Opinion
No. CV 09-5033527-S
July 7, 2010
MEMORANDUM OF DECISION
This action arises out of losses allegedly sustained by the plaintiff, Janice Thomas, when she invested in two promissory notes. On September 11, 2010, the plaintiff commenced this action against the defendants CM Securities, LLC (CM Securities), Todd Parriott, CM Capital Services, LLC (CM Capital), Desert Capital REIT, Inc. (Desert), Benjamin Williams and Strategic Financial Companies, LLC (Strategic). The one count complaint alleges the following: Parriott is the CEO of CM Securities, a company registered in Connecticut as a securities broker-dealer. CM Capital, which was previously known as Consolidated Mortgage, is a company licensed as a mortgage broker in Nevada. Hereinafter, CM Capital will be referred to as Consolidated Mortgage. Parriott was also a controlling person of Consolidated Mortgage. Desert owned Consolidated Mortgage until at least November 21, 2007. Strategic is a California limited liability company, with its principal place of business in California.
Williams, acting as an agent for Strategic, contacted the plaintiff to solicit her investments in promissory notes that were offered by Consolidated Mortgage. Thereafter, the plaintiff had communications with agents of both Consolidated Mortgage and CM Securities to determine whether the notes were a suitable investment for her. During these communications Williams, Consolidated Mortgage and CM Securities failed to inform the plaintiff that the notes were not registered as securities in Connecticut and that Consolidated Mortgage was not registered to engage in securities transactions in the state. Moreover, Williams, Consolidated Mortgage and CM Securities failed to disclose their own financial interests in the notes, and also failed to properly advise the plaintiff of the risks involved in the investments. Neither Consolidated Mortgage, Strategic Financial nor Williams were licensed or registered to sell securities as required by Connecticut Uniform Securities Act, General Statutes § 36b-2 et seq. (CUSA). Moreover, CM Securities' net capital was inadequate for engaging in the sale of securities, which is also required by CUSA. In reliance on the defendants' representations, the plaintiff ultimately agreed to invest $100,000 in two of the notes offered by Consolidated Mortgage. As a result, she has suffered economic losses. She seeks damages against the defendants pursuant to CUSA.
On November 19, 2009, the defendants filed a motion to dismiss the action, or in the alternative, stay the action and compel all parties to proceed with arbitration. The plaintiff filed an objection on February 11, 2010. The defendants filed a response to the plaintiff's objection on February 25, 2010. The plaintiff filed a supplemental memorandum of law on March 10, 2010. The parties were heard at short calendar on April 5, 2008.
The Motion to Dismiss
"A motion to dismiss . . . properly attacks the jurisdiction of the court, essentially asserting that the plaintiff cannot as a matter of law and fact state a cause of action that should be heard by the court . . . A motion to dismiss tests, inter alia, whether, on the face of the record, the court is without jurisdiction." (Internal quotation marks omitted.) Cox v. Aiken, 278 Conn. 204, 210-11, 897 A.2d 71 (2006). "The grounds which may be asserted in [a motion to dismiss] are: (1) lack of jurisdiction over the subject matter; (2) lack of jurisdiction over the person; (3) improper venue; (4) insufficiency of process; and (5) insufficiency of service of process." Zizka v. Water Pollution Control Authority, 195 Conn. 682, 687, 490 A.2d 509 (1985).
The defendants move to dismiss on the ground that the Superior Court is the improper venue for this dispute because the agreement between the plaintiff and Consolidated Mortgage provides that any disputes would be submitted to arbitration pursuant to Nevada law. In the alternative, the defendants move to stay the proceedings and compel arbitration. In support of their motion, the defendants have provided a copy of the agreement between the plaintiff and Consolidated Mortgage, which provides that "all controversies which may arise concerning any transaction or the construction, performance or breach of this or any agreement pertaining to trust deed investing, whether entered into prior, on or subsequent to the date hereof, shall be determined by arbitration."
The plaintiff, however, correctly points out that an agreement to arbitrate does not implicate the court's jurisdiction. General Statutes § 52-409 provides: "If any action for legal or equitable relief or other proceeding is brought by any party to a written agreement to arbitrate, the court in which the action or proceeding is pending, upon being satisfied that any issue involved in the action or proceeding is referable to arbitration under the agreement, shall, on motion of any party to the arbitration agreement, stay the action or proceeding until an arbitration has been had in compliance with the agreement, provided the person making application for the stay shall be ready and willing to proceed with the arbitration." In construing the statute, the Appellate Court has stated, "[t]he fact that . . . § 52-409 allows a court to enter a stay in a matter involving an arbitration agreement belies the defendants' claim . . . that an agreement to arbitrate ousts the court of its . . . jurisdiction. If the existence of an arbitration agreement in a contract implicated the court's jurisdiction to hear an action, then a court would, accordingly, not have jurisdiction to stay such a matter because, in the absence of jurisdiction, the court may only dismiss a matter. In short, because the power to order a stay implies that the court has jurisdiction over a matter, the legislature could not have empowered the court to enter a stay in such a matter unless the court has jurisdiction over it." Catrini v. Erickson, 113 Conn.App. 195, 197, 966 A.2d 275 (2009).
"The local law of the forum governs rules of pleading and the conduct of proceedings in court." 1 Restatement (Second), Conflict of Laws, § 127, p. 359 (1971). Whether to dismiss or stay the action is a procedural question. See id. Therefore, even though the parties chose to arbitrate pursuant to Nevada law, Connecticut law governs the procedural matter. "[I]n a choice of law situation the forum state will apply its own procedure . . ." (Citation omitted.) Paine Webber Jackson Curtis, Inc. v. Winters, 22 Conn.App. 640, 650, 579 A.2d 545, cert. denied, 216 Conn. 820, 581 A.2d 1055 (1990).
Accordingly, because the existence of an arbitration agreement between the plaintiff and the defendants does not serve to divest this court of jurisdiction, the defendants' motion to dismiss the plaintiff's claim is hereby denied.
The Motion to Stay
The court now turns to the alternative relief sought by the defendants. As mentioned above, the defendants request that the court stay the proceedings and compel the parties to engage in arbitration pursuant to § 52-409. The defendants have produced a written agreement, signed by both the plaintiff and Consolidated Mortgage, which demonstrates that the plaintiff agreed to submit all controversies arising out of the investments to arbitration. The defendants argue that, therefore, all of the issues involved in the action are referable to arbitration. Finally, they assert that they are ready and willing to proceed with arbitration.
The plaintiff, on the other hand, objects to the motion for a variety of reasons. First, the plaintiff argues that the arbitration provision violates CUSA, and is therefore, unenforceable. The plaintiff also argues that, even if the court upholds the arbitration clause, it is only applicable to her claims against Consolidated Mortgage because the other defendants were not signatories to the agreement. Lastly, the plaintiff asserts that the arbitration clause is unconscionable, and therefore, invalid. The court will address each argument separately.
Whether the Arbitration Clause violates CUSA and is, Therefore, Unenforceable CT Page 14017
The contract provides that the parties agree to negotiate all controversies pursuant to Nevada law. Nevertheless, this matter involves interstate commerce. Thus, there is no question that the Federal Arbitration Act also governs the present dispute. Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 112, 121 S.Ct. 1302, 149 L.Ed.2d 234 (2001). "Arbitration is essentially a creature of contract, a contract in which the parties themselves charter a private tribunal for the resolution of their disputes . . . Arbitration agreements are contracts and their meaning is to be determined . . . under accepted rules of [state] contract law . . .
"Judicial construction of an arbitration agreement, however, is not guided solely by the principles of relevant state contract law. The [Federal] [A]rbitration [A]ct; 9 U.S.C. §§ 1 through 16; governs written arbitration agreements that pertain to contracts involving interstate commerce . . . The arbitration act creates a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the act . . . As federal substantive law . . . the arbitration act is to be applied by state courts as well as by federal courts . . .
"The purpose of the arbitration act is to ensure that private agreements to arbitrate are enforced according to their terms . . . The arbitration act establishes a strong federal policy favoring arbitration . . . When Congress passed the arbitration act in 1925 . . . it intended courts to enforce [arbitration] agreements into which parties had entered . . . and to place such agreements upon the same footing as other contracts . . ." Hottle v. BDO Seidman, LLP, 268 Conn. 694, 701-02, 846 A.2d 862 (2004).
"Section 2 of the [Federal] [A]rbitration [A]ct provides in relevant part that `[a] written provision in any . . . contract . . . to settle by arbitration a controversy thereafter arising out of such contract . . . shall be valid, irrevocable, and enforceable . . .' 9 U.S.C. § 2. When a dispute that is covered by an arbitration agreement arises, and a party to the arbitration agreement fails, neglects or refuses to submit to arbitration, the party seeking arbitration may petition the court for an order compelling arbitration. See 9 U.S.C. § 4; General Statutes § 52-410. Section 4 of the arbitration act provides that the court shall hear the parties, and, upon being satisfied that neither the making of a covered arbitration agreement, i.e., a written arbitration agreement pertaining to a contract involving interstate commerce, nor the defendant's failure to comply with that agreement is in dispute, the court shall issue an order directing the parties to proceed to arbitration in accordance with the terms of their arbitration agreement. 9 U.S.C. § 4; accord General Statutes § 52-410.
"The arbitration act, therefore, directs state and federal courts in which an application for an order compelling arbitration has been made to determine whether: (1) the litigants executed a written arbitration agreement regarding a contract involving interstate commerce; and (2) if so, whether the issue in dispute is arbitrable, i.e., within the scope of that agreement . . . In other words, having concluded that the arbitration act applies to the litigants' arbitration agreement, the court ordinarily then interprets the arbitration agreement to determine whether the issue in dispute falls within the scope of the litigants' agreement to arbitrate . . . Moreover, if the arbitration agreement is ambiguous as to whether the issue in dispute is arbitrable, the arbitration act requires the court to resolve the ambiguity in favor of arbitration of the issue." (Citations omitted.) Levine v. Advest, Inc., 244 Conn. 732, 748-49, 714 A.2d 649 (1998).
There is no dispute that the plaintiff executed a written arbitration agreement regarding a contract involving interstate commerce. The next question, therefore, is whether the issue in dispute falls within the scope of such agreement. As stated above, the parties have agreed to negotiate all controversies pursuant to Nevada law. Nevertheless, the plaintiff alleges that the defendants, in some form, engaged in the sale of securities in Connecticut. "The Connecticut statute that expressly governs the purchase and sale of securities is CUSA, which in General Statutes [§ 36b-29] provides a private remedy for a buyer who has suffered injury because of allegedly deceptive sales practices by someone who offers or sells a security. That statute affords the defrauded buyer the right to recover restitutionary damages, interest and attorneys fees." Russell v. Dean Witter Reynolds, Inc., 200 Conn. 172, 175-76, 510 A.2d 972 (1986). "Moreover, [this] specific statutory provision within CUSA . . . reflects the will of our legislature and the court finds it is applicable to this case. Its importance is underlined by the broad range of remedies spelled out in a section entitled `Buyer's Remedies,' found at General Statutes § [36b-29]." Pursuit Partners, LLC v. UBS AG, Superior Court, complex litigation docket at Stamford-Norwalk at Stamford, Docket No. X05 CV 08 4013452 (September 8, 2009, Blawie, J.) ( 48 Conn. L. Rptr. 557, 559). That statute provides that any condition that requires the buyer to waive CUSA compliance is void. Therefore, with respect to the plaintiff's CUSA claims, Connecticut law governs the matter as they cannot be resolved pursuant to Nevada law because that state does not afford similar protections. To find otherwise would waive CUSA compliance. See, e.g., Pursuit Partners, LLC v. UBS AG, supra, 559 (even if choice of law provision should be interpreted as providing that foreign law applies to plaintiff's claims, it would violate Connecticut's fundamental policy to give effect to a provision that prevents suit under CUSA).
Under the Federal Arbitration Act, statutory claims, such as CUSA, may be the subject of an arbitration agreement. "[B]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute . . ." (Internal quotation marks omitted.) Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991). A court, however, should only compel arbitration of a statutory claim if it is clear that "the prospective litigant effectively may vindicate its statutory cause of action in the arbitral forum, such that the statute under which its claims are brought will continue to serve both its remedial and deterrent function . . . Thus, as the Supreme Court stated in [ Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985)], if certain terms of an arbitration agreement served to act as a prospective waiver of a party's right to pursue statutory remedies . . . we would have little hesitation in condemning the agreement as against public policy." (Citation omitted; internal quotation marks omitted.) Ragone v. Atlantic Video At Manhattan Center, 595 F.3d 115, 125 (2d Cir. 2010).
Relying on Wilko v. Swan, 346 U.S. 427, 434, 74 S.Ct. 182, 98 L.Ed. 168 (1953), the plaintiff argues that the agreement to arbitrate a future dispute is a provision that requires her to waive her statutory rights under CUSA, and is therefore void. In Wilko, the Supreme Court interpreted a section of the Federal Securities Act of 1933 that, like CUSA, invalidated any stipulations that waived the act's provisions and concluded that this section prohibited a predispute arbitration clause. Id., 438. The court recognized that its decision appeared to be inconsistent with the Federal Arbitration Act. Id. However, the court ultimately concluded that the arbitration process could not interpret and apply the securities laws as effectively as a judicial proceeding. Id., 435-36. The court reasoned that the buyer's right to choose a judicial forum was necessary to effectuate Congress' intent in enacting these protective provisions. Accordingly, because arbitration clauses waived the right to a judicial proceeding, the court concluded that they violated the Federal Securities Act. Id., 437-38.
The court changed its position in Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 234, 107 S.Ct. 2332, 96 L.Ed.2d 185, reh. denied, 483 U.S. 1056, 108 S.Ct. 31 (1987), and allowed for the arbitration of securities disputes. The court explained that since its decision in Wilko, a strong federal policy favoring arbitration had evolved. Id., 231-32. The court also pointed out that the Securities Exchange Commission (SEC) had acquired the power to monitor and ensure the adequacy of the arbitration procedures used by the organizations mentioned in the arbitration agreement before the court. Id., 233-34. Thus, the court ultimately concluded that the SEC's power was sufficient to overcome the prior fears and judicial suspicion associated with the arbitration process that guided the Wilko decision. Id.
Notwithstanding its holding, the plaintiff argues that Shearson supports her position because it stands for the proposition that an arbitration provision is an impermissible waiver of statutory rights regarding securities litigation when the arbitration forum is not supervised by the SEC. Thus, she asserts that the anti-waiver provision in the agreement at issue in the present matter waives her statutory rights because it requires arbitration before the American Arbitration Association (AAA), which is not a forum supervised by the SEC. In response, the defendant reminds that court of the plain language of the arbitration agreements, and argues that whether CUSA precludes arbitration is a question for the arbitrator to decide.
While the plaintiff offers a compelling analysis of Shearson's holding, she has offered no authority, and this court has found none, for her position that arbitration before the AAA waives her statutory rights under CUSA. As the United States Supreme Court has stated, in determining the arbitrability of claims, "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Without more, this court is unwilling to hold that the AAA is an impermissible forum for the arbitration of securities claims.
The plaintiff also argues that CUSA forbids the defendants from seeking to enforce any contract, including an agreement to arbitrate, made or performed in violation of CUSA. She relies on § 36b-29(h), which provides that no person who has engaged in a contract in violation of CUSA may base a cause of action on the contract. Our Supreme Court addressed a similar issue in Nussbaum v. Kimberly Timbers, Ltd., 271 Conn. 65, 856 A.2d 364 (2004). In that case, the plaintiffs sought to stay arbitration proceedings on the grounds that their contract with the defendant was illegal, unenforceable and contrary to public policy because the defendant failed to comply with a consumer protection law. Id., 74. The arbitration agreement between the two parties stated that "[a]ny controversy or claim arising out of or relating to this Contract, or breach thereof, shall be settled by arbitration." Id., 73. The court held that, whether the contract was unenforceable because of the defendant's alleged failure to comply with the relevant statutes was clearly a claim "arising out of or relating to" the contract. Accordingly, the court concluded that the plaintiffs' claim that the contract was unenforceable was within the scope of the arbitration clause and had to be decided initially by the arbitrator. Id., 74-75. Similarly, the issue of whether the contract in the present matter violates CUSA, and is, therefore, unenforceable, falls within the scope of the arbitration agreement and is therefore, a matter to be initially decided by the arbitrator. Id., 75.
As amended by No. 10-141 of the 2010 Public Acts, that statute now provides: "No person who has made or engaged in the performance of any contract in violation of any provision of Sections 36b-2 to 36b-34, inclusive, as amended by this act, or any regulation or order thereunder, or who has acquired any purported right under any such contract with knowledge of the facts by reason of which its making or performance was in violation, may base any cause of action on the contract."
Whether Non-Signatories Can Compel Arbitration
The plaintiff argues that, even if the arbitration provision is enforceable, she should only be compelled to arbitrate with Consolidated Mortgage because it was the only signatory to the agreement. The defendants respond by pointing out that all of the plaintiff's claims against the non-signatories arise from her investments in the notes. They also argue that, even though Consolidated Mortgage was the only signatory to the agreement, the alleged liability of the remaining defendants arises solely from their relationship to Consolidated Mortgage, thus the claims really go directly towards the controversy between the plaintiff and Consolidated Mortgage.
"[B]ecause we favor arbitration, we will defer to this alternative method of dispute resolution if the contractual arbitration provisions fall within the grey area of arbitrability, employing the positive assurance test as set out in United Steelworkers of America v. Warrior Gulf Navigation Co., 363 U.S. 574, 582-83, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960). Under this test, judicial inquiry . . . must be strictly confined to the question [of] whether the reluctant party did agree to arbitrate the grievance . . . An order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage." (Internal quotation marks omitted.) State of Connecticut v. Philip Morris, Inc., 279 Conn. 785, 797, n. 10, 905 A.2d 42 (2006).
"The issue of whether a non-signatory to an agreement to arbitrate can be compelled to arbitrate has been considered in several instances by the United States Court of Appeals for the Second Circuit. In deciding these cases, the court has turned for guidance to the Federal Arbitration Act, 9 U.S.C. §§ 1 through 15 . . . It does not follow . . . that under the [Federal Arbitration] Act an obligation to arbitrate attaches only to one who has personally signed the written arbitration provision. For the Act contains no built-in Statute of Frauds provision but merely requires that the arbitration provision itself be in writing. Ordinary contract principles determine who is bound by such written provisions and of course parties can become contractually bound absent their signatures." (Citation omitted; internal quotation marks omitted; emphasis added.) Total Property Services of New England, Inc. v. Q.S.C.V., Inc., 30 Conn.App. 580, 587, 621 A.2d 316 (1993).
First, with respect to Strategic, CM Securities and Williams, the plaintiff alleges that they acted as agents of Consolidated Mortgage, for whose conduct Consolidated Mortgage is responsible. Ordinarily, the question of agency is a question of fact. However, because the plaintiff has already alleged this relationship in her complaint, it is unnecessary to hold an evidentiary hearing. "It is well established that [f]actual allegations contained in pleadings upon which the case is tried are considered judicial admissions . . . which [dispense] with the production of evidence by the opposing party as to the fact admitted, and [are] conclusive upon the party making [them]." (Citations omitted; internal quotation marks omitted.) Webster Bank v. Zak, 259 Conn. 766, 777, 792 A.2d 66 (2002). Accordingly, because the allegations against these defendants is based in their agency relationship with Consolidated Mortgage, then, the dispute against them falls within the scope of the arbitration clause.
With respect to Parriott and Desert, the plaintiff does not make any allegations that they acted in their individual capacities or that her claims against them do not rise from the investments. "[A] non-signatory to an arbitration agreement may compel a signatory to that agreement to arbitrate a dispute where a careful review of the relationship among the parties, the contracts they signed . . ., and the issues that had arisen among them discloses that the issues the non-signatory is seeking to resolve in arbitration are intertwined with the agreement that the estopped party has signed." (Internal quotation marks omitted.) JLM Industries Inc. v. Stolt-Nielsen SA, 387 F.3d 163, 177 (2d Cir. 2004). The plaintiff alleges that Desert was the owner of Consolidated Mortgage and that Parriott is the controlling person of CM Securities and Consolidated Mortgage. Therefore, even though they are not signatories to the arbitration, their alleged liability arises out of their relationship to Consolidated Mortgage and the subject matter of the agreement, the investments in the notes. Accordingly, their liability is certainly intertwined with the agreement that the parties have signed. Therefore, the non-signatories are proper parties to the arbitration. See also Truck Insurance Exchange v. Palmer J. Swanson, Inc., 189 P.3d 656, 660 (Nev. 2008) ("a non-signatory may be bound to an arbitration agreement if so dictated by the ordinary principles of contract and agency" [internal quotation marks omitted.])
Whether the Arbitration Provision is Unconscionable and Therefore Unenforceable
The plaintiff next argues that the arbitration provision is unenforceable because it is unconscionable, both procedurally and substantively. First she argues that it is unenforceable because it is an adhesion contract and she had no ability to modify its terms. She also argues that the arbitration provision is oppressive or overly one-sided because of the costs associated with arbitration.
"[P]arties to a contract generally are allowed to select that law that will govern their contract, unless either: (a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice or (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of [1 Restatement (Second), Conflict of Laws, § 188 (1971)], would be the state of the applicable law in the absence of an effective choice of law by the parties." See Elgar v. Elgar, 238 Conn. 839, 850, 679 A.2d 937 (1996). Accordingly, the issue of unconscionability is an issue of substantive law which, ordinarily, must be construed by the law of the state which the parties chose, in this case, Nevada. "While there is no precise definition of either [substantive or procedural law], it is generally agreed that a substantive law creates, defines and regulates rights while a procedural law prescribes the methods of enforcing such rights or obtaining redress." (Internal quotation marks omitted.) Davis v. Forman School, 54 Conn.App. 841, 854-55, 738 A.2d 697 (1999).
Pursuant to Connecticut law, as a procedural matter, "the question of whether the entire agreement containing an arbitration provision is a contract of adhesion is one for an arbitrator's determination and not, at this juncture, one for judicial review." Salomon Smith Barney, Inc. v. Cotrone, 81 Conn.App. 755, 761, 841 A.2d 1199 (2004). However, as described below, Nevada requires the court to find both procedural and substantial unconscionability prior to invalidating an arbitration agreement. Thus, the court must make such a determination.
"Generally, both procedural and substantive unconscionability must be present in order for a court to exercise its discretion to refuse to enforce a . . . clause as unconscionable." (Internal quotation marks omitted.) D.R. Horton, Inc. v. Green, 170 Nev. 549, 553, 96 P.3d 1159 (2004). They need not be present in the same degree, however. Id. "A clause is procedurally unconscionable when a party lacks a meaningful opportunity to agree to the clause terms either because of unequal bargaining power, as in an adhesion contract, or because the clause and its effects are not readily ascertainable upon a review of the contract. Procedural unconscionability often involves the use of fine print or complicated, incomplete or misleading language that fails to inform a reasonable person of the contractual language's consequences." Id., 555.
In D.R. Horton, Inc. v. Green, supra, 558-59, the court found that a new homeowners contract was procedurally unconscionable because, inter alia, its arbitration provision was hidden in abnormally small print on the back page of the contract, while the signature line was on the front page. In addition, the court found that the defendant downplayed the significance of the arbitration agreement to the plaintiffs. Id.
In sharp contrast, however, the agreement in the present case contains conspicuous arbitration disclosures. For instance, the disclosure page cautioned the plaintiff to "PLEASE READ CAREFULLY." It further informed the plaintiff that all claims relating to her investment would be settled by arbitration. It clearly informed her that her dispute would be resolved in a forum other than a judicial proceeding, and that she was waiving her right to a jury trial. It further explained that the arbitrator's award did not require factual findings or legal reasoning and that the right to appeal such award was strictly limited. The plaintiff in her affidavit claims that she did not understand the nature of the arbitration process. However, paragraph thirteen advised the plaintiff to seek independent legal advice to interpret the documents. Absent an allegation that the defendants somehow downplayed or misrepresented the significance of the arbitration agreement, the court, pursuant to Nevada law, cannot find that it is procedurally unconscionable.
The plaintiff next argues that the up-front costs of arbitration renders the arbitration clause unenforceable. The United States Supreme Court has recognized the availability of such a challenge in Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79, 90, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000), stating that "[i]t may well be that the existence of large arbitration costs could prevent a litigant . . . from effectively vindicating her federal statutory rights in the arbitral forum." Nevertheless, if "a party seeks to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive, that party bears the burden of showing the likelihood of incurring such costs." Id., 92. The Supreme Court failed to elaborate on how detailed a showing must be made to invalidate an arbitration agreement. Id. Nevertheless, once the likelihood of prohibitive costs are established, the burden is on the party seeking arbitration to provide contrary evidence. Id.
In this case, the plaintiff is seeking to vindicate her statutory remedy. "As indicated, the title of [§ 36b-29] is `Buyers Remedies.' Its legislative purpose could not be more self-evident than that. This law is designed to protect Connecticut — investors buying securities, from sophisticated hedge funds . . . to ordinary citizens who are solicited to purchase securities. To allow securities to be marketed, offered and sold in any or all of the 49 states outside of [the chosen state], and hold that no other jurisdiction's laws can be enforced or invoked, or that Connecticut law must be ignored, even if a plaintiff can establish, as it has here, probable cause to support a cause of action under Connecticut law, the state where the solicitation was made, simply because of this choice of law provision, is not a proposition this court will or may accept, both as a matter of statute and public policy." Pursuit Partners, LLC v. UBS AG, supra, 48 Conn. L. Rptr. 559. Nevada does recognize that an arbitration provision may be unconscionable if the cost differential will deter a consumer from bringing a claim. "While an arbitration agreement's silence regarding potentially significant arbitration costs does not, alone, render the agreement unenforceable, the existence of large arbitration costs could preclude a litigant . . . from effectively vindicating her . . . rights in the arbitral forum. Ordinary consumers may not always have the financial means to pursue their legal remedies, and significant arbitration costs greatly increase that danger." (Internal quotation marks omitted.). D.R. Horton v. Green, supra, 120 Nev. 558-59. Despite such recognition, however, there is no Nevada case law that sets the standard to determine whether the arbitration costs make the contract substantively unconscionable.
In D.R. Horton v. Green, supra, the court sought guidance from Ting v. AT T, 319 F.3d 1126, 1151 (9th Cir. 2003), cert. denied, 540 U.S. 811, 124 S.Ct. 53, 157 L.Ed.2d 24 (2003), to determine whether an arbitration agreement was unconscionable. In Ting the court found a fee-splitting provision unconscionable because it imposed on some consumers costs greater than those a complainant would bear if he filed the same complaint in court. Id. The court first reasoned that "[w]here an arbitration agreement is concerned, the agreement is unconscionable unless the arbitration remedy contains a `modicum of bilaterality.'" Id., 1149. The court then concluded that the agreement did not contain such a modicum. "Our decision is also consistent with the [Federal Arbitration Act]. [The defendant] contends that the district court `singled out' arbitration agreements for special treatment by declaring the provision unconscionable simply because it would require customers to share some of the costs. However, parties that agree to arbitrate statutory claims still are entitled to basic procedural and remedial protections so that they can effectively realize their statutory rights . . . Among these protections is the assurance that an individual need not pay either unreasonable costs or any arbitrators' fees or expenses as a condition of access to the arbitration forum . . . Additionally, because unconscionability is a defense to contracts generally and does not single out arbitration agreements for special scrutiny, it may be raised consistent with § 2 of the [Federal Arbitration Act]." (Citations omitted; internal quotation marks omitted.). Id.
The court relied on other jurisdictions to reach its conclusion. "A number of other courts have arrived at the same conclusion. See Shankle v. B-G Maint., Inc., 163 F.3d 1230, 1235 (10th Cir. 1999) (holding unenforceable a fee-splitting provision that would cost an employee between $1,875 and $5,000 to resolve a particular claim); Cole v. Burns Int'l Sec. Servs., 105 F.3d 1465, 1485 (D.C. Cir. 1997) (upholding a fee-splitting agreement, but only after the court construed the agreement to require the employer to pay all the arbitrator's fees)." Id.
The Nevada Supreme Court agreed with this rational. D.R. Horton v. Green, supra, 120 Nev. 558 ("we agree with the Ting rationale and conclude that the arbitration provision was also substantively unconscionable"). Specifically, the court found that the "modicum of bilaterality" is missing when arbitration costs preclude a plaintiff from pursuing legal remedies.
The holding in Ting v. AT T, 319 F.3d 1151, is considered the minority position. See, e.g., E.E.O.C v. Rappaport, Hertz, Cherson Rosenthal, P.C., 448 F.Sup.2d 458, 462-64 (E.D.N.Y. 2006) (discussing Ting, but recognizing that majority of circuits take the position that, pursuant to Green Tree, courts should apply a case-by-case analysis focused on "ability to pay the arbitration fees and costs, the expected cost differential between arbitration and litigation in court, and whether the cost differential is so substantial as to deter the bringing of claims").
There is no appellate authority in Connecticut. Courts in the second circuit, however, have addressed the issue of whether, notwithstanding the mandates of the Federal Arbitration Act, the prohibitive costs renders an arbitration clause unenforceable. These district courts have come to different conclusions. For instance, one line of cases follows the fourth circuit rule that, in determining whether arbitration costs are prohibitive, the courts must take a "case-by-case analysis." See Stewart v. Paul, Hastings, Janofsky Walker, LLP, 201 F.Sup.2d 291, 293 (S.D.N.Y. 2002) (quoting Bradford v. Rockwell Semiconductor System, Inc., 238 F.3d 549, 556 (4th Cir. 2001)). On the other hand, other courts have found that, pursuant to Green Tree, the plaintiff is only required to show the likelihood of incurring prohibitively expensive costs which would not be incurred in a judicial forum. Under this approach, the court does not look at the financial circumstances of the individual plaintiff. See, e.g., Ball v. SFX Broadcasting, Inc., 165 F.Sup.2d 230, 239-40 (N.D.N.Y. 2001). Finally, in Barbieri v. K-Sea Transportation Corp., 566 F.Sup.2d 187, 195 (E.D.N.Y. 2006), the court took a distinct approach and refused to uphold the arbitration provision unless the defendants agreed to pay the costs of arbitration. The court held that "[e]quity requires only that [the plaintiff] be ordered to [arbitrate] on reasonable terms rather than the jot and title terms specified in the Claims Arbitration Agreement . . . Accordingly, the Court will compel arbitration, but only on the condition that [the defendant] bears any filing costs not waived by the AAA."
Here, the arbitration clause is silent as to fees, and provides that arbitration will be governed by the rules of the AAA. The plaintiff speculates that under the AAA's rules, she could incur fees and costs in the range of $16,250 to $72,100. For support she offers the affidavit of C. Thomas Mason, III, an arbitrator who has been appointed to two AAA arbitration panels in the last twelve months. His affidavit provides that paying these forum costs to pursue a statutory claim arising from an investment of $100,000 is "highly dubious." Mason references the AAA fee schedule and securities arbitration rules. Such rules demonstrate that claims over $100,000 must be submitted to a panel of three arbitrators. The plaintiff also offers her own affidavit that provides that after basic housing expenses and taxes, she may only have between $5,000 and $10,000 available for her other expenses, including food and medical insurance. The defendants have not provided any evidence to counter the plaintiff's assertions. While the court recognizes the federal policy that favors the arbitration of disputes, the court also recognizes that "CUSA reflects important public policy considerations, and is designed for the protection of Connecticut investors. Connecticut National Bank v. Giacomi, 242 Conn. 17, 66, 699 A.2d 101 (1997)." Pursuit Partners, LLC v. UBS AG, supra, Superior Court, Docket No. X05 CV 084013452. The court, therefore, finds that the plaintiff has established a likelihood that the estimated arbitration costs are sufficiently prohibitive to render the arbitral forum inaccessible for her. Accordingly, the court cannot compel arbitration of her CUSA claims.