United States District Court, S.D. California
ORDER GRANTING DEFENDANTS' MOTION TO COMPEL
M. JAMES LORENZ UNITED STATES DISTRICT JUDGE.
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.
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
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.
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.
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.
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).
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:
Agreement contains a predispute arbitration clause. By
signing an arbitration agreement the parties agree as
• 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.
[¶] . . . 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