Chong Kim v. Charles Schwab & Co., Inc.

MOTION TO COMPEL ARBITRATION

 

MOVING PARTY: Defendant Charles Schwab & Co., Inc.

RESPONDING PARTY(S): Plaintiff Chong Kim

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

Plaintiff Chong Kim brings this action against Charles Schwab & Co., Inc., alleging that Defendant failed to adequately safeguard assets in Plaintiff’s IRA when he was a victim of a cyber scam. Plaintiff asserts causes of action for (1) negligence and (2) financial elder abuse.

Defendant now moves to compel the dispute to arbitration. Plaintiff opposed. 

TENTATIVE RULING:

Defendant’s Motion to Compel Arbitration is GRANTED. The action is stayed pending the results of arbitration.

A Status Review/OSC re: Dismissal is set for August 22, 2025 at 8:30 a.m.

Defendant is ordered to give notice, unless waived.  

DISCUSSION:

Motion to Compel Arbitration

1. Judicial Notice

Pursuant to Defendant’s request, and without objection, the court takes judicial notice of the documents establishing that Charles Schwab is the successor to TD Ameritrade, Inc. and Ameritrade Holding Corporation. (See RJN, Exhs. 1 and 2.)

2. Legal Standard

“[T]he petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence . . . .”  (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284).  “In determining whether an arbitration agreement applies to a specific dispute, the court may examine only the agreement itself and the complaint filed by the party refusing arbitration [citation]. The court should attempt to give effect to the parties' intentions, in light of the usual and ordinary meaning of the contractual language and the circumstances under which the agreement was made.”  (Weeks v. Crow (1980) 113 Cal.App.3d 350, 353).  “Doubts as to whether an arbitration clause applies to a particular dispute are to be resolved in favor of sending the parties to arbitration. The court should order them to arbitrate unless it is clear that the arbitration clause cannot be interpreted to cover the dispute.”  (California Correctional Peace Officers Ass'n v. State (2006) 142 Cal.App.4th 198, 205).  

“[A] party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense. [Citation.] In these summary proceedings, the trial court sits as a trier of fact, weighing all the affidavits, declarations, and other documentary evidence, as well as oral testimony received at the court's discretion, to reach a final determination.”  (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284).

“If a court of competent jurisdiction, whether in this State or not, has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies. . . .”  (CCP § 1281.4.)

3. Existence of Agreement to Arbitrate

California has a strong public policy in favor of arbitration as an expeditious and cost-effective way of resolving disputes.  “Even so, parties can only be compelled to arbitrate when they have agreed to do so.” (Avila v. S. California Specialty Care, Inc. (2018) 20 Cal. App. 5th 835, 843.)  “The party seeking to compel arbitration bears the burden of proving the existence of a valid arbitration agreement.”  (Id.)

An arbitration agreement is a contractual agreement. “General contract law principles include that ‘[t]he basic goal of contract interpretation is to give effect to the parties’ mutual intent at the time of contracting. [Citations.] ... The words of a contract are to be understood in their ordinary and popular sense.” [Citations.]  (Garcia v. Expert Staffing W., 73 Cal. App. 5th 408, 412–13.)  

Defendant has the initial burden of producing “prima facie evidence of a written agreement to arbitrate the controversy.” (Gamboa v. Ne. Cmty. Clinic (2021) 72 Cal. App. 5th 158, 165.) “[I]t is not necessary to follow the normal procedures of document authentication.” (Condee v. Longwood Mgmt. Corp. (2001) 88 Cal. App. 4th 215, 218.)

Defendant presents evidence that two binding agreements to arbitrate exist in this matter.  

(1) Ameritrade Agreement: When Plaintiff opened his rollover IRA at Ameritrade in 2003, he signed a Brokerage Account Application in which he agreed to be bound by accompanying “Terms and Conditions.” The Terms and Conditions contain an arbitration provision which provides in relevant part: 

All controversies concerning (a) any transaction, (b) the construction, performance or breach of this or any other agreement, whether entered into prior to, on or after the date of this Agreement, or (c) any other matter which may arise between Ameritrade and me shall be determined by arbitration in accordance with the rules of the National Association of Securities Dealers, Inc.

(Allen Decl. ¶ 4, Exh. B, ¶¶ 99-100.)

Plaintiff does not dispute that he signed the Ameritrade Agreement. Instead, Plaintiff first argues that the Ameritrade Agreement does not apply to Schwab as a successor of Ameritrade, asserting the agreement is “completely silent about the agreement inuring to the benefit Ameritrade’s successors and assigns.” (Opp. 1: 19-20.)

But in fact, the Ameritrade Agreement refers to Ameritrade as including Ameritrade’s “successors and assigns.” (Allen Decl. ¶ 4, Exh. B, p. 1.) Thus, where the agreement mandates arbitration for any dispute “between Ameritrade and [Plaintiff],” it includes any dispute between Ameritrade’s “successors and assigns” and Plaintiff. Because it is undisputed that Schwab is a successor or assign of Ameritrade, Schwab can invoke the Ameritrade Agreement. Therefore, the Court concludes that the Ameritrade Agreement is valid, binding, and broadly covers the dispute here.

Any controversy or claim arising out of or relating to (i) this Agreement, any other agreement with Schwab, an instruction or authorization provided to Schwab or the breach of any such agreements, instructions, or authorizations; (ii) the Account, any other Schwab account or Services; (iii) transactions in the Account or any other Schwab account; (iv) or in any way arising from the relationship with Schwab, its parent, subsidiaries, affiliates, officers, directors, employees, agents or service providers ("Related Third Parties"), including any controversy over the arbitrability of a dispute, will be settled by arbitration.

(Allen Decl. ¶ 4, Exh. E, “Schwab IRA and ESA Account Agreement, p. 7, ¶ 18.)

It does not appear that Plaintiff addresses the Schwab Agreement in his opposition. He apparently does not dispute that he never opted out of the Schwab Agreement.

The Court therefore concludes that the Schwab Agreement is also valid, binding, and broadly covers the dispute here. 

4. Unconscionability Defense

Next, Plaintiff argues the Agreement(s) should be disregarded based on principles of unconscionability.  Unconscionability has “both a procedural and a substantive element, the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results. (Sanchez v. Valencia Holding Company, LLC (2015) 61 Cal.4th 899, 910.) Under California law, an arbitration agreement must be in some measure both procedurally and substantively unconscionable in order for the agreement to be unenforceable. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114; De La Torre v. CashCall, Inc. (2018) 5 Cal.5th 966, 982.) “But they need not be present in the same degree. . . . [T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Armendariz, supra, 24 Cal.4th at p. 114.)

i. Procedural Unconscionability

First, Plaintiff argues the agreement is procedurally unconscionable because it was a contract of adhesion.  “The term [contract of adhesion] signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” [Citation]. (Id. at 113).

The court agrees with Plaintiff that the dynamic here represents a classic contract of adhesion. Therefore, the “take it or leave it” nature of the agreement is sufficient to establish “some degree of procedural unconscionability.” (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 915).  This means the substantive terms of the agreement must be scrutinized to ensure they are not manifestly unfair or one-sided.  (Id.) 

ii. Substantive Unconscionability

Plaintiff first argues the Ameritrade Agreement is substantively unconscionable because it is not bilateral. Plaintiff relies on Cook, in which “[t]he agreement require[d] Cook to arbitrate any and all claims she may have against USC ‘or any of its related entities, including but not limited to faculty practice plans, or its or their officers, trustees, administrators, employees or agents, in their capacity as such or otherwise”, but did not require USC’s “related entities” to arbitrate their claims against Cook. (Cook v. Univ. of S. California (2024) 102 Cal. App. 5th 312, 328.) The Court held this language meant “nonsignatories may enforce an arbitration agreement against a party to the agreement simply by showing they are intended third-party beneficiaries of the arbitration agreement.” (Id.) But, for Cook “to enforce the arbitration agreement against USC's agents or employees as third-party beneficiaries, she would have to show they actually accepted a benefit under the agreement”—a difficult task. (Id. at 328.) 

Here, unlike in Cook, the Ameritrade Agreement applies entirely mutually to any controversy or claim between Plaintiff and Ameritrade. Not only must Plaintiff arbitrate any claims against Ameritrade and its related entities, but Ameritrade and its related entities must also arbitrate any dispute they have against Plaintiff.

Plaintiff goes on to point to other provisions in the Agreement to assert that arbitration is not truly bilateral. The Agreement provides that “[a]ny court action brought against Ameritrade by me or on my behalf shall be exclusively venued in the State of Nebraska and shall be governed by the laws of the State of Nebraska.” (Allen Decl. ¶ 4, Exh. B, ¶ 33.) Plaintiff also points to the language in the Agreement which states “notwithstanding [the arbitration provision], Ameritrade reserves the right to pursue all legal and equitable remedies that may be available to them.” (Allen Decl. ¶ 4, Exh. B, ¶ 101.) Plaintiff asserts that this suggests that “Ameritrade reserved for itself the right to use litigation, but purported to have the right to force Plaintiff arbitrate any and absolutely all claims he might have against Ameritrade.” (Opp. 4: 23-24.) 

Plaintiff reads too much into these provisions. The court agrees with Defendant that the inclusion of a Nebraska venue clause “does not obviate the effect of the arbitration clause; it exists only to provide for venue in disputes that are outside the scope of the arbitration clause.” (Reply 9: 6-7.) The same is true of the reservation of all legal and equitable remedies, which could merely apply to disputes not covered by the arbitration agreement, or even, within the arbitration proceeding itself.

Next, Plaintiff argues the agreement is substantively unconscionably because it is of unlimited duration. In Cook, the Court held that an agreement that survived indefinitely after the plaintiff’s termination from USC was a factor supporting substantive unconscionability. (Cook, supra ,102 Cal. App. 5th at 325-326.) The Cook court noted that generally, arbitration agreements that do not specify a term of duration are terminable at will after a reasonable time has elapsed. (Id. at 325-326 [citing Reigelsperger v. Siller (2007) 40 Cal. 4th 574, 580.) But the agreement in Cook contained an express term of duration, stating it could “only be revoked or modified in a written document that expressly refers to the ‘Agreement to Arbitrate Claims’ and is signed by the President of the University.” (Id. at 325.) This “express term of duration,” the Court held, “shows the parties did not contemplate that the arbitration agreement would be terminable at will.” (Id. at 326.)

Here, unlike in Cook, Plaintiff has not demonstrated that the agreement to arbitrate contains a term of duration. Nor has Plaintiff established that the potential unlimited duration would make the contract unconscionable. 

Finally, Plaintiff argues the “infinite scope” of the agreement makes it unconscionable because like in Cook, it “requires any disagreement between Plaintiff and Ameritrade be arbitrated, regardless of whether it has anything to do with Plaintiff’s investment with Ameritrade.” (Opp. 6: 23-25.) In Cook, the Court held that the agreement was unconscionable where it required the employee “to arbitrate claims that are unrelated to her employment with USC.” (Id. at 321 [requiring the arbitration of “all claims, whether or not arising out of Employee's University employment, remuneration or termination”].)

However, the Ameritrade Agreement is narrower than the one in Cook, because by its introductory paragraph, it only “governs [Plaintiff’s] use of the Ameritrade web site, its content and services and [Plaintiff’s] account with Ameritrade.” (Allen Decl. ¶ 4, Exh. B, p. 1.) Although the text of the Arbitration Provision itself does appear to contemplate a wider range of disputes, it remains limited by the introductory paragraph. The court therefore concludes this is not a factor supporting substantive unconscionability.

But even if it was a factor supporting substantive unconscionability, this factor by itself would be insufficient to create the finding of substantive unconscionability necessary under the sliding scale approach. Therefore, the Agreement is not unconscionable. 

Accordingly, Defendant’s Motion to Compel Arbitration is GRANTED. 

IT IS SO ORDERED.

Dated:   August 22, 2024 ___________________________________