DAWSON, J.
This appeal concerns the enforceability of agreements to arbitrate disputes between plaintiff investors and defendants who were their financial advisors and broker-dealer. The trial court denied defendants' petition to compel arbitration, finding the arbitration provision was not enforceable. Defendants appealed, claiming all the reasons given by the court for its decision were incorrect as a matter of law.
We conclude that substantial evidence supports the trial court's implied finding of fact that the form containing the arbitration provision was not readily available to plaintiffs at or before the time they signed the document that attempted to incorporate the arbitration provision by reference. As a result, the arbitration provision was not validly incorporated by reference and, thus, did not become part of an enforceable contract. Consequently, the order denying arbitration will be affirmed.
Plaintiffs in this action are Mickey G. Fink and Elaine M. Fink, who are husband and wife, and Wyba C. Nienstadt. When this lawsuit was filed, Nienstadt was 83 years old and Mickey and Elaine Fink were 79 and 70 years old, respectively. During the time relevant to this lawsuit, Elaine Fink was legally blind and unable to read forms.
The defendants are Pasquale "Pat" Vitucci, individually and doing business as Vitucci & Associates, Dennis Eugene Nevin, and AIG Financial Advisors, Inc., a corporation that presently is named SagePoint Financial, Inc.
Vitucci is a financial advisor. He is a registered representative with the Financial Industry Regulatory Authority (FINRA)
Nevin worked for Vitucci as a "producing OSJ." The acronym OSJ stands for Office of Supervisory Jurisdiction, and the person with this designation is the branch compliance officer who is concerned with FINRA regulations. Nevin is not an appellant in this matter because he filed for bankruptcy in February 2009, which resulted in an automatic stay as to him.
Betty Swan was a financial advisor who began handling investments for Nienstadt as well as the Finks in the 1980's. In 2007, Swan decided to retire. Swan called Vitucci and asked him if he would consider buying her business. Swan had learned of Vitucci and the possibility he would be interested in acquiring her business because he had purchased a similar business from Swan's sister approximately a year earlier.
Vitucci's purchase of Swan's book of business was completed around April 1, 2007. Vitucci paid approximately $375,000 for 175 to 200 clients with invested assets of approximately $16 million.
The transition of the business from Swan to Vitucci began with Swan and Vitucci sending an announcement to Swan's clients and inviting them to a lunch or a dinner at a restaurant in Modesto. At the lunch or dinner, Swan introduced Vitucci to the clients. Vitucci told the clients that he would begin scheduling appointments immediately and, over the next three to five weeks, Vitucci or members of his staff did meet with all of Swan's clients.
Nienstadt met with Vitucci or his employees twice in June 2007. Vitucci had retained Swan's office in Modesto and the meeting took place in the private office Swan had used rather than a conference room. The initial meeting lasted about 20 minutes, and Nienstadt did not sign any documents. Nienstadt's second meeting occurred about a week later. The testimony is conflicting over whether she met with Vitucci or Nevin at the second meeting.
At the second meeting, Nevin had a stack of blank documents for Nienstadt to sign. Nevin gave the documents to Nienstadt one after another and instructed her to sign. Nienstadt testified that she did not read the documents because there was too much to read and she did not have time because Nevin "was shoving them across the table as fast as I could sign them." Plaintiffs' appellate brief asserts that, during the 20-minute meeting, Nienstadt was instructed to sign 57 pages of forms.
Nienstadt testified that she told Nevin "they were to leave my accounts where they were." She also testified that she asked Nevin about the forms she was signing "[a]nd he said they were to change over from Betty Swan's business to his." The trial court asked her if she felt that she knew what it was that she was signing and Nienstadt replied: "I thought I did. He told me it was to change broker dealer name." In addition, Nienstadt testified that she was not told that by signing the forms she was putting her money into variable annuities.
Among the many documents that Nevin told Nienstadt to sign was a signature page titled "Account Worksheet." At the bottom of the form, towards the center is printed "Page 4 of 4." The three previous pages are part of a document titled "Account Application." The first heading below the title "Account Worksheet" is "
Immediately below paragraph B and immediately above the first client signature line that appears on the account worksheet are the following two sentences: "The Customer Agreement contains a pre-dispute Arbitration Provision. This Provision is contained on Page 1, Section I of the Customer Agreement and appears in bold print."
The customer agreement used by SagePoint Financial, Inc., and referenced in the account worksheet was a 12-page, preprinted form. The customer agreement does not have a signature page or any signature lines on its last page. The terms of the arbitration provision contained in the customer agreement are not set forth in this opinion because those terms are not material to the resolution of this appeal.
Nienstadt's declaration stated that (1) she kept all of the papers that she received from Vitucci and Nevin, (2) she looked through all of the papers to see if they included a customer agreement, and (3) she did not have a customer agreement in any of the papers she received. Her testimony at the evidentiary hearing was similar.
Weeks after Nienstadt signed the forms, she received paperwork stating her funds were in a variable annuity. She became nervous because she did not know what a variable annuity was and did not know why her money was not in the same investments she had had with Swan. Nienstadt called Vitucci's office repeatedly to find out what had happened, but Vitucci never returned her calls.
In February 2008, Nienstadt transferred her funds away from Vitucci and SagePoint Financial, Inc.
The Finks had no relationship with Vitucci prior to being introduced to him by Swan. Mrs. Fink met Vitucci at an introductory lunch. She testified that Swan had highly recommended Vitucci. Mr. Fink first met Vitucci when he went to Vitucci's office to sign papers. That meeting occurred on June 20, 2007, at Swan's former office in Modesto.
The Finks believed the purpose of the meeting was to transfer their funds to Vitucci's brokerage company. They intended to keep their investments the way they had been with Swan rather than buying new products from Vitucci.
Mrs. Fink told Vitucci that she was unable to read the because of her poor eyesight. She testified that Vitucci responded by saying: "Just sign them and I'll help you." When asked if Vitucci did anything to help her, Mrs. Fink answered: "He didn't."
Mrs. Fink stated that during the meeting she was not able to ask many questions because Vitucci was on the telephone with a radio station recording his radio show. She also stated that her husband did not have time to read the forms because Vitucci "kept putting the papers up to us to sign." Vitucci presented the documents folded back to where they were to be signed. Mr. Fink described the process as follows: "When we were signing forms, [Vitucci] would hand us a form, we would sign it, he would take it away and hand another one, and in the meantime, he was talking [on the phone for his radio show]." Consequently, it was not possible for them to ask Vitucci questions without interrupting his radio show.
During the meeting, Vitucci did not explain the forms that he was having the Finks sign. Vitucci did not inform them that they were permitting him to put their money into variable annuities, that any disputes would be subject to arbitration, or that they would be giving up their right to a jury trial.
The meeting lasted approximately half an hour. Plaintiffs' appellate brief asserts: "Mickey and Elaine were directed to sign 47 pages of forms, in that 30 minute meeting, allowing Mickey less than one minute to read each page." The Finks were not given any documents to take with them after the meeting.
Subsequently, the Finks called Vitucci's office and asked for a copy of their documents. The documents sent to them did not include a copy of the customer agreement. They also had questions about their accounts and repeatedly tried to contact Vitucci, but he did not return their calls.
In February 2008, the Finks transferred their account away from Vitucci.
In October 2008, plaintiffs filed a complaint that alleged numerous causes of action against the defendants based on defendants switching plaintiffs' investments from mutual funds to costly variable annuities.
In January 2009, defendants filed a joint petition to compel arbitration and stay the action. The petition asserted that plaintiffs' claims were subject to mandatory, binding arbitration pursuant to written agreements to arbitrate between plaintiffs and SagePoint Financial, Inc. Defendants supported the petition by filing two declarations.
The declaration of Jamie Palfai, assistant counsel to SagePoint Financial, Inc., stated he was familiar with its account opening procedures, attached copies of the welcome letters sent to plaintiffs in connection with the new accounts they opened, and stated SagePoint Financial, Inc. did not receive any corrections or other correspondence from plaintiffs regarding their accounts.
Nevin's declaration stated (1) he had been a registered representative of SagePoint Financial, Inc. (2) he had served as a supervisor of Vitucci & Associates, a financial advisory firm that had been affiliated with registered broker-dealer SagePoint Financial, Inc., (3) he resigned his position in December 2008, and (4) he currently was employed by H&R Block. Nevin also stated that he had never met with Nienstadt and had not asked her to sign any blank forms.
Plaintiffs opposed the petition to compel arbitration, asserting that (1) the arbitration clause was unenforceable for lack of mutuality, (2) the alleged arbitration agreements were void due to fraud in the execution, and (3) the arbitration agreements did not become part of their contracts because the agreements were not provided to them and were not properly incorporated into any contract. The opposition was supported by declarations from each plaintiff, their attorney, and six other persons.
The trial court held a hearing on the motion on July 24, 2009. Because of requests made by the attorneys at that hearing, the trial court stated it would not rule on the petition to compel arbitration until it held an evidentiary hearing.
The evidentiary hearing was set for September 10, 2009, and took two days. Numerous witnesses testified, including former employees of Vitucci. After the hearing, the trial court issued a written order stating defendants presented a prima facie case that an arbitration agreement existed and, therefore, plaintiffs had the burden of showing that there was no binding agreement. The court then found there was no enforceable arbitration agreement because (1) Vitucci and Nevin, as fiduciaries, had a duty to explain the material terms of the forms, including the arbitration clause, to plaintiffs, (2) they did not adequately fulfill this duty, and (3) they did not give plaintiffs an opportunity to read the forms. In addition, the trial court's order stated that "I do not find here there was mutuality of agreement ...."
The trial court's written decision also stated that the court relied heavily on the testimony of Steven Pinedo. The court explicitly (1) noted Pinedo's interests as a former employee of Vitucci and a current financial advisor of plaintiffs, (2) found Pinedo's testimony credible, and (3) found persuasive Pinedo's testimony regarding the custom and habit of Vitucci not to give documents to new or potential clients.
Pinedo's declaration stated (1) he worked for Vitucci from June 2007 until January 2008 at his Modesto office; (2) during that time all forms and other documents given to clients who met with Vitucci were kept in a central area with separate compartments for each document; (3) there was no compartment in the central area for customer agreements; (4) Vitucci and his staff would pull documents from the central area prior to meeting with clients; (5) there were, to the best of his knowledge, no customer agreements in the Modesto office; and (5) the customer agreement was not a document that was supplied to clients who met with Vitucci and his staff in the Modesto office. Pinedo's testimony at the evidentiary hearing was similar.
After the superior court's order denying arbitration, SagePoint Financial, Inc., Vitucci, and Vitucci & Associates filed a timely notice of appeal. They also filed notices of stay of proceedings in the superior court that stated the reason for the stay was the pending appeal.
Plaintiffs presented at least three grounds to the trial court for why the arbitration provision was not enforceable. Here, we need consider only whether the arbitration provision contained in the customer agreement was properly incorporated by reference into the document signed by plaintiffs.
The existence of a valid agreement to arbitrate is determined by reference to state law principles concerning the formation, interpretation, revocation, and enforceability of contracts. (Bolter v. Superior Court (2001) 87 Cal.App.4th 900, 906.) The principles of California contract law include rules that govern incorporation by reference.
In this appeal, the parties do not dispute the basic rule of contract law used to determine whether, as a result of incorporation by reference, the terms of a contract include an arbitration provision contained in a separate document. That rule of law is set forth in defendants' opening brief as follows:
Courts have described the fourth requirement of this rule of law using the term "easily available" or "readily available." (E.g., Baker v. Osborne Development Corp. (2008) 159 Cal.App.4th 884, 895 [substantial evidence supported trial court's finding that arbitration provisions were not readily available]; Chan v. Drexel Burnham Lambert, Inc. (1986) 178 Cal.App.3d 632, 645.) The parties have used the terms interchangeably, which is compatible with their dictionary definitions.
In the trial court, plaintiffs' memorandum of points and authorities in opposition to the petition to compel arbitration asserted that the arbitration provision in the customer agreement did not become part of the contract because it was not provided to plaintiffs and was not properly incorporated into any agreement with plaintiffs. One of plaintiffs' factual assertions was that Vitucci did not use the customer agreement during meetings with clients and did not supply it to clients.
Defendants' reply to plaintiffs' opposition addressed the issue of incorporation by reference on two grounds:
Expanding on their second ground, defendants argued that (1) the law permits a document to be incorporated into an agreement when the document is readily available to the parties and (2) the evidence showed that the customer agreements were available to plaintiffs for the asking.
The trial court found that the arbitration provision was not enforceable. The court's written decision stated it found persuasive Pinedo's testimony about Vitucci's custom and habit of not giving documents to clients, which implies that the court rejected Vitucci's assertion that the customer agreements were in fact provided to plaintiffs.
The trial court's decision did not contain a specific finding on the question whether the customer agreements were readily available to plaintiffs. The court, however, made the more general finding that "defendants did not provide that opportunity." The term "that opportunity" appears to refer to plaintiffs' chance to read the forms and know what they were signing.
In challenging the trial court's determinations, defendants' opening brief contends that "the arbitration agreement was conspicuously incorporated by reference into the account-opening agreement that plaintiffs signed." Defendants argue that, under black-letter law, the customer agreement containing the arbitration provision need only have been available if plaintiffs requested it and the undisputed facts establish the customer agreement was available. Based on their view of what facts were undisputed, defendants request this court to reverse and remand with directions for the entry of an order compelling arbitration. As an alternative to outright reversal, defendants argue that "neither plaintiffs' argument nor the trial court's finding addressed whether the Customer Agreement was readily available. Because the trial court failed to rule on the question of availability, this Court should remand."
Plaintiffs' appellate brief asserts that whether a document purportedly incorporated by reference is "readily available" is a question of fact and that the trial court's findings regarding the customer agreements are supported by substantial evidence. Plaintiffs also argue that the theoretical possibility that Vitucci could have provided them with the customer agreements after the forms were signed is irrelevant.
The first step in our analysis is to decide the applicable standard of review. California case law establishes that whether a document is readily available is a question of fact. (Baker v. Osborne Development Corp., supra, 159 Cal.App.4th at p. 895.) Consequently, a trial court's determination regarding availability is a finding of fact subject to review under the substantial evidence standard. (Id. at p. 896 [substantial evidence supported trial court's finding that arbitration provisions were not readily available].)
Our next step is to address defendants' contention that the trial court failed to rule on the question of availability and, therefore, the matter should be remanded for an additional finding.
As defendants correctly note, the trial court did not make an explicit finding regarding the availability of the customer agreements. Defendants, however, have cited no case, statute, or rule of court that requires a trial court's decision on a petition to compel arbitration to contain explicit findings of fact. The trial court's decision regarding arbitration is not subject to the same rules as a statement of decision rendered after a court trial. (See Code Civ. Proc., §§ 632 [statement of decision upon trial of a question of fact], 634 [ambiguities or omissions in statement of decision]; Cal. Rules of Court, rule 3.1590.) Thus, we conclude that the absence of an explicit finding regarding availability is not, by itself, a violation of the trial court's duties or a sufficient basis for reversing the order denying arbitration and remanding for additional findings.
Defendants argue against the existence of an implicit finding of fact by citing the following principle:
In Wagner Construction Co. v. Pacific Mechanical Corp., supra, 41 Cal.4th 19, the California Supreme Court concluded that the trial court did not decide certain questions of fact and remanded the case for further proceedings. (Id. at p. 31.) The court reached this conclusion because the trial court's statement of decision expressly declined to make such findings. As a result the Supreme Court refused to infer the findings necessary to support the judgment. (Ibid.)
By comparison, the trial court in this case did not expressly decline to make a finding regarding whether the customer agreements were readily available to plaintiffs when they signed the account worksheets. Therefore, the reason that our Supreme Court refused to infer the trial court made a particular finding in Wagner Construction Co. v. Pacific Mechanical Corp., supra, 41 Cal.4th 19 does not exist in this case.
In Bouton v. USAA Casualty Ins. Co., the appellate court had two reasons for concluding that the trial court did not decide a particular factual question—namely, whether the plaintiff was an insured under the insurance policy. "The record d[id] not support a reasonable inference that the court considered the evidence submitted by [plaintiff] on the question whether he [was] an insured under the Policy or that it made a finding, based on that evidence, that [plaintiff was] or [was] not an insured under the Policy." (Bouton v. USAA Casualty Ins. Co., supra, 167 Cal.App.4th at p. 422.)
In contrast to the situation presented in Bouton v. USAA Casualty Ins. Co., here the trial court's written decision discusses evidence regarding the availability of the customer agreements to plaintiffs. For example, the court specifically mentioned the testimony of Pinedo about Vitucci's custom and habit of not giving documents to clients and stated that it found the testimony persuasive. Therefore, unlike Bouton, this is not a case where the trial court failed to consider the evidence relevant to the question of fact in dispute. (See Bouton v. USAA Casualty Ins. Co., supra, 167 Cal.App.4th at p. 422.)
The second basis for the Bouton court's determination was that the record did not support a reasonable inference that the trial court made a finding on the factual question in dispute. (Bouton v. USAA Casualty Ins. Co., supra, 167 Cal.App.4th at p. 422.) The court reached this determination based on its interpretation of (1) the arguments presented to the trial court and (2) the trial court's written decision denying arbitration. (Ibid.)
Our inquiry into what inferences are reasonable from the record presented in this case must take into account the following precedent:
In other words, appellate courts will infer the trial court made an implicit finding of fact necessary to support the judgment where the record contains substantial evidence to support that finding. (Leavitt v. County of Madera (2004) 123 Cal.App.4th 1502, 1526; SFPP v. Burlington Northern & Santa Fe Ry. Co. (2004) 121 Cal.App.4th 452, 462 [implied finding of fact must be supported by substantial evidence, otherwise appellate court may not infer it exists]; see People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1143 [under abuse of discretion standard of review, appellate court must accept trial court's implied findings of fact supported by substantial evidence].)
Consequently, in this case we will infer the trial court implicitly found that the customer agreement was not readily available to plaintiffs when they signed the account worksheets only if the record contains substantial evidence to support that finding.
The first factual dispute regarding availability is whether defendants provided plaintiffs with a copy of the customer agreements before or during the meeting at which plaintiffs signed the account worksheets.
Vitucci's declaration stated that he provided all plaintiffs with a copy of the customer agreement.
In contrast, the declaration of Pinedo stated that the customer agreement was not a document supplied to clients who met with Vitucci and his staff in the Modesto office. At the evidentiary hearing, Pinedo testified that he never saw Vitucci (1) use a customer agreement in any meeting with clients or (2) give a customer agreement to any client. Pinedo also testified that it was not common practice to use the customer agreement.
The declaration of Teresa Reed, who was employed as Vitucci's processing manager at the Walnut Creek office, states that the customer agreement was not a document that Vitucci ever used in meeting with clients, or ever supplied to clients, during the time that she worked for him. At the evidentiary hearing, Reed testified that when Vitucci asked her to print out client forms, he told her the customer agreement was not needed and that it was a waste of paper.
The record also contains the declarations of three of Vitucci's clients who stated that they have kept all of the documents given to them and those documents do not include a customer agreement.
The trial court's written decision stated that it found Pinedo's testimony persuasive on the issue of the custom and habit of Vitucci of not giving documents to clients. Pinedo's testimony is circumstantial evidence that Vitucci, in accordance with his custom and habit, did not provide copies of the customer agreement to Nienstadt or to the Finks. The testimony of Reed, as well as the declarations of other customers, is additional circumstantial evidence that the customer agreements were not provided to plaintiffs.
We conclude from all of this that substantial evidence provides a reasonable basis for inferring Vitucci did not provide copies of the customer agreement to plaintiffs. Consequently, we conclude the trial court made such an implied finding.
The next factual dispute between the parties regarding availability concerns what would have happened if plaintiffs had requested a copy of the customer agreement during the meeting at which they signed the account worksheets.
Defendant's opening brief contends that "[h]ad plaintiffs requested copies of the Customer Agreement, Vitucci would have printed it for them. [Citation.] There is no contrary evidence." In defendants' view, "the evidence conclusively establishes that the Customer Agreement was readily available" and the denial of arbitration cannot be upheld on the ground the elements necessary for incorporation by reference were not established. Plaintiffs contest defendants' assertion that Vitucci could and would have printed customer agreements for plaintiffs had they requested them.
Vitucci's declaration states that the customer agreement was easily accessible on the intranet Web site maintained by SagePoint Financial, Inc., and that, when he was asked for a copy, he would print it out from the Web site or ask an employee to make a copy from one previously printed. His declaration, however, does not address whether, at the time of the June 2007 meetings, his Modesto office was capable of connecting to the intranet Web site and printing the forms.
Plaintiffs contend the customer agreement was not readily available to them and it would not have been provided to them at the meeting had they requested it. Among other things, plaintiffs point to the speed with which the meetings were conducted and the lack of a computer in the Modesto office to print the forms. In addition, plaintiffs rely on their declarations, which describe the difficulty they had in getting copies of documents from Vitucci after the meeting and that the documents eventually provided did not include a copy of the customer agreement.
At the evidentiary hearing, Pinedo was asked if there was a computer in the office that Vitucci or Nevin used to print out forms when meeting with prospective clients. Pinedo answered that (1) there was no computer for printing forms until Nevin brought in a computer and placed it in the back office and (2) it was done after Vitucci had met with most of the larger clients and he had stopped coming to Modesto regularly.
The evidence regarding (1) the manner in which the meetings were conducted, (2) when the computer for printing out forms was brought to the Modesto office, and (3) Vitucci's delays and omissions in providing documents requested after the meetings is circumstantial evidence that supports a finding of fact that the customer agreement was not readily available to plaintiffs at the time the account worksheets were signed. The trial court could reasonably have inferred that Vitucci and Nevin would have deflected the request rather than take the time to print out the customer agreement or that they did not have the ability to print the customer agreement from the Web site at the time of the June 2007 meetings because a computer had yet to be set up for that purpose.
Consequently, we conclude that substantial evidence supports an implied finding that the customer agreement was not readily available to plaintiffs before or during the meeting at which they signed the account worksheets. Based on this implied finding, we conclude that the arbitration provision contained in the customer agreement was not validly incorporated by the reference into the account worksheet signed by plaintiffs. Thus, the trial court correctly concluded that the arbitration provision was not part of an enforceable contract between plaintiffs and defendants.
Based on the foregoing, we need not consider plaintiffs' theories concerning (1) the absence of mutuality of agreement and (2) constructive fraud in the inception of the agreement based on the existence and breach of a fiduciary duty to explain the material terms of the agreement.
The order denying the petition to compel arbitration is affirmed. Plaintiffs shall recover their costs on appeal.
WE CONCUR.
CORNELL, Acting P.J.
HILL, J.
