Plaintiff holds a Self-Directed Trust Cash Management Account ("CMA") with Defendant. (Mot. at 1; see also Compl. Ex. 3.) This account is a margin account, meaning that Plaintiff is able to purchase securities using money borrowed from Defendant against the account, with such borrowing subject to interest. (Compl. ¶¶ 8, 9.) Defendant alleges, and Plaintiff disputes, that both the Client Relationship Agreement and Margin Agreement Mr. and Mrs. White signed upon opening the account included arbitration agreements, and both documents were provided to Plaintiff in their entirety. (Mot. at 3-4; Resp. at 4.)Plaintiff alleges that on June 11, 2020, he sold assets in the account in order to fully pay off the then-existing margin liability, leaving an asset value of $397,973 and a cash value of $105,987.63. (Compl. ¶ 13.) The next day, Plaintiff purchased shares of IBM and Tesla for $906,939. (Compl. ¶ 14.) The cash value in the account was credited against the purchase price, leaving an outstanding purchase price of $800,948. (Compl. ¶¶ 2, 15.) Plaintiff argues that, pursuant to Regulation T, only the difference between the outstanding purchase price and the account asset value should have been charged as margin borrowing. (Compl. ¶¶ 2, 15.) Plaintiff asserts that Defendant disregarded the asset value of $397,973 and instead charged the entire $800,948 on margin. (Compl. ¶¶ 2, 15.) Plaintiff further contends that the asset value has vanished from his account and Defendant has refused to explain to Plaintiff what happened to it, despite Plaintiff's repeated requests for information. (Compl. ¶¶ 2, 15.)On May 5, 2021, Plaintiff filed a Complaint in this Court invoking both diversity and federal question jurisdiction and seeking actual and punitive damages. Plaintiff alleges that Defendant breached the terms of the margin account contract (Compl. ¶¶ 19-26), and also that Defendant committed fraud in connection with the purchase and sale of securities (Compl. ¶¶ 27-35), conversion (Compl. ¶¶ 37-42), fraudulent concealment (Compl. ¶¶ 43- 47), and negligent misrepresentation (Compl. ¶¶ 48-54), resulting in Plaintiff's loss of at least $397,973. Defendant now moves to dismiss this suit under Rule 12(b)(1), contending that Plaintiff has failed to allege facts sufficient to establish Article III standing. (Mot. at 5-6.) In the alternative, Defendant argues that the Court should order joinder of the White Living Trust pursuant to Rules 12(b)(7) and 19, compel arbitration pursuant to Rule 12(b)(1), and either dismiss or stay the case pending the completion of arbitration. (Mot. at 6.)
at Pages 5 - 6 of the D. Ariz OrderDefendant argues that Plaintiff has not suffered an injury in fact as required to establish Article III standing, because the owner of the account at issue is the White Living Trust, not Plaintiff in his individual capacity. (Mot. at 5-6.) In support of its argument, Defendant cites several exhibits that indicate the White Living Trust is the account owner. (Mot. at 5-6.) For example, Defendant asserts that Plaintiff signed a Trustee Certification Form for the Trust CMA Account, and the signatures were notarized. (Mot. Ex. 3 at 3.) Defendant further argues that this matter should be determined by arbitration before the Financial Industry Regulatory Authority ("FINRA"), due to arbitration provisions incorporated in both the CMA Application and the Margin Account Application and Agreement ("Margin Application"). (Mot. at 2-3; Mot. Ex. A ¶¶ 3-4, 6-7; Mot. Ex. 1 at 2, 8, 17-18; Mot. Ex. 2 at 2, 8; Mot. Ex. 4 at 3, 6-7; Mot. Ex. 5 at 3.)
[H]e executed the account documents in his individual capacity, not as a trustee, so it follows that he is indeed the proper plaintiff. (Resp. at 3.) Plaintiff explains that in 1990, he opened a stock account with the non-party Scottrade. (Resp. at 1.) He asserts that Scottrade handled the transfer of his account to Merrill Lynch. (Resp. at 1.) He also notes that the Margin Account Application states that the "Primary Account Holder" is "Robert A. White," not "Robert A. White, Trustee." (Resp. at 3; Resp. Ex. 1 at 3.) Finally, Plaintiff claims that the Trustee Certification Form contains errors, was not completed in his handwriting, and the initials on the second page of the document are forgeries. (Resp. at 2; Mot. Ex. 3 at 2.) He also alleges that the signatures appearing on a document used to transfer assets into Plaintiff's account with Merrill Lynch are forged. (Doc. 19, Notice of Filing Declaration in Support of Request for Hearing at 1.) Finally, Plaintiff argues that his claims are not subject to arbitration, because he never received a document with an arbitration clause. (Resp. at 4.)
[T]hese alleged forgeries have no bearing on whether Plaintiff opened the account in his capacity as a trustee or consented to arbitration. Even if the forgeries were material, the Court found credible the testimony of Michael Penney ("Mr. Penney"), the Financial Solutions Advisor who worked with Mr. and Mrs. White in opening the Merrill Lynch Account. (Doc. 38, Tr. 86:8, 87:1-6.) Mr. Penney testified that he filled out the Trustee Certification Form in the presence of Mr. and Mrs. White in his own handwriting. (Tr. 90:1-15, 92:8-93:9; Hr'g Ex. 7.) He further testified that he has never altered a document after it has been signed by a client, and he most likely witnessed Mr. and Mrs. White sign and initial the document. (Tr. 91:12-22; 93:10-19; Hr'g Ex. 7.)
While these facts suggest the trust is the appropriate plaintiff in this litigation, the Court also acknowledges that Plaintiff insists the trust does not exist. (See, e.g., Tr. 18:5-16.) Accordingly, the Court will not make any determination regarding the status of the trust in the instant case.1 Nonetheless, upon consideration of the parties' briefs and the evidence presented during the February 25 hearing, the Court finds that Plaintiff held himself out as a trustee, and it was reasonable for Defendant to rely on the previously referenced documentation, including account statements from Scottrade, and a clearly labeled "Trustee Certification Form" with signatures in reaching the conclusion that it was doing business with Mr. White as a trustee, and that as a trustee, Mr. White consented to arbitration.= = = = =Footnote 1: The Court takes judicial notice of Mr. White's litigation regarding the existence of the trust, currently pending in Maricopa County Superior Court, and acknowledges that the determination is outside the scope of the present matter. See Robert A. White v. Empire West Title Agency Inc., No. CV2021-012556.
[P]laintiff's claims are subject to arbitration.When a court "determines that all of the claims raised in the action are subject to arbitration," the court "may either stay the action or dismiss it outright." Johnmohammadi v. Bloomingdale's Inc., 755 F.3d 1072, 1074 (9th Cir. 2014). Because the Court has found that all of Plaintiff's claims are subject to arbitration, it finds no reason to stay the proceedings. See, e.g., Mediterranean Enters., Inc. v. Ssangyong Corp., 708 F.2d 1458, 1465 (9th Cir. 1983) (affirming district court's decision to stay lawsuit pending an arbitration that "might well decide issues which bear in some way on the court's ultimate disposition" of nonarbitrable claims). Accordingly, Defendant's Motion to Dismiss is granted, and Plaintiff must submit to arbitration.