CYBERTRADER/SCHWAB WRIT PETITION
COURT OF APPEAL
FOR THE FIRST DISTRICT OF THE STATE OF CALIFORNIA
OLIVIER L. F. ASSER,
Petitioner,
vs.
SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF SAN FRANCISCO
Respondent.
CHRISTOPHER REA, PHILIP BERBER, TRADING PLACES, INC., CYBERTRADER, INC., THE CHARLES SCHWAB CORP., MANHATTAN BEACH TRADING, INC., TERRA NOVA TRADING, LLC AND DOES 1-10,
Real Parties in Interest and
Defendants.
Superior Court Case No. 413497
Unfair Competition Case.
MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PETITION FOR WRIT OF MANDATE DENYING MOTION OF CYBERTRADER, INC. AND THE CHARLES SCHWAB CORP. TO COMPEL ARBITRATION AND STAY FURTHER PROCEEDINGS
I. Introduction
1. On March 27, 2003, a Notice of Entry of Order was given by the Defendants, CyberTrader, Inc. and the Charles Schwab Corp. (the “Defendants”), referring to the March 13 order of the Superior Court of California for the County of San Francisco
(“Respondent”), which ordered claims Petitioner Olivier L. F. Asser filed on October 11, 2002 against the Defendants to arbitration before the National Association of Securities Dealers, and stayed further proceedings in this action. Respondent abused its discretion in three ways, each of which alone provides the Court sufficient cause to grant the Petition.
a. Respondent Ignored Controlling Supreme Court Precedent, Compelled Claims Seeking a Public Injunction to Arbitration
2. The California Supreme Court has previously held:
“The injunctive relief portion of a CLRA claim is inarbitrable.” Broughton v. Cigna Healthplans (1999) 21 Cal. 4th 1072.
The Supreme Court affirmed this decision only a few weeks ago, stating:
“In Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 988 P.2d 67, 90 Cal. Rptr. 2d 334 (Broughton), we held that claims for injunctive relief under the Consumer Legal Remedies Act (CLRA) designed to protect the public from deceptive business practices were not subject to arbitration. In this case, we consider whether Broughton is good law in light of two recent United States Supreme Court cases pertaining to arbitration, Green Tree Fin. Corp.-Ala. v. Randolph (2000) 531 U.S. 79, 148 L. Ed. 2d 373, 121 S. Ct. 513 (Green Tree) and Circuit City Stores, Inc. v. Adams (2001) 532 U.S. 105, 149 L. Ed. 2d 234, 121 S. Ct. 1302 (Circuit City). We conclude that it is.
“We also consider whether Broughton's holding on the inarbitrability of CLRA public injunctions should be extended to include claims to enjoin unfair competition under Business and Professions Code section 17200 et seq. and to enjoin misleading advertising under Business and Professions Code section 17500 et seq. We conclude that Broughton should be extended to such claims, at least under the circumstances of the present case.”
Cruz v. PacifiCare Health Systems, Inc. (April 24, 2003) 30 Cal. 4th 307.
Though controlling Supreme Court precedent, now affirmed only a few weeks ago, gives
Respondent no discretion to compel arbitration of claims seeking a public injunction filed
under California Codes §§17200, 17203 and 1750, Respondent compelled these
inarbitrable claims to arbitration anyway.
b. Respondent Retroactively Enforced an Agreement Containing No Such Provision
3. Petitioner executed an agreement for brokerage services (the “Agreement,” at CyberTrader and Schwab’s Memorandum of Points and Authorities in Support of Motion
to Compel Arbitration and Stay Further Proceedings, Exhibit A) with the Defendants on January 20, 2000. The Agreement contains no provision for retroactivity of its covenants. Petitioner’s claims against the Defendants date back to September 1998, well before the Agreement was executed. This period represents 95% of the claims at issue in this action. During this period, Petitioner signed neither an agreement of any kind, nor maintained any brokerage accounts, nor entered into any relationship whatsoever with the Defendants. However, during this period, the Defendants caused Petitioner substantial economic damage due to their tortious interference in the operations of third-party defendants Christopher Rea (“Rea”) and Trading Places, Inc. (“Trading Places”), to whom Petitioner paid ongoing fees for supposedly unbiased investment advice. This investment advice was irrevocably corrupted by the Defendants.
4. If there were an enforceable agreement to arbitrate, which as demonstrated below there certainly is not, the only claims that could possibly be subjected to arbitration would be those arising out of acts occurring on or after January 20, 2000, when Petitioner executed the Agreement. The Supreme Court of California notes:
“United States Supreme Court case law makes clear that when a suit contains
both arbitrable and inarbitrable claims, the arbitrable claims should be severed from those that are inarbitrable and sent to arbitration.
(Dean Witter Reynolds Inc. v. Byrd, supra, 470 U.S. at p. 221 [105 S. Ct. at pp. 1242-1243].) This is so even when severance leads to inefficiency. (Ibid.)”
Broughton v. Cigna Healthplans 90 Cal. Rptr. 2d 351.
Yet, though these claims have nothing whatsoever to do with the Agreement, which
contains no provision for retroactivity, Respondent, ignoring both State and U.S. Supreme Court precedent, failed to sever Petitioner’s claims, compelling all of them to arbitration anyway.
c. Respondent Enforced an Arbitration Agreement that Does Not Exist
5. The supposed arbitration agreement the Defendants have entered into “evidence” was never signed, where signatures were clearly required by its drafter, the clearing firm of Defendant CyberTrader, for it to be executed. The only Agreement Petitioner did in fact execute with the Defendants contained no mention whatsoever of an arbitration agreement, nor did it refer to arbitration in any way. Furthermore, the purported arbitration agreement is not even an agreement to be executed with the Defendants; rather, it is a proposed arbitration agreement that might be executed between a prospective client with another, entirely separate company, Penson Financial Services, Inc. Yet, though no arbitration agreement exists, Respondent enforced the non-existent agreement anyway.
II. Statement of Facts
a. Petitioner Has Filed Injunctive Claims Under California Codes §§17200, 17203 and 1750
6. In a private attorney general capacity, Petitioner has filed claims on behalf of the General Public seeking injunctive relief under California Codes §§17200, 17203 and
1750. Verified Complaint for Damages and Equitable Relief (October 11, 2002), 81-88 and I.
b. Both the Agreement and the Supposed Arbitration Agreement Contain No Provision for Retroactivity
7. Petitioner has brought this action seeking relief for claims dating back to
September, 1998. Complaint, 15. The Defendants are specifically charged with
Aiding and Abetting Unjust Enrichment, Unjust Enrichment, Breach of the Duties of Good Faith and Fair Dealing, Civil Conspiracy and Violation of the Consumer Legal Remedies Act (“CLRA) and the Unfair Competition Law (“UCL”). Complaint 44-88. The Defendants have conceded:
“CyberTrader’s records show that Asser submitted an electronic new account
application form to open a joint account on January 19, 2000. Reeves Decl.
4. They also show that Asser closed the account and wired out the remaining assets on April 3, 2000. Id. 9. During the roughly two months
the account was open, Asser paid commissions totaling $10,210 and incurred
trading losses totaling $13,350. Id.”
CyberTrader and Schwab’s Memorandum of Points and Authorities in Support of Motion to Compel Arbitration and Stay Further Proceedings (December 10, 2002), p.2, 3.
Petitioner maintained, at different times, and exclusively, separate accounts with two independent brokerage firms: an account with defendants Manhattan Beach Trading, Inc.
(“MB Trading”) and Terra Nova Trading, LLC (“Terra Nova”); and an account with Defendant CyberTrader. The Defendants themselves concede that, except for a brief period of two months in early 2000, Petitioner’s brokerage accounts were not located with them. The vast majority of Petitioner’s tort claims against them arise from damages
sustained in his MB Trading/Terra Nova account. His damages date back to 1998, nearly one and-a-half years before he entered into the Agreement and opened a brokerage account
with the Defendants. To give the Court an idea of the size of these inarbitrable claims, claims having absolutely nothing to do with either the Agreement or his account with the Defendants, Petitioner attaches hereto a partial transaction record. Representing only three
months of transactions he executed through his MB Trading/Terra Nova account, this record comprises more than $75,000 in commissions paid, for over 3,000 securities transactions executed, valued at more than $151 million, resulting in more than $3 million
in losses. Put another way, this partial record represents an average daily transactional
history of approximately $1,200 in commissions paid to execute 47 securities transactions valued at $2.5 million, an average securities value, for each transaction, of $50,000, and an approximate average loss of $1,000 on each transaction, or roughly 2%. Ex. A: Olivier L. F. Asser MB Trading Account 14416943 Transaction History: January 4-April 1, 1999. This record represents roughly 25% of Petitioner’s total transaction history with MB Trading/Terra Nova, firms wholly separate from and unaffiliated with the Defendants. However, the Defendants are directly responsible and liable for losses arising from these transactions, as they paid kickbacks to and interfered with the investment advice Petitioner received from the Investment Advisory defendants Rea and Trading Places at this time. While he did not have an account with the Defendants during this extended period, he nevertheless received the false investment advice, and suffered losses, due to the kickback payments the Defendants made to corrupt the investment advice he received and upon which he acted. Complaint 34-40. The Defendants further conceded that they have no knowledge whatsoever of Petitioner’s total damages:
“CyberTrader and Schwab have no knowledge of the magnitude of Asser’s commissions or trading losses in accounts he maintained at any other firm than CyberTrader. They do know that, at CyberTrader, the total commissions were $10,210 and the total trading loss was $13,350.”
Memorandum p.4; footnote 5.
The Defendants also concede (and opine):
“As the Reeves Declaration shows, such losses were minimal: During the
two months plaintiff maintained a joint tenancy account with CyberTrader,
the account paid commissions totaling $10,210 and sustained trading losses
totaling $13,550. Reeves Decl 9.”
Memorandum, p.4; footnote 5.
Setting aside the question of whether nearly $25,000 constitutes “minimal” losses, when
multiplied by the thousands of innocent citizens the Defendants defrauded, a majority of
whom consequently suffered catastrophic financial loss, and the more than $1/2 billion Defendant CyberTrader reaped through the kickback scheme, this statement concedes that the Defendants are wholly unaware of the total economic damage incurred by Petitioner, specifically, some $7,000 in investment advisory fees, $300,000 in commissions, and $10 million in losses. Complaint 15.
8. The proposed arbitration agreement the Defendants proffered as Exhibit B to their Memorandum does not include any provision for retroactivity. However, the arbitration agreement Petitioner did in fact execute with MB Trading/Terra Nova does by contrast indeed include a provision specifically extending the scope of that agreement retroactively:
“…whether entered into, prior, on or subsequent to the date hereof…”
Terra Nova Trading, LLC’s Memorandum of Points and Authorities in Support of Motion to Compel Arbitration (January 7, 2003), Exhibit A, No.12.
c. There is No Arbitration Agreement
9. The Defendants have proffered as “evidence” two exhibits, proposed agreements to arbitrate contractual disputes with them. CyberTrader and Schwab’s Memorandum, at Exhibits B, C. Exhibit A attached thereto, the one document Petitioner did execute, the Agreement, makes no reference whatsoever to arbitration in any of its terms. Exhibit B, a “Customer Account Agreement” apparently drafted by non-party
Penson Financial Services, Inc., which contains a proposed arbitration agreement, is a wholly blank, pristine, never-executed form requiring information such as:
1. “Account Number”
2. “Full Name of Account”
3. “Social Security Number/Taxpayer I.D. Number”
4. “Certification of Taxpayer I.D. Number”
5. “Disclosure of Name/Address on Securities You Own
Below these blank areas, information obviously necessary to identify anyone executing it, the proposed agreement contains the following text (emphasis added):
“BY SIGNING BELOW, THE UNDERSIGNED AGREES TO ALL TERMS OF THE CUSTOMER AGREEMENT PRINTED ON THIS SIDE AND THE REVERSE OF THIS DOCUMENT. THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF A COPY OF THIS AGREEMENT AND
THE INFORMATION BROCHURE PREPARED BY PENSON FINANCIAL SERVICES, INC. THE UNDERSIGNED CERTIFIES
THAT THE UNDERSIGNED HAS READ AND UNDERSTANDS ALL PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT BENEFITS
PENSON FINANCIAL SERVICES, INC., INTRODUCING BROKER FOR WHICH IT CLEARS AND PERSONS RELATED TO EACH OF THE FOREGOING. THE REVERSE SIDE OF THIS AGREEMENT,
PARAGRAPH 8, CONTAINS A PRE-DISPUTE ARBITRATION CLAUSE.”
Directly below this clause there are further areas requiring specific, individual, executory
information such as:
1. “Signature”
2. “Print Name”
3. “Signature (Second Party, If Joint Account)”
4. “Print Name”
5. “Date”
All of these areas are blank, though the clause referring to arbitration on five separate
occasions requires signatures of anyone who might execute this agreement. Without any
signature, or any identifying information, the “undersigned” can be just about anyone – or
no one.
10. This document also states at the bottom, “PENSON FINANCIAL
SERVICES COPY.” It should be noted that, though, Penson Financial Services clears
securities transactions for a large number of brokerage firms other than the Defendants, this blank document in no way specifically refers to the Defendants as parties to this proposed agreement.
11. Exhibit C is a form likewise requiring specific, individual, executory information. Yet again it is completely blank, while containing the following text (emphasis added):
“BY SIGNING BELOW, THE UNDERSIGNED AGREES TO ALL
TERMS OF THE MARGIN AND SHORT ACCOUNT AGREEMENT PRINTED ON THIS SIDE AND THE REVERSE SIDE OF THIS
DOCUMENT. THE REVERSE SIDE OF THIS DOCUMENT CONTAINS
A PRE-DISPUTE ARBITRATION CLAUSE IN PARAGRAPH 10. The undersigned acknowledges that the undersigned’s margin account securities may be borrowed by you or loaned to others.”
In addition to the specific requests for a signature and a printed name below it, this clause four times makes clear that this document must be signed. Yet this “evidence” contains no indication whatsoever that anyone, let alone Petitioner, ever executed it.
III. Argument
a. Respondent Abused its Discretion by Compelling Arbitration of Claims Seeking a Public Injunction
12. As demonstrated above, the Supreme Court has established controlling legal
precedent in Broughton - and now in Cruz - that claims seeking a public injunction cannot be subjected to arbitration. Therefore, claims Petitioner has filed in a private attorney capacity, on both his own behalf and on behalf of the General Public, under California Codes §§17200, 17203 and 1750, seeking a public injunction against the Defendants, cannot be compelled to arbitration, and must be heard by the trial Court. In ruling
otherwise, Respondent abused its discretion.
b. Respondent Abused its Discretion by Enforcing the Agreement Retroactively
13. “ ‘Arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.’ Warrior & Gulf, supra, at 582; American Mfg. Co., supra, at 570-571). This axiom recognizes the fact that arbitrators derive their authority to resolve disputes only because the parties have agreed in advance to submit such grievances to [475 U.S. 643, 649] arbitration.” Gateway Coal Co. v. Mine Workers, 414 U.S. 368, 374 (1974).”
AT&T Technologies v. Communications Workers, 475 U.S. 643 (1986)
There is no evidence whatsoever that Petitioner agreed to arbitrate tort claims arising from acts committed by the Defendants before the Agreement was executed, before any contractual relationship existed between the parties. Indeed, how can tort claims against the Defendants, taking place long before he executed the Agreement, long before any commercial relationship existed between the parties, have anything at all to do with the Agreement?
14. As demonstrated above, at 7, the Defendants have readily conceded that Petitioner maintained an account with them for a mere two months at the very end of the period covering his claims – though his total claims in this action span a period more than ten times that long. They have themselves conceded they have no knowledge or
information whatsoever of Petitioner’s complete transaction history as it relates to his
claims. Yet despite this ignorance of Petitioner’s claims, having no knowledge or
information whatsoever of the vast majority of Petitioner’s securities transaction history, knowledge and information that under the Agreement the Defendants would be required to
record and archive as client transactional records, they contend that these same claims are nevertheless arbitrable under the Agreement they executed with him. This is an absolutely
preposterous argument.
15. Petitioner did not maintain any account with the Defendants for the period
September, 1998-January 20, 2000. This period represents 95% of Petitioner’s claims. He paid several hundred thousand dollars in commissions to defendants MB Trading and
Terra Nova; he paid only $10,210 to the Defendants. He sustained millions of dollars in economic damages on thousands of securities transactions executed with MB Trading/Terra Nova; according to the Defendants themselves he lost a mere $13,350
through his account with them. Before Petitioner executed the Agreement with them, from September, 1998 until late January, 2000, some 17 months, the Defendants: Had no contractual relationship with Petitioner; Provided Petitioner no services; Received no payments from Petitioner; and, Had no relationship of any kind with Petitioner – except that unbeknownst to Petitioner the Defendants were at this time tortiously interfering in the relationship he – and also many other non-clients, thousands of similarly situated members of the General Public on whose behalf he has filed Unfair Competition claims - had with
his investment advisers, defendants Rea and Trading Places, causing him financial loss of some $10 million. Complaint 15.
16. The Agreement Petitioner signed with the Defendants contains no provision for retroactivity of its covenants. Quite the contrary, the account agreement he signed with the other brokerage defendants in this action, MB Trading/Terra Nova, does indeed contain a specific, explicit provision for retroactivity (emphasis added):
THE CUSTOMER AGREES…THAT…ALL CONTROVERSIES WHICH
MAY ARISE BETWEEN US CONCERNING ANY TRANSACTION OR
THE CONSTRUCTION, PERFORMANCE, BREACH OF THIS OR ANY
OTHER AGREEMENT BETWEEN US PERTAINING TO SECURITIES AND OTHER PROPERTY, WHETHER ENTERED INTO PRIOR, ON OR SUBSEQUENT TO THE DATE HEREOF, SHALL BE DETERMINED BY ARBITRATION.
Terra Nova’s Memorandum, at Exhibit A, No.12.
That arbitration agreement clearly requires arbitration of controversies arising out of acts
of the parties thereto occurring before the date of its execution. There is nowhere a similar
provision in the Agreement Petitioner executed with the Defendants. There is further nowhere such a provision in the supposed arbitration agreement. As the Agreement was executed January 20, 2000, and Petitioner’s tort claims against the Defendants date back long before this, to September, 1998, for Respondent to compel these claims to arbitration it would obviously be required to deem them within the scope of the provisions of the Agreement. To do so, it would be required to locate and identify an unambiguous and unequivocal provision in the Agreement specifically requiring retroactive enforcement of its terms. Far from even an ambiguous or equivocal provision for retroactive enforcement of its covenants, the Agreement simply contains none at all. Therefore, in failing to sever Petitioner’s inarbitrable claims – the vast majority – from the purportedly arbitrable ones, ordering all of Petitioner’s claims to arbitration and staying further proceedings, Respondent abused its discretion.
c. Respondent Abused its Discretion by Enforcing a Nonexistent Arbitration Agreement
17. As demonstrated above, no arbitration agreement was ever executed by the Petitioner with the Defendants. Therefore, there is no agreement. In ruling otherwise, Respondent abused its discretion.
IV. Conclusion
18. Petitioner has filed claims seeking a public injunction. He has filed claims dating back to before the Agreement - which contains no provision for retroactivity - was executed. He has executed no arbitration agreement. Therefore, none of these claims are arbitrable. Respondent abused its discretion in ruling otherwise. The Court should grant the Petition.
DATED: May 21, 2003
OLIVIER L. F. ASSER |
