Opinion ID: 1160537
Heading Depth: 3
Heading Rank: 3

Heading: Sufficiency of Plaintiffs' Showings of Fraud in the Execution

Text: It remains only to apply the foregoing test to the facts shown by the plaintiffs' declarations. We first examine the evidence common to most or all plaintiffs. (10) Many plaintiffs in the instant case declare GWFSC representatives told them the written client agreements were unimportant, or that plaintiffs need not read them. (See, e.g., declarations of Allen [`it's not necessary to read them']; Fitzgerald [documents just restated what he had already told me]; George Lampel [documents were necessary for us to open our account but were merely standard forms and just repeated what he told us]; Pupo [`just a formality for opening your account']; Rosenthal [just a formality and they just restated what he had already told me]; and Warren [not necessary to read the form].) Such statements, even if falsely and fraudulently made, do not void a written contract, because it is generally unreasonable, in reliance on such assurances, to neglect to read a written agreement before signing it. One party's making of such an assurance does not, by itself, deprive the other party to a prospective contract of the reasonable opportunity to discover the character and essential terms of the agreement. [12] Many plaintiffs also declare they were longtime depositors with GWB before they invested in mutual funds with GWFSC, and were led to believe the GWFSC representative worked for GWB. Plaintiffs generally contend, and some expressly declare, that for these reasons they placed their trust in the GWFSC representatives and relied upon the representatives' assurances they did not need to read the contract. Floyd Allen, for example, declares he had banked at the same GWB branch for 30 years and believed the woman who sold him the funds to be an employee of GWB, since her desk was near the tellers [one of whom referred Allen to her] and was in the same room as the other bank operations. Betty Connolly banked at the same GWB branch for more than 25 years. A GWFSC representative called her from the GWB branch to discuss her GWB certificate of deposit, which was expiring. Because he had information regarding her GWB account, and because his desk was in the branch along with other banking operations desks, she thought he was a GWB employee. She signed the client agreement without reading it, because I trusted Great Western and its employees and he [the representative] had said that the forms just repeated what he had told me.... Ruby Rosenthal, 94 years old, had banked at GWB for about 30 years. She thought the GWFSC representative worked for GWB because he worked in the same area as GWB staff, and had her telephone number and access to her bank records. She relied on the representative, signing the client agreement without reading it. Other plaintiffs make similar declarations. Plaintiffs' long-term relationship with GWB and their belief the GWFSC representatives actually represented GWB do, to some degree, explain their asserted reliance on the representatives' assurances they need not read the client agreements. We do not believe, however, these facts are so compelling as to make reasonable plaintiffs' complete reliance on the representatives. To make out a claim of fraud in the execution, it must be remembered, plaintiffs must show their apparent assent to the contracts  their signatures on the client agreements  is negated by fraud so fundamental that they were deceived as to the basic character of the documents they signed and had no reasonable opportunity to learn the truth. By their claim of fraud in the execution, plaintiffs do not seek equitable relief in the form of rescission or reformation, or damages for being misled, but, rather, a judicial determination they never assented to any contract. Because the facts described above do not establish these plaintiffs lacked a reasonable opportunity to learn the character of the documents they signed, they do not prove fraud sufficient to make the contracts wholly void. (11) Plaintiffs also contend GWFSC and its representatives owed them a fiduciary duty and breached that duty by failing accurately to explain to plaintiffs the terms of the agreement. The existence of a fiduciary relationship, plaintiffs further contend, excuses their failure to read the client agreements before signing them. GWFSC argues that a stockbroker's fiduciary duty to the customer does not include the giving of legal advice, such as the explanation of contractual terms. Granting the existence of a fiduciary relationship between securities brokers and their customers, the scope of the duty varies with the facts of the relationship. (See Duffy v. Cavalier (1989) 215 Cal. App.3d 1517, 1535 [264 Cal. Rptr. 740] [The question is not whether there is a fiduciary duty, which there is in every broker-customer relationship; rather, it is the scope or extent of the fiduciary obligation, which depends on the facts of the case.].) Plaintiffs, according to their declarations, were given reason to believe the GWFSC representatives worked for GWB, an institution with which they had long acquaintance, and therefore might reasonably have regarded the representatives as generally trustworthy. Nonetheless, they had no ongoing relationship with GWFSC or its representatives. At the times the claimed nondisclosures occurred, no agency relationship had yet been formed, and those aspects of a broker's duty that derive from his or her role as the investor's agent are therefore not applicable. Under these circumstances, we find no authority for the proposition the fiduciary obligations of a broker extend to orally alerting the customer to the existence of an arbitration clause or explaining its meaning and effect. (See Gouger v. Bear, Stearns & Co., Inc. (E.D.Pa. 1993) 823 F. Supp. 282, 286-288; Castro v. Marine Midland Bank, N.A. (S.D.N.Y. 1988) 695 F. Supp. 1548, 1551; Rush v. Oppenheimer & Co., Inc., supra, 681 F. Supp. at p. 1052.) As to other terms of the agreement, such as the risks and benefits of the investments, the question of a breach of fiduciary obligations is a separate matter  in this case for the arbitrators  which we do not address. It should be stressed that plaintiffs' declarations do not establish any actual concealment by GWFSC of the arbitration clause, or any affirmative misrepresentations regarding the existence or meaning of an arbitration clause in the client agreements. The client agreement is a one-page (legal size) document; the arbitration agreement is in bold print in the center of the page's right column of text. It includes a brief explanation of the meaning of arbitration, including the important facts that arbitration is final and binding, that parties to arbitration waive their right to jury trial, and that judicial review of the award is strictly limited. Immediately above the signature line, moreover, is a bold-print reminder that this agreement contains a predispute arbitration clause above in paragraphs 9 and 10. Under these circumstances, plaintiffs understandably rest on their complete failure to read the agreements, which failure they argue was excused by GWFSC's fraudulent misrepresentations as to the nature of the documents, rather than on any specific claims of concealment or misrepresentation as to the arbitration clauses themselves. As we have already concluded, however, the relationship between plaintiffs and GWFSC representatives was insufficient to make reasonable plaintiffs' reliance on the representatives' assurances they need not read the agreements. [13] We conclude that the statements of GWFSC representatives to the effect the client agreements were merely a formality, or did not need to be read, were insufficient, even in light of the parties' relationship, to warrant a finding of fraud in the inception of the agreements. As to those plaintiffs whose declarations disclose no additional evidence of fraud, the petition to compel should have been granted. [14] The remaining plaintiffs' declarations require individual discussion. (12) Plaintiff Giovanna Greco declares she is an 81-year-old Italian immigrant, who speaks only a few words of English and cannot read English at all. (Her signed declaration is in Italian, with an unsigned English translation provided.) Greco's daughter, plaintiff Rosalba Kasbarian, describes herself as a 45-year-old Italian immigrant, who is able to speak and understand simple English, but cannot read English very well at all, and has difficulty reading complicated words or legal terms. (Kasbarian's signed declaration is in English.) Greco and Kasbarian were depositors of GWB. Kasbarian received a telephone call from a man named Dominick, who said he was with Great Western and could help Kasbarian and Greco obtain a higher return than they were getting on their certificates of deposit. Kasbarian and Greco met with Dominick  apparently Dominick Divine, a GWFSC representative  who they thought worked for GWB. Divine described a safe investment with a high return, and they agreed to deposit money in it. According to Greco, she told Divine she could not understand a lot of what he was saying because her English was so poor. He then took out some papers, which he held in his hand and said that he would read them for us and that Rosalba should translate for me. She translated for me what he was saying as he glanced over the documents. He again described the investment as having no risk of loss of principal and as `not at all like stocks.' Divine never mentioned the word `arbitration' or that I was giving up any of my legal rights. Greco did not understand she was investing in a mutual fund or that she was agreeing to waive her legal rights in case of a dispute. Greco continues, After describing what the documents supposedly said, he said, `you just need to sign this to open the account.' He explained that the documents he wanted me to sign `just repeat what I told you and your sister [ sic ].' Because I trusted him to have correctly described the documents to me, I signed them where he pointed for me to sign. Several months later, according to Greco, she and Kasbarian returned to the branch to deposit more money in their new account, and met with a different representative, Nina Daikovich. Daikovich, like Divine, purported to describe the investment accurately for them, but did not mention arbitration and urged them to `just sign here.' Kasbarian's narration of the interactions with Divine and Daikovich is consistent with Greco's. Greco and Kasbarian's declarations, if believed (and interpreted, where ambiguous or self-contradictory, in plaintiffs' favor), would establish facts sufficient to show reasonable reliance as an element of fraud in the execution of the client agreements. In light of plaintiffs' prior relationship with GWB, which they were led to believe was also the employer of Divine and Daikovich, their limited ability to understand English, and Divine and Daikovich's representations that their oral recitals accurately reflected the terms of the agreements, plaintiffs would not have been negligent in relying on the GWFSC representatives instead of reading the agreements themselves. (See C.I.T. Corporation v. Panac, supra, 25 Cal.2d at pp. 553-560 [plaintiffs' functional illiteracy in English, together with other party's misrepresentations regarding the character of the written contract, incomplete oral reading of the agreement, and urgings that plaintiffs sign it without reading it themselves or obtaining independent advice, held sufficient to support finding of fraud in the inception].) Under these circumstances, we conclude, the alleged fraud of GWFSC's representatives, if true, would have deprived Greco and Kasbarian of a reasonable opportunity to learn the character and essential terms of the documents they signed. (Rest.2d Contracts, § 163, p. 443.) The facts in Greco and Kasbarian's declarations, however, are far from undisputed. Divine and Daikovich both submitted responsive declarations contradicting plaintiffs on several critical points, including plaintiffs' English language abilities, the representatives' failure accurately to explain the investments, and the representatives' assurances plaintiffs did not need to read the client agreement. Indeed, Daikovich denies she opened an account for Greco and Kasbarian; instead, she states she opened an account for Greco and her son, Rosario Greco. Daikovich's version is supported in this respect with a copy of a client agreement signed by Greco and Rosario Greco, but not by Kasbarian. An earlier agreement is signed by Greco and Kasbarian. In addition, plaintiffs' declarations are in some respects vague, ambiguous and internally inconsistent. These factual issues are to be resolved by the trial court, as described earlier in this opinion. (13) Plaintiff Jodie Anne Rosen, 30 years old, is legally blind as a result of a 1989 industrial injury. She initially placed her workers' compensation settlement of $125,000 in a short-term GWB certificate of deposit. She chose GWB, where she herself had banked for several years, because my family had banked with Great Western for decades. Shortly thereafter, a GWB employee referred her to Carlos Ferlini, a GWFSC representative, whom the employee described as Great Western's Investment Counselor. Because she recognized Ferlini as a former GWB teller, because Ferlini had access to her account, and because Ferlini's desk was right next to the loan department, she never doubted he was a GWB employee. At the outset of her meeting with Ferlini, Rosen told him she was legally blind so that he would know that he would have to explain things to me and not rely on my being able to read documents. Ferlini told her he had a safe, `government secured' investment for her that would earn 12.5 percent interest. He never told her she was investing in a mutual fund, nor did he mention the arbitration clause or tell her she was waiving her legal right in case of a dispute. After she agreed to invest $110,000 of her settlement money in this `Sierra Fund,' Rosen declares, the following occurred: Mr. Ferlini took out some documents and told me to sign them to open the new account. I told him that I could not read print that small.... Mr. Ferlini explained, `These documents just repeat what I have told you. You just need to sign by the Xs.' I told him I could not even see the `Xs' to know where to sign. He then said, `Okay, just sign where my finger is' and he then pointed to several places where I was supposed to sign. My sister, Sundae Rosen, who had come over to the table in the middle of my discussion with Mr. Ferlini, asked what I was signing. Mr. Ferlini said, `It is just a signature card.' [¶] I trusted Mr. Ferlini and thought that I was signing a signature card and some form documents to open an account. Rosen's signed declaration is followed by an attestation from her sister Sundae that Sundae accurately read Rosen the declaration before Rosen signed it. Rosen's declaration, if believed and interpreted in her favor, shows facts that would suffice to establish reasonable reliance for purposes of showing fraud in the execution of the agreement. In light of Rosen's prior relationship with GWB, by whom she reasonably thought Ferlini was employed, her warnings to Ferlini that she could not read the documents, Ferlini's assurances they only repeated what he had told her, and his assurance that Rosen was only signing a signature card, Rosen's failure to take additional steps to learn the contents of the written agreement would not have been negligent. GWFSC's asserted fraud would have deprived her of a reasonable opportunity to learn the character and essential terms of the documents she signed. Rosen's declaration is contradicted by evidence submitted by GWFSC. Although Ferlini did not provide a declaration, GWFSC representative Bret Davidson declares it was he, not Ferlini, who initially met with Rosen. Davidson then introduced Rosen and her sister to Ferlini, who gave them a full presentation. Finally, Davidson filled out the paperwork, reviewed it with her, and obtained her signature. According to Davidson, Rosen never said or demonstrated she was visually impaired. She signed the client agreement and other documents without his aid and without saying she could not read them. The trial court, as discussed above, must resolve these testimonial conflicts. Plaintiff Dorothy Bied did not submit a declaration. However, her daughter and guardian ad litem, Cecile Talsky, declares that Bied, 80 years old, is suffering from Alzheimer's disease. As a result, she has severe memory loss, diminished understanding and is incapable of understanding complicated monetary transactions. According to Talsky, Bied has banked with GWB for 30 years. After learning Bied had, in January 1994, transferred some of her savings to a Sierra Fund, Talsky informed Great Western's branch office that her mother had Alzheimer's disease and should not be permitted to transfer money from certificates of deposit to mutual funds. In October 1994, however, Talsky discovered her mother had agreed to transfer additional savings into the mutual fund. Talsky telephoned GWFSC representative Joseph Duncan and told him to cancel the investment. She told Duncan her mother had Alzheimer's, could not understand the investments, and had, in May 1994, given her and her brother a power of attorney. Although Duncan assured her he would cancel the transaction, he did not. Talsky's declaration provides no evidence any GWFSC representative made any fraudulent statement to Bied in the course of securing her apparent assent to the investments. It is possible, however, that Bied, in light of her asserted disability, can establish constructive fraud in GWFSC's abuse of a confidential or fiduciary relationship. (Civ. Code, § 1573; 1 Witkin, Summary of Cal. Law, supra, Contracts, §§ 400-401, pp. 360-362.) The parties have not specifically briefed this point with regard to Bied, and the facts of her case are so unclear and in such dispute that legal analysis of the question would be premature. [15] In any event, Talsky's declaration, if believed, raises a factual issue as to Bied's capacity to contract; if extreme enough, her mental deficiency could render void any contract to which she apparently assented, including client agreements containing the arbitration clause. (See 1 Witkin, supra, § 358, p. 326.) On remand, the trial court must find the facts and decide whether they render the contract void under either theory. Two other plaintiffs, Raul Pupo and Felix Segarra, produced evidence of limited facility with English, but have not shown facts sufficient to make their complete reliance on GWFSC's representatives reasonable. Unlike Greco and Kasbarian, neither Pupo nor Segarra presents evidence the representative purported to read the contract to them or to explain its full contents orally. Unlike Rosen, they present no evidence they told the representative they could not read the contracts, a fact that in Rosen's case made more reasonable her reliance on the subsequent misrepresentations. As far as appears from his declaration, moreover, Pupo had no prior relationship with GWFSC, GWB or the representative. Under these circumstances, Pupo and Segarra's failure to take measures to learn the contents of the document they signed is attributable to their own negligence, rather than to fraud on the part of GWFSC or its representatives.