November 24, 2009
FRANK LOBOSCO, PLAINTIFF-APPELLANT,
BLACKROCK, INC., AND MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., DEFENDANTS-RESPONDENTS.
On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-9342-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued October 26, 2009
Before Judges Rodríguez, Reisner and Yannotti.
Plaintiff Frank Lobosco appeals from an order entered by the trial court on June 6, 2008, granting a motion by defendants to compel arbitration, and an order entered on April 16, 2008, denying plaintiff's motion for an accounting. For the reasons that follow, we affirm.
On May 15, 1996, plaintiff met with representatives of Merrill Lynch, Pierce, Fenner & Smith Inc. (Merrill Lynch) and Merrill Lynch Investment Managers (MLIM) to open an investment account. On June 14, 1996, plaintiff signed a document entitled, "Merrill Lynch Asset Management Investment Objective," which indicated, among other things, that his "[p]rimary objective is to seek to earn a total rate of return modestly greater than that provided by a Portfolio equally divided between U.S. stocks and bonds."
On June 26, 1996, defendant executed the Merrill Lynch Asset Management Agreement (the Management Agreement), under which Merrill Lynch Asset Management, L.P. (MLAM) agreed to act as his investment manager. The following appears above plaintiff's signature:
BY SIGNING BELOW, THE UNDERSIGNED ACKNOWLEDGE(S): (1) THAT IN ACCORDANCE WITH THE ABOVE PARAGRAPH 28 ON THE THIRD AND FOURTH PAGES OF THIS CONTRACT, THE UNDERSIGNED AGREE(S) IN ADVANCE TO ARBITRATE ANY CONTROVERSIES WHICH MAY ARISE; AND (2) RECEIPT OF A COPY OF THIS CONTRACT.
Paragraph 28 of the Management Agreement states in pertinent part that arbitration would be "final and binding on the parties" and "[t]he parties are waiving their right to seek remedies in court, including the right to jury trial." Paragraph 28 additionally states:
WE AND YOU AGREE THAT ANY CONTROVERSY WHICH MAY ARISE BETWEEN US CONCERNING THIS AGREEMENT OR ANY TRANSACTION OR OTHER AGREEMENT (WHETHER ENTERED INTO BEFORE, WITH OR AFTER THIS AGREEMENT) SHALL BE DETERMINED BY ARBITRATION CONDUCTED BEFORE AND PURSUANT TO THE CONSTITUTION AND RULES OF THE BOARD OF DIRECTORS OF THE NEW YORK STOCK EXCHANGE, INC., OR BEFORE AND PURSUANT TO THE CODE OF ARBITRATION PROCEDURE OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., AS YOU MAY ELECT. . . .
On March 16, 1998, plaintiff signed the Merrill Lynch IRA/IRRA/SEP/SRA Adoption Agreement (the Adoption Agreement). The following appears above plaintiff's signature:
This Agreement, when signed by me and accepted by Merrill Lynch, Pierce, Fenner, & Smith Incorporated ("Merrill Lynch"), as Custodian, incorporates the Merrill Lynch Individual Retirement Account Custodial Agreement (the "IRA Custodial Agreement"). By signing this agreement (the "Adoption Agreement"), I acknowledge (1) that there are fees for this account, (2) receipt of a copy of the Adoption Agreement and of the Merrill Lynch IRA Disclosure Statement and IRA Custodial Agreement, and (3) that, in accordance with section 6.4 of the IRA Custodial Agreement (on pages 23 and 24 of the Merrill Lynch IRA Disclosure Statement and IRA Custodial Agreement), I am agreeing in advance to arbitrate any controversies which may arise with the custodian.
Section 6.4 of the IRA Disclosure Statement is substantially the same as paragraph 28 of the Management Agreement. Section 6.4 states, among other things, that:
You agree that controversies which may arise between us including, but not limited to, those involving any transaction or the construction, performance or breach of this or any other agreement between us, whether entered into prior, on or subsequent to the date hereof, shall be determined by arbitration.
On November 5, 2007, plaintiff filed a complaint in the Law Division which named Merrill Lynch and MLAM as defendants. Plaintiff asserted that MLAM was also known as MLIM and its "successor in interest," BlackRock. Plaintiff alleged that that when he met with Merrill Lynch's and MLIM's representatives on May 15, 1996, he advised them that he had a "conservative investment objective." Plaintiff asserted that his primary aim was to preserve his capital even if it meant that he would earn a lower rate of return on his investment. Plaintiff alleged that Merrill Lynch and MLIM did not follow this investment objective and wrongfully placed his monies in an "inappropriate" type of account.
Plaintiff further alleged that he relied upon Merrill Lynch's and MLIM's representations regarding his investments. He claimed that Merrill Lynch's and MLIM's representations were "knowingly false when made" and his "reliance on [those] representations was reasonable, especially since he had no prior investment experience[.]" Plaintiff sought rescission of the agreement due to fraud in the inducement, the award of compensatory and punitive damages, as well as prejudgment interest and costs of suit.
On February 5, 2008, plaintiff filed an amended complaint, which identified BlackRock as a separate defendant. Plaintiff asserted that MLIM had been merged into BlackRock in September 2006. He asserted additional claims for an accounting, breach of fiduciary duty, and breach of the implied covenant of good faith and fair dealing.
On February 29, 2008, defendants filed a motion to compel arbitration, which was returnable on March 28, 2008. By letter dated March 19, 2008, plaintiff confirmed that defendants had agreed to adjourn the motion to April 11, 2008. Defendants later agreed to adjourn the motion to April 25, 2008. On April 22, 2008, defendant filed papers opposing the motion and a cross-motion for summary judgment on his claim for an accounting.
It appears, however, that the trial court had considered defendants' motion to compel arbitration on March 28, 2008, and entered an order on that date granting the motion. The order stated that the motion had been unopposed. On May 8, 2008, plaintiff filed a motion to vacate the March 28, 2008 order and another motion for an accounting.
The trial court considered the motions on June 6, 2008, and placed its decision on the record on that date. The court determined that plaintiff was required to arbitrate the claims in his complaint. The court entered an order dated June 6, 2008, which vacated the March 28, 2008 order and granted defendants' motion to compel arbitration.
Plaintiff filed his notice of appeal on July 17, 2008. However, because the trial court had not specifically addressed his cross-motion for judgment on his claim for an accounting or his motion for an accounting, plaintiff requested that the trial court enter orders on those motions. The trial court entered orders on April 16, 2009, and April 20, 2009, denying plaintiff's motions.
In this appeal, plaintiff argues that defendants' motion to compel arbitration should have been denied because: 1) defendants failed to submit competent evidence establishing that he agreed to arbitrate his claims; 2) arbitration is not required because he is seeking rescission of the investment agreements on the basis of lack of mutual assent and fraud; and 3) the agreements, including the arbitration clauses, are unenforceable because there was not a meeting of the minds between the parties. In our view, these arguments are without merit.
The record shows that, when they filed their motion to compel arbitration, defendants did not submit the relevant sections of the agreements with an appropriate affidavit or certification. However, after plaintiff filed his motion to vacate the March 28, 2008 order granting defendants' motion to compel arbitration, defendants filed an affidavit from Johnny Olmedo, a Vice President in Merrill Lynch's Office of General Counsel, which attached the relevant provisions of the contracts. Therefore, contrary to plaintiff's assertion, defendants submitted sufficient competent evidence to support the trial court's finding that plaintiff had signed contracts in which he agreed to arbitration of his claims.
Plaintiff additionally contends that the trial court erred by finding that his claims are subject to arbitration. In support of this contention, plaintiff relies upon N.J.S.A. 2A:23B-6(a), which states that "[a]n agreement contained in a record to submit to arbitration any existing or subsequent controversy arising between the parties to the agreement is valid, enforceable, and irrevocable except upon a ground that exists at law or in equity for the revocation of a contract." Plaintiff argues that he is not required to arbitrate his claims because he sought rescission of the agreements and because there was no meeting of the minds between the parties on the essential terms of the agreements.
"Generally recognized contract defenses, such as duress, fraud, and unconscionability, can justify judicial refusal to enforce an arbitration agreement." Delta Funding Corp. v. Harris, 189 N.J. 28, 39 (2006). Nevertheless, it is well established that "[u]nless the arbitration provision itself was a product of fraud, the election [to arbitrate] should be enforced." Van Syoc v. Walter, 259 N.J. Super. 337, 339 (App. Div.), certif. denied, 133 N.J. 430 (1993). See also Lederman v. Prudential Life Ins. Co. of America, Inc., 385 N.J. Super. 324, 338 (App. Div. 2006) (noting that agreement to arbitrate must be enforced unless the arbitration provision is the result of fraud).
Here, plaintiff has not presented sufficient evidence to establish that the arbitration agreement was itself the result of a fraud perpetrated by defendants. As stated previously, plaintiff executed the Management Agreement and the IRA Adoption Agreement. The arbitration provisions were clearly spelled out in both of those agreements. Plaintiff is an attorney. He cannot credibly argue that he did not understand what he was signing or that he was misled into agreeing to arbitration.
Plaintiff additionally argues that BlackRock does not have standing to invoke the right to arbitrate because it was not a party to the agreements. Plaintiff notes that only he and MLAM were parties to the agreements. Plaintiff asserts that MLIM acquired MLAM, and MLIM later was merged into BlackRock. According to plaintiff, BlackRock thereby assumed MLIM's liabilities.
Defendants maintain, however, that BlackRock never assumed any of MLIM's liabilities. That may or may not be so. The critical point is that plaintiff is alleging that BlackRock assumed MLIM's liabilities, including the liabilities arising from its failure to abide by plaintiff's investment objectives. Because plaintiff's claims against BlackRock arise from the subject agreements with MLAM and those agreements require arbitration, plaintiff is required to arbitrate its claims against BlackRock.
Plaintiff also challenges the trial court's orders denying his motions for an accounting. Plaintiff says that the court should have ordered an accounting pursuant to N.J.S.A. 2A:23B-8(a), which provides that [b]efore an arbitrator is appointed and is authorized and able to act, the court, in [a] summary action upon application of a party to an arbitration proceeding and for good cause shown, may enter an order for provisional remedies to protect the effectiveness of the arbitration proceeding to the same extent and pursuant to the same conditions as if the controversy were the subject of a civil action.
In our judgment, plaintiff's argument is without merit. In this matter, plaintiff was not "a party to an arbitration proceeding" when he made his motion for an accounting in April 2008. Indeed, as defendants point out, plaintiff is still not a party to such a proceeding. Thus, N.J.S.A. 2A:23B-8(a) did not authorize the court to enter an order for an accounting.
Furthermore, even if plaintiff's motions for an accounting were not premature, plaintiff failed to establish a basis for the relief he was seeking. At oral argument, plaintiff explained that an accounting is required because defendants have never properly explained the trading in his account. However, plaintiff has not shown that this information cannot be obtained through discovery in the arbitration proceeding.
Finally, plaintiff asserts that the trial court erred by ordering arbitration of his claim for breach of fiduciary duty under the Employee Retirement Income Security Act (ERISA), specifically 29 U.S.C.A. § 1132(a)(2).*fn1 Plaintiff contends that in LaRue v. DeWolff, Boberg & Associates, Inc., 552 U.S. 248, 128 S.Ct. 1020, 169 L.Ed. 2d 847 (2008), the Court recognized this cause of action. Plaintiff argues that he did not waive his right to assert his ERISA claim because the agreements were executed before the LaRue case was decided. The contention fails, however, because plaintiff's claim pertains to an individual retirement account, which is not governed by ERISA.
We have considered the other arguments raised by plaintiff and find them to be of insufficient merit to warrant discussion in this opinion. R. 2:11-3(e)(1)(E).