Opposition Brief — Dean Witter Reynolds, Inc. v. Wederski

CLERK

~ " JOSEPH F. SPANIOL, JR,

\o

NO. 87-595

IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1987

DEAN WITTER REYNOLDS, INC.

and HENRY DUKE

Petitioners,

vs.

BILLIE L. WEDERSKI,

Respondent.

OPPOSITION TO PETITION FOR A WRIT OF

CERTIORARI TO THE COURT OF APPEAL

THE STATE OF CALIFORNIA,

FOURTH APPELLATE DISTRICT,

DIVISION THREE

ARTHUR NAKAZATO

Counsel of Record for Respondent

and

KIRCHER & NAKAZATO

811 West 7th Street, Suite 1100

Los Angeles, CA 90017

(213) 683-1377

Attorneys for Respondent

ata

QUESTIONS PRESENTED

In respondent’s view, the questions

presented are:

(1) Whether respondent’s allegations

to the effect that her consent to the

arbitration provision was induced by

fraud constitute a proper ground for

Genial of a summary motion to compel

arbitration and stay the proceedings;

(2) Whether the Court of Appeal’s

Silence in its opinion as to how or

whether the issue of fraudulent induce-

ment of consent to the arbitration

provision should be tried was contrary to

some provision of the Federal Arbitration

AGt.

atin

TABLE OF CONTENTS

QUESTIONS PRESENTED. .....cscscces

Sik #F sites i: Pe eee oe ree aera

I. THE PETITION SHOULD

BE DENIED SINCE IT IS

JURISDICTIONALLY DEFECTIVE.......

II. THE PETITION SHOULD

BE DENIED SINCE THE THRES-

HOLD QUESTION OF WHETHER

THE ARBITRATION AGREEMENTS

WERE INDUCED BY FRAUD MUST

BE DECIDED BY THE COURTS.........

III. THE CALIFORNIA COURT

OF APPEAL’S DECISION DOES

NOT CONFLICT WITH PRIMA PAINT....

IV. THE PERMEATION DOCTRINE

DOES NOT CONFLICT WITH THIS

COURT’S PRIOR DECISIONS..........

V. THE COURT OF APPEAL’S

SILENCE ON THE ISSUE OF A

SEPARATE TRIAL WAS NOT ERROR.....

COMCEAIG ION oc ce wewe near eee cccccccs

INDEX TO APPENDICES

APPENDIX A - Complaint

10

16

17

a9

20

-iii-

TABLE OF AUTHORITIES

Cases

Cox Broadcasting Corp. v. Cohn,

S20 Uses 469, 95 S.Ct. 1029, 43

ae 7s

Main v. Merrill Lynch,

Pierce, Fenner & Smith,

ing., 67 Cal.App.3d 19,

Bee Geeks mers 278 (1977)... ce sees se om ee

Moseley v. Electronic

Facilities, Inc.,

278 Bees Ber, GOs S.C. 1815,

20 te. ee S18 (1963)....... 6,10-12,17-19

Prima Paint Corp.

v. Flood & Conklin

Mfg. Co., 388 U.S. 395,

SB? wetes. 1801, 18 L.Ed.2d

Seveeee? £2967) ........ 5,10,12-14,16,17.

Rush v. Oppenheimer

& Co., Inc., F.Supp. __,

CCH FED.SEC.RPTR.,

Current Transfer Binder,

493,406 at page 97,117

rn 14

Shearson/American

Express, Inc. v. McMahon,

eee Uses 4 107 S.Ct. 2332,

i Ree Se CEPR SPs sce cee sccceccss $4.32

-~iv-

TABLE OF AUTHORITIES (Cont)

Southland Corp.

v. Keating, 465 U.S. 1,

3104 S.Ct. 852,

99 Gibbs Ge 3 £3GGE) ok ce es

Statutes

20 Ue. 84987 005. nk ks

er Ae te re) ee

Federal Arbitration

AGT, 9 UBC. Ges ccccesses

ies eue 7,8,10,14

NO. 87-595

IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1987

DEAN WITTER REYNOLDS INC.

and HENRY DUKE

Petitioners,

vs.

BILLIE L. WEDERSKI,

Respondent.

OPPOSITION TO PETITION FOR A WRIT OF

CERTIORARI TO THE COURT OF APPEAL

THE STATE OF CALIFORNIA,

FOURTH APPELLATE DISTRICT,

DIVISION THREE

JURISDICTION

As we discuss more fully below, there

is no jurisdiction for the review of the

interlocutory orders of the California

Supreme Court and California Court of

Appeal because the orders do not con-

stitute a final judgment and no special

atm

circumstances exist which would warrant

an immediate appeal.

Further, to the extent petitioners

claim that the Court of Appeal erred in

not specifically ordering a separate

summary trial of the threshold issue of

fraudulent inducement, the Court of

Appeal’s silence on this subject does not

amount to a final judgment.

STATEMENT OF THE CASE

In her complaint, plaintiff and

respondent Billie L. Wederski (herein-

after "Mrs. Wederski”) specifically

alleges that the arbitration agreements

were induced by fraud (Opp.App.A, page

9a). The factual allegations establish-

ing that the arbitration agreements

themselves, as well as the other agree-

ments, were induced by fraud are set

«t=

forth in a section of the complaint

entitled “Fraudulent Inducement of the

Arbitration And Choice of Law

‘Agreements’” (Opp. App.A, page 9a).

Five separate paragraphs describing the

nature and manner in which the defendants

fraudulently jimall Mrs. Wederski to

sign the arbitration agreements are set

forth in this section of the complaint

(Opp. App.A, pages 11a-13a).

Petitioners moved the trial court to

compel arbitration and stay the pro-

ceedings. Mrs. Wederski responded by

filing an opposition. Her opposition was

supported by a seventeen page declaration

that she signed under penalty of perjury.

Mrs. Wederski’s declaration contains

numerous factual allegations describing

and supporting her allegations contained

in her complaint alleging that the arbi-

tration agreements were induced by fraud.

wha

The trial court granted the peti-

tioners’ arbitration petition and motion

to stay in spite of Mrs. Wederski’s

complaint and papers opposing the arbi-

tration petition. Accordingly, Mrs.

Wederski filed a petition for a peremp-

tory writ of mandate in the first

instance in the California Court of

Appeal seeking an order directing the

trial court to vacate its order and to

deny the arbitration petition and stay.

On April 14, 1987, the California

Court of Appeal filed its opinion

granting Mrs. Wederski’s peremptory writ.

In reaching its dectelen, the California

Court of Appeal determined she had

sufficiently alleged that her assent to

all of the brokerage documents was

induced by fraud (Pet.App.A, page 5a).

After the opinion of the Court of Appeal

was issued, petitioners filed a petition

eee

for rehearing in which they contended for

the first time in the Court of Appeal

that the Court should specifically order

a separate trial of the issue of fraudu-

lent inducement and that the permeation

doctrine was in conflict with Prima Paint

Corp. v. Flood & Conklin Mfg. Co., 388

U.S. 395, 400, 87 S.Ct. 1801, 1806, 18

L.Ed.2d 1270, 1277 (1967). The petition

for rehearing was denied. The California

Supreme Court subsequently denied

petitioners’ request for review (Pet.

App.B).

ARGUMENT

The Petition should be denied forth-

with since it is jurisdictionally and

substantively defective. It is jurisdic-

tionally defective in that it improperly

requests this Court to review an un-

-6-

published interlocutory decision where

none of the recognized special cir-

cumstances warranting immediate review

are present.

The petition is also substantively

defective in that it effectively requests

the Court to depart from the express

language of the Federal Arbitration Act,

9 U.S.C. §2, and its longstanding

decision in Moseley v. Electronic

Faciiitios. 166. , 374-0.8. 167; 83 8.Ct.

1815, 10 L.Ed.2d 818 (1963), the seminal

case that the Court of Appeal relied

upon.

I

THE PETITION SHOULD BE DENIED SINCE IT IS

JURISDICTIONALLY DEFECTIVE

Preliminarily, the petition fails to

meet the requirements for a writ of

certiorari pursuant to 28 U.S.C. $1237 (3)

— Pa

because the decision below is not final

and established exceptions to the

finality requirement do not apply.

Petitioners cite without discussion

Southland Corp. v. Keating, 465 U.S. 1,

6-8, 104 8.Ct. 852, 856, 79 L.Ed.2d i, 9-

11 (1984) and Cox Broadcasting Corp. v.

Cohn, 420 U.S. 469, 482-83, 95 S.Ct.

1029, 1039-1040, 43 L.EG.2d 328, 341-342

(1975) in support of their contention

that jurisdiction exists. In these two

cases, jurisdiction was predicated upon

28 U.S.C. §1257(2) which, unlike 28

U.S.C. §1257(3), permits an appeal as of

right. The Court observed in each case

that unless an immediate appeal could be

taken, the State Supreme Court decisions

in question might remain unchallenged

because the party seeking review might

subsequently prevail on the merits,

rendering the federal issues moot, and

linn

the unreviewed state decisions might lead

to a “serious erosion of federal policy.”

pee

In the present case, there is no

comparable danger that letting the

decision of the state’s highest court

stand might erode federal policy. Both

the Court of Appeal decision and the

order of the California Supreme Court

denying review are unpublished and

therefore not only lack precedential

value, but are effectively unknown to all

but the litigants. The Court of Appeal

opinion therefore will have an effect

only upon the parties to the action.

Petitioners also seek review of the

Court of Appeal’s purported refusal to

order a separate trial of the issue of

fraudulent inducement. In the proceed-

ings below, neither the trial court nor

the appellate courts ruled on this issue

nor was any such ruling necessary to

their decisions, and, thus, not only is

there no final judgment from which an

appeal can be taken, there simply is no

judgment at all on this question.

Indeed, the issue was not raised in the

Court of Appeal by petitioners until they

filed their petition for rehearing.

Nothing in the opinion of the Court of

Appeal or the order of the California

Supreme Court purports to decide the

question of whether petitioners are

entitled to a separate trial of the issue

of fraudulent inducement. The Court of

Appeal decided only that the court below

improperly ordered the matter submitted

to arbitration and the proceedings

stayed.

-10-

Il

THE PETITION SHOULD BE DENIED SINCE THE

THE THRESHOLD QUESTION OF WHETHER THE

ARBITRATION AGREEMENTS WERE INDUCED BY

FRAUD MUST BE DECIDED BY THE COURTS

Even if jurisdiction did exist under

28 U.S.C. §1257(3), the petition should

nevertheless be denied.

This Court has repeatedly recognized

that Section 2 of the FAA expressly pro-

vides that arbitration agreements are

subject to revocation on such grounds as

exist at law or in equity for the re-

vocation of any contract. 9 U.S.C. §2

and see Moseley v. Electronics Facili-

ties, Inc., supra, 374 U.S. at 170-171,

83 S.Ct. at 1817-1818, 10 L.Ed.2d at 821

(1963); Prima Paint Corp. v. Flood &

Conklin Mfg. Co., supra, 388 U.S. at 400,

87 S.Ct. at 1806, 18 L.Ed.2d at 1277

(1967); Southland Corp. v. Keating, 465

U.S., supra, 465 U.S. at 10, 104 S.Ct. at

858, 79 L.Ed.2d at 12 (1984); and

Shearson American Express, Inc. v.

McMahon, 482 U.S. ’ , 107 S.Ct.

2332, 2337, 96 L.Ed.2d 185, 194 (1987).

In Moseley, this Court held that the

question of fraud in the inducement of

the arbitration agreement is a question

that must initially be decided by the

federal district courts rather than

arbitrators. 374 U.S. at 170-172, 83

S.Ct. at 1817-1818, 10 L.Ed.2d at 821.

As Chief Justice Warren and Justice Black

noted in their concurring opinion: "[t]o

allow this question to be decided by

arbitrators would be to that extent to

enforce the arbitration agreement even

though steeped in the grossest kind of

fxreuc." 374 G.8. at i772, @3 &.Gt. at

1818, 10 L.Ed.2d at 822. There, as here,

the party’s pleadings opposing arbitra-

tion “attacked not only the [contracts],

ai Qe

but also the arbitration clauses con-

tained therein, as having been procured

through fraud.” 374 U.S. at 170-172, 83

§.Ct. at 1817, 10 L..EG.20 Oe Sea-

Four years later in Prima Paint, the

case petitioners claim the California

Court of Appeal’s decision conflicts

with, this Court held:

[I]f the claim is fraud in the

inducement of the arbitration clause

itself - an issue which goes to the

“making” of the agreement to arbitrate

- the federal court may proceed to

adjudicate it.

388 U.S. at 403-404, 87 S.Ct. at 1806, 18

L.Ed.2d at 1277. In the footnote that

immediately follows the aforementioned

quote, the Court emphasized its holding

is consistent with Moseley and the FAA’s

statutory scheme, particularly with

Section 2’s “savings clause” which makes

“arbitration agreements as enforceable as

-13-

other contracts, but not more so.” Id.,

fn.12. The Court further noted:

To immunize an arbitration agreement

from judicial challenge on the ground

of fraud in the inducement would be t>-

elevate it over other forms of

contract - a situation inconsistent

with the ’savings clause.’”

Id. The Prima Paint majority also en-

phasized that Prima Paint, unlike Mrs.

Wederski, never claimed that the party

seeking to enforce the arbitration

agreements “fraudulently induced it to

enter into the agreement to arbi-

aoewetease6«6=6lCUeee ULE. at 406, 87 §.Cct. at

1807, 18 L.Ed.2d at 1278-1279.

Just last term, in Shearson American

Express, Inc. v. McMahon, supra, this

Court also emphasized that “a well-

founded claim” that an arbitration

agreement was legally or equitably

unenforceable should initially be decided

atte

by the federal district courts in

connection with federal securities

Claims. 4823 U.8.. at: i607 8.Ce. at 2337;

96 L.Ed.2d at 194. See also Rush v.

Oppenheimer & Co., Inc., F.Supp. ‘

CCH FED.SEC.RPTR., Current Transfer

Binder, §93,405 at page 97,117 (S.D.N.Y.

1987).

Prima Paint involved a matter brought

in federal court and its express holding

reflects it is strictly limited to

federal courts. Nonetheless, it ap-

pears its principles are now applicable

to state courts as well based on the

Court’s majority holding in Southland

Corp. v. Keating, 465 U.S. at 12, 104

S.Ct. at 859, 79 L.Ed.2d at 13.

Applying the foregoing principles to

the pending case, it is clear that the

petition should be denied on substantive

grounds since Mrs. Wederski’s complaint

a4Se

expressly alleges that the petitioners

fraudulently induced her to sign the

arbitration agreements. As noted above,

Mrs. Wederski’s complaint contains a

separate section entitled "Frauditent

Inducement of the Arbitration And Choice

of Law ’Agreements’”; this section sets

forth numerous factual allegations

attacking the arbitration agreements

themselves on the grounds that they were

induced by fraud (Opp.App.A, pages 1lla-

13a). Accordingly, petitioners’ accusa-

tion that Mrs. Wederski’s complaint

contains “no allegation that the arbitra-

tion provision itself was induced by

fraud (Pet., page i) is itself false and

grossly misleading.

-16-

Iil

THE CALIFORNIA COURT OF APPEAL’S DECISION

DOES NOT CONFLICT WITH PRIMA PAINT

The California Court of Appeal based

its decision on its express finding that

Mrs. Wederski’s complaint had sufficient-

ly alleged fraud induced her assent to

all of the brokerage documents (Pet.

App.A, page 5a). In order to have made

this finding, the Court of Appeal had to

determine that the complaint expressly

alleged that the arbitration agreements

themselves were induced by fraud. A

review of Mrs. Wederski’s complaint

confirms that she did in fact specifical-

ly allege that the arbitration agreements

themselves were induced by fraud. There-

fore, the California Court of Appeal’s

holding does not conflict with Prima

Paint.

-17<

IV

THE PERMEATION DOCTRINE DOES NOT CONFLICT

WITH THIS COURT’S PRIOR DECISIONS

Petitioners’ contention that the per-

meation doctrine is a creature of state

law that conflicts with this Court’s

decision in Prima Paint is equally

misplaced.

An examination of Main v. Merrill

Lynch, Pierce, Fenner & Smith, Inc., 67

Cal.App.3d 19, 136 Cal.Rptr. 378 (1977),

the state case that the California Court

of Appeal followed, confirms that its

holding is based on this Court’s holdings

in Moseley and Prima Paint; it also

reveals the so-called permeation doc-

trine is nothing more than a shortened

restatement of this Court’s holdings in

Moseley.

Specifically, in Main, the California

Court of Appeal held:

-18-

[Wjhere it is alleged that fraud

either induced the arbitration clause

itself or permeated the entire

agreement including the arbitration

clause, that issue will

be determined judicially and not by

arbitration (emphasis added).

Main, 67 Cal.App.3d at 27.

In Moseley, this Court held:

Petitioner attacks the subcontracts,

as well as the arbitration agreement,

as being fraudulent, and this issue,

we conclude, must be first determined

by the District Court.

374 U.S. at 169, 83 S.Ct. at 1816, 10

L.Ed.2d at 820.

Based upon the foregoing, it should be

clear that the permeation doctrine is a

restatement of Moseley. There is no

substantive difference between alleging

that all of the agreements, as well as

the arbitration agreements, were induced

by fraud (Moseley) and, on the other

a1@=

hand, alleging that fraud permeated all

of the agreements, including the arbi-

tration clauses (Main).

Thus, the contention that the per-

meation doctrine conflicts with federal

law is incorrect; on the contrary, it is

a concept of federal substantive law that

restates this Court’s holding in Moseley.

V

THE COURT OF APPEAL’S SILENCE ON THE

ON THE ISSUE OF A SUMMARY TRIAL

WAS NOT ERROR

Petitioners argue that the Court of

Appeal “refused to order a summary trial

of the issue” of fraud in the making of

the agreement to arbitrate. (Pet., page

12) In fact, the Court of Appeal did not

address this question since the issue was

not necessary to its decision and none of

the parties to the appeal had discussed

=20-

it in their memoranda. The Court of

Appeal said only that ”[t]Jhe truth of her

(Mrs. Wederski’s] allegations must be

determined judicially” without commenting

further upon the means by which the truth

should be determined (Pet.App.A, page

5a). There is no inconsistency between

the Court of Appeal’s decision and the

requirements of the Federal Arbitration

Act.

CONCLUSION

For the reasons stated above, respon-

dent and plaintiff Billie L. Wederski

respectfully submits that the petition

for a writ of certiorari of petitioners

and defendants Dean Witter Reynolds, Inc.

a)

and Henry H. Duke should be denied

forthwith.

Dated: November 10, 1987

Respectfully submitted,

ARTHUR NAKAZATO

Counsel of Record For

Respondent

and

KIRCHER & NAKAZATO

811 West 7th Street,

Suite 1100

Los Angeles, California 90017

(213) 6831377

Attorneys for Respondent

APPENDIX A

KIRCHER & NAKAZATO

ARTHUR NAKAZATO

811 West Seventh street, Suite 1100

Los Angeles, California 90017

(213) 683-1377

GREENWALD & RESNICK

LAW CORPORATIONS

BARNET RESNICK, ESQ.

4350 Von Darman Avenue, Suite 450

Newport Beach, California 92660

(714) 851-9001

Attorneys for Plaintiff

Billie L. Wederski

SUPERIOR COURT OF THE STATE OF

CALIFORNIA FOR THE COUNTY

OF ORANGE

BILLIE L. WEDERSKI, COMPLAINT FOR:

)

)

Plaintiff, ) 1. BREACH OF

) FIDUCIARY

v. ) DUTIES;

) 2. FRAUD AND

DEAN WITTER REYNOLDS, ) DECEIT;

INC. a corporation; ) 3. NEGLIGENT

ROGER MORRISON, an ) INFLICTION

)

)

)

)

)

)

)

)

individual; HENRY H. OF EMOTIONAL

DUKE, an individual; DISTRESS;

and DOES 1 through AND

10, inclusive, 4. NEGLIGENCE

AND GROSS

Defendants. NELIGENCE

-2a-

PLAINTIFF BILLIE L. WEDERSKI ALLEGES AS

FOLLOWS:

Common Allegations

ls Plaintiff Billie L. Wederski

(“Plaintiff”) is an individual residing

in the County of Orange, California.

as Defendant Dean Witter

Reynolds, Inc. (“Dean Witter”) is a

corporation organized and existing under

the laws of the State of Delaware and, at

all times relevant hereto, was a regis-

tered broker-dealer authorized to

transact business as a securities broker

in the State of California and maintain-

ing a branch office at 7088 Edinger

Avenue, Huntington Beach, California

(“Dean Witter’s Huntington Beach Of-

fice*}.

: Defendant Roger Morrison

(“Morrison”) is an individual believed to

~te~

be residing in the County of Orange,

State of California. Plaintiff is

informed and believes, and on that basis

alleges, that at all times relevant

hereto, Morrison was and is now a

registered representative and employed as

an account executive and investment

advisor at Dean Witter’s Huntington Beach

Office and was and is now active in his

capacity as a managing agent of Dean

Witter and/or and acting within the

course and scope of his employment with

Dean Witter.

4. Defendant Henry H. Duke

(“Duke”) is an individual believed to be

residing in the County of Orange, State

of California. Plaintiff is informed and

believes, and on that basis alleges, that

at all relevant times hereto, Duke was

and is now a registered representative

and employed as a Vice-president of

u§qu

investments and stockbroker at Dean

Witter’s Huntington Beach Office and was

and is now active in his capacity as a

managing agent of Dean Witter and/or

acting within the course and scope of his

employment with Dean Witter.

5. The true names and capacit-

ies of defendants named herein as DOES 1

through 10, inclusive, are unknown to

Plaintiff, therefore, Plaintiff sues said

DOE defendants by such fictitious names.

Piaintiff is informed and believes, and

on that basis alleges, that at all times

relevant thereto, each of said DOE

defendants participated in the acts set

forth below and are responsible to the

Plaintiff for the damages hereinafter set

forth.

6. Plaintiff is informed and

believes, and on that basis alleges, that

at all times relevant hereto, Dean

-5a-

Witter, Morrison, Duke and DOES 1 through

10, inclusive, were agents, servants, and

employees of each other, and in doing the

things hereinafter alleged, each of said

defendants acting within the scope of

his, her, or its authority as an agent,

servant, and employee of the other

defendants and with the permission and

consent of such other defendants.

yer Defendant Dean Witter, at

all times relevant hereto, authorized,

approved or ratified all of the acts

committed by Morrison, Duke, all DOE

defendants and its other agents, servants

and employees, and each of them, as

alleged herein.

-6a-

FIRST CLAIM FOR RELIEF

(Breach of Fiduciary Duty)

(Against All Defendants)

8. Plaintiff hereby incor-

porates by reference paragraphs 1 through

7, inclusive, above as though fully set

forth at this place.

Creation and Acceptance of Fiduciary

Relationship Between Plaintiff

and Defendants

9. On or before November 30,

1984, Plaintiff opened an account with

Dean Witter after speaking with Morrison

(the “1984 November Meeting”).

10. During the i984 November

Meeting, and continuously therafter, Dean

Witter, by and through Morrison and/or

Duke, expressly or impliedly represented

-7a-~

to Plaintiff that each of the defendants

were reputable, experienced stock brokers

and investment advisors that could and

would provide Plaintiff with proper

investment advice and counseling.

5 Plaintiff was impressed with

said defendants’ sincerity and apparent

expertise and said defendants immediately

gained Plaintiff’s trust and confidence.

The defendants, and each of them, knew or

should have known Plaintiff reposed her

trust and confidence in the defendants

when she asked the defendants, and they

agreed, to act as her stockbrokers and

investment advisors and each of the

defendants thereupon knew and understood

a fiduciary relationship between

Plaintiff and each of the defendants

existed.

i2. During and after the 1984

November Meeting, Plaintiff disclosed

-8a-

confidential information about her

personal and financial background based

upon (a) the great trust and confidence

she reposed in each of the defendants,

(b) each defendants’ understanding that

they were to act as her stockbrokers and

investment advisors, and (c) each

defendants’ understanding that Plaintiff

believed the defendants would deal fairly

and justly with Plaintiff in all res-

pects. Each of the defendants knew and

understood Plaintiff felt secure in

seeking advice from, and entrusting her

investment affairs to, each of the

defendants.

-9a-

Fraudulent Inducement of the

Arbitration And Choice of Law

“Agreements”

13. Plaintiff does not have, and

the defendants have never given Plain-

tiff, a copy of any papers the defendants

instructed her to sign. Plaintiff is now

informed and believes, and on that basis

alleges, that some of the papers the

defendants induced her to sign may

contain an arbitration clause and provi-

sion stating all legal rights and

obligations shal] be governed under the

laws of New York rather than the laws of

California (“choice of law provision”).

14. Plaintiff is informed and

believes, and on that basis alleges, that

defendants will attempt to force her to

arbitrate all of her claims against each

of the defendants alleged herein and

encase

-10a-

attempt to apply the laws of the State of

New York to all questions of law and

fact.

15. Each of the defendants knew

Plaintiff lacked investment experience,

knew Plaintiff was unfamiliar with legal

terms and concepts, particularly the laws

of New York or California, knew Plaintiff

never engaged in securities transactions,

and knew Plaintiff had never maintained a

securities account with any broker-dealer

of securities before opening the Dean

Witter Account. Nonetheless, and during

the course of said defendants’ fiduciary

relationship with the Plaintiff, Dean

Witter, by and through Morrison and/or

Duke, made the following misrepresenta-

tions, fraudulently concealed, and/or

omitted to fully disclose or fully

explain the following material facts

relating to provisions which Plaintiff is

ee

-llae-

informed and believes, and on that basis

alleges, are contained in papers drafted

by the defendants and which the defen-

dants fraudulently induced and instructed

her to sign sometime between November of

1984 up through the present:

(a) falsely represented

that the papers were merely a for-

mality and the sole purpose of the

papers was to permit Plaintiff to open

an account with Dean Witter;

(b) fraudulently concealed

and/or failed to fully disclose or

fully explain that the papers con-

tained an arbitration clause and that,

by signing the papers, Plaintiff would

be, among other things, waiving her

Constitutional right to a jury trial,

effectively waiving her right to

discovery and waiving her right to any

meaningful appeal;

iinet die eatiniiiiee

-l2a-

(¢) fraudulently concealed

and/or failed to fully disclose or

fully explain that Dean Witter prefers

arbitration over a jury trial in

disputes with its customers and

recognizes arbitration to be an

advantage since the arbitration panels

cannot award punitive damages under

the laws of New York, and alternative-

ly, arbitration panels rarely, if

ever, award punitive damages against

broker-dealers under California law

even though the broker-dealers engaged

in acts or practices that normally

justify, and result in, an award of

punitive damages ina jury trial;

(ad) fraudulently concealed

and/or failed to fully disclose or

fully explain that in disputes or

controversies between broker-dealers

and its California customers, New York

-l3a-

laws provide less rights and protec-

tion than California law;

(e) fraudulently concealed

and/or failed to disclose or fully

explain that by signing the papers,

defendants would execute transactions

in Plaintiff’s account without her

prior authorization or consent.

16. Plaintiff believed the only

purpose of the papers the defendants

instructed her to sign was to effect the

opening of an account with Dean Witter;

Plaintiff never understood or agreed to

(a) waive or relinquish her constitution-

al right to a jury trial before her peers

(b) submit any controversies or disputes

to arbitration, or (c) waive or relin-

quish her right to have all questions

regarding her legal rights or disputes

with defendants governed and controlled

by California law rather than New York

*166@"

law.

37. Due to the confidential and

fiduciary relationship, and the trust and

confidence Plaintiff reposed in said

defendants, Plaintiff signed the papers

as instructed by defendants and without

reviewing the papers questioning the

defendants about the contents. Had

defendants fully disclosed and fully

explained to Plaintiff the true nature

and content of the papers, particularly

the inclusion of the arbitration and

choice of law clauses and the clauses’

nature, meaning and effect on Plaintiff’s

right to, among other things, a jury

trial and/or the differences in Plain-

tiff’s legal rights, Plaintiff would have

never signed any of the defendants’

papers nor would have opened an account

with Dean Witter, never waived her rights

under California law, never agreed to

“i3a-

arbitration, and never entrusted the

defendants with investing any part of the

$694,640.65 in proceeds resulting from

the sale of the land that she inherited

from her mother as more fully explained

below.

Additional Misrepresentations and

Omissions

18. Shortly before August 5,

1985, Plaintiff learned that she would

soon receive $694,640.65 from the sale of

the land she recently inherited from her

mother (the “inheritance proceeds”).

i9. On or about August 6, 1985,

Plaintiff notifiei defendants Dean Witter

and Morrison about the inheritance and

sought their advice about investing the

inheritance proceeds since Plaintiff

lacked the skills, experience and

-16a-

expertise to invest and manage such a

large sum of money. Upon learning about

the enormous sum of money Plaintiff would

be receiving, Dean Witter, by and through

Morrison, urged Plaintiff to speak with

said defendants immediately about an

appropriate manner to invest the in-

heritance proceeds.

20. On August 8, 1985, and based

upon Dean Witter’s urgings made by and

through Morrison, Plaintiff invited Dean

Witter, by and through Morrison, to

accompany her to Modesto, California for

the purpose of picking up the inheritance

proceeds and advising her about a safe

and suitable manner of investing the

inheritance proceeds (the “Modesto

trip").

21. During the Modesto trip,

Plaintiff advised Dean Witter, by and

through Morrison, that she had quit

-l17a-

working upon learning that the land she

had inherited would soon be sold for

$694,640.65. Accordingly, Plaintiff

advised Dean Witter, by and through

Morrison, and Dean Witter and Morrison

understood, that Plaintiff’s investment

goal was to acquire conservative, fixed

income investments that would produce

sufficient income to meet Plaintiff’s

living expenses without using the

principal amount of the inheritance

proceeds. Moveover, Plaintiff also

sought Dean Witter’s advice, by and

through Morrison, regarding a safe and

suitable manner of investing, or placing

in trust, about $428,000 of the in-

heritance proceeds to pay for estate

taxes.

22% During the Modesto trip,

Dean Witter, by and through Mvu.~‘son, and

with Duke’s approval, made the following

-13a=-

express or implied representations, among

others, which were designed to, and did,

induce Plaintiff to repose further trust

and confidence in each of the defendants’

purported investment skills and induced

Plaintiff to deposit the entire

$694,640.65 of the inheritance proceeds

in Plaintiff’s account with Dean Witter:

(a) That the $428,000

Plaintiff owed for estate taxes on the

inheritance proceeds would be set

aside and deposited into a money

market similar type of account and

would not be used for other investment

purposes;

(b) That said defendants

would use a conservative, low-risk

manner of investing the balance of

Plaintiff’s inheritance proceeds by

acquiring a well-diversified portfolio

of United States Treasury bonds and

-19a-

conservative, low-risk equity stocks

suitable for generating fixed income

to meet Plaintiff’s living expenses;

(c) That the investment

strategy the defendants would employ

would also enable the Plaintiff to

meet her living expenses without

having to withdraw or use the princi-

pal balance of the inheritance

proceeds;

(ad) That no transactions

would be made in Plaintiff’s account

without her prior knowledge and

authorization;

(e) That Plaintiff’s

account would constantly be monitored

and supervised by Dean Witter, by and

through Morrison and Duke, for any

irregular, excessive or unauthorized

transactions and that each of the

defendants would provide Plaintiff

-20a-

with accurate, complete and current

reports relating to all transactions

and the net equity in Plaintiff’s

secon:

(e) That each of the

defendants would always disclose

and/or fully explain all material

facts relating to Plaintiff’s account

and any matters relating to invest-

ments in Plaintiff’s account;

(f) That each of the

defendants would always place Plain-

tiff’s best interests ahead of those

the defendants and would not take

advantage of the trust and confidence

Plaintiff reposed in each of the

defendants; and

(g) That each of the

defendants would manage or supervise

Plaintiff’s account in a manner

consistent with all applicable laws,

-2la-

rules and regulations pertaining to

stockbrokers and/or investment

advisors.

23. The foregoing representa-

tions of defendants Dean Witter and

Morrison were in fact false. The true

facts, among others, were:

(a) That none of the

defendants would set aside an appro-

priate amount for estate taxes and

would use Plaintiff’s full inheritance

proceeds to, among other things, write

uncovered or “naked” options con-

tracts, execute commodities and

futures transactions; all of which are

extremely complex, risky investment

strategies that would and did expose

Plaintiff to financial liabilities and

losses in excess of the full in-

heritance proceeds;

-22a-

(b) That between August 9, 1985

and approximately March 19, 1986,

(“the trading period”), nearly seven

months, each defendant would churn

Plaintiff’s account by engaging in an

excess of 215 transactions (about 30

transactions a month) and executed

over $26,900,000 of purchase and sale

transactions primarily for the benefit

of generating commissions and profits

for defendants;

(c) That each defendant

would and did make excessive and

unauthorized transactions;

(ad) That each defendant

would and did employ various unau-

thorized and risky investment strate-

gies that were neither safe nor

suitable given Plaintiff’s financial

condition and stated investment

objective of fixed income;

-23a-

(e) That each defendant

would and did use Plaintiff’s full

inheritance in order to (1) cover the

unauthorized and/or excessive naked

options contracts and (2) leverage

Plaintiff’s buying power for purposes

of generating margin interest charges

against Plaintiff’s account;

(f) That each defendant

would and did place their own best

interests ahead of Plaintiff’s by

engaging in a variety of unauthorized,

excessive or risky transactions or

investments or investment strategies

that were primarily designed to

generate commissions and profits for

the defendants;

(g) That each defendant

would and did sell securities to

Plaintiff without disclosing or

explaining that Dean Witter was making

SE

-24a-

a market in said securities before

executing purchase orders for the

securities and concealed the fact that

defendants’ commissions or profits

were already factored into the price

per share of said securities;

(h) That each defendant

would and did send Plaintiff inac-

curate and misleading periodic account

reports that were designed to and did

conceal the nature and extent of

Plaintiff’s losses and/or defendants’

commissions or interest charges and

falsely represented, among other

things, that at all times during the

trading period, the net equity in

Plaintiff’s account always exceeded

the original amount of Plaintiff’s

inheritance proceeds;

(i) That none of the

defendants would properly manage or

ee

-25a-

supervise all transactions in Plain-

tiff’s account and would actually

conceal the lack of supervision or

proper management of Plaintiff’s

account by generating various inac-

curate and the misleading periodic

account reports prepared by Morrison,

and approved on Duke, on behalf of

Dean Witter;

(j) That defendants would

not disclose or fully explain all

risks or material facts relating to

Plaintiff’s account or transactions

relating to Plaintiff’s account; and

(kK) That defendants would

not manage or supervise Plaintiff’s

account in @ manner consistent with

all applicable laws, rules or regula-

tions pertaining to stockbrokers or

investment advisors.

-26a-

24. In direct reliance on

defendants’ foregoing representations,

and based upon Plaintiff’s full trust and

confidence in said defendants, Plaintiff

was induced to, and did, entrust all of

the inheritance proceeds to Dean Witter

for the purpose of investing and managing

the inheritance proceeds in a manner

consistent with Plaintiff’s aforemen-

tioned stated investment objective and

investment concerns. During the evening

of August 8, 1985, and immediately after

returning from the Modesto trip, Plain-

tiff endorsed the check in the full

amount of the inheritance proceeds to

defendant Dean Witter and gave it to Dean

Witter, by and through Morrison, to take

home and deposit into Plaintiff’s Dean

Witter account the next day.

25. At all times mentioned

hereinabove, each of the defendants

-2/a-

maintained a fiduciary relationship with

Plaintiff, and each of the defendants had

a fiduciary duty to (a) act in the

highest good faith toward Plaintiff; (b)

fully disclose and fully explain all

material facts affecting Plaintiff’s

rights and interests; (c) not take

advantage of trust and confidence Plain-

tiff’s reposed in the defendants; and (d)

place Plaintiff’s best interests ahead of

the interests of the defendants, and each

of them.

26. Despite having voluntarily

accepted the Plaintiffs trust and

confidence reposed in each of them, said

defendants committed a breach of their

respective fiduciary duties owed to

Plaintiff by engaging in the acts or

conducts set forth above.

a7. Plaintiff’s reliance on the

foregoing representations of the defen-

-28a-

dants was justified inasmuch as defen-

dants represented each of them were

experienced, well-qualified, reputable

stockbrokers and investment advisors and

represented that each of them would act

in a manner consistent with their

respective fiduciary obligations and

duties to Plaintiff.

28. Had defendants fully

disclosed and fully explained the oe

facts to Plaintiff, Plaintiff would have

never opened any account with Dean

Witter, never signed any papers presented

to her by Dean Witter or the other

defendants, and never would have entrus-

ted any part of the inheritance proceeds

with any of the defendants.

29. As a direct and proximate

result of the aforementioned acts and

conduct of each of the defendants,

Plaintiff has suffered compensatory

TN |

-29a-

damages in an amount not yet ascertained,

but which are presently estimated to

exceed $850,000 and consisting of

commissions charges, interest charges and

losses due to unauthorized and/or

excessive transactions. Furthermore,

Plaintiff may incur additional losses in

excess of $428,000 which represent the

amount of estate taxes owed on the

inheritance proceeds.

30. In doing the acts herein

alleged, each of the defendants acted

with oppression, fraud, and malice, and

Plaintiff is entitled to punitive damages

in the sum of at least $8,500,000 dollars

inasmuch as Plaintiff is informed and

believes, and on that basis alleges that,

at all relevant times hereto, Dean Witter

Morrison and Duke, and each of them:

(a) Knew Plaintiff was an

unsophisticated investor and had

=30a-

entrusted her entire inheritance

proceeds with said defendants;

(b) Knew that said defendants

gave Plaintiff improper investment

advice and/or inaccurate account

information that was primarily de-

signed to cover up Plaintiff’s losses

the defendant’s commissions and

profits and the defendants’ mishan-

Gling of Plaintiff’s account;

(d) Knew that defendants were

engaging in unauthorized, excessive

and unsuitable transactions in Plain-

tiff’s account and that such conduct

constituted, among other things, fraud

and/or a breach of their fiduciary

duties to Plaintiff; and

(e) Knew that some or all of the

foregoing acts, among other things,

were improper and/or violated various

laws, rules or regulations pertaining

-3la-

to stockbrokers and investment

advisors;

(f) Willfully elected to engage

in such conduct as a risk of doing

business since Dean Witter’s ex-

perience is that the number of custo-

mers that actually institute legal

proceedings after their accounts are

mishandled, and the legal fees and

costs of defending such claims or

proceedings, are insignificant

relative to the actual or potential

revenues generated from such wrongful

conduct, particularly if Dean Witter

succeeds in avoiding a jury trial and

punitive damages by way of the

arbitration clause and choice of law

provision.

@32a->

SECOND CLAIM FOR RELIEF

(Fraud and Deceit)

(Against All Defendants)

ai. Plaintiff hereby incor-

porates by reference paragraphs 1 through

30, above, as though fully set forth at

this place.

32 Plaintiff is informed and

believes, and on that basis alleges, that

at the time of making the aforementioned

misrepresentations or omissions of

material facts, each of the defendants

knew the misrepresentations or omissions

of material facts were false and mislead-

ing. Plaintiff is informed and believes,

and on that basis alleges, that the fore-

going misrepresentations or omissions of

material facts were made by each of the

defendants with the intent to defraud and

deceive Plaintiff and with the intent to

-33a-

induce Plaintiff to rely on the foregoing

misrepresentations and omissions to her

detriment.

33. Plaintiff, at the times the

misrepresentations and omissions set

forth hereinabove, were made by Dean

Witter, by and through Morrison and Duke,

and at the time Plaintiff took the

actions herein alleged, was ignorant of

the falsity of said misrepresentations or

omissions and believed them to be true.

34. As a direct and proximate

eéeart of the aforementioned fraud and

deceit committed by defendants Dean

Witter, Morrison and Duke, and each of

them, Plaintiff — suffered compensatory

damages in an amount not yet ascertained,

but which are presently estimated to

exceed $850,000 and consisting of

commissions charges, interest charges and

-34a-

losses due to unauthorized and/or

excessive transactions.

THIRD CLAIM FOR RELIEF

(Negligent Infliction of Severe

Emotional Distress)

(Against All Defendants)

35. Plaintiffs hereby incor-

porated by this reference the allegations

of paragraphs 1 through 30, inclusive,

above, as though fully set forth at this

place.

36. The aforementioned acts and

conduct of defendants, and each of then,

were, among other things, negligent.

37. As a direct and proximate

result of said defendants’ aforementioned

negligent acts and/or conduct, Plaintiff

has suffered humiliation, mental anguish,

severe emotional distress, and mental

-35a-

distress, and has otherwise been injured

in mind, body and/or spirit and has

suffered damages in an amount not yet

ascertained but which is in excess of

$850,000.

FOURTH CLAIM FOR RELIEF

( Negligence and Gross Negligence)

38. Plaintiffs hereby incor-

porated by this reference the allegations

of paragraphs 1 through 30, inclusive,

and paragraphs 35 and 36, above, as

though fully set forth at this place.

39. Each of the defendants

failed and neglected to exercise such due

care and diligence in performing their

duties and obligations with respect to

managing, supervising, conducting and

directing investments in Plaintiff’s

account in that, at various times

-36a-

relevant herein, each of said defendants

violated their statutory and common law

duties and obligations to Plaintiff by

their actions, including, but not limited

to, the negligent acts and omissions

alleged hereinabove.

40. By the aforementioned acts

of omissions, each of said defendants

were negligent and grossly negligent and

committed a breach of their statutory and

common law duties and obligations to

Plaintiff.

41. As a proximate result of

such negligence and gross negligence,

Plaintiff has suffered damages in an

amount that cannot yet be fully ascer-

tained, but is believed to exceed

$850,000.

42. In doing the acts herein

alleged, said defendants should have

known that their acts or omissions would

-37a-

cause damages to Plaintiff and committed

said acts and omissions with a conscious

disregard of Plaintiff’s rights and,

therefore, Plaintiff is entitled to

recover punitive damages from said

defendants of at least $8,500,000.

WHEREFORE, Plaintiff prays for

judgment as follows:

- As to each Clain,

compensatory damages of at least $850,000

or according to proof;

ae As to each Claim, puni-

tive damages in the amount of at least

$8,500,000;

as As to each Claim, for

interest at the legal rate;

4. As to each Claim, for

recission of all agreements by and

between Plaintiff and each of the

defendants;

-38a-

$s. For costs of suit

herein; and

6. For such other and and

further relief as the Court may deem just

and proper.

DATED: May 2, 1986 KIRCHER &

NAKAZATO

ARTHUR NAKAZATO

By: /s/

Arthur Nakazato

Attorneys for

Plaintiff

Billie L. Wederski

DATED: May 2, 1986 |

GREENWALD &

RESNICK

LAW CORPORATION

BARNET RESNICK,

ESQ.

By: /s/

Barnet Resnick

Attorneys for

Plaintiff

Billie L.

Wederski

PROOF OF SERVICE BY MAIL

I am a citizen of the United States and a

resident of the City and County of Los

Angeles; I am over the age of eighteen

years and not a party to the within

action; my business address is: 811 West

Seventh Street, Suite 1100, Los Angeles,

California, 90017.

On November 11, 1987, I served the within

Opposition to Petition for a Writ of

Certiorari to the Court of Appeal the

State of California, Fourth Appellate

District, Division Three in re: “Dean

Witter Reynolds, Inc. vs. Billie L.

Weder=ki” in the United States Supreme

Court, October Term 1987, No. 87-595;

On the Parties in said action, by placing

three copies therof enclosed in a sealed

envelope with First Class postage fully

prepaid, in the United States mail at Los

Angeles, California, addressed as

follows:

Eugene W. Bell, Esq.

Jones, Bell, Simpson & Abbott

800 Wilshire Boulevard, 5th Floor

Los Angeles, CA 90017

Michael M. Gless, Esq.

Keesal, Young & Logan

Catalina Landing

310 Golden Shore, P.O. Box 1730

Long Beach, CA 90801-1730

All parties reqired to be served have

been served.

I declare under penalty of perjury, that

the foregoing is true and correct.

Executed on November 11, 1987, at Los

Angeles, California.

\y 1 (lL ct ( Yi a iy 1 {

1 U

Margaret E. Zepp |

ate

x