7.1(d.1). For the reasons stated below, Defendants' motion is granted.

         According to the allegations in the complaint, Plaintiff Bob Rogers is an entrepreneur who built and sold businesses. He is the trustee of the family trust established to invest the proceeds. Starting in 2007, the funds were managed by Defendant Robert Nelson, a Private Wealth Advisor at the Private Wealth Management division of Defendant Morgan Stanley Smith Barney LLC ("Morgan Stanley"). The trust funds were invested in traditional stocks, bonds and mutual funds.

         In March 2015, Plaintiff sold one of his companies and deposited the proceeds with Defendants on behalf of the trust. Shortly thereafter, without prior notice, without disclosures regarding the nature of the investment and its associated fees and risk, and contrary to explicit instruction to not make investments without prior consent, on July 31, 2015, Defendants invested $ 1 million of trust funds in a Morgan Stanley hedge fund, which resulted in substantial tax liabilities and low returns for the trust, while generating disproportionately large fees and commissions for Defendants. When Plaintiff found out about the unauthorized investment, he requested immediate return of the funds, but was told he could not receive any funds until May 2016 at the earliest, that a full refund could not be obtained until 2017.

         In his capacity as the trustee, Plaintiff filed this action in State Court alleging breach of fiduciary duty and other tort claims. Defendants removed the action to this Court. The Court has subject matter jurisdiction pursuant to 28 U.S.C. §1332.

         Defendants filed the pending motion to compel arbitration, arguing that Plaintiff agreed to arbitration when he signed various investment management and account agreements in March and June 2015. Plaintiff opposes, arguing that the documents he signed in March 2015 were not Dated: behalf of the trust, and that the June 2015 documents, which were signed on behalf of the trust, did not include the arbitration clause, or alternatively, that the arbitration clause is unconscionable under California law.

         Arbitration clauses are governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq. ("FAA") and California contract law. "The FAA mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed." Kilgore v. KeyBank N.A., 718 F.3d 1052, 1058 (9th Cir. 2013) (emphasis in original), quoting Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985). "As federal substantive law, the FAA preempts contrary state law." Mortensen v. Bresnan Comm'cns, LLC, 722 F.3d 1151, 1158 (9th Cir. 2013). However, the FAA does not require enforcement of arbitration agreements that may be invalidated on "such grounds as exist at law or in equity for the revocation any contract." 9 U.S.C. §2. "This saving clause permits agreements to arbitrate to be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability ... ." AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) (internal quotation marks and citation omitted). The burden of proving that the arbitration agreement cannot be enforced is on the party resisting arbitration. Green Tree Fin. Corp. - Ala. v. Randolph, 531 U.S. 79, 92 (2000).

         The Court first turns to Plaintiffs argument that he did not enter into an arbitration agreement. Plaintiff does not deny that in his individual capacity he signed the "Single Advisory Contract" with Morgan Stanley on March 14, 2015. (Defs' Ex. A at 12; see Decl. of Bob Rogers ("Rogers Decl") at 2; Opp'n at 9-10.) Directly over his signature is a bolded paragraph stating,

This Agreement contains a predispute arbitration clause (in Section 8 on page 9) under which you agree to arbitrate any disputes with us ... .

(Defs' Ex. A at 12.) The referenced arbitration clause, set out in bold print, provides in pertinent part:

         8. Arbitration

         This Agreement contains a predispute arbitration clause. By signing an arbitration agreement the parties agree as follows:

• All parties to this Agreement are giving up their right to sue each other in court, including the right to a trial by jury, except as provided by the rules of the arbitration forum in which a claim is filed.
[ΒΆ] . . . You agree that all claims or controversies, whether such claims or controversies arose prior, on or subsequent to the date hereof, between you and MSSB and/or any of its present or former ... employees concerning or arising from (i) any account maintained with MSSB individually or jointly with others in any capacity; (ii) any transaction involving MSSB ... any you, whether or not such transaction occurred in such account or accounts; or (iii) the construction, performance or breach of this or any other ...

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