Arges v. LPL Fin., LLP

TERRANCE ARGES, Plaintiff and Appellant, v. LPL FINANCIAL, LLP, Defendant and Respondent.

D076790

COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA

November 24, 2020

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Super. Ct. No. 37-2019-00014334-CU-BC-CTL)

APPEAL from an order of the Superior Court of San Diego County, Ronald F. Frazier, Judge. Affirmed.

Mirch Law Firm, Kevin J. Mirch and Marie C. Mirch for Plaintiff and Appellant.

Markin Zusman Freniere & Compton and Kevin K. Eng for Defendant and Respondent.

IINTRODUCTION

Plaintiff Terrance Arges appeals an order granting defendant LPL Financial LLP's (LPL) special motion to strike Arges's complaint under Code of Civil Procedure section 425.16 (the anti-SLAPP law).¹ LPL, a securities broker-dealer firm, and Arges, a broker who worked for LPL, were named as defendants in a lawsuit filed by an individual named Yulia Romero (hereafter, the Romero litigation). In that lawsuit, Romero alleged Arges engaged in investment-related misconduct while he was an agent of LPL. LPL disclosed the Romero litigation to Financial Industry Regulatory Authority, Inc. (FINRA), a self-regulatory organization that oversees securities firms that do business with the public. (Flowers v. Financial Industry Regulatory Authority, Inc. (2017) 16 Cal.App.5th 946, 949 (Flowers).) Arges then filed this action against LPL based on LPL's disclosure of the Romero litigation to FINRA.

We conclude the trial court properly granted LPL's anti-SLAPP motion. LPL's disclosure was protected conduct as a communication made before an official proceeding. (§ 425.16, subd. (e)(1).) Further, Arges did not establish a probability of success as to his causes of action because LPL's disclosure was protected by the official proceeding privilege codified in Civil Code section 47, subdivision (b). (§ 425.16, subd. (b)(1).) Therefore, we affirm the order granting LPL's anti-SLAPP motion.

IIBACKGROUND

AFINRA

FINRA is a private, not-for-profit corporation and a self-regulatory organization authorized under title 15 United States Code section 78o-3 et seq. (Flowers, supra, 16 Cal.App.5th at p. 949.) FINRA is " ' "responsible forregulatory oversight of all securities firms that do business with the public; professional training, testing and licensing of registered persons; [and] arbitration and mediation" ' " of disputes between investors and securities firms. (Lickiss v. Financial Industry Regulatory Authority (2012) 208 Cal.App.4th 1125, 1128 (Lickiss).) It is "subject to extensive oversight" by the U.S. Securities and Exchange Commission (SEC) (Flowers, at p. 950), and it has the "power to promulgate rules that, once adopted by the SEC, have the force of law," (McDaniel v. Wells Fargo Investments, LLC (9th Cir. 2013) 717 F.3d 668, 673).²

"Before engaging in activities as a registered representative for a FINRA-member firm, all registered representatives of broker-dealers, investment advisors, and securities issuers must sign a 'Uniform Application for Securities Industry Registration or Transfer,' commonly referred to as Form U-4." (Valentine Capital Asset Management, Inc. v. Agahi (2009) 174 Cal.App.4th 606, 613; see Cal. Code Regs., tit. 10, § 260.210, subd. (a).) "The Form U-4 is a contract between the regulatory organization (here FINRA) and the individual registrant." (Valentine, at p. 613.) It "requires a detailed history of the applicant's background, including past history in the securities industry and any customer complaints that may have arisen in that connection." (5 Hazen, Treatise on the Law of Securities Reg. (7th ed. 2020) FINRA Reg. of Associated Persons, § 14:67.) After the Form U-4 is completed, the member-firm must file the executed Form U-4 with FINRA onbehalf of the registered representative.³ (FINRA Bylaws, Art. V, § 2; FINRA Rule 1010; Cal. Code Regs., tit. 10, § 260.210, subd. (b)(1).)

When a registered representative departs a member-firm, the firm is required to file with FINRA a Uniform Termination Notice for Securities Industry Registration Form (Form U-5) (together with the Form U-4, the U-Forms). (FINRA Bylaws, Art. V, § 3(a); see Cal. Code Regs., tit. 10, § 260.210, subd. (b)(4).) The Form U-5 requires the firm to "explain the reasons for termination" and answer "questions that address whether the employee ha[s] been subject to criminal charges, customer complaints or an internal review for violating investment-related rules."⁴ (Rosenberg v.Metlife, Inc. (2007) 8 N.Y.3d 359, 362 (Rosenberg).) The Form U-5 alerts FINRA to "possible misconduct by members of the securities industry, and investigations of misconduct reported on the Form U-5 frequently lead to the initiation of disciplinary action" by FINRA against registered representatives. (Wright, Form U-5 Defamation (1995) 52 Wash. & Lee L.Rev. 1299, 1304; see FINRA Reg. Notice 10-39 (Sept. 2010).)

Under the Securities Exchange Act of 1934, FINRA is required to "maintain information in a central registration depository (CRD) database about its member firms as well as their current and former registered representatives, including their broker representatives." (Flowers, supra, 16 Cal.App.5th at p. 950; see 15 U.S.C. § 78o-3(i)(1)(A).) "In general, information in the CRD system is obtained through [U-Forms] ...." (Securities and Exchange Com., Release No. 34-88760 (Apr. 28, 2020), 85 Fed.Reg. 26502, 26503 (May 4, 2020).) Certain information from the CRD—including information obtained from U-Forms—is published and made available to the public on an online application called BrokerCheck. (Lickiss, supra, 208 Cal.App.4th at p. 1129.)

BThe Romero Litigation

Arges is a financial broker. In March 2013, he became a registered representative of LPL, a securities broker-dealer firm licensed and registered with FINRA. Arges departed LPL in April 2016.

In March 2017, an individual named Yulia Romero filed a state court complaint against Arges and LPL based on conduct Arges allegedly undertook while he was a registered representative of LPL. Romero alleged Arges convinced her to "entrust her funds to his control and decision-making, so that he could create and build a client portfolio ...." She alleged Argesopened a stock trading account in her name, "traded, gambled, and lost $120,000 of [her] money on speculative, unsuitable, risky, market-timing stock trades," and threatened her to "prevent her from seeking redress for his improprieties." She also alleged LPL, in its capacity as Arges's principal, failed to advise her of the risks associated with Arges's stock trades. Based on these allegations, Romero asserted a negligence cause of action against LPL and breach of fiduciary duty, breach of contract, fraud, negligent misrepresentation, unfair business practices, negligence, and extortion causes of action against Arges.

Soon after Romero filed suit, Romero and LPL reached a settlement agreement. Under the settlement agreement, Romero dismissed LPL from the case in return for $15,000.

Arges filed a cross-complaint against Romero, the details of which are not apparent from the record. Romero and Arges later reached a settlement agreement under which Romero dismissed her causes of action against Arges. According to Arges, Romero "pa[id] a substantial settlement amount" to him under the settlement agreement.

LPL reported the Romero litigation to FINRA on its U-Form filings. The reported information was added to the CRD and made publicly-available on Arges's BrokerCheck report. Under a heading that reads "Customer Dispute - Settled," Arges's BrokerCheck report includes two disclosures related to the Romero litigation.

LPL provided the first disclosure, which identifies the Romero litigation by caption, docket number, and court, and summarizes the Romero litigation as follows:

[ROMERO] ALLEGES BREACH OF FIDUCIARY DUTY, BREACH OF CONTRACT, FRAUD, MISREPRESENTATION, NEGLIGENCE, EXTORTION, FAILURE TO SUPERVISE WITH

REGARD TO CLAIMS THAT [ARGES] SOLICITED HER TO INVEST IN ALLEGEDLY UNSUITABLE SECURITIES VIA AN ONLINE BROKERAGE ACCOUNT, WHICH BROKERAGE ACCOUNT WAS NEITHER OFFERED NOR APPROVED BY LPL, AND FURHTER [sic] THAT SHE SUSTAINED LOSSES OF $120,000, WHICH [ARGES] EXTORTED HER NOT TO DISCLOSE.

LPL's disclosure states the Romero litigation was settled, there was a "Monetary Compensation Amount" of $15,000, and there was an "Individual Contribution Amount" of zero for the settlement. It also includes a statement from LPL indicating that, according to LPL's records, Romero was not an LPL customer.

Arges provided the second disclosure, which includes substantially the same information as LPL's disclosure, as well as the following statement from Arges:

[Romero] is my ex-fiancé who sued me after our relationship ended. She traded her own account at a discount broker [sic] and made some of the trades I did in my account. She also bought stocks that I did not. I never asked for or received any commissions. She chose not to open an account with me to avoid paying any fees to my firm. There was no contract, compensation, or brokerage relationship. The claims are false and I will seek expungement under the applicable FINRA rules.

CThe FINRA Arbitration and the Present Litigation

Arges undertook a two-prong approach to remove the information concerning the Romero litigation from the CRD and BrokerCheck.

First, Arges filed an arbitration with FINRA's Office of Dispute Resolution to expunge the information under FINRA Rule 2080. In his statement of claim, Arges alleged he never served as Romero's broker, Romero's complaint was false, and the publicly-available information concerning the Romero litigation impeded his ability to obtain employmentand clients. He...