Free Motion for Preliminary Injunction - District Court of California - California


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Case 3:07-cv-02844-JSW Document 30-9 Filed O9/06/2007 Paget 0f4
Westlaw
Not Reported in P`.Suppl Page 1
Not Reported in F.Sun*,;>., 1994 WL 374425 (S,D.Cal.), Fed. Sec. L. Rep. P 93,243
(Cite as: Not Reported in F,Supp.)
I? losses izicurred in two investments made prior to
Ptudential Securities, Inc. v. Dusch 1986 at a brokerage than that was neither Prudential
S.D.Cal.,l994. not TMS. She contends that all of these claims are
subject to arbitration:
United States District Court, SD. Caiitoméa.
PRUDENTIAL SECURETIES, INC. Prudential, however, claims that (1) it is not
v. required to arbitrate claims against Dusch for
DUSCH, et ai, transactions and events which took place prior to
No. 93-1470-IEC (RBB). the time Dusch became a Prudential customer; (2)
it is not liable for damages based upon investments
March 28, 1994. Duseh made while her account was established and
maintained through other brokerage firms, including
TMS, and while Kooth was an employee of TMS;
Opinion and (3) Piudential did not assume any liabilities of
GONZALEZ, District Judge. TMS arising out of the retail brokerage accotmt(s)
*1 The motion for summary judgment brought by maintained byDusch at TMS.
plaintiff Prudential Securities, lac. ("P1·udentia1"}
came on regularly for heating on March 14, 1994 at Summary judgment is proper when the pleadings
10:30 am. in Courtroom 11 of the above-entitled and other evidence properly before the Court show
court, the Honorable Irma E. Gonzalez presiding. that no genuine issue of material fact exists, and that
Michele R. From of the law firm of Keesal, Young the moving party is entitled to a judgment as a
8:, Logan appeared on behalf of the plaintiff. Carol matter of law. Ceiotex Corp. v. Garrett, 477 UAS.
C. McCall appeared on behalf of defendants Janet 317 (1986).
C. Dusch, an individual, and Janet C. Busch,
Trustee of The Janet C. Duseh Trust ("Dusch").
I. Arbitrability of Defendants Claims.
hi this motion, Prudential seeks declaratory relief
on the question of the scope of Prudentials Prudential claims it has never entered into any
obligation to arbitrate claims tiled by Busch before ‘ contractual agreement with Dusch to arbitrate
the National Association of Securities Dealers, Inc. ( claims or controversies. The general rule is that a
"NASD"), and on the scope of its liability for those party cannot be required to submit to arbitration any
claims. dispute which he has not agreed to submit. United
Steelworkers cf America v. Warrior & GMU
In the NASD claim, Dusch seeks damages from Nmzigarion Co., 363 U.S. 574, 582, (1960). The
Pmciential and her securities broker, Eohn Knoth, only other iaasis for Busch to arbitrate against
based upon her allegation that investments Prudential is based upon the NASD Code of
recommended to her were unsuitable in light of her Arbitration. The Code limits a me1n`oer‘s obligation
investment objectives. Busch claims damages to arbitrate claims between members, such as
based upon investments made while her account Prudential and its “ce.stoinet·s." Code of
was established and maintained through Thompson Arbitration, Part lll, $ 37l2. § 12(a). Prudential
McKinnon Securities, Inc. ("TMS"), and while thus claims that only lDusch‘s claims which pertain
Knoth was employed by Prudential, as well as to the period during which she was Pi·udential's
damages incurred while her account was maintained customer must be submitted to arbitration.
by Prudential. Dusch also seeks damages for
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EXHIBIT
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Case 3:07-cv-02844-JSW Document 30-9 Filed O9/06/2007 Page 2 of 4
Not Reported in F.Supp. Page 2
Not Reported in F.Supn., l994 WL 374425 (S.lD.Cal.), Fed. Sec. L. Rep. P 98,2-43
(Cite as: Not Reported in `F.Supp.)
*2 Dusch, however, seeks arbitration of all claims Prudential has nevertheless agreed to arbitrate any
against Prudential, including those ciairns arising claims Dusch may have concerning statements
before September l, l989, the time when Duscb made to her by Knoth after he became an employee
became a customer of Prudential. Duscb claims of Prudential, on August 25, l989.FNl The Court
that when her account was tr&t1Sl”€1’1’€Cl f1‘0H1 TMS T0 therefore finds that Duschls claims arising prior to
Duscli, Prudentiai assumed the obligations of TMS, August 25, 1989 are mr gnigjacr ra ay5j¤·&rjC,p__
including the obligation to &1‘bitY&‘t€ claims. However, any claims concerning statements made
Specifically, Duscb claims that Prudential's answer by Kmngh- array he bggamg mq gmplgygg gf
to Dusch’s claim tiied with the NASD Swght $6 Prudential, or ciaims concerning S Prudentiars
enforce a choice-Ol°—leW provision which Wait management of Duscirs account after she became a
contained in the Thompson McKinnon Signature Customer gf Pmdgmjgrl OH Sgprgmbgy 1) 1989: are
Card, and stated that the agreement on the card to gubiegt ro arbitration,
appiy New York Law to disputes is an agreement "
with Respondentsfw hich referred to Prudential.
Thus Dusch claims that Prudential considered the [L $u(;C€SSOy-g¤-§¤rnyggr Ltabgijry
signature card an agreement between her and
Prudential, not simply between i`1€I` and TMS. The next question is whether Prudential is the
Because the Same Signature Gerd CUHUHHS M1 successonin-interest to TMS, and therefore liable
arbitration agreement for any dispute efifiiilg for alleged acts and transactions which occurred at
between Busch and TMS, Dusch claims that TMS. ln California, a corporation which purchases
Prudential assumed the obligation to arbitrate all of the principal aggerg of another dogg nor assume me
its disputes with ner. liability of the selling corporation unless: (E} there
is an express or implied agreement of assumption of
P1‘l.lCl€HilE1l Cl€l"ll€S that l§l’l€ card requires if to liability; (2) [hg ijrgrqggrgtjggr] 3_m0i_m[5 tg 3
arbitrate disputes arising, before thé firm DUSC?1 consolidation or merger of the two corporations;
became a customer of Prudential. The Court (3) the purchasing corporation is a mere
agrees that the card does not apply to the time continuation of the seller; or (4) the transfer of
before Dusch became a customer of Prudential. assets to the purchaser is for the fraudulent purpose
The purchase agreement between ’“l“l\/IS and of escaping liability. Ray v. Alad Corp., E9 Cai.3d
Prudential clearly indicates that Prudential will 22 (l977}.
receive the account documentation for the TMS
HCCOLIHYS, and i"TOm limi {30im fOI“W211“Cl, Prudential is *3 In thig cage, the Purchase Agregmgrrr entered
the interested party to the account agreements. into between Prudential and TMS ("the Agreement"
Thus, at the time Dusch's account was transferred to ) gpegifigglly grams rhai “rha Buyer [Prudential] _
Prudential, the documentation reiating to her shall not assume any liabilities, obligations,
account was assumed by Prudential. The contracts, undertakings or commitments of Seller
arbitration agreement did not become binding upon [TMS] ___" Complaint, Exhibit A, •l Mb), Under
Prudential until it became a patty to the agreement, the Agreement, Prudential accepted liability only
on September l, 1989, when Duscits account was for specidc contracts and ieases for the purchase of
transferred. Therefore, it had not agreed to assets. It did not assume liability for conduct of
arbitrate disputes relating to events prior to that TMS‘s employees or ot"TMS.
date. As far as the NASD Code of Arbitration
requirement that an NASD member arbitrate claims Second, the transactions between TMS and
upon demand of the customer, this only applied Prudential did not amount to a consoiidation or
once Dusch became a customer of Prudential. merger of the two corporations. There is no
Prior to her becoming a customer of Prudential, continuation of management or general business
there was no agreement to arbitrate. See Wheat, operations of TMS through the acquisition by
Ftrs; See., fac. v. Green, 993 F.2d S14 (lltli 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 30-9 Filed O9/06/2007 Page 3 of 4
Not Reported in F.Supp. page 3
Not Reported in F.Sunn., l994 WL 374425 (S.D.Cal.), Fed. Sec. L. Ren. P 98.243
(Cite as: Not Reported in F.Supp.)
option of hiring TMS employees only if Prudential accounts.
found them acceptable) Further, only those
customers willing to transfer their accounts became *4 Dusch 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 examined the Agreement between TMS and niaiteasance in connection with a TMS investor
Frudential 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. Deiiiissy, 89-346l Sli;;i.Op.l99O WL not to ‘Tl\/iS's handling of its accounts prior to the
357272, at wt 2 ra.o.1ca. May io, is9o).*’N2 Agreement-
Third, for the same reasons, Prudential was not a The Court therefore finds no ambiguity in the
mere continuation of TMS. Fourth, there has been Agreement which creates a triable issue of tact
no evidence presented that the transfer of assets to regarding the successor liability of Prudential.
the purchaser was for fraudulent purposes. This finding is consistent with the findings of other
courts which have reviewed this Agreement and not
Dusch argues that her NASD complaint does allege found any ambiguities giving rise to a triable issue
fraudulent transfer, thereby precluding summary of fact. See Simpson v. DeRussy,· Soiimidr v. E.
judgment. However, an examination of her Packer Wilbur, 783 F.Su;¤p. 329 (E,D,Mich.i992)
complaint shows that while she discusses the supra.
transfer of her account in the context of alieging
mismanagement by TMS and by Knoth, she does -
not allege that the transfer ot` assets between TMS lIl.Discove1y
and Prudential was for fraudulent purposes. See l
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 Prudential's motion, that the
allege a transfer for fraudulent 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. 'llie district court has discretion to continue
fraud in Dusch's opposition does not preclude a motion for sunrnnary judgment if the opposing
summary judgment. Busch also alleges that the party needs to discovery essential facts. `Federal
Agreement between Prudential and TMS is Rl-U6 of Civil Procedure 56(D; Culgtornin Union
ambiguous as regards the assumption of liability. Ins. v. American Diversyied Savings, Qld F.2d
Dusch points to a provision in the Agreement which 127l, 1278 (9th Cir._l990).
states:
(n) Account Doeumemrzzion. Seller [TMS} will Dusch requests an opportunity to conduct discovery
take all actions necessary to assure that Buyer on Prudentials statement in its answer to her NASD
[Prudential] snail become the successor in interest claims that "claimant entered into an agreement
inthe account documentation of any nomobjecting with Respondents? to ascertain if any other
customers that relates to the business of Seller agreements exist from which TMS assumed
{TMS] and its subsidiaries. Prudentials obligations, and to explore the lack of
account transfer documentation for Dusclrs
Exhibit A to declaration ot Michele Frou, p. 35 § individual account. Duscli also seeks discovery on
(ii}. However, this provision refers to account the extent of 'i`l\/lS'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 bankruptcy petition
provision is not ambiguous and does not contradict pending at that time.
the provision which states that ?rudential does not
assume the liabilities of TMS with regard to its Prudential objects to Dusclrs request for a
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Case 3:07-cv-02844-JSW Document 30-9 Filed O9/06/2007 Page 4 of 4
Not Reported in F.Supp. Page 4
Not Reported in F.Supp., l994 WL 374425 tS.D.Cal.), Ped. Sec. L. Rep. P 98,243
(Cite as: Not Reported in F.Supp.) ‘
continuance, because Dusclt has had almost six hearing, Michele R. Fron, counsel for
months from the Sling of this complaint on Prudential, informed the Court that John
September 24, 1993 within which to conduct Knoth had become an employee of
discovery. Further, Prudential claims discovery is Prudential on August 25, l989, rather than
not needed for the Court to decide this motion. on September 1, l989, as Prudential had
previously claimed. Prudential is
The Court finds that additional discovery is neither therefore willing to arbitrate any of
necessary nor appropriate under these Dusclrs claims concerning representations
circumstances. On the question of arbitrability, made by Knoth after he became an
Dusch has presented no evidence suggesting that employee of Prudential, even if these
there exists an agreement to arbitrate claims occurred before September l, i939.
concerning events that occurred before Dusch
became a customer of Prudential. As far as the FN2. Simpson addressed the exact issue
question of successor liability, the Agreement presented in this case, whether Prudential
between Prudential and TMS indicates clearly that assumed the liabilities of TMS by virtue of
Prudential is not a successor—in-interest to TMS, the purchase agreement. The Court found
and therefore is not liable for actions by TMS no successor liability.
agents prior to the transfer of assets to Prudential. S.D.Cal.,l994.
Additional discovery will not alter the interpretation Prudential Securities, inc. v. Dusch
of the parties’ contract. Not Reported in F.Sup_p., i994 WL 374425
(S.D.Cal.), Fed. Sec. L. Rep. P 98,243
Further, Dusch has failed to follow the proper
procedure required to move for a continuance under END OF DOCUMENT
Rule 56(t`}. Rule 56(B requires affidavits setting
forth particular facts expected from the movants
discovery. Mackey v. Pioneer Net. Bunk, 867 P.2d
520, 523·24 (9th Cir.l989). A Ruie 56(f) motion
must show how additional discovery would
preclude summary judgment and why a partqt cannot
irrunediately provide "specific facts" demonstrating
a genuine issue of material fact. ld; Rule 56{c), (i}.
Busch has not flied affidavits supporting her
requests, nor explained which specific facts she
expects to discovery and how they would preclude
summary judgment. Accordingly, Duschsrequest
for a continuance to conduct additional discovery is
DENIED. Prudential’s Motion for Summary
Judgment is GRANTED.
*5 Dusch has requested sanctions against Prudential
for bringing its present Motion for Summary
Judgment. This request is DENIED, as is
Prudentiai's request for sanctions against Dusch.
iT [S SO ORDERED. `
PNL ln a Supplemental Declaration
submitted to the Court after the March i4
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