Appellant securities broker sought review of the order entered by the Superior Court of Los Angeles County (California) which denied appellant's motion to compel arbitration under a customer brokerage agreement of respondent customer's action for breach of fiduciary duty, conversion, and civil conspiracy to commit fraud.
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Overview
Respondent customer filed suit against several parties, including appellant securities broker, for breach of fiduciary duty, conversion, and civil conspiracy to commit fraud. Appellant's motion to compel arbitration under customer brokerage agreements was denied by the trial court. On appeal, the court held that because respondent sufficiently alleged in his complaint that he was induced by fraud to make the agreements and that his assent to the agreements was not voluntary, the determination of whether such fraud or undue influence ever occurred had to be initially determined by a court and not by arbitration. Respondent alleged the type of fraud which went to the inception or procurement of a contract, rather than the performance of the contract, and if this type of fraud were proven, the agreements were void ab initio and the arbitration clause contained therein would fall. The trial court correctly denied appellant's petition to compel arbitration.
Outcome
The court affirmed the trial court's denial of appellant securities broker's motion to compel arbitration because respondent customer alleged fraud in the making of the contract. The matter was remanded for a hearing to determine the threshold issues of whether appellant practiced fraud or undue influence and for further proceedings consistent with those findings.