Milliner et al v. Bock Evans Financial Counsel, Ltd., No. 3:2015cv01763 - Document 28 (N.D. Cal. 2015)
Court Description: ORDER Denying 8 Defendant's Motion to Dismiss by Judge Thelton E. Henderson.(tehlc2, COURT STAFF) (Filed on 7/6/2015)
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Milliner et al v. Bock Evans Financial Counsel, Ltd. Doc. 28 1 UNITED STATES DISTRICT COURT 2 NORTHERN DISTRICT OF CALIFORNIA 3 4 CHARLOTTE B. MILLINER, et al., 5 Plaintiffs, v. 6 7 8 BOCK EVANS FINANCIAL COUNSEL, LTD., Case No. 15-cv-01763-TEH ORDER DENYING MOTION TO DISMISS Defendant. 9 This matter is before the Court on Defendant Bock Evans Financial Counsel’s 10 United States District Court Northern District of California 11 motion to dismiss the complaint of Plaintiffs Charlotte B. Milliner and Joanne Brem. The 12 Court has carefully considered the arguments of the parties in the papers submitted, and 13 finds this matter suitable for resolution without oral argument, pursuant to Civil Local Rule 14 7-1(b). Defendant’s motion to dismiss is hereby DENIED, for the reasons set forth below. 15 16 BACKGROUND 17 Defendant is a Colorado-registered investment advisory firm with its primary place 18 of business in Denver, Colorado. Plaintiffs Milliner and Brem were clients of Defendant, 19 and each signed Investment Advisory Agreements, although at different times. Milliner 20 appears to have signed her most recent of these agreements on December 3, 2008 21 (“Milliner Agreement”). Ex. A to Evans Decl. Brem appears to have signed her most 22 recent of these agreements on August 23, 2011 (“Brem Agreement”). Ex. B to Evans 23 Decl. 24 Plaintiffs’ Agreements contain arbitration provisions that provide for the resolution 25 of disputes arising out of the Parties’ investment advisory relationship before the American 26 Arbitration Association (AAA). Specifically, both of Plaintiffs’ Agreements provide, in 27 relevant part: 28 Dockets.Justia.com 1 2 3 4 5 6 7 (A) Client agrees that if a dispute arises out of or relates to this contract, or the breach thereof, concerning any transaction or the construction of the performance of the agreement, that the Client and Bock Evans agree to try to settle the dispute through direct negotiation in good faith. (B) If the dispute cannot be settled through good faith negotiation, the parties agree first to try to settle the dispute by mediation administered by the American Arbitration Association under its Commercial Mediation Procedures before resorting to arbitration . . . . (C) If the dispute cannot be resolved through either negotiation or mediation, the Client may pursue the dispute through arbitration to the American Arbitration Association under its Commercial Arbitration Rules. Ex. A to Evans Decl. at 4; Ex. B to Evans Decl. at 4-5. The Brem Agreement also 9 contained the following provision: “The aforementioned arbitration clause is voluntary and 10 shall not constitute a waiver of Client’s rights pursuant to and under federal rules or similar 11 United States District Court Northern District of California 8 state statutes and rules.” Ex. B to Evans Decl. at 5. 12 Milliner filed an arbitration claim with the Financial Industry Regulatory Authority 13 (FINRA) against Defendant, as well as certain individuals affiliated with Defendant, on 14 December 22, 2014. That FINRA case alleges many of the same causes of action, arises 15 from the same facts, and requests much of the same relief, as this case. However, 16 Defendant is not a party to the FINRA action. See Ex. 1 to Sturgeon Decl. (FINRA letter 17 noting that Defendant was “not required to arbitrate in the FINRA arbitration forum” 18 because Defendant is not a member of FINRA, and that FINRA would “proceed with this 19 action without [Defendant’s] participation”); Ex. 2 to Sturgeon Decl. (Defendant 20 responding that it “is not subject to FINRA’s jurisdiction” and declining to submit to 21 FINRA arbitration). 22 On March 5, 2015, before the filing of this action on April 20, Defendant filed a 23 Petition to Compel Mediation and Arbitration against Plaintiff Milliner in Alameda County 24 Superior Court. That case was removed on April 29, 2015, and related to the present 25 action by this Court on June 22, 2015. 26 27 Defendant filed the instant motion to dismiss Plaintiffs’ complaint on May 12, 2015. (Docket No. 8). Plaintiffs responded, and Defendant timely replied. (Docket Nos. 28 2 1 12, 19). Pursuant to Civil Local Rule 7-1(b), the Court vacated oral argument and now 2 renders its decision on the motion. 3 4 DISCUSSION 5 I. Dismissal for Improper Venue - Fed. R. Civ. P. 12(b)(3) 6 Instead of requesting that this Court compel arbitration, Defendant took the 7 unconventional approach of arguing that venue is improper under Rule 12(b)(3) because 8 Plaintiffs agreed to arbitrate any disputes with Defendant. Mot. at 4. Complicating the 9 matter, Defendant’s argument relies heavily on cases that analyzed motions to compel arbitration under the Federal Arbitration Act (“FAA”). Id. at 4-5. Plaintiffs respond by 11 United States District Court Northern District of California 10 characterizing Defendant’s Rule 12(b)(3) argument as a motion to compel arbitration, and 12 cite FAA cases in support of their claim that the arbitration provisions were neither 13 mandatory nor enforceable. Opp’n at 2-7. Defendant’s reply insisted that it is not moving 14 to compel arbitration. Reply at 1-2. 15 As an initial matter, Defendant improperly seeks dismissal of Plaintiffs’ complaint 16 under Rule 12(b)(3) for improper venue on the basis of an arbitration provision. In 17 Atlantic Marine Construction Company, Inc. v. United States District Court for the 18 Western District of Texas, 134 S. Ct. 568 (2013), the Supreme Court clarified that Rule 19 12(b)(3) allows for dismissal only when venue is “wrong” or “improper.” Id. at 577. A 20 venue is only “wrong” or “improper” if the court in which the case was brought fails to 21 satisfy the requirements of federal venue laws, and the existence of a forum selection 22 clause, such as the arbitration provision in this case, does not render venue “wrong” or 23 “improper” under those requirements. See id. at 578-79. Instead, forum selection clauses 24 should be analyzed under the federal transfer statute, 28 U.S.C.A 1404(a), unless the 25 moving party seeks a non-federal forum, in which case forum non conveniens is the 26 appropriate doctrinal analysis. Id. at 579-80. 27 28 An arbitration provision can be construed as a forum selection clause. Polimaster Ltd. v. RAE Systems, Inc., 623 F.3d 832, 837 (9th Cir. 2010) (“The requirement of 3 1 arbitration at the defendant’s site is effectively a forum selection clause, in which the 2 parties agreed to arbitrate at the location of a defendant’s principal place of business.”). 3 “[A] valid forum-selection clause should be given controlling weight in all but the most 4 exceptional cases.” Atl. Marine Const. Co., Inc., 134 S.Ct. at 581 (internal quotations and 5 alterations removed). However, district courts must first “consider arguments that the 6 clause is invalid.” Russel v. De Los Suenos, No. 13-2081-BEN, 2014 WL 1028882, at *6 7 (S.D. Cal. Mar. 17, 2014). “A forum selection clause is presumptively valid; the party seeking to avoid a 9 forum selection clause bears a ‘heavy burden’ to establish a ground upon which [the court] 10 will conclude the clause is unenforceable.” Doe 1 v. AOL LLC, 552 F.3d 1077, 1083 (9th 11 United States District Court Northern District of California 8 Cir. 2009) (quoting M/S Bremen v. Zapata Off–Shore Co., 407 U.S. 1, 17 (1972)). “[A] 12 forum selection clause is unenforceable ‘if enforcement would contravene a strong public 13 policy of the forum in which suit is brought, whether declared by statute or by judicial 14 decision’” Doe 1, 552 F.3d at 1083 (quoting Bremen, 407 U.S. at 15). Additionally, a 15 “party may attempt to make a showing that would warrant setting aside the forum- 16 selection clause - that the agreement was affected by fraud, undue influence, or 17 overweening bargaining power; that enforcement would be unreasonable and unjust; or 18 that proceedings in the contractual forum will be so gravely difficult and inconvenient that 19 the resisting party will for all practical purposes be deprived of his day in court.” 20 Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1287 (9th Cir. 2006) (internal quotation and 21 citation omitted). 22 23 24 25 A. Waiver of the Right to a Jury Trial Because this suit was brought in a federal court sitting in California, the Court first considers whether enforcing the arbitration provision “would contravene a strong public 26 27 28 4 1 policy” in the state of California.1 Doe 1, 552 F.3d at 1083 (quoting Bremen, 407 U.S. at 2 15). California places great importance on a litigant’s right to a trial by jury, which is 3 codified in the state’s Constitution at Article I, section 16.2 “The right to a trial by jury is a 4 basic and fundamental part of our system of jurisprudence. As such, it should be zealously 5 guarded by the courts. In case of doubt, therefore, the issue should be resolved in favor of 6 preserving a litigant’s right to a trial by jury.” Titan Group v. Sonoma Valley Cnty. 7 Sanitation Dist., 164 Cal. App. 3d 1122, 1127-28 (1985) (internal quotation marks and 8 citations omitted). Consequently, “any waiver thereof should appear in clear and 9 unmistakable form. We cannot elevate judicial expediency over access to the courts and 10 the right to jury trial in the absence of clear waiver.” Id. at 1129. The waiver of a jury trial, in the form of an arbitration agreement, was not “clear United States District Court Northern District of California 11 12 and unmistakable” in this case. The Agreements in dispute were poorly constructed, and 13 contain language that might lead a reasonable person to believe that the arbitration 14 provision was optional. The clause provides that “the client may pursue the dispute 15 through arbitration.” Ex. A at 4; Ex. B at 4. The use of the word “may” suggests a 16 permissive dispute resolution process, rather than a mandatory one. See, e.g. Common 17 Cause v. Bd. of Supervisors, 49 Cal. 3d 432, 443 (1989) (the word “may” “is ordinarily 18 construed as permissive”). Furthermore, the Brem Agreement also provided: “The 19 aforementioned arbitration clause is voluntary and shall not constitute a waiver of Client’s 20 rights pursuant to and under federal rules or similar state statutes and rules.” Ex. B to 21 Evans Decl. at 5. This language further calls into question the mandatory nature of the 22 23 24 25 26 27 28 1 The choice-of-law provision is without consequence to this analysis, as the operative question is whether the forum selection provision violates a strong public policy established by the forum in which the suit was brought. Accordingly, the Court looks to California law to identify any such policy. However, the Court notes that the outcome of this analysis would be the same under Colorado law. 2 The right to a jury trial in most civil cases is also provided by the U.S. Constitution. U.S. Const. Amend. VII. Colorado law similarly provides for such a right, although it is not codified in the state constitution. Snow Basin, Ltd. v. Boettcher & Co., 805 P.2d 1151, 1154 (Colo. App. 1990). 5 1 arbitration provision, and no explanation for the additional language in the Brem 2 Agreement is provided by Defendant. 3 Defendant responds by pointing out that the word “may” was also used in the 4 arbitration clause found enforceable by the Supreme Court in AT&T Mobility LLC v. 5 Concepcion, 131 S.Ct. 1740 (2011). However, Defendant overlooks the important fact 6 that the arbitration clause in Concepcion actually provided that arbitration was voluntary, 7 and allowed either party to “bring a claim in small claims court in lieu of arbitration.” Id. 8 at 1744. Defendant provides no other reason to find that the permissive language used in 9 Plaintiffs’ Agreements should be interpreted as mandating arbitration. Consequently, this Court declines to find that Plaintiffs agreed to a clear and unmistakable waiver of their 11 United States District Court Northern District of California 10 right to a jury trial, rendering the arbitration provision unenforceable as a forum selection 12 clause. Similarly, because there is not a clear agreement to engage in mandatory 13 arbitration, it is also unenforceable within the context of a motion to compel arbitration. 14 B. 15 Unconscionability California also has a strong public policy against the enforcement of 16 17 unconscionable contract provisions. Cal. Civ. Code § 1670.5(a).3 Consequently, if the 18 “place and manner” restrictions of the forum selection provision are “unduly oppressive,” 19 see Bolter v. Superior Court, 87 Cal. App. 4th 900, 909–10 (2001), or have the effect of 20 shielding the stronger party from liability, see Comb v. PayPal, Inc., 218 F. Supp. 2d 1165, 21 1177 (N.D. Cal. 2002), then the forum selection provision is unconscionable and will not 22 be enforced. Nagrampa, 469 F.3d at 1287. A finding of unconscionability requires “a 23 ‘procedural’ and a ‘substantive’ element, the former focusing on ‘oppression’ or ‘surprise’ 24 due to unequal bargaining power, the latter on ‘overly harsh’ or ‘one-sided’ results.” 25 Armendariz v. Foundation Health Pyschcare Servs., Inc., 24 Cal.4th 83, 114 (2000); 26 27 28 3 Colorado law similarly discourages courts from enforcing unconscionable contract provisions. See Lincoln Gen. Ins. Co. v. Bailey, 224 P.3d 336, 341 (Colo. App. 2009) aff’d, 255 P.3d 1039 (Colo. 2011) (“Courts will not enforce an unconscionable contract.”). 6 1 accord, Discover Bank, 36 Cal.4th 148, 159–161. Procedural and substantive 2 unconscionability are evaluated on a sliding scale, as “the more substantively oppressive 3 the contract term, the less evidence of procedural unconscionability is required to come to 4 the conclusion that the term is unenforceable, and vice versa.” Armendariz, 24 Cal.4th at 5 114. 6 7 8 9 1. Procedural Unconscionability Defendant’s arbitration provision is procedurally unconscionable for multiple reasons. First, the provision as it appears in the Milliner and Brem Agreements contains nearly identical boilerplate terms that were drafted by Defendant and imposed upon 11 United States District Court Northern District of California 10 Plaintiffs, and there is no evidence that the provisions were negotiable. Compare Ex. A to 12 Evans Decl. at 4, with Ex. B to Evans Decl. at 4-5. California and Ninth Circuit case law 13 have consistently found that “take it or leave it” contracts implicate procedural 14 unconscionability. See Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1172 (9th Cir. 15 2003) (following the reasoning in Szetela v. Discover Bank, 97 Cal. App. 4th 1094 (2002), 16 in which the California Court of Appeal held that the availability of other options does not 17 bear on whether a contract is procedurally unconscionable.) See also, Ferguson v. 18 Countrywide Credit Industries, Inc., 298 F.3d 778, 784 (9th Cir. 2002) (“[W]hether the 19 plaintiff had an opportunity to decline the defendant's contract and instead enter into a 20 contract with another party that does not include the offending terms is not the relevant test 21 for procedural unconscionability.”) Defendant argues that a grant of further discovery will 22 produce evidence that “will show that plaintiffs were sophisticated, savvy individuals who 23 had equal bargaining power as Defendant.” Reply at 7. However, “the sophistication of a 24 party, alone, cannot defeat a procedural unconscionability claim.” Nagrampa, 469 F.3d at 25 1283; see also A&M Produce Co. v. FMC Corp., 135 Cal. App. 3d 473, 489-90 (1982) 26 (noting that California’s Supreme Court is among courts that have “begun to recognize 27 that experienced but legally unsophisticated businessmen may be unfairly surprised by 28 7 1 unconscionable contract terms”). Moreover, such arguments should have been made in the 2 submitted briefs. 3 Second, the language of the arbitration provision is confusing and conflicting, 4 which calls into question the level of notice provided to Plaintiffs and the resulting 5 procedurally unconscionable element of surprise. See Lou v. Ma Laboratories, Inc., No. 6 12-05409-WHA, 2013 WL 2147459 (N.D. Cal. May 15, 2013) (finding clause 7 procedurally unconscionable because it contained confusing language). As discussed 8 above, the language of the disputed Agreements are confusing, providing that the parties 9 “may” arbitrate and stating that the provision was “voluntary.” 10 Third, the arbitration provision is only one section in a seven page long, single United States District Court Northern District of California 11 spaced, small-font document. In the Milliner Agreement, the provision was buried as the 12 twenty-first of thirty-six sections, while in the Brem Agreement it was the twentieth of 13 thirty-seven sections. And while the section is headlined “Negotiation, Mediation, 14 Arbitration Agreement,” it does not stand out from other sections in the agreement that 15 utilize identical headlines and font. Additionally, there is no place for the non-drafting 16 party to initial near the section. Courts have found such characteristics unconscionable. 17 See, e.g., Samaniego v. Empire Today, LLC, 205 Cal. App. 4th 1138, 1146 (2012) 18 (agreement “was comprised of 11 pages of densely worded, single-spaced text printed in 19 small typeface. The arbitration clause is the penultimate of 37 sections which . . . were 20 neither flagged by individual headings nor required to be initialed”); Gutierrez v. Autowest, 21 Inc., 114 Cal. App. 4th 77, 89 (2003) (arbitration clause printed in eight-point typeface on 22 opposite side of signature page and consumer “never informed that the lease contained an 23 arbitration clause”). 24 Finally, the arbitration provision provides that the arbitration would be subject to 25 the American Arbitration Association’s Commercial Arbitration Rules, but fails to specify 26 which version of those rules would be utilized (e.g., the version in effect at the time the 27 Agreement was signed or the version in effect at the time arbitration commences), neglects 28 to provide the rules, and does not otherwise indicate where Plaintiffs can find them. 8 1 “Numerous cases have held that the failure to provide a copy of the arbitration rules to 2 which the [plaintiff] would be bound, supported a finding of procedural unconscionability. 3 Trivedi v. Curexo Tech. Corp., 189 Cal. App. 4th 387, 393-94 (2010); accord Sparks v. 4 Vista Del Mar Child & Family Services, 207 Cal. App. 4th 1511, 1523 (2012); Harper v. 5 Ultimo, 113 Cal. App. 4th 1402, 1406 (2003). 6 7 8 9 2. Substantive Unconscionability The arbitration provision is also substantively unconscionable. “An arbitration provision is substantively unconscionable if it is ‘overly harsh’ or generates ‘one-sided’ results.” Nagrampa, 469 F.3d at 1280. The provision’s mediation venue clause, arbitrator 11 United States District Court Northern District of California 10 selection clause, and one-sided evidentiary and disclosure requirements result in 12 substantive unconscionability. 13 First, the mediation venue clause is unduly oppressive. While Defendant is correct 14 that the ADR provision selects a venue for mediation, and not arbitration, this does not 15 make the process of arbitration any less burdensome for Plaintiffs, as it still requires them 16 to engage in mediation in a distant forum before (and as a part of the process of) pursuing 17 arbitrable relief. See Ex. A to Evans Decl. at 4; Ex. B to Evans Decl. at 4 (“If the dispute 18 cannot be settled through good faith negotiation, the parties agree first to try to settle the 19 dispute by mediation . . . before resorting to arbitration. . . . the mediation will take place in 20 Denver, Colorado”). The Court can conceive of no reason for this venue selection “other 21 than [to] maximize[e] an advantage” for Defendant. Nagrampa, 469 F.3d at 1287. 22 Plaintiffs, both in their sixties, each reside in California; Defendant does business and 23 resides in California; and the “accounts at issue in this matter are maintained in 24 California.” Compl. ¶¶ 7-9, 11. In fact, this case’s only connection to Denver is that 25 Defendant’s principle place of business is there. Id. ¶ 9. The Court finds that the 26 Agreements’ venue selection serves no purpose other than to erect an unconscionable 27 barrier to relief for non-drafting parties. See, e.g., Comb v. PayPal, Inc., 218 F. Supp. 2d 28 1165, 1177 (N.D. Cal. 2002) (“Limiting venue to [the defendant’s] backyard appears to be 9 1 yet one more means by which the arbitration clause serves to shield [the defendant] from 2 liability instead of providing a neutral forum in which to arbitrate disputes.”). 3 Second, the provision’s process for selecting an arbitrator is substantively 4 unconscionable because it gives Defendant significantly unequal power in the selection the 5 arbitrator. Ex. A to Evans Decl. at 4; Ex. B to Evans Decl. at 4-5. The provision allows 6 Defendant to provide a list of three arbitrators from which Plaintiffs can choose; otherwise, 7 Defendant will appoint an arbitrator unilaterally. A neutral arbitrator “is essential to 8 ensuring the integrity of the arbitration process.” Armendariz, 24 Cal.4th at 103. 9 Allowing one party to designate the arbitrator lacks mutuality and “gives rise to a significant risk of financial interdependence between [the defendant] and the arbitrator, 11 United States District Court Northern District of California 10 and an opportunity for [the defendant] to gain an advantage through its knowledge of and 12 experience with the arbitrator.” Sanchez v. Western Pizza Enterprises, Inc., 172 Cal. App. 13 4th 154, 177 (2009). It is cold comfort that Plaintiffs may “choose” from the three 14 arbitrators handpicked by Defendant. See Murray v. UFCW Int’l, Local 400, 289 F.3d 15 297, 303 (4th Cir. 2002) (allowing employee to strike arbitrators from list compiled by 16 employer still unconscionable); accord McMullen v. Meijer, Inc., 355 F.3d 485, 494 (6th 17 Cir. 2004). 18 Third, the provision is unconscionable because it imposes one-sided disclosure 19 obligations on Plaintiffs and erects an unreasonable evidentiary bar that lacks mutuality. 20 The arbitration provision requires Plaintiffs to “provide Bock Evans and its legal counsel 21 copies of all documents” that it intends to present at the arbitration hearing, “as well as 22 complete federal tax returns for the term of the investment advisory arrangement including 23 three (3) years prior to enter into the Agreement,” as well as tax returns filed after the term 24 of the Agreement and leading up to the hearing. Ex. A to Evans Decl. at 4; Ex. B to Evans 25 Decl. at 5. Plaintiffs also have to provide “all investment advisory agreements, supporting 26 documentation, portfolio holdings, transaction history and performance reports entered 27 into or provided by any other investment advisor prior to, during the term of or entered 28 into after this Agreement, client documentation or changes thereto, all client transactions 10 1 and account statements . . . a list of all witnesses . . . or any statement affidavit,” and the 2 list goes on. Id. Plaintiffs are barred from using any of the above information unless it is 3 provided to Defendant “at least 90 days’ prior to any hearing.” Id. This evidentiary bar 4 and disclosure requirement does not apply to Defendant, and represents a substantial 5 obstacle for clients seeking relief through arbitration. Defendant’s response to Plaintiffs’ 6 argument on this point is inexplicable - Defendant argues that Plaintiffs agreed to this 7 draconian restriction and that “the choice is Plaintiffs’, not Defendant’s, on whether to 8 maintain” the records identified. Reply at 7. In other words, Defendant contends that the 9 unconscionability of a provision is forgiven by a party’s signature, and that this particular provision is acceptable because Plaintiffs have the option of just not putting on any 11 United States District Court Northern District of California 10 evidence at the hearing. The Court rejects this flawed reasoning and finds the lack of 12 mutuality unconscionable. Accordingly, the Court finds that the forum selection clause is procedurally and 13 14 substantively unconscionable, and therefore unenforceable.4 As a result, the Court 15 DENIES Defendant’s motion with respect to the arbitration provision. 16 17 II. Dismissal Pursuant to FINRA Rule 12209 Defendant next contends that this action should be dismissed because it is barred 18 19 under FINRA Rule 12209. Mot. at 6-7. Rule 12209 of the FINRA Manual provides: 20 “During an arbitration, no party may bring any suit, legal action, or proceeding against 21 any other party that concerns or that would resolve any of the matters raised in the 22 arbitration.” (emphasis added). 23 Plaintiff Milliner filed an arbitration claim with FINRA against Defendant, as well 24 as certain individuals affiliated with Defendant, on December 22, 2014. Evans Decl. ¶ 5. 25 The FINRA claim alleges many of the same causes of action, arises from the same facts, 26 27 4 28 This finding of unconscionability would similarly defeat a motion to compel arbitration under the FAA. 11 1 and requests much of the same relief, as this case. Id. Plaintiff Brem is not involved in the 2 FINRA action. 3 Rule 12209, by its very terms, applies only to the parties of a FINRA arbitration. It 4 therefore does not apply to Defendant, which is not a party to the FINRA action.5 See Ex. 5 1 to Sturgeon Decl. (FINRA letter noting that Defendant was “not required to arbitrate in 6 the FINRA arbitration forum” because Defendant is not a member of FINRA, and that 7 FINRA would “proceed with this action without [Defendant’s] participation”); Ex. 2 to 8 Sturgeon Decl. (Defendant responding that it “is not subject to FINRA’s jurisdiction” and 9 declining to submit to FINRA arbitration). Despite Defendant’s claim that this is “irrelevant,” Reply at 8, the fact that Plaintiffs cannot find relief against Defendant in 11 United States District Court Northern District of California 10 FINRA’s forum is precisely why they must seek relief in this one. Ultimately, Defendant 12 cannot have it both ways - opting out of FINRA arbitration while also claiming that its 13 involvement in FINRA arbitration bars it from suit in federal court. Because FINRA Rule 14 12209 only applies to parties to the arbitration, it is inapplicable here and Defendant’s 15 motion to dismiss on this basis is DENIED. 16 17 III. Dismissal for Failure to State a Claim - Fed. R. Civ. P. 12(b)(6) Defendant next argues that Plaintiffs fail to state a claim upon which relief can be 18 19 granted, requiring dismissal under Federal Rule of Civil Procedure 12(b)(6). To survive 20 dismissal under Rule 12(b)(6), a plaintiff must plead “enough facts to state a claim to relief 21 that is plausible on its face,” with sufficient specificity to “give the defendant fair notice of 22 what the . . . claim is and the grounds upon which it rests.” Bell Atlantic Corp. v. 23 Twombly, 550 U.S. 544, 545, 570 (2007). Plausibility does not equate to probability, but it 24 does require “more than a sheer possibility that a defendant has acted unlawfully.” 25 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted). “A claim has facial 26 27 5 28 Plaintiff Brem is also not a party in the FINRA action, further militating against the application of Rule 12209 in this case. 12 1 plausibility when the plaintiff pleads factual content that allows the court to draw the 2 reasonable inference that the defendant is liable for the misconduct alleged.” Id. 3 In ruling on a motion to dismiss, a court must “accept all material allegations of fact 4 as true and construe the complaint in a light most favorable to the non-moving party.” 5 Vasquez v. Los Angeles County, 487 F.3d 1246, 1249 (9th Cir. 2007). Courts are not, 6 however, “bound to accept as true a legal conclusion couched as a factual allegation.” 7 Iqbal, 556 U.S. at 678. Rather, it must “examine whether conclusory allegations follow 8 from the description of facts as alleged.” Holden v. Hagopian, 978 F.2d 1115, 1121 (9th 9 Cir. 1992) (citation omitted). 10 Defendant argues that “Plaintiffs fail to demonstrate with adequate specificity how United States District Court Northern District of California 11 or why Defendant’s alleged conduct caused the decrease in [portfolio] value.” Mot. at 9. 12 It further claims, “There is no allegation of when Plaintiffs made any investments, what 13 specific investments were made and why, or how Defendant’s conduct caused Plaintiffs’ 14 damages or fell below a cognizable standard of care.” Id. In opposition, Plaintiffs point to 15 the portions of their Complaint that properly address the necessary elements of their causes 16 of action and establish a claim for relief. Opp’n at 19-20. 17 The Court finds that Plaintiffs sufficiently allege their cause of action. The duties, 18 Compl. ¶¶ 12-35, and breaches, id. ¶¶ 38-43, 46-52, are exhaustively listed in the 19 Complaint. Those breaches are also sufficiently casually linked to the decrease in 20 Plaintiffs’ portfolios to raise Plaintiffs’ right to relief “above the speculative level,” and 21 result in a “reasonable inference that discovery will reveal evidence” of the claimed 22 violations. Twombly, 550 U.S. at 555-56. For example, among other allegations, the 23 Complaint alleges that the securities selected by Defendant for Plaintiffs and the Class had 24 “a continuous downward trend year, after year,” and that “[a]s a result of [Defendant’s] 25 failure to properly monitor the markets, and failure to properly adjust its clients’ portfolios 26 pursuant to its discretionary authority, Plaintiffs and the Class lost tens of millions of 27 dollars in the midst of a powerful bull market.” Id. ¶¶ 6, 24. The Complaint also specifies 28 the amount lost as a result of Defendant’s breach, id. ¶¶ 42, 48, and juxtaposes those losses 13 1 against the rising market, id. ¶ 42. As another of many possible examples, the Complaint 2 alleges that Defendant “represented in writing to all of its clients that the Firm is ‘guided 3 by the Client’s designated investment objective, risk tolerance and other factors,’” and 4 would “make investments based upon [clients’] individual investment needs,” yet applied a 5 “one size fits all” approach of purchasing “high risk and highly speculative mining stocks 6 for all of its clients.” Id. ¶¶ 33-35. These factual allegations are sufficient under prevailing law. Indeed, it is unclear 7 8 how Plaintiffs could be any more factually specific before engaging in discovery. 9 Accordingly, Defendant’s Rule 12(b)(6) motion is DENIED. 10 United States District Court Northern District of California 11 IV. Statute of Limitations Defense 12 Finally Defendant argues that Plaintiffs’ claims are barred by Colorado’s statutes of 13 limitation. Mot. at 9-10. “When the running of the statute is apparent from the face of the 14 complaint . . . then the defense may be raised by a motion to dismiss.” Conerly v. 15 Westinghouse Electric Corp., 623 F.2d 117, 119 (9th Cir. 1980). However, a cause of 16 action should only be dismissed if “it is clear from the face of the complaint that the statute 17 has run and that no tolling is possible.” Brocade Commc’ns Sys., Inc. v. A10 Networks, 18 Inc., 2011 WL 1044899, at *3 (N.D. Cal. Mar. 23, 2011); see also Jablon v. Dean Witter & 19 Co., 614 F.2d 677, 682 (9th Cir. 1980) (“When a motion to dismiss is based on the running 20 of a statute of limitations, it can be granted only if the assertions of the complaint, read 21 with the required liberality, would not permit the plaintiff to prove that the statute was 22 tolled.”). 23 Defendant states that the statutes of limitation are as follows: breach of fiduciary 24 duty: three years; negligence: two years; fraud by misrepresentation or omission / 25 constructive fraud: three years. Id. at 9. Importantly, Defendant’s motion acknowledges 26 that the Complaint does not provide specific dates of relevant investments or breaches, 27 requiring Defendant to base its statute of limitations defense instead on the portfolio 28 graphs provided in the Complaint, which begin in 2010 for Milliner and 2011 for Brem. 14 1 Id. at 9-10 (citing Compl. at 2-3, 15). Defendant reasons that because the graphs start in 2 2010 and 2011, and the Complaint was filed on December 22, 2015, the “investments at 3 issue” were made beyond the relevant statutory bars. Id. at 10. This does not necessarily 4 follow. Nowhere in the Complaint do Plaintiffs allege that the graphs represent the accrual 6 of their claims. Consequently, various breaches could have occurred at any period within 7 those graphs, including within the statutory periods. Furthermore, Plaintiffs’ claims are 8 based upon the continuing legal obligations of an investment advisor, which could have 9 been violated each time Defendant failed to appropriately monitor and make adjustments 10 to Plaintiffs’ portfolios. This ongoing nature of Defendant’s enterprise is acknowledged 11 United States District Court Northern District of California 5 throughout the Complaint. See, e.g., Compl. ¶¶ 22, 60, 65. Because it is not clear on the 12 face of this Complaint that the statutes have run, Defendant’s motion to dismiss on that 13 basis must be DENIED at this early stage of the proceedings. See Conerly, 623 F.2d at 14 119 (statute of limitation defense may be raised by a motion to dismiss only where the 15 defense “is apparent from the face of the complaint”). 16 17 18 CONCLUSION For the foregoing reasons, Defendant’s motion to dismiss is hereby DENIED. 19 20 IT IS SO ORDERED. 21 22 23 Dated: 07/06/15 _____________________________________ THELTON E. HENDERSON United States District Judge 24 25 26 27 28 15
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