Thomas v. Westlake: Agency Allegation in Complaint Entitles Defendants to Invoke the Benefit of a FINRA Arbitration Agreement


[author: Mark Hancock]

An investor’s successor sued a financial services company, its parent, a broker, and various other insurance entities for wrongfully inducing the investor to make unsuitable investments.  Four of the six defendants successfully petitioned to compel FINRA arbitration of the claims against them.  The trial court ruled that the other two defendants were not entitled to arbitration because they were not parties to any arbitration agreement with the investor.  These two defendants took an appeal of the ruling on the petition to compel arbitration.

In a published decision, the Court of Appeal reversed the trial court, ruling that the two non-signatory defendants were entitled to proceed to arbitration along with the four defendants who had signed arbitration agreements because the plaintiff had included an agency allegation in the complaint.  In other words, the plaintiff had alleged that all defendants acted as agents of one another, and caselaw states that an agent of a party to an arbitration agreement is, himself, entitled to go to arbitration.

The plaintiff’s attorney attempted to downplay the significance of the agency allegation, characterizing it a mere theory of tort liability, but the Court of Appeal would have none of it.  The Court said that it would be unfair to allow the plaintiff to invoke agency principles when it is to his advantage to do so, but to disavow those same principles when it is not.

The decision isThomas v. Westlake (2012) 204 Cal.App.4th 605.


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