Free Affidavit - District Court of California - California


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Case 3:O7—cv—O2844-JSW Document 47-7 Filed 11/14/2007 Page1 of4
Westlaw
1
5
Not Reported in F.St1pp. Page i l
Not Reported in F.Sunp., 1994 WL 374425 (S.D.Cal.), Fed. Seo. L, Rep. P 98,243
(Cite as: Not Reported in F.Supp.)
P losses incurred in two investments made prior to
Prudential Securities, Inc. v. Dusch l986 at a brokerage iitnn that was neither Prudential
S.l3.Cai.,l994. nor TMS, She contends that all of these claims are
· subject to arbitration:
United States District Court, SD. California.
PRLJDENTIAL SECURETEES, INC. Prudential, however, claims that (1) it is not
v. required to arbitrate ciaims against Duscb for
DUSCH, etal. transactions and events which took place prior to .
No, 93-1470-IEG (REB). the time Duscli became a Prudential customer; (2)
it is not liable fot damages based upon investments *
March 28, i994. Busch made while her account was established and
maintained through other brokerage firms, including
TMS, and while Knotts was an employee of TMS;
Opinion and {3) Prudential did not assume any liabilities of
GONZSALEZ, District Judge. TMS arising out of the retaii brokerage account(s)
*l The motion for summary judgment brought by inaintaineiii by Dtzscli at TMS.
plaintiff Prudential Securities, inc. {"Prucientia!") .
came on regularly for beating, on March la, 1994 at Summary judgment is proper when the pleadings
EGBG ain. in Courtroom il of the above—entitie<;§ and other evidence properly before the Couit show
court, the l-Ionorabie Irma E. Gonzalez presiding. that no genuine issue oi’1·nate1·ial fact exists, and that
Michele R, Fron of the law firm of Keesal, Young the moving party is entitled to a judgment as a
St Logan appeared on behalf of the plaintiff. Carol matter of law. Celotex Corp. v. Garrett, M7 US.
C. McCall appeared on behalf of defendants Janet 317 (H86). j
C. Dusch, an individual, and Janet C. Busch,
Trustee of The Eanet C, Duscii Trust ("Duscn"). ’
l. Az·biti·abi§.ity of Dei`endant's Claims.
In this motion, Prud.en.tial seeks declaratory relief _
on the question of the scope of Prudentials J Prudential claims it has never entered into any
obiigation to aybitrate claims filed by Busch before contractuai agreement with Dusch to arbitrate
the National Association of Securities Dcaiers, inc. ( claims or controversies. The general rule is that a l
"NASD"), and on the scope of its liability for those patty cannot be required to submit to arbitration any
clainis. dispute which be has not agreed to submit. United
Steelworkers of America; v, Warrior & GMU
ln the NASD-claim, Dusclti seeks damages from Navigation Co., 363 U.S. 574, 582 @960). The
l°ru.dential and lier securities broker, Eohn Knotn, — only other basis for Busch to arbitrate against
based upon her allegation that investments Prudential is based upon the NASD Code of
recoininentieci to her were unsuitable in iight of ber Arbitration. The Code limits a menibens obligation
investment objectives. Busch claims damages to arbitrate claims between members, such as .
based upon investments made wiiiie het account Prudential and its "custorners." Code of
was established and ma·iiitaineciti11‘ougl1 Thompson Arbitration, Part IH, 1] 3712, § l2(a). Prudential `
lvlciiinnon Securities, Inc, ("TMS"), and while thus claims that only Dtisclrs claims which pertain
lénotli was employed by Prudential, as well as to the period during which site was Pruclentiats
damages inctiited while ner account was maintained customer must be submitted to arbitration.
by Prudential. Dusch also seeks damages for 4
© ZGO7 Tltoinson/West. No Claim to Orig. U.S. Govt. Works.
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Case 3:O7—cv—O2844-JSW Document 47-7 Filed 11/14/2007 Page 2 of 4
Not Reported in F.Su.pp. Page 2
Not Reported in F.Supt;>., i994 WL 374425 {S.D.Cal.), Fed. Sec. L, Rep. P 98,243
(Cite as: Not Reported in F.Supp.)
*2 Busch, however, seeks arbitration of all claims Prudential has nevertheless agreed to arbitrate any
against Prudential, including those claims arising claims Dusch may have concerning statements
before Septeznher l, 1989, the time when Busch rnade to her by Knoth ahter he became an employee
became a customer of Prudential. Dusch claims of Prudential, on August 25, t9S9.FNl The Court
that when her account was transferred from TMS to therefore finds that Dusclrs claims arising prior to
Busch, Prudential assumed the obligations of TMS, August 25, 1989 are not subject to arbitration.
including the obligation to et‘l3iU‘&t€ Clit-imS. However, any claims concerning statements rnade
Specifically, Dusch claims that Pru to Dusclrs claim tiled with the NASD Sought tc Prudential., or claims concerning ’ Prudentials
enforce a choice-0f~laW pl‘¤VlSi0t1 Whltlh WELS management of Duseh‘s account after she became a
contained in the Thompson McKinnon Signature Customer gf Prudential O1] September 1_ 19395 me
Card, and stated that the agreement on the card to gntgjegttn g;blt;»at§qm_
apply New York Law to disputes is an agreement "
with Respondents,"which referred to Prudential.
Thus Duscn ciaints that Prudentiai considered the [L $nCq;aSS;;iy-tn-§nt€yaStLiability
signature card an agreement between her and
Prudential, not simply between her and TMS. The next question is whether Prudential is the
Because the 5311% SigH3t¤1‘€ Gfifd contains cit successor~i1t.-interest to TMS, and therefore liable
arbitration agreement for any dispute arising for alleged acts and transactions which occurred at
between Dusch and TMS, Dusclr clams that TMS. in California, a corporation which purchases
Prudential assumed the obligation to arbitrate all of the principal assets of another does not assume the
its disputes with her. liability of the selling corporation unless: (E) there
is an. express or implied agreement of assumption of
Pl‘t1tLlE:nl;lBl denies that the G?i1"Cl I‘Gqt1l1’€S lt to liability; (2} the tygngggtirm amgurqrg to at
arbitrate disputes arising before the time Dustih consolidation or rnergerof the two corporations;
became a customer of P1‘u£lential. The COMM (3) the purcirasing eet·pet·atieii is a mere
agrees that the card does not etpply to the time continuation of the seller; or (4) the transfer of
before Busch became at Cttstotttet et Prudential. assets to the purchaser is for the fraudulent purpose
The purchase agreement between TMS and of escaping liability. Ray v. Atari Corp., 19 Ca1.3d
Prudential clearly indicates that Prudential will @(1977),
receive the account documentation for the TMS
. accounts, and horn that point forward, Prudential is *3 In this case, the Purchase Agreement entered
the interested party to the account &§I'€€m€Ut3· into between Prudential and TMS ("the Agreernent"
Thus, at the time Dusclrs account was transferred to ) specifically states that “the Buyer {Prudential]
Prudential, the documentation relating to her Shall not giggnmg any liabilities, Oljjiggttigugi
account was assumed by Pftldtiutial. The contracts, undertakings or commitments of Seller
arbitration agreement did not become binding upon [TMS} ..," Complaint, Exhibit A, il l(h). Under
Prudential until it became a party to the agreement, the Agreement, Prudential accepted liability only
on September i, _i989, when Duscltls account WHS for specific contracts and leases for the purchase of
ti·a.n.sferi·ed. Therefore, it had not agreed to assets. It did not assume liabiliw for conduct of
arbitrate disputes- relating to events prior to tltel TMS's employees or of TMS.
date. As lar as the NASD Code of Arbitration
requirernentthat an NAS?) member arbitrate claims - Second, the transactions between TMS and
upon deniand of the customer, this only applied Prudential did not amount to a consolidation or
once Dusch became a customer of Prudential. merger gf the two egi·pO;·atiqmg_ There is no
Prior to her becoming tt cttstomet of P1*Udt211’tl?ll, continuation of rnanagcrrrent or general business
there was no agreement to arbitrate, See Wheat, gpg;-ations of TMS thrntigh the acquisition by
First Sec., Inc. v. Green, 993 F.2d Bid (Nth Prudential of certain TMS assets. The management
Cir.l993). of Prudential did not change. Prudential had the
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Case 3:07-cv-02844-JSW Document 47-7 Filed 11/14/2007 Page 3 of 4
Not Reported. in F.Supp. ` page 3
Not Reported in F.Supp., l9Q4 WL 374425 (S.D.Cal.], Fed. Sec. L. Rep. P 98,243
(Cite as: Not Reported in F.Supp.)
option of hiring TMS employees only if Prudential accounts.
found there acceptable. Further, only those ` _
customers willing to transfer their accounts became *4 Busch also claims that the indemnity provisions
Prudential customers. This does not suggest a of the Agreement show that Prudential
merger or consolidation. Several courts which contemplated its potential liability for any
have exarriined the Agreement between TMS and rnaifeasance in connection with a TMS investor
Prudential have similarly found that the- transaction account. However, the indemnity provisions
did not constitute a consolidation or merger. See pertain only to the conversion process of accounts,
Simpson v. DeRus.ry, 89-346] Slip.C>p.l99{l WL not to "l`l\/lS's handling of its accounts prior to the
257272, at we 2 os.o.La. May io, l990).FN2 Agreement.
'Fhird, rei- the same reasons, Prudential was not a The Court therefore finds no ambiguity in the
mere continuation of TMS. Fourth, there has been AQTSEMBHY Whitiil Greenlee fi triabie issue of fact
no evidence presented that the transfer of assets to t‘€gi\Tdi¤g the S‘—1¢G€SS01` litliiilily of Prudential.
the purchaserwas for haiidulent purposes. This finding is consistent with the findings of other
courts which have reviewed this Agreement and not
Busch argues that her NASD complaint does allege found any arnhiguities giving rise to a triable issue
hreudulent transfer, thereby precludlng summary of fact. See Simpson v. Definssyg Sc/lmricit v, E.
judgment. However, an examination of her Packer Wiiimr, 783 F.Supp. 329 (E.D,l\/iich.l992)
complaint shows that while she discusses the supra. `
transl’er of her account in the context of alleging
rnisinanageinent by TMS and by Knoth, she does
not allege that the transfer oi? assets between TMS . lil. Discovery ‘
and Prudential was for fraudulent purposes, See
NASD claim., Exhibit B to Declaration of Michele Dusch requests that in the event this Court is
Frou, pp 4—6, Dusclrs declaration also does not inclined to grant Prudentiars motion, that the
allege a transfer for 1°raudnlent purposes. Because motion be continued to permit Dusch an
Busch neither alleges such fraud nor provides any opportunity to conduct discovery on the issues
evidence to support such a claim, the allegation of raised. The district court has discretion to continue
fraud in Dusclrs opposition does not preclude a motion for summary judgment if the opposing
sunnnary judgment. Dusch also alleges that the party needs to discovery essential facts. Federal
Agreement between Prudential and TMS is Rule of Civil.Procedure Soil); California Union
ambiguous as regards the assumption of liability, [ns. v. Americcrz Diversined Savings, 9i·4 F.2d ·
Dusch points to a provision in the Agreement which i27l, i278 (9th Cir.l990).
states: -
(ri) Account Docaraenciorion. Seller {TMS] will `Dusch requests an opportunity to conduct discovery
take all actions necessary to assure that Buyer on Prndential`s statement in its answer to her NASD
{Prudential] shall become the successor in interest claims that “claimant entered into an agreement
inthe account documentation of any hon—objecting with Respondeiitsf to ascertain if any other
custoiners that relates to the business of Seller agreements exist from which TMS assumed
{TMS] andits subsidiaries, Prudentiats obligations, and to explore the lack of `
account transfer documentation for Dusch's
Exhibit A to declaration of Michele Fron, p. 35 § individual account. Dusch also seeks discovery on
(ii). However, thisprovision refers to account the extent of TMS's ability to meet creditors
documentation only, making- Prudential the demands upon completion of the Prudential
interested party to the account agreements. The Agreement, in light of its banlcniptcy petition
provision is not ambiguous and does not contradict pending at that time.
the provision which states that Prudential does not i
assume the liabilities of TMS with regard to its Prudential objects to Duscirs request for a
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Case 3:O7—cv—O2844-JSW Document 47-7 Filed 11/14/2007 Page 4 of 4
Not Repowed in F.Supp. Page 4
Not Reported in F.Supp., 1994 WL 374425 (S.D.CaI.}, Pod. Sec. L. Rep. P 98,243
(Cite as: NotRcpo1·tod in F.Supp.) `
comhmzmce, because Dusoh has had almost six hearing, Michele R. From, counsel for
months from the fiiing of this complaint on Frudentiol, i.oioz·med the Court that John
September 24, IQ93 within. which to conduct Knoth had become an empioyeo of
discovery, Further, Pmdentiai ciaims disoovmy is Prudential on August 25, 1*989, 1·athe1* than
notooeded foz·theCou1‘tto decide this motion. on September I, 1989, as Ptmtdential had
previously oioimod. Pmdontioi is
The Court finds that additional discovery is neitiner therefoyo willing to atrbitmte any of
necessary nor opptopriate under these Dusch's claims concerning representations
circumstances On the question of axroitmbility, made by Knott: after ho became on
Dusch has presented no evidence suggesting that employee of Prudential, even if theso
there exists an agreement to arbitrate claims occurredIoet’oreSe1ste1nberI,1989.
concerning events that occurred before Dusch _
became o customer of P1·uc.ie11tiaI. As for as the FN2. Simpson a<;ith·esseoI‘ the exact issue
question of successor liability, the Agreement - presented in this case, whether Prudential
between Prudential amd TMS indicates clearly that assumed the liabilities of TMS by virtue of
Prudential is not s suooossor~i11»i11terost to TMS, the purchase ogroement. The Court found
and therefore is not Iisble for actions by TMS no successorlisbiiity.
agents prior to the transfer of assets to Prudential. S,D.CaI.,I994.
Additional discovery wiil not alter the interpretation Prudential Securities, Inc;. v. Dusch
o‘5t§1epzt11ios'oo11traot. Not Reported in Ffiopp., 1994 WL 374425
(S,D.Cz11.), Fed, Sec. L. Roo. P93,243
Further, Dusoh has faiied to foilow the proper
procedure required to move for _a continuance under END OF DOCUMENT
Rule 56(1’). Ruie 56(Q requires affidavits setting,
fmth particular facts expected from the mov.=mt‘s
discovery. Mackey v. Pioneer Nm?. Barak, S6? F,2d n
520, 523-2¢$ (9th Cir.I989). A Rule 566) motioo
must show how additional discovery would
preclude SL11TI1'!'l?:II’}’_iLlC‘.gI’1'1€2III and why s party cannot
immediately provide "speoifio facts? demonstrating
at genuine issue of mate1·ia1 fact, Id; Rule S6"), (fj,
Dusoh has not Hiod affidavits supporting hor l
requests, nor e> expects to discovery and how they would preclude
summary judgment, Accordingly, DuscI1's request
fo? s oorztinuamco to ooociuct aéciitionei discovery is
DENIED. P1·udontia§‘s Motion for Summary
Judgment is GRANTED.
*5 Dusch has yeqtzested sanctions against Prudentizi `
for bringing its presoot Motion for Summary
Judgment. This request is DENIED, as is
I°x·udeutisI‘s request for szmctions agoinstDus<:I1.
IT IS SO ORDERED. .
FNI. In et Supplemental Deelsrotioo
submitted to the Court after tI1e_I\/Iuroh I4
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