ARBITRATION WITH SOME PLAINTIFFS BUT NOT OTHERS DENIED DUE TO RISK OF CONFLICTING RULINGS
In an action brought by twenty-three investors against a brokerage related to investment fraud by the broker, a California appellate court rejected the brokerage’s attempt to arbitrate with the twelve investors with whom the brokerage had signed client agreements and stay the court action as to the remaining investors. While the client agreements at issue contained express agreements to arbitrate “any and all controversies or claims,” California law provides that a court should not order arbitration where: (1) a party to the arbitration agreement is contemporaneously a party to a pending court action arising out of the same transaction; and (2) where “there is a possibility of conflicting rulings on a common issue of law or fact.” The court was not persuaded by the brokerage’s argument that no risk of conflicting rulings existed, where the twelve investors, who had signed client agreements, had a “different legal standing” than the eleven investors who were non-clients. The court explained that the brokerage failed to show how the client/non-client distinction was relevant and that, on the contrary, “a legal duty may exist outside of a written agreement.” Cianci v. Centaurus Financial, Inc., Case No. B222474 (Cal. Ct. App. May 5, 2011).
This post written by Michael Wolgin.
