Wednesday, March 4, 2015

Some Motions Deserve a Swearing Contest

Ashburn v. AIG Fin. Advisers, Inc., No. A138620 (D1d2 Feb. 6, 2015)


A group of plaintiffs sued their investment adviser over some allegedly negligent advice. The adviser moved to compel the case to FINRA arbitration, claiming that plaintiffs had signed customer agreements that incorporated an arbitration clause.  Plaintiffs, however, submitted declarations disputing that they never signed the agreements and were not provided with copies of the document containing the clause.  In their opposition papers, plaintiffs specifically requested that the court conduct an evidentiary hearing to address the key disputes of fact going to whether the parties had agreed to arbitrate. The trial court ignored the request, granted the adviser’s motion, and stayed the case pending the conduct of the arbitration, in which the adviser prevailed completely.

The parties returned to the trial court, wherein plaintiffs stated that they wanted to appeal the order granting the motion to compel. (Unlike order denying motions to compel, which are immediately appealable, Cal. Code Civ. Proc. § 1294(a), orders granting them can only be appealed by appealing the order when subsumed into a final judgment.)  Because plaintiffs did intend to not seek vacation of the award under § 1286.2, the trial court suggested that the parties stipulate to the entry of a judgment to avoid the need to litigate a petition to confirm the award. They did so and plaintiffs appealed.

The adviser moved to dismiss the appeal, on the grounds that an appeal does not ordinarily lay from a stipulated judgment. But the judgment here was clearly entered for the purpose of facilitating an appeal of the order granting the motion to compel. All parties were aware of that purpose and it was encouraged by the trial court to avoid unnecessary litigation. Nor were plaintiffs required to file a motion to correct or vacate the award to preserve their right to appeal. Plaintiffs weren’t attacking the award, just the court’s order compelling arbitration, so those procedures would be a futile waste of the court’s and the parties resources.

On the merits, the court notes that under § 1290.2, that motions to compel arbitration are to be resolved like any ordinary motion. That generally does not require an evidentiary hearing. But when the enforceability of an arbitration agreement depends on two sharply conflicting factual accounts, the “better course” would be for the trial court to take oral testimony to assess the credibility of the witnesses. Whether to do so is within the trial court’s discretion. 

But given the record here, one of two things happened. Either the trial court entirely failed to exercise any discretion by failing to even consider plaintiffs’ evidentiary hearing request. Or if it did, but just failed to address the issue in its order, then its discretion was abused. Given the significance of the dispute and the facial strength of plaintiffs’ evidence that the agreements were invalid, to discount one partys evidence and grant the motion without holding an evidentiary hearing was error.

Reversed.

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