Osprey Partners RSF LLC et al v. UBS Financial Services Inc., No. 3:2016cv04894 - Document 20 (N.D. Cal. 2016)
Court Description: ORDER DENYING 10 MOTION TO COMPEL ARBITRATION by Hon. William Alsup. (whalc2, COURT STAFF) (Filed on 11/14/2016)
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Osprey Partners RSF LLC et al v. UBS Financial Services Inc. Doc. 20 1 2 3 4 5 IN THE UNITED STATES DISTRICT COURT 6 FOR THE NORTHERN DISTRICT OF CALIFORNIA 7 8 9 Plaintiffs, 11 For the Northern District of California United States District Court 10 12 No. C 16-04894 WHA OSPREY PARTNERS RSF LLC and SVOBODA CONSULTING, ORDER DENYING MOTION TO COMPEL ARBITRATION v. 13 UBS FINANCIAL SERVICES INC. and DOES 1 through 10, inclusive, 14 Defendants. / 15 16 17 18 19 20 INTRODUCTION In this breach of contract action, defendants move to compel submission of plaintiff’s claims to binding arbitration. Defendants’ motion is DENIED. STATEMENT Plaintiffs Osprey Partners RSF LLC and Svoboda Consulting are recruiting businesses 21 founded and owned by Milton Barnes and William Svoboda, respectively. Defendant UBS 22 Financial Services Inc. is a national business offering wealth management and related services 23 (Dkt. Nos. 10 at 1, 12 at 2). The gravamen of this action is that UBS hired plaintiffs to recruit 24 four new hires from another company, and then failed to pay plaintiffs their allegedly agreed- 25 upon compensation as to three of the four. 26 In 2013, Barnes contacted Steve McCashin, executive director of UBS, regarding the 27 possibility of UBS hiring Chris Laver, who was then a financial advisor at Credit Suisse. 28 McCashin allegedly sent Barnes a text message that stated, “You are covered if I hire [Laver].” In December 2013, William Svoboda independently contacted McCashin regarding the Dockets.Justia.com 1 possibility of UBS hiring Geir Fjugstad, another financial advisor at Credit Suisse. Fjugstad, 2 along with Stephen Andres and Alan Shanken, were members of Laver’s team (Dkt. Nos. 10 at 3 1, 12 at 2). In May 2014, after these parallel recruitments efforts came to light, the following 4 conversation allegedly took place via text messages between Barnes and McCashin: Barnes: “just spoke w/ [C]hris Laver...Interesting call...[P]lease keep me covered. Can discuss when you return.” McCashin: “That one is tough. Met with his partner [Fjugstad] multiple times. Set up by [William Svoboda].” 8 Barnes: “I can be of assistance...[Laver] takes my calls...” 9 McCashin: “I’m open to split etc. [J]ust being clear that I had an intro to [Fjugstad].” Barnes: “[s]plit is [always] fine...” 5 6 7 11 Shortly thereafter, Barnes texted McCashin, “[L]aver situation may now change...Bill Svoboda For the Northern District of California United States District Court 10 12 and I are now a team.” McCashin replied, “Fine” (Dkt. Nos. 1 Exh. 2 at 4, 10 at 2, 12 at 2–3). 13 From December 2015 to January 2016, all four members of Laver’s team joined UBS. 14 On December 17, Barnes emailed McCashin and asked in relevant part, “When you have a 15 minute can we go over the process for invoicing and the new contract for Fgustaad [sic] and 16 Andres?” McCashin replied (Dkt. No. 12-1 Exh. 1): 17 I had a call RE the Fjugstad situation and your contracts yesterday. ¶ A final decision on exact parameters has not been determined, and Andres as of today has not joined. ¶ Mariel will reach out to you regarding a new contract. ¶ Terms will be 4% on Brookfield/Zhong per the previous and standard one-off contract. ¶ 6% on Fjugstad et al [sic] as it pushes the total over 5mm. ¶ Recruiting has the final say on that, not me.1 18 19 20 21 On December 21, Mariel Izquierdo from UBS emailed Barnes “one time agreements for the 22 recently placed Zhong/Brookfield team and Geir Fjugstad” and asked that he “review, sign and 23 scan the whole contract back to [her] attention.” The “Financial Advisor Recruiting Agreement” for Fjugstad (“Fjugstad Agreement”) is 24 25 the focal point of this case. According to Barnes’s email, he executed and returned the 26 agreements about an hour later (Dkt. Nos. 10 at 2, 12 at 4, 12-1 Exh. 2). His signature on the 27 28 1 “Brookfield/Zhong” referred to another team of financial advisors that Barnes recruited to UBS from Credit Suisse around the same time (Dkt. No. 12 at 4). 2 1 Fjugstad Agreement, however, was dated December 1, 2015. Izquierdo’s signature was dated 2 December 12, 2015. The third and final signature of Patricia Cashin, executive director of 3 business acquisition at UBS, was dated December 22, 2015 (Dkt. No. 10-1 Exh. 1 at 10). 4 The parties do not dispute that UBS paid plaintiffs for recruiting Fjugstad pursuant to the other three members of Laver’s team. Plaintiffs then filed a complaint in state court alleging 7 causes of action for breach of contract and quantum meruit. Specifically, plaintiffs alleged they 8 had a “partially written, partially oral and partially implied” contract with UBS, pursuant to 9 which, in exchange for recruiting Laver’s team, plaintiffs were to “receive payment . . . in the 10 amount of a commission fee of 6% of the trailing 12 month of team production” (Dkt. No. 1 at 11 For the Northern District of California the Fjugstad Agreement (Dkt. No. 12 at 5). UBS did not, however, pay plaintiffs for recruiting 6 United States District Court 5 17–18). UBS removed the action to federal court and now moves to compel arbitration based 12 on the Fjugstad Agreement, which provided in relevant part (Dkt. 10-1 Exh. 1 at 9): 15 With the exception of claims for injunctive relief, [Osprey] and [UBS] agree that, unless prohibited by applicable law, all disputes or claims arising out of or relating to this Agreement will be determined by arbitration as authorized and governed by the arbitration law of the state of New Jersey. Any such arbitration will be conducted under the auspices and rules of JAMS. 16 ANALYSIS 13 14 17 1. APPLICABLE LAW. 18 As a preliminary matter, neither side directly addresses the applicable law in their briefs. 19 UBS claims the Federal Arbitration Act should govern, but then adds that both California and 20 New Jersey law favor arbitration as a policy matter (Dkt. No. 10 at 5–6). Plaintiffs, on the other 21 hand, do not even articulate an applicable legal framework, although their repeated citations to 22 California statutes and case law suggest they believe California law should apply (Dkt. No. 12 23 at 5–10). Importantly, the instant motion is not about the enforceability of the arbitration clause 24 in the Fjugstad Agreement. Plaintiffs do not dispute that the arbitration clause would be 25 enforceable if it applied to their recruitments of Laver, Andres, and Shanken. But since the 26 Fjugstad Agreement did not encompass those three recruitments, plaintiffs contend, there is no 27 reason to compel arbitration of claims for relief arising out of those recruitments. 28 3 1 Plaintiffs claim their recruitments of Laver, Andres, and Shanken were governed instead 2 by a “partially written, partially oral and partially implied” contract with UBS that was formed 3 over the course of multiple exchanges between Barnes and McCashin. During oral argument, 4 the Court asked if plaintiffs in any way relied, or intend at some point to rely, on the Fjugstad 5 Agreement as the written part of this alleged contract that forms the basis for their claims for 6 relief. Plaintiffs forswore any such reliance. According to plaintiffs, the essential term of the 7 “partially written, partially oral and partially implied” contract was that plaintiffs would receive 8 a commission fee in exchange for recruiting all four members of Laver’s team (Dkt. No. 1 Exh. 9 2 at 5–6). UBS, on the other hand, claims the Fjugstad Agreement was “a derivative of the overarching agreement to recruit [Laver’s team],” and thus “necessarily . . . part of . . . 11 For the Northern District of California United States District Court 10 Plaintiffs’ alleged ‘partially written, partially oral and partially implied’ contract with UBS” 12 (Dkt. No. 10 at 7). In other words, the parties agree for purposes of this motion that some 13 agreement with multiple components encompassed the recruitment of Laver’s team. They 14 disagree, however, as to whether the Fjugstad Agreement governed this broader agreement so 15 that the former’s arbitration clause applied, not only to claims arising out of Fjugstad’s 16 recruitment, but also to claims arising out of the recruitments of the other team members. 17 This is essentially a contract dispute that must be resolved under customary principles of 18 contract law. The parties have not briefed, and this order makes no determination as to, which 19 body of law should govern the entire alleged “partially written, partially oral and partially 20 implied” contract between plaintiffs and UBS. For purposes of this motion it is sufficient to 21 determine whether the written Fjugstad Agreement should be construed to encompass all four 22 recruitments of Laver’s team members. This order therefore looks to the Fjugstad Agreement’s 23 express terms to determine the governing law for purposes of this inquiry. The Fjugstad 24 Agreement’s governing law provision stated, “This Agreement shall be governed by and 25 construed and enforced in accordance with the laws of the state of New Jersey without regard to 26 principles of conflicts of laws” (Dkt. No. 10-1 Exh. 1 at 9). This order thus applies New Jersey 27 contract law to determine whether the Fjugstad Agreement and its arbitration clause governed 28 plaintiffs’ recruitment of all four members of Laver’s team. 4 1 2. APPLICABILITY OF THE FJUGSTAD AGREEMENT. 2 An agreement to arbitrate, like any other contract, must be the product of mutual assent 3 as determined under customary principles of contract law. Atalese v. U.S. Legal Servs. Grp., 4 L.P., 99 A.3d 306, 442 (N.J. 2014). “A legally enforceable agreement requires ‘a meeting of 5 the minds,’” and “[p]arties are not required ‘to arbitrate when they have not agreed to do so.’” 6 Ibid. (citing Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 478 7 (1989)). As the party seeking to enforce an alleged contractual provision to arbitrate, UBS has 8 the burden to prove, by a preponderance of the evidence, that plaintiffs assented to that 9 provision. Midland Funding LLC v. Bordeaux, 2016 WL 5417837, at *3 (N.J. Super. Ct. App. Div. Sept. 29, 2016). “Moreover, because the arbitration clause constitutes a waiver of 11 For the Northern District of California United States District Court 10 [plaintiffs’] constitutional right to adjudicate this dispute in a court of law, [UBS] must prove 12 that [plaintiffs] had full knowledge of [their] legal rights and intended to surrender those rights.” 13 Ibid. UBS has not met this burden of proof. 14 The Fjugstad Agreement, by its express terms, does not mention plaintiffs’ recruitment 15 of Laver, Andres, or Shanken. Nor is there any evidence in the record that either plaintiffs or 16 USB contemplated, much less agreed to, the Fjugstad Agreement encompassing multiple 17 recruitments. In fact, the record indicates UBS took a piecemeal approach to entering 18 recruitment contracts and committed to specific contract terms only after recruitment had been 19 successfully completed. For example, McCashin’s December 17 email to Barnes specifically 20 mentioned “Andres as of today has not joined,” and went on to identify new contract terms 21 offered only for recruitments that had been successful up to that point, i.e., Brookfield/Zhong 22 and Fjugstad. Even as to those contracts, McCashin added the disclaimer that “Recruiting has 23 the final say on [the contract terms].” In other words, although UBS and plaintiffs had 24 discussed and worked towards the recruitment of Laver’s team since 2013 or 2014, UBS did not 25 commit to concrete contract terms for Fjugstad’s recruitment until that specific recruitment was 26 actually successful (Dkt. No. 12-1 Exhs. 1–2). At the same time, UBS did not commit to 27 concrete contract terms for Andres’s recruitment contemporaneously with the Fjugstad 28 Agreement because the former had not yet been completed. 5 1 Indeed, the record at this stage suggests UBS specifically parsed out “one-off” contracts 2 for each successful recruitment apart from other ongoing but not yet successful recruitments, 3 even when multiple recruitments were contemplated by both sides as part of an ongoing effort 4 to recruit an entire team. For example, Izquierdo’s December 21 email to Barnes echoed 5 McCashin’s language that the Fjugstad Agreement was a “one time agreement[]” (Dkt. No. 12- 6 1 Exhs. 1–2). This record does not support construing the Fjugstad Agreement to encompass 7 any recruitments beyond that of Fjugstad himself. The case is even weaker for finding that 8 Osprey, through Barnes, waived its rights as to all other recruitments of Laver’s team members 9 by assenting to an arbitration provision articulated only in the Fjugstad Agreement. Nothing in the record or the Fjugstad Agreement itself could reasonably suggest the arbitration clause 11 For the Northern District of California United States District Court 10 would function in such an anomalous way. 12 UBS explains at length that the FAA “establishes a national policy favoring arbitration 13 when the parties contract for that form of dispute resolution,” and that both California and New 14 Jersey law favor arbitration as a policy matter (Dkt. No. 10 at 5–6) (emphasis added). This 15 argument, however, is unresponsive to the question of whether the parties in this case actually 16 contracted to arbitrate. UBS assumes as a premise the very fact challenged by plaintiffs, i.e., 17 that the Fjugstad Agreement and its arbitration clause applied to plaintiffs’ recruitment of the 18 rest of Laver’s team. If the Fjugstad Agreement did not apply to the recruitments of Laver, 19 Andres, and Shanken, then UBS’s arguments about policy favoring arbitration are beside the 20 point. The FAA policy UBS invokes favors arbitration already agreed upon by the parties but 21 does not independently establish that the parties agreed to arbitrate in the first place. 22 UBS argues “Plaintiffs’ allegations regarding a written/oral/implied agreement 23 providing for payment for the recruitment of all four team members must necessarily include 24 the writing that provided for payment relating to one (Fjugstad) of the four” (Dkt. No. 10 at 8). 25 True as to the one, but it does not then follow that the Fjugstad Agreement, which “provided for 26 payment relating to one” team member, necessarily governed “the recruitment of all four team 27 members.” UBS attempts to bridge this gap by citing Simula, Inc. v. Autoliv, Inc., 175 F.3d 28 716, 721 (9th Cir. 1999), for the proposition that “[a] broad arbitration clause reaches every 6 1 dispute between the parties having a significant relationship to the contract and all disputes 2 having their origin or genesis in the contract, and its application requires only that the factual 3 allegations touch matters covered by the contract” (quotations omitted) (Dkt. No. 10 at 8). 4 The principle articulated in Simula, however, means only that the arbitration clause in significant relationship to” or “touch matters covered by” the Fjugstad Agreement itself. 7 Nothing in Simula, or any other case cited by UBS, compels a finding that the Fjugstad 8 Agreement’s arbitration clause should be construed to encompass claims that do not rely on or 9 challenge the Fjugstad Agreement or its underlying transaction, i.e., Fjugstad’s recruitment. 10 Specifically, plaintiffs’ claims for relief relate only to the recruitments of Laver, Andres, and 11 For the Northern District of California the Fjugstad Agreement should be interpreted broadly with respect to claims that “have a 6 United States District Court 5 Shanken — none of which are “matters covered by” the Fjugstad Agreement. There is thus no 12 conclusive reason to find the Fjugstad Agreement, contrary to its express terms, was intended to 13 govern recruitments other than Fjugstad’s. Moreover, UBS’s position would compel the 14 conclusion that every transaction, no matter how complex, is subject to arbitration as long as 15 some small, isolated part of the transaction involved an agreement that contained an arbitration 16 clause. This position is untenable, and accordingly rejected. 17 UBS enjoyed a strong bargaining position to extract a waiver of normal litigation rights 18 and could, most likely, easily have done so. But it should have actually extracted that waiver 19 instead of leaving it to chance. This order concludes the Fjugstad Agreement and its arbitration 20 clause did not extend to encompass claims for relief arising out of recruitments other than 21 Fjugstad’s. The Fjugstad Agreement thus does not support UBS’s motion to compel arbitration 22 of plaintiffs’ claims relating to the recruitments of Laver, Andres, and Shanken. 23 3. ENFORCEMENT AGAINST SVOBODA CONSULTING. 24 UBS contends Svoboda Consulting should be bound by the arbitration clause in the 25 Fjugstad Agreement even though it was not a signatory thereto, for three reasons. First, UBS 26 claims that, “[i]n light of Plaintiffs’ communication to McCashin that Osprey Partners intended 27 to share with Svoboda [Consulting] the profits of any agreement for the recruitment member of 28 the Team, Svoboda [Consulting] is clearly a third party beneficiary of the Fjugstad Agreement” 7 1 (Dkt. No. 10 at 11–12). Thus, UBS argues, the Fjugstad Agreement’s arbitration clause should 2 apply with equal force to both Osprey and Svoboda Consulting. This argument assumes, 3 however, that the arbitration clause applies in the first place to Osprey’s claims for relief. Since 4 this order concludes the arbitration clause did not encompass plaintiffs’ claims arising out of 5 their recruitment of individuals other than Fjugstad, UBS’s argument is unavailing regardless of 6 whether Svoboda Consulting was a third party beneficiary of the Fjugstad Agreement. 7 Second, UBS claims a “preexisting relationship” between Osprey and Svoboda argument assumes the Fjugstad Agreement and its arbitration clause are binding on Osprey in 10 the instant action. As stated, that is not the case. The Fjugstad Agreement and its arbitration 11 For the Northern District of California Consulting gave the former the power to bind the latter contractually (id. at 12–13). Again, this 9 United States District Court 8 clause do not apply to Osprey’s claims for relief here. Thus, even if Osprey had the power to 12 bind Svoboda Consulting to the Fjugstad Agreement, that would not compel arbitration of 13 Svoboda Consulting’s claims for relief in this case. 14 Third, UBS argues Svoboda Consulting should be equitably estopped from “repudiating 15 the [Fjugstad Agreement’s] arbitration clause” because Svoboda Consulting is suing “on the 16 basis that, even though [it] was not a party to the contract, [it] is nonetheless entitled to recover 17 for its breach” (id. at 13). As explained, however, plaintiffs are asserting a right to recovery 18 under a “partially written, partially oral and partially implied” contract with UBS that is 19 separate from the Fjugstad Agreement. The former covered plaintiffs’ recruitments of Laver, 20 Andres, and Shanken, while the latter covered only Fjugstad. Thus, the fact that Svoboda 21 Consulting is suing based on the former does not equitably estop it from challenging the 22 attempted improper application of an arbitration clause in the latter. 23 CONCLUSION 24 For the foregoing reasons, UBS’s motion to compel arbitration is DENIED. 25 IT IS SO ORDERED. 26 27 Dated: November 14, 2016. WILLIAM ALSUP UNITED STATES DISTRICT JUDGE 28 8
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