Judge: Stephen P. Pfahler, Case: 25STCP00289, Date: 2025-05-27 Tentative Ruling

Case Number: 25STCP00289    Hearing Date: May 27, 2025    Dept: 68

Dept. 68

Date: 5-27-25 a/f 9-11-25

Case #25STCP00289

Trial Date: N/A

ARBITRATION & STAY

MOVING PARTY: Defendants, Morgan Stanley Smith Barney, LLC, et al.

RESPONDING PARTY: Plaintiff, Rodney Halvorson

RELIEF REQUESTED

Motion to Compel Arbitration and Stay of Action

SUMMARY OF ACTION

In 2021, Defendant/Respondent Morgan Stanley Smith Barney, LLC (MSSB) began recruiting Petitioner Rodney Halvorson for a financial advisor position. Petitioner agreed to terminate employment with third party Bank of America, and switch to MSSB on condition the new position allowed Petitioner to bring existing international clients to the new practice. Upon beginning employment, Petitioner alleges efforts to bring two lucrative clients over to the practice, but said transition was denied due to alleged concerns of money laundering. The clients in question are Mexican nationals transacting business throughout Latin and South America. Petitioner alleges MSSB was already under investigation from prior international client activity, thereby prompting the heightened scrutiny, but Petitioner was not aware of this at the time of negotiations. MSSB ultimately rejected the clients business, thereby compromising Petitioners book of business and the employment incentive contract. Petitioner additionally contends MSSB refused to cooperate/impeded Petitioners ability to obtain new accounts.

On January 27, 2025, Plaintiff/Petitioner filed a petition to compel arbitration, with causes of action for Negligent Misrepresentation, Fraud by Omission, Negligent Interference with Prospective Business Advantage, Retaliation, Age Discrimination, and Unfair Business Practices.

RULING: Granted.

Evidentiary Objections

·         Declaration of Brandon Reif: Overruled. The declaration presents multiple legal arguments, which will not be considered in addition to the points and authorities.

·         Declaration of Rodney Halvorson: Overruled.

Defendant/Respondent Morgan Stanley Smith Barney, LLC and Gregory Frank Laetsch (collectively MSSB) move to compel arbitration with JAMS pursuant to the employment agreement and under the Federal Arbitration Act (FAA). Plaintiff/Petitioner in opposition, Rodney Halvorson, maintains the dispute is governed by FINRA, and MSSB is precluded under the doctrine of estoppel from challenging FINRA applicability. MSSB in reply contends the discrimination claim(s) invokes the arbitration provisions governed by JAMS, and removes the case from FINRA regulations. MSSB characterizes the “deference” and “judicial estoppel” positions as “frivolous.”

On March 21, 2025, the court specially advanced the hearing from September 11, 2025, to the instant heading date.

“A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” (Code Civ. Proc., § 1281.) “On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that: (a) The right to compel arbitration has been waived by the petitioner; or (b) Grounds exist for the revocation of the agreement.” (Code Civ. Proc., § 1281.2.)

The agreements require arbitration for any claims arising from covered disputes. Federal Arbitration Act (FAA) governs the rules for conducting arbitration. While the FAA governs the rules for conducting arbitration, barring citation to a case precluding California law, motions to compel arbitration are still governed by California Arbitration Act regulations. (See Adolph v. Uber Technologies, Inc. (2023) 14 Cal.5th 1104, 1119; Viking River Cruises, Inc. v. Moriana (2022) 142 S.Ct. 1906; Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University (1989) 489 U.S. 468, 477–479; Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 346.)

California law creates a general presumption in favor of arbitration. In a motion to compel arbitration, the moving party must prove by a preponderance of evidence the existence of the arbitration agreement and that the dispute is covered by the agreement. “‘Under “both federal and state law, the threshold question presented by a petition to compel arbitration is whether there is an agreement to arbitrate.”’” (Long v. Provide Commerce, Inc. (2016) 245 Cal.App.4th 855, 861.) “Private arbitration is a matter of agreement between the parties and is governed by contract law. (Platt Pacific, Inc. v. Andelson (1993) 6 Cal.4th 307, 313.) In a motion to compel arbitration, the moving party must prove by a preponderance of evidence the existence of the arbitration agreement and that the dispute is covered by the agreement. The burden then shifts to the resisting party to prove by a preponderance of evidence a ground for denial (e.g., fraud, unconscionability, etc.). (Rosenthal v. Great Western Fin'l Securities Corp. (1996) 14 Cal.4th 394, 413-414; Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 164–165; Hotels Nevada v. L.A. Pacific Ctr., Inc. (2006) 144 Cal.App.4th 754, 758.) Any challenges to the formation of the arbitration agreement should be considered before any order sending the parties to arbitration. The trier of fact weighs all evidence, including affidavits, declarations, documents, and, if applicable, oral testimony to determine whether the action goes to arbitration. (Hotels Nevada v. L.A. Pacific Ctr., Inc., supra, 144 Cal.App.4th at p. 758.)

All parties agree that the matter will proceed to arbitration, with the dispute over the adjudicating entity. MSSB contends that the inclusion of the discrimination and retaliation claims in the petition removed the case from FINRA regulations to the JAMS arbitration terms in the pre-hire Memorandum of Understanding (MOU).

The existence, terms, and execution of the agreement remains undisputed. The parties executed arbitration agreements associated with the Promissory Note, Employment Agreement/MOU, and the CARE terms.

The MOU includes in relevant part:

“[A] copy of the current version of the Firm’s Arbitration Agreement applicable to your anticipated employment with Morgan Stanley is attached to this memo. The attached Arbitration Agreement is incorporated by reference and constitutes a material part of any offer you receive from the Firm. Therefore, by signing this memo, you agree to accept and be bound by the terms and conditions set forth therein in their entirety, unless you elect to opt out of the Arbitration Agreement by completing, signing and submitting the New Hire CARE Arbitration Opt Out Form, which you can obtain, once you are employed by the Firm . . . within 30 days of your start date. If you join Morgan Stanley and do not timely complete, sign and submit an effective New Hire CARE Arbitration Program Opt Out Form in accordance with the instructions set forth therein, you will be deemed to have consented and agreed to the terms of the Arbitration Agreement and the arbitration provisions of the CARE Guidebook effective as of the date of your signature of this memo. The Arbitration Agreement provides, among other things, that you agree to have all Covered Claims (asdefined in the Arbitration Agreement) resolved by final and binding arbitration on an individual . . . basis.” [Declaration of Christine Benedict, Ex. A.]

Both the MOU and Financial Advisor Employment Agreement include a separate copy of the Arbitration Agreement.

“Covered Claims. Except for the Excluded Claims (defined below), and to the fullest extent permitted by law, Covered Claims include any and all claims or disputes between you and Morgan Stanley or any of its current, former, and future directors, officers, employees, agents, managers, shareholders, based on, arising out of, or which arose out of or in any way relate to your employment, compensation, and terms and conditions of employment with Morgan Stanley anywhere in the world, or the termination thereof, and claims based on, arising out of, or which arose out of or in any way relate to your recruitment or application for employment and hiring. Covered Claims include but are not limited to contract, tort, defamation, breach of fiduciary duty and other common law claims, wage and hour claims, statutory discrimination, harassment and retaliation claims, and claims under, based on, or relating to any federal, state or local constitution, statute or regulation of any country, state or municipality, including, without limitation, the Fair Labor Standards Act ("FLSA"), Title VII of the Civil Rights Act of 1964 ("Title VII"), the Age Discrimination in Employment Act ("ADEA''), the Worker Adjustment and Retraining Notification Act ("WARN"), the Equal Pay Act ("EPA"), the Americans With Disabilities Act ("ADA"), the Family and Medical Leave Act ("FMLA"), and any other federal, state or local wage and hour, discrimination or employment law, and any and all other federal, state, or local constitutional, statutory, regulatory, or common law claims or causes of action now or hereafter recognized. This Arbitration Agreement applies to all Covered Claims, including any Covered Claims based on, arising out of, or which arose out of or in any way relate to acts and omissions that occurred before you and Morgan Stanley entered into this Arbitration Agreement.”

“Selection and Rules. Except as specified herein, the applicable arbitration rules will be the rules of the selected arbitration forum as indicated below, or any successor rules or, if none exist, the rules most applicable to employment claims and disputes and, if the forum no longer exists, the successor forum or, if neither the forum nor a successor forum exists, the rules most applicable to employment claims and disputes of a similar forum.”

The arbitration agreement also contains a specific section regarding FINRA & JAMS.

“Registered Employees: Except as specified herein or in the CARE Guidebook, any arbitration of a Covered Claim will be conducted under the auspices and rules of the Financial Industry Regulatory Authority ("FINRA") in accordance with the FINRA Code of Arbitration Procedure for Industry Disputes ("FINRA Arbitration Rules"). This Agreement does not prohibit or restrict you from filing an arbitration claim in the FINRA arbitration forum as specified in FINRA rules. If a Covered Claim may not be arbitrated before FINRA or is ineligible for or otherwise excluded from or not subject to arbitration before FINRA, then such Covered Claim will be resolved by final and binding arbitration conducted under the auspices and rules of JAMS in accordance with and subject to the JAMS Employment Arbitration Rules and Procedures and the JAMS Policy on Employment Arbitration Minimum Standards of Procedural Fairness ("JAMS Arbitration Rules") except as specified herein or in the CARE Guidebook. In addition, employment discrimination claims under or based on any federal, state or local law (including claims of harassment and retaliation under those laws) will be resolved by final and binding arbitration conducted under the auspices and rules of JAMS in accordance with and subject to the JAMS Arbitration Rules, except as specified herein or in the CARE Guidebook. To the extent any of the terms, conditions or requirements of this Arbitration Agreement conflict with the CARE Guidebook or the JAMS Arbitration Rules or FINRA Arbitration Rules, the terms, conditions or requirements of this Arbitration Agreement shall govern.

“Non-Registered Employees: Except as specified herein or in the CARE Guidebook, any arbitration of a Covered Claim will be conducted under the auspices and rules of JAMS in accordance with and subject to the JAMS Arbitration Rules. To the extent any of the terms, conditions or requirements of this Arbitration Agreement conflict with the CARE Guidebook or the JAMS Arbitration Rules, the terms, conditions or requirements of this Arbitration Agreement shall govern.” [Benedit Decl., Ex. A-B; Declaration of Jessica Krentzman, Ex. A.]

Petitioner also executed a Promissory Note agreement, which states in relevant part:

Any controversy or claim arising out of or relating to this Note shall be settled by arbitration in accordance with the rules of the Financial Industry Regulatory Authority ("FINRA") and judgment upon the award entered by the arbitrator(s) may be entered in any court having jurisdiction thereof. Borrower expressly acknowledges and agrees that Note Holder or any Authorized Party or their respective affiliates, subsidiaries, successors, designees, and assigns, including, but not limited to Morgan Stanley, may commence FINRA arbitration proceedings as contemplated hereunder to enforce the terms and conditions of this Note, and expressly waives any right to assert in opposition to any claim by Note Holder or any Authorized Party that said claimant(s) lack standing to commence FINRA arbitration proceedings. To the fullest extent permitted by law, Borrower expressly waives the right to assert a counterclaim in opposition to any claim or action brought against Borrower by Note Holder or any Authorized Party and their respective affiliates, subsidiaries, successors, designees, and assigns on this Note. Borrower expressly agrees that any such counterclaim shall only be made by Borrower in a separate arbitration proceeding. The foregoing does not preclude Borrower from asserting a valid defense, if any, in opposition to any claim or action brought against Borrower by Note Holder or any Authorized Party and their respective affiliates, subsidiaries, successors, designees, and assigns on this Note. [Benedict Decl., Ex. B.]

The excerpts of the CARE Guidelines also provide guidance:

“Covered Claims. Only claims by you or Morgan Stanley involving legally protected rights and based on, arising out of, or which arose out of or in any way relate to your employment, compensation, and terms and conditions of employment with Morgan Stanley1 anywhere in the world, or the termination thereof, and claims based on, arising out of, or which arose out of, or in any way relate to your recruitment or application for employment and hiring, that could be brought under any federal, state or local law, including common law, are ‘Covered Claims’ eligible for mediation and arbitration under CARE. Covered Claims include all such legal claims between you and Morgan Stanley or any of Morgan Stanley’s current, former and future parents, subsidiaries, affiliates, partners, predecessors, successors, assigns, and affiliated or related corporations or business entities, and any of its or their current, former, and future directors, officers, employees, agents, managers, shareholders, and other representatives, and all such claims based on, arising out of, or which arose out of or in any way relate to acts and omissions that occurred before the effective date of this Guidebook, but excludes the ‘Excluded Claims’ listed below. Covered Claims involving a legally protected right that can be mediated and must be arbitrated pursuant to this Agreement include, but are not limited to, the following:

“1. Claims based upon alleged breach of contract. These claims include claims for alleged breach of written or oral agreements, whether express or implied, promissory estoppel claims, detrimental reliance claims, and quasi contract claims; claims;

2. Claims based in tort, defamation, breach of fiduciary duty and other common law

 3. Claims based upon allegations of unlawful discrimination, harassment or retaliation (these claims include all bases of discrimination under or based on any federal, state or local law or regulation, including, for example, discrimination based on age, color, disability, national origin, race, religion, and gender. Some of the statutes that provide for such claims are Title VII of the Civil Rights Act, the Age Discrimination in Employment Act, the Equal Pay Act, and the Americans With Disabilities Act,);

4. Claims under, based on, or in any way relating to any federal, state or local wage and hour law or regulation, including, without limitation, the Fair Labor Standards Act;

5. Claims under, based on, or in any way relating to any federal, state or local constitution, statute or regulation of any country, state or municipality, including, without limitation, the Worker Adjustment and Retraining Notification Act, the Family and Medical Leave Act, and any other federal, state or local employment law, and any and all other federal, state, or local constitutional, statutory, regulatory, or common law claims or causes of action now or hereafter recognized;

6. Claims based on, arising out of, or which arose out of or in any way relate to recruitment, applications for employment, and hiring; and

7. Any other recognized legal claims based on, arising out of, or which arose out of or in any way relate to your employment, compensation, and terms and conditions of employment with Morgan Stanley anywhere in the world, or the termination thereof, except for Excluded Claims (as defined below).”

[Krentzman Decl., Ex. C.]

The court interprets the arbitration clause like any other contract, including determination of the intent of the parties and ambiguities. (Gravillis v. Coldwell Banker Residential Brokerage Co. (2006) 143 Cal.App.4th 761, 772.) “‘A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.’ (Civ. Code, § 1636.) ‘The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity.’ (Civ. Code, § 1638.) ‘When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible; subject, however, to the other provisions of this Title.” (Civ. Code, § 1639.) “The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.’ (Civ. Code, § 1641.) ‘A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties.’ (Civ. Code, § 1643.) ‘The words of a contract are to be understood in their ordinary and popular sense, rather than according to their strict legal meaning; unless used by the parties in a technical sense, or unless a special meaning is given to them by usage, in which case the latter must be followed.’ (Civ. Code, § 1644.) ‘However broad may be the terms of a contract, it extends only to those things concerning which it appears that the parties intended to contract.’ (Civ. Code, § 1648.) ‘Repugnancy in a contract must be reconciled, if possible, by such an interpretation as will give some effect to the repugnant clauses, subordinate to the general intent and purpose of the whole contract.’ (Civ. Code, § 1652.) ‘Stipulations which are necessary to make a contract reasonable, or conformable to usage, are implied, in respect to matters concerning which the contract manifests no contrary intention.’ (Civ. Code, § 1655.)” (Siligo v. Castellucci (1994) 21 Cal.App.4th 873, 880–881.)

“A contract term should not be construed to render some of its provisions meaningless or irrelevant.” (Estate of Petersen (1994) 28 Cal.App.4th 1742, 1754 (footnote 4).) “A well-settled maxim states the general rule that ambiguities in a form contract are resolved against the drafter. (Citations.) But that is a general rule; it does not operate to the exclusion of all other rules of contract interpretation. It is used when none of the canons of construction succeed in dispelling the uncertainty.” (Oceanside 84, Ltd. v. Fidelity Federal Bank (1997) 56 Cal.App.4th 1441, 1448.)

Respondents specifically concentrate on the discrimination and retaliation claims as the basis for compelling arbitration with JAMS. The agreement clearly and unequivocally supports this position as to these two claims: “In addition, employment discrimination claims under or based on any federal, state or local law (including claims of harassment and retaliation under those laws) will be resolved by final and binding arbitration conducted under the auspices and rules of JAMS in accordance with and subject to the JAMS Arbitration Rules, except as specified herein or in the CARE Guidebook.” [Benedit and Krentzman Decl., Ex. A-B.]

Petitioner also acknowledges the language but cites to the unaddressed preceding language in the section cited by Respondent regarding both FINRA and JAMS claims. “This Agreement does not prohibit or restrict you from filing an arbitration claim in the FINRA arbitration forum as specified in FINRA rules. If a Covered Claim may not be arbitrated before FINRA or is ineligible for or otherwise excluded from or not subject to arbitration before FINRA, then such Covered Claim will be resolved by final and binding arbitration conducted under the auspices and rules of JAMS in accordance with and subject to the JAMS Employment Arbitration Rules and Procedures and the JAMS Policy on Employment Arbitration Minimum Standards of Procedural Fairness ("JAMS Arbitration Rules") except as specified herein or in the CARE Guidebook.”

The court finds the plain language of the agreement provides Petitioner with the right to pursue FINRA arbitration on the covered claims, with JAMS responsible for the non-FINRA claims. Nothing in the plain language of the agreements or legal support in the motion in any way precludes the right to pursue FINRA arbitration on the FINRA covered claims. In fact the plain language supports such a position. The CARE Guidebook reference presents no apparent superseding waiver of the FINRA rights upon inclusion of JAMS covered items. The agreement therefore appears to present the possibility of potential dual arbitration proceedings, even if not considered part of any known standard or practice.

The court must therefore consider this presented hybrid situation involving claims clearly both inside and outside of FINRA guidelines, and indisputable employment based claims mandatorily addressed by JAMS. Respondents in the reply reiterate the agreed upon finding regarding the lack of agreement for FINRA to address the employment discrimination and retaliation claims through citation to FINRA Rule 13201(a): “(a) Statutory Employment Discrimination Claims. A claim alleging employment discrimination in violation of a statute, is not required to be arbitrated under the Code. Such a claim may be arbitrated only if the parties have agreed to arbitrate it, either before or after the dispute arose. If the parties agree to arbitrate such a claim, the claim will be administered under Rule 13802.”

The court appreciates the position of Respondents, but still finds a lack of definitive support for exclusive JAMS jurisdiction over ALL claims, including the clearly defined FINRA issues. “If a Covered Claim may not be arbitrated before FINRA or is ineligible for or otherwise excluded from or not subject to arbitration before FINRA, then such Covered Claim will be resolved by final and binding arbitration conducted under the auspices and rules of JAMS in accordance with and subject to the JAMS Employment Arbitration Rules and Procedures and the JAMS Policy on Employment Arbitration Minimum Standards of Procedural Fairness (‘JAMS Arbitration Rules’) except as specified herein or in the CARE Guidebook.” The covered claims can clearly be arbitrated under FINRA, and are not excluded. Respondent will apparently not agree to the submission of said employment claims to FINRA. Respondent acknowledges the initiation of the FINRA process (without notice to Respondent), and appears to alternatively suggest a stay of the FINRA proceeding pending the JAMS arbitration.

Notwithstanding the lack of any legally compelling basis for JAMS authority, the court otherwise finds no basis for application of judicial estoppel or “deference doctrine.” While Petitioner can raise said defenses to the enforcement of the contract itself, given the agreement and requirement for interpretation of the terms, it remains unclear as to how such doctrines impact the actual agreed upon language of the contracts, especially within only this single (no prior) proceeding.

Neither party presents any legal citation, and the court finds no authority regarding a requirement for one proceeding in the case of competing, binding arbitration provisions. The contract interpretation remains the basis for compelling enforcement, and the court finds no ambiguity in the language. Whether the result is as intended constitutes an extrinsic issue, and not considered. Again, the court finds no procedural bar.

The court however adheres to a policy of avoiding piecemeal adjudication when the risk of conflicting results appears. “A party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact. For purposes of this section, a pending court action or special proceeding includes an action or proceeding initiated by the party refusing to arbitrate after the petition to compel arbitration has been filed, but on or before the date of the hearing on the petition. This subdivision shall not be applicable to an agreement to arbitrate disputes as to the professional negligence of a health care provider made pursuant to Section 1295.” (Code Civ. Proc., § 1281.2, subd. (c).)

“If the court determines that there are other issues between the petitioner and the respondent which are not subject to arbitration and which are the subject of a pending action or special proceeding between the petitioner and the respondent and that a determination of such issues may make the arbitration unnecessary, the court may delay its order to arbitrate until the determination of such other issues or until such earlier time as the court specifies.

“If the court determines that a party to the arbitration is also a party to litigation in a pending court action ... as set forth under subdivision (c), the court ... (3) may order arbitration among the parties who have agreed to arbitration and stay the pending court action or special proceeding pending the outcome of the arbitration proceeding; or (4) may stay arbitration pending the outcome of the court action or special proceeding.” (Code Civ. Proc., § 1281.2, subd. (d).)

Barring a showing of procedural bar, the court finds the plain language of the agreement allows for a sequential arbitration process. Since Petitioner already initiated the FINRA process, it will proceed first. The parties will then proceed with JAMS on the remaining employment, non-FINRA issues delineated by FINRA.

The operative complaint incorporates all preceding allegations. While the discrimination and retaliation causes of action are clearly under JAMS arbitration rules, it remains unclear whether the parties agree that the remaining causes of action all conform to FINRA standards. Assuming the parties disagree, it remains unknown if either FINRA or JAMS provides the arbitrator(s) with authority to determine the scope of applicability of the statute. If the parties remain unable to agree, the court defers to the FINRA arbitrator(s) to determine the scope of applicable claims.

Neither party addresses the position of individual respondent Gregory Frank Laetsch, but the court allows the joinder of the individual into the arbitration proceedings, as applicable. (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1237; Crowley Maritime Corp. v. Boston Old Colony Ins. Co. (2008) 158 Cal.App.4th 1061, 1070 [Under equitable estoppel, a party cannot avoid participation in arbitration, where the party received “a direct benefit under the contract containing an arbitration clause…”]; Boucher v. Alliance Title Co, Inc. (2005) 127 Cal.App.4th 262, 271).)

The court therefore orders the case to FINRA arbitration first, and stays the JAMS arbitration pending completion of the FINRA proceeding. Upon completion of the FINRA arbitration, the parties will commence the JAMS arbitration. Nothing in this order invites a second review by JAMS to reconsider any positions determined by FINRA, but the JAMS arbitrator may consider any potential crossover issues as necessary for resolution of the employment claims with the intention of avoiding a conflicting ruling. No motion to confirm or challenge the arbitration award will be considered during the stay of the FINRA proceeding and until after the completion of BOTH arbitration proceedings (FINRA and JAMS). The entire action will be stayed pending the completion of all arbitrations.

Respondents to give notice to all parties.