Judge John J. Kralik, Case Number: 24NNCV00061, Date: 2024-07-05 Tentative Ruling

Plaintiffs Hui Jen Szutu and Sindy Seto (“Plaintiffs,” in pro per) filed a complaint on March 6, 2024 for grand theft. Plaintiffs allege that they are married. They allege that Defendant Charles Schwab (“Defendant”) is a stock company, which acquired TD Ameritrade in 2019. Plaintiffs allege that they had 4 accounts in TD Ameritrade—2 IRA accounts and 2 individual accounts. They allege that they did not want their accounts transferred to Defendant and instead transferred them to E-trade. Plaintiffs allege that Defendant failed to complete the transfers of Plaintiffs’ assets in TD Ameritrade accounts to E-trade per Plaintiffs’ request and, during the transfer process, Defendant took assets from Plaintiffs’ accounts.

On April 11, 2024, Defendant Charles Schwab & Co., Inc. filed an answer to the unverified complaint.

On April 18, 2024, Plaintiffs filed a demurrer to Defendant’s answer with a motion to strike. On May 13, 2024, Defendant filed an opposition brief.

On May 14, 2024, Defendant filed a motion to compel arbitration and to dismiss or stay the proceedings. On June 24, 2024, Plaintiffs filed an untimely opposition brief. On June 27, 2024, Defendant filed a reply brief.

The Court will consider the merits of the motion to compel arbitration first, as it may render the demurrer to the answer moot.

With the motion papers, Defendant requests judicial notice of the following facts: (1) on September 18, 2017, TD Ameritrade Holding Corporation acquired Scottrade Financial Services, Inc.; and (2) on October 6, 2020, The Charles Schwab Corporation acquired TD Ameritrade Holding Corporation. (See RJN Ex. 1 [Form 8-K filed with the SEC on 9/18/17], Ex. 2 [Form 8-K filed with the SEC on 10/6/20].) The request is granted.

Defendant argues that this action should be submitted to arbitration based on 4 different agreements arising from: (1) Mr. Szutu’s individual account, (2) Mr. Szutu’s IRA account, (3) Ms. Seto’s individual account, and (4) Ms. Seto’s IRA account.

First, Defendant provides the Brokerage Account Application that Mr. Szutu signed on June 10, 2003 in connection with opening his individual account (xxx-x7545) at Scottrade Inc. (Maryann Allen Decl. re Charles Schwab Custodian of Business Records [Allen Decl.], Ex. A [Szutu’s 6/10/03 Brokerage Account Application].) It states in relevant part:

BY SIGNING THIS AGREEMENT I ACKNOWLEDGE THAT I HAVE RECEIVED, READ AGREE TO ABIDE BY THE TERMS OF THE ACCOMPANYING BROKERAGE ACCOUNT AGREEMENT WHICH CONTAINS A PRE-DISPUTE ARBITRATION CLAUSE AT PARAGRAPH 21.

(Szutu’s 6/10/03 Brokerage Account Application at p.1.) Paragraph 21 of the Brokerage Account Agreement states:

21. You agree to settle by arbitration any dispute between you and Scottrade and/or any of our officers, directors, employees or agents relating to your Brokerage Account(s). Any arbitration under this agreement will be conducted under the arbitration rules of the National Association of Securities Dealers, Inc. or any registered national securities exchange of which Scottrade is a member. Arbitration may be initiated by either of us serving written notice to the other. …

- The parties are waiving their right to seek remedies in court, including the right to jury trial.

(Allen Decl., Ex. B [Scottrade Brokerage Account Agreement at ¶21].) The Brokerage Account Agreement states in paragraph 14 “Assignment” that Mr. Szutu’s Account Agreement with Scottrade “shall inure to the benefit of Scottrade and its successors and assigns. Scottrade may assign its rights and duties under this agreement to any affiliate, subsidiary or successor without notice to you or to any other entity.” (Id. at ¶14.) In 2017, Ameritrade Holding Corporation acquired Scottrade Financial Services, Inc., such that Mr. Szutu’s Scottrade account as transferred to TD Ameritrade, Inc. and assigned a new account number. (Allen Decl., ¶4; Compl. at p.2, line 5 [referencing TD Ameritrade account numbers]; Def.’s RJN Ex. 1.) In 2020, The Charles Schwab Corporation acquired TD Ameritrade Holding Corporation. (Def.’s RJN Ex. 2.)

Second, Defendant provides the Scottrade Brokerage Account Application regarding Mr. Szutu, dated May 4, 2017 in connection with opening his IRA (xxx-xx1293) at Scottrade Inc. (Allen Decl., Ex. C [Szutu’s 5/4/17 Brokerage Account Application].) It states in relevant part:

BY SIGNING BELOW, I ACKNOWLEDGE THAT I HAVE RECEIVED, READ AND AGREE TO THE TERMS OF THE SCOTTRADE BROKERAGE ACCOUNT AGREEMENT, WHICH CONTAINS A PRE-DISPUTE ARBITRATION PROVISION ON PAGE 11, SECTION VII-B, WHICH MAY BE ENFORCED BY THE PARTIES. …

(Szutu’s 5/4/17 Brokerage Account Application at p.2.)[1] Section VII-B of the Brokerage Account Agreement states:

Arbitration Disclosures. This Agreement contains a predispute arbitration clause. By signing this Agreement, the parties agree as follows:

1. All parties to this Agreement are giving up the right to sue each other in court, including the right to a trial by jury, except as provided by the rules of the arbitration forum in which a claim is filed.

Agreement to Arbitrate Controversies. You agree that any controversy, dispute, claim or grievance between us, any of our affiliates, or our or their shareholders, officers, directors, employees, associates or agents, and you or, if applicable, your shareholders, officers, directors, employees, associates or agents, arising out of, or relating to, this Agreement, or any service provided by us, including transactions of any kind made on your behalf through us, shall be resolved by Financial Industry Regulatory Authority (FINRA) arbitration, in accordance with FINRA's Code of Arbitration Procedure.

(Allen Decl., Ex. D [Scottrade Brokerage Account Agreement at § VII-B].) The Brokerage Account Agreement states in Section VIII-E “Applicable Rules and Regulations; Governing Law and Assignment” that: “This Agreement and its enforcement shall be … shall inure to the benefit of our successors and assigns, whether by merger, consolidation or otherwise; and shall be binding upon your heirs, executors, administrators, successors and personal representatives, together with all other persons claiming any legal or beneficial interest through you or in your Account(s). You may not assign the rights and duties hereunder without first obtaining our prior written consent. We may assign our rights and duties under this Agreement and may transfer your Account and this Agreement to our successors and any affiliated assigns without notice, or to any other entity without prior notice to you.” (Id. at § VIII-E.) In 2017, Ameritrade Holding Corporation acquired Scottrade Financial Services, Inc., such that Mr. Szutu’s Scottrade account as transferred to TD Ameritrade, Inc. and assigned a new account number. (Allen Decl., ¶4; Compl. at p.2, line 5 [referencing TD Ameritrade account numbers]; Def.’s RJN Ex. 1.) As summarized above, in 2017, Scottrade was acquired by TD Ameritrade. (See RJN Ex. 1.)

Third, Defendant provides the Account Agreement that Ms. Seto electronically signed on January 29, 2018 in connection with opening her individual account (xxx-xx1447) at TD Ameritrade. (Allen Decl., Ex. A [Seto’s 1/29/18 TD Ameritrade Agreement].) It states in relevant part under “Client Agreement” and again before the electronic signature:

The Client Agreement applicable to this brokerage account contains predispute arbitration clauses. By signing this agreement, the parties agree to be bound by the terms of the agreement (including the arbitration agreement). The predispute arbitration clauses is included in Section 12 of the Client Agreement, on pages 7 and 8.

(Seto’s 1/29/18 TD Ameritrade Agreement at pp. 3 and 4.) Section 12 of the Client Agreement entitled “ARBITRATION” states: RBITRATION

This Agreement contains a predispute arbitration clause. By signing an arbitration clause, the parties agree as follows:

• All parties to this Agreement are giving up their right to sue each other in court, including the right to jury trial, except as provided by the rules of the arbitration forum in which a claim is filed.

I agree that any controversy between you and your affiliates, any of their respective officers, directors, employees, or agents and me (including any of my officers, directors, employees, or agents) arising out of or relating to this Agreement, our relationship, any Services provided by you, or the use of the Services, and whether arising before or after the date of this Agreement, shall be arbitrated and conducted under the provisions of the Code of Arbitration of the FINRA. …

(Allen Decl., Ex. F [TD Ameritrade Client Agreement at §12].) The Client Agreement states in Section 14 “Assignment” that TD Ameritrade may assign, sell, or transfer Ms. Seto’s account and the Agreement at any time without her prior consent. In 2020, The Charles Schwab Corporation acquired TD Ameritrade Holding Corporation. (Def.’s RJN Ex. 2.)

Fourth, Defendant provides the Account Agreement Ms. Seto electronically signed on May 24, 2019 in connection with opening her IRA (xxx-xx0204) at TD Ameritrade. (Allen Decl., Ex. G [Seto’s 5/24/19 TD Ameritrade Agreement].) It has the same language as the January 29, 2018 Agreement regarding the Client Agreement with the arbitration provision. (Id. at p.4.) Section 12 of the Client Agreement also has same language under the “ARBITRATION” heading. (Allen Decl., Ex. H [TD Ameritrade Client Agreement at §12].) Section 14(d) also has the same assignment language. In 2020, The Charles Schwab Corporation acquired TD Ameritrade Holding Corporation. (Def.’s RJN Ex. 2.)

Here, Defendant has established its burden in showing that valid agreements to arbitrate exist. The arbitration agreements are broad in scope such that they cover any controversies and disputes related to the agreements, the accounts, etc. Further, Defendant has shown that Scottrade was acquired by TD Ameritrade, and that TD Ameritrade was acquired by Defendant, such that Defendant may enforce the arbitration agreements under the various agreements as Scottrade and TD Ameritrade’s successor and assignee.

In opposition, Plaintiffs argue that they were not provided notice pursuant to California’s Automatic Renewal Law and thus the agreements are canceled. (Opp. at p.3.) However, Plaintiffs have not provided any legal authority for this argument. In addition, the agreements clearly state that no prior notice was required to be given to Plaintiffs for any transfer of the agreements to later successors or assigns. Further, in the reply brief, Defendant argues that Plaintiff’s reliance on California’s Automatic Renewal Law is misplaced because, pursuant to Business & Professions Code, § 17605, a securities broker-dealer like Defendant that is registered with the SEC is exempt. (Reply at pp.7-8.)

Plaintiffs also argue that the agreements are void because Defendant stole Plaintiffs’ shares, failed to transfer Plaintiffs’ accounts as requested, and Defendant made false statements in its answer. However, these arguments are directed towards the substantive merits of Plaintiffs’ claims and do not address whether there is an enforceable agreement to artbitrate.

For these reasons, Defendant’s motion to compel arbitration is granted. The Court will impose a stay on the proceedings pending the resolution of the arbitration.

In light of the ruling on the motion to compel arbitration, the demurrer to the answer is taken off-calendar.

Defendant Charles Schwab & Co., Inc.’s motion to compel arbitration is granted. The action is stayed pending the resolution of the arbitration.

In light of the ruling on the motion to compel arbitration, the demurrer is taken off-calendar.

The Court sets a Status Conference re Arbitration for December 11, 2024 at 8:30 a.m.

[1] Although a signed copy of this document is not provided, Plaintiffs admit that they signed 4 agreements with Scottrade and TD Ameritrade on June 10, 2003, May 4 2017, January 29, 2018, and May 24, 2019. (See Opp. at p.2, lines 21-22.)

Superior Court of California

County of Los Angeles

Department B