Winberg v. Salomon Smith Barney 2/13/04 CA5

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State: California

Court: 1st District Court of Appeal 1st District Court of Appeal

Docket No: F042866

Case Date: 05/19/2004

Preview:Filed 2/13/04 Winberg v. Salomon Smith Barney CA5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FIFTH APPELLATE DISTRICT JERI L. WINBERG, as Co-trustee, etc., et al., F042866 Plaintiffs and Respondents, (Super. Ct. No. 02 CE CG 04684) v. SALOMON SMITH BARNEY et al., Defendants and Appellants.

OPINION

APPEAL from a judgment of the Superior Court of Fresno County. Mark W. Snauffer, Judge. Keesal, Young & Logan, Paul J. Schumacher, Dawn Schock, Danielle J. Tarasen, and Matthew J. Esposito; Bingham, McCutchen, Paul J. Schumacher, Dawn Schock, and Danielle J. Tarasen for Defendants and Appellants. Law Offices of Cornwell & Sample and Stephen R. Cornwell for Plaintiffs and Respondents. -ooOooPlaintiffs and respondents Jeri L. Winberg and Judy Ann McCoy, co-trustees of the Allbritten Family Trust, the Dorothy P. Allbritten Decedent's Trust, and the Clyde R. Allbritten Survivors Trust, Jeri Winberg, individually, and Judy Ann McCoy,

individually (collectively, plaintiffs) filed suit against defendants and appellants Salomon Smith Barney Inc. (SSB) and Tracy Rae Turner (collectively, defendants), alleging breach of fiduciary duty, breach of contract, negligence and related claims. Defendants moved to compel arbitration pursuant to a written contract between the parties. Plaintiffs opposed the motion on the ground that the National Association of Securities Dealers (NASD) and the New York Stock Exchange (NYSE), both selfregulatory organizations (SROs), refused to appoint arbitrators in California because of newly adopted disclosure requirements for all arbitrators. The trial court denied the motion. We reverse. PROCEDURAL AND FACTUAL HISTORIES1 Plaintiffs, as trustees, maintained four accounts with SSB at its Fresno branch. In late 1999, in connection with each of these accounts, plaintiffs executed SSB's Account Application and Client Agreement, which provides above the signature line: "I acknowledge that I have received the Client Agreement which contains a pre-dispute arbitration clause in section 6." Section 6 of the Client Agreement states: "I agree that all claims or controversies, whether such claims or controversies arose prior, on or subsequent to the date hereof, between me and SSB and/or any of its present or former officers, directors, or employees concerning or arising from (i) any account maintained by me with SSB individually or jointly with others in any capacity; (ii) any transaction involving SSB or any predecessor firms by merger, acquisition, or other business combination and me, whether or not such transaction occurred in such account or accounts; or (iii) the construction, performance or breach of this or any other agreement between us, any duty arising from the business of SSB or otherwise, shall be determined by arbitration before, being no opposition by plaintiffs, we grant defendants' July 8, 2003 and October 21, 2003, requests for judicial notice pursuant to Evidence Code sections 451, 452 and 459.
1There

2.

and only before, any self-regulatory organization or exchange of which SSB is a member. I may elect which of these arbitration forums shall hear the matter ...."2 The Client Agreement also contains a New York choice-of-law clause: "Except for statutes of limitation applicable to claims, this Agreement and all the terms herein shall be governed and construed in accordance with the laws of the State of New York without giving effect to principles of conflict of laws." In September 2001, the California Legislature added Code of Civil Procedure section 1281.85, which states: "Beginning July 1, 2002, a person serving as a neutral arbitrator pursuant to an arbitration agreement shall comply with the ethics standards for arbitrators adopted by the Judicial Council pursuant to this section. The Judicial Council shall adopt ethical standards for all neutral arbitrators effective July 1, 2002. These standards shall be consistent with the standards established for arbitrators in the judicial arbitration program and may expand but may not limit the disclosure and disqualification requirements established by this chapter. The standards shall address the disclosure of interests, relationships, or affiliations that may constitute conflicts of interest, including prior service as an arbitrator or other dispute resolution neutral entity, disqualifications, acceptance of gifts, and establishment of future professional relationships." (See Sen. Bill No. 475 (2001-2002 Reg. Sess.).) The Legislature also amended Code of Civil Procedure section 1286.2, subdivision (a)(6), to provide that the court must vacate an arbitration award if it determines that an arbitrator making the award failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware. Effective July 1, 2002, the Judicial Council of the State of California adopted Division VI of the Appendix to the California Rules of Court, "Ethics Standards for

2There

is no dispute that SSB is a member of the NASD and the NYSE, both

SROs.

3.

Neutral Arbitrators in Contractual Arbitration" (California Standards). The California Standards contain extensive disclosure requirements for arbitrators of information relating to potential biases or conflicts of interest. The NASD and NYSE announced that, as of July 1, 2002, they were temporarily postponing the appointment of arbitrators for new arbitration cases in California until their concerns over the new rules governing the arbitration process in California were addressed. On July 22, 2002, the NASD and the NYSE filed a declaratory relief action in the United States District Court for the Northern District of California seeking a determination that SROs are not governed by the new California arbitrator disclosure rules. (See NASD Dispute Resolution v. Judicial Council of CA (N.D.Cal. 2002) 232 F.Supp.2d 1055.) The NASD also issued a news release advising: "The new California rules were designed to address conflicts of interest in private arbitration forums that are not part of a national regulatory system overseen on a uniform, national basis by the Securities and Exchange Commission (SEC), as are the forums administered by the NASD and the NYSE. The conflicts the new rules are designed to correct do not exist in the NASD and NYSE dispute resolution programs - which are not-forprofit and highly regulated. "`As a result of the new rules, arbitrators are not being appointed to hear new investor disputes in California until this matter is resolved; however, arbitrations already underway will proceed to conclusion unless a replacement arbitrator is required ....' `If ... SROs were required to implement the California rules, investors and other parties would be saddled with higher costs, a less efficient and streamlined process, and a much smaller arbitrator roster from which to select the panelists who will decide their cases.' [

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