[255
Cal.Rptr.3d 179] Trial Court: Santa Clara County Superior
Court, Superior Court No. 1-15-CV-276708, Trial Judge: Hon.
Maureen A. Folan.
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[Copyrighted Material Omitted]
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COUNSEL
Counsel
for Plaintiff/Appellant Prima Donna Development Corporation,
Dincel Law Group, Kim Omer Dincel, San Jose.
Counsel
for Defendant/Respondent Wells Fargo Bank, N.A., Severson &
Werson, Jan T. Chilton, San Francisco, Marquis I. Wraight.
OPINION
DANNER,
J.
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Plaintiff and appellant Prima Donna Development Corporation
appeals from a judgment confirming an arbitration award in
favor of
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defendant Wells Fargo Bank, N.A. Prima Donna challenges both
the order compelling arbitration and the denial of its motion
to vacate the arbitration award. We conclude the trial court
properly ordered the matter to arbitration and confirmed the
arbitration award. Accordingly, we affirm the judgment.
I.
FACTS AND PROCEDURAL BACKGROUND[1]
Appellant Prima Donna Development Corporation (Prima Donna)
is a California corporation that develops, builds, and
manages hotel properties in California and Oregon. Michael
Chiu is Prima Donna’s president. In March 2007, Chiu opened
several commercial bank accounts on behalf of Prima Donna at
respondent Wells Fargo Bank, N.A. (Wells Fargo).
As part
of the paperwork for opening the accounts, Chiu either signed
or agreed to be bound by a number of agreements. One of these
agreements, the commercial account agreement, contained an
arbitration agreement, which stated, "Except as stated
in ‘No Waiver of Self-Help or Provisional Remedies’
below,[2] Company and Bank agree, at Company’s
or Bank’s request, to submit to binding arbitration all
claims, disputes and controversies, between or among Company
and Bank ... whether in tort, contract or otherwise arising
out of or relating in any way to Company’s Account(s) and/or
Service(s) and their negotiation, execution, administration,
modification, substitution, formation, inducement,
enforcement, default or termination."
Under
a section entitled "Governing Rules," the
arbitration agreement stated "Any arbitration proceeding
will (i) proceed in a location selected by the American
Arbitration Association (‘AAA’) in the state whose laws
govern Company’s Account; (ii) be governed by the Federal
Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in
any of the documents between [255 Cal.Rptr.3d 180] Company
and Bank; and (iii) be conducted by the AAA, or such other
administrator as Company and Bank shall mutually agree upon,
in accordance with the AAA’s commercial dispute resolution
procedures."
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The
arbitration agreement also provided that "[t]he
arbitrator[ ] shall resolve all Disputes in accordance with
the substantive law of the state whose laws govern Company’s
Account and may grant any remedy or relief that a court of
such state could order or grant within the scope hereof and
such ancillary relief as is necessary to make effective any
award."
In
opening the commercial bank accounts for Prima Donna at Wells
Fargo, Chiu also signed a wire transfer services security
procedures agreement (wire transfer agreement) for each
account he opened. In each wire transfer agreement, Prima
Donna "agree[d] that it is bound by any Order, whether
or not authorized, issued in its name and accepted by Bank in
compliance with the security procedure selected by
Company."[3] The wire transfer agreement specified
security procedures for transfers initiated by
"voice-initiated transfers" (presumably by phone)
and security procedures applicable to transfers initiated
through the Internet.
For
voice-initiated wire transfers, the wire transfer agreement
provided that Wells Fargo would call Chiu by telephone to
verify the order and, if Wells Fargo was unable to reach
Chiu, it would not process the wire transfer. Wells Fargo
also allowed for wire transfers initiated through the
Internet, using Wells Fargo’s "commercial electronic
office portal" (CEO). In the case of an Internet
transfer, a "company administrator" selected by
Prima Donna could initiate a wire transfer through CEO. The
wires at issue in this appeal were initiated through Wells
Fargo’s CEO portal.
As
described in the arbitration award, for wire transfer orders
placed through CEO, "[t]he Bank gives each Company
Administrator a token card and a PIN. The token card
generates a random security code every minute, which combines
with the PIN to create a unique Passcode. This Passcode is
used by the Bank to authenticate the identity of the Company
and/or person initiating the request. The purpose of all this
is to verify that the person initiating the transfer is
authorized by the Company to do so. Unlike the procedure for
transfer initiated by phone, this procedure does not require
that the specific transfer be confirmed by a phone call to
Chiu."
The
arbitrator found "[t]he procedure for voice-initiated
transfers also protects [Prima Donna] against a Company
Administrator who initiates such transfers against Chiu’s
wishes because Chiu would have to approve the transfer.
Because the CEO procedure only verifies the identity of the
Company Administrator, it does not protect Chiu against a
Company Administrator who initiates transfers without Chiu’s
permission. However, the Bank also
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allows for ‘Dual Control.’ If the customer elects Dual
Control, then the Company must name two Administrators, and
any transaction initiated by one must be approved by the
other before it goes through. Had Chiu elected to use Dual
Control with himself as one of the Company Administrators, he
would presumably have been notified before the transfers and
would have declined to approve them. Prima Donna elected not
to have Dual Control."
[255
Cal.Rptr.3d 181] In January 2014, at the time of the disputed
wire transfers, Prima Donna’s financial controller, Thuy
Tran, served as a company administrator for Prima Donna under
the wire transfer agreement. In January 2014, while Chiu was
out of the country, his Yahoo e-mail account was apparently
hacked. On January 23, 27, and 28, Tran received a series of
e-mails from a person whom she believed was Chiu, instructing
her to wire funds from Prima Donna’s Wells Fargo bank
accounts to bank accounts overseas. Pursuant to these
e-mails, Tran requested (through the CEO portal) that Wells
Fargo make a number of wire transfers from Prima Donna’s
Wells Fargo bank accounts. When Chiu returned to work on
January 29, he told Tran that he had not requested that she
transfer this money. Although Prima Donna called Wells Fargo
to report the fraud, most of the money had already been
transferred and could not be recovered. Prima Donna did not
recover $638,400 that had been wired from its Wells Fargo
accounts.
Prima
Donna filed suit in the Santa Clara County Superior Court
(trial court) against Wells Fargo alleging two claims under
Commercial Code section 11202[4] titled "Breach of
Statutory Duty." In the first cause of action, Prima
Donna alleged that Wells Fargo failed to follow the security
procedures set out in the wire transfer agreement. (� 11202,
subd. (b)(i)-(ii).) Therefore, the wire transfers were
"ineffective and/or unenforceable" under section
11202, and Wells Fargo had the obligation of returning the
amount of the wire transfers to Prima Donna pursuant to
section 11204. In the second cause of action, Prima Donna
alleged that "Wells Fargo did not employ ‘reasonable
commercial standards of fair dealing’ in its acceptance and
processing" of the wire transfers within the meaning of
section 11202. (� 11202, subd. (c).) Therefore, Wells Fargo
had the obligation of returning the amount of the wire
transfers to Prima Donna pursuant to section 11204.
Wells
Fargo filed a motion to compel arbitration pursuant to the
arbitration agreement contained in the commercial account
agreement. Wells Fargo stated that in the arbitration
agreement the parties agreed to arbitrate all "disputes
arising between them." In its motion, Wells Fargo
asserted that, "[b]y its terms" the arbitration
agreement is governed by the Federal Arbitration Act (FAA).
Wells Fargo argued that the trial
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court should order arbitration because Prima Donna and Wells
Fargo had entered into an enforceable arbitration agreement,
Prima Donna’s claims fell within the scope of the arbitration
agreement, and public policy favors arbitration. In addition
to requesting that the trial court order the parties to
arbitration, Wells Fargo also requested that the trial court
stay the civil action pending arbitration.
Prima
Donna filed an opposition to Wells Fargo’s motion to compel
arbitration. Prima Donna did not dispute the applicability of
the arbitration agreement but argued that "fraudulent
wire transfers involving financial institutions in California
are strictly controlled by [the] California Uniform
Commercial Code (‘CUCC’) section 11101 et seq. In
interpreting [CUCC] 11101 et seq., the California Supreme
Court has been unequivocal about the exclusive nature of the
statutory scheme controlling the procedures, rights,
obligations and remedies available to the parties.
(Zengen, Inc. v. Comerica Bank (2007) 41 Cal.4th 239');">41 Cal.4th 239');">41 Cal.4th 239');">41 Cal.4th 239
[59 Cal.Rptr.3d 240, 158 P.3d 800].) Common law causes of
action such as negligence or breach of contract or the
attempt to try and enforce a single contractual [255
Cal.Rptr.3d 182] provision between the parties such as an
arbitration clause are specifically inapplicable under CUCC
section 11101 et seq. "
Prima
Donna asserted that, because the Commercial Code and the
California Supreme Court’s decision in Zengen
require that fraudulent wire transfers be addressed only
through the statutory provisions of Commercial Code section
11101 et seq., the arbitration agreement was not enforceable
as to Prima Donna’s claims against Wells Fargo.
In its
opposition to the motion to compel arbitration, Prima Donna
did not argue that the arbitration agreement was
unconscionable. Nor did Prima Donna reference the formation
of the arbitration agreement, except to note in passing that
Chiu had not separately signed or "acknowledged"
the arbitration clause. Prima Donna did not argue in the
trial court that the court should not enforce the arbitration
agreement because of the circumstances under which the
parties entered into it.
The
trial court conducted a hearing on Wells Fargo’s motion to
compel arbitration and granted the motion. In its written
order, the trial court stated "There is no reason given
as to why an arbitrator cannot adjudicate a UCC claim. The
fact that UCC provisions displace common law provisions and
provide the law under which claims are analyzed (as
Zengen v. Comerica Bank (2007) 41 Cal.4th 239');">41 Cal.4th 239');">41 Cal.4th 239');">41 Cal.4th 239 [59
Cal.Rptr.3d 240, 158 P.3d 800] makes clear) is wholly
unrelated to what type of fact finder can apply that law to
this dispute." The trial court concluded, "There is
no legitimate reason why this dispute must be heard by a
Superior
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Court Judge in civil court rather than an arbitrator through
binding arbitration. This matter is to be arbitrated, and the
pending civil action, including all discovery, shall be
stayed until the conclusion of arbitration."
Prima
Donna filed in this court a petition for writ of mandate
challenging the order compelling arbitration, which this
court summarily denied.
Wells
Fargo and Prima Donna proceeded to an arbitration conducted
through the AAA. The parties engaged in prehearing discovery.
In the course of communications between the parties and the
appointed arbitrator, Prima Donna’s counsel wrote to the
arbitrator expressing concern about conduct by Wells Fargo’s
counsel relating to discovery and stating that Chiu was
"very concerned whether these proceedings have now been
so contaminated by Wells Fargo’s inappropriate conduct that
he and [Prima Donna] ma[y] not be treated fairly and
objectively in this arbitration before you."
The
following day, the assigned arbitrator recused himself and
resigned from the arbitration. The arbitrator wrote to
counsel and stated, "A party to an arbitration should
have complete confidence in the fairness and objectivity of
the process and the arbitrator, in the overall integrity of
the process, and confidence that each party will be treated
fairly and objectively. In this case it appears that [Prima
Donna] does not have that confidence. I do not reach or
discuss the basis for and/or validity of [Prima Donna’s]
concerns, but, rather, accept that it has concerns. I deem
those concerns sufficient to justify my recusal."
The
AAA appointed retired Justice Christopher Cottle to conduct
the arbitration. The parties continued to engage in
discovery, including a contested proceeding after which the
arbitrator granted Prima Donna’s motion to compel production
of documents, broadening the relevant discovery to discovery
relating "to the relationship between Wells Fargo and
Prima Donna, going back to the beginning of [255 Cal.Rptr.3d
183] their relationship in 2007." The arbitrator
subsequently conducted a three-day arbitration hearing, in
which he heard testimony from seven witnesses and received a
number of written exhibits into evidence.
The
arbitrator issued an eight-page written award finding in
favor of Wells Fargo and concluding under the principles set
out in sections 11201 et seq. that Wells Fargo was not liable
for Prima Donna’s loss from the January 2014 wire transfers.
In the award, the arbitrator described the background of the
dispute and made a number of factual findings. The arbitrator
found that, at the time of the wire transfers, Tran had the
authority to initiate wire transfers for Prima Donna’s Wells
Fargo bank accounts, either by phone or through
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Wells Fargo’s Internet portal, CEO. The arbitrator also found
that Tran had made the wire transfers pursuant to Wells
Fargo’s CEO portal, although Tran had called the phone number
...