Kelly v. Charles Schwab & Co. CA2/6

Filed 9/28/20 Kelly v. Charles Schwab & Co. CA2/6 NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SIX

MICHAEL PATRICK KELLY, 2d Civil No. B265826 (Super. Ct. No. 56-2013- Plaintiff and Appellant, 00435648-CU-BC-VTA) (Ventura County) v.

CHARLES SCHWAB & CO., INC.

Defendant and Respondent.

Michael Patrick Kelly appeals from the judgment confirming a binding arbitration award against him. (Code Civ. Proc., §§ 904.1, subd. (a)(1), 1294, subd. (d).) Kelly contends: (1) Charles Schwab & Co., Inc. (Schwab) procured the arbitration award by fraud, and (2) the arbitrator exceeded his powers by ordering Kelly to pay monetary sanctions. We reverse the sanctions award and otherwise affirm. FACTUAL AND PROCEDURAL BACKGROUND Kelly was an independent investment advisor. He entered into an Investment Manager Service Agreement (IMSA)

with Schwab to conduct trades for Kelly’s clients.1 The IMSA provided: “Schwab recognizes that you and your Clients have selected Schwab as the custodian and Schwab acknowledges the primacy of your relationship with your Clients. . . . [¶] Schwab has no intent to communicate with your Clients except as may be required by law, rule or regulation, as for example brokerage confirmations and account statements, and as Schwab reasonably determines necessary.” It further provided, “Either party may terminate this Agreement at any time by giving written notice to the other.” Schwab also required Kelly’s clients to enter separate brokerage account agreements authorizing Schwab to execute their transactions as the broker-dealer. The agreements stated in part, “In the event Schwab elects to terminate the contract with your named advisor, we will notify you as soon as possible.” Schwab became concerned about the signature of one of Kelly’s clients authorizing the transfer of funds. Schwab contacted Kelly and requested that the client contact Schwab to verify their signature or submit a new form. Kelly telephoned Schwab and impersonated the client. Kelly was combative, angry, used foul language, and refused to acknowledge the policy requiring clear and direct client authorization of money transfers. After conducting an investigation, Schwab notified Kelly it was terminating the agreement effective 77 days later. The same day, it mailed notices to Kelly’s clients advising them of the termination. Kelly filed a civil complaint against Schwab alleging