Case Name:         Gregory Kosinovsky v. Charles Schwab & Co., Inc.

Case Number:      1-14-CV-265422

Defendant Charles Schwab & Co., Inc. (“Defendant” or “Schwab”) petitions the Court for an order compelling arbitration and moves to stay these judicial proceedings pending arbitration (“Defendant’s Motion to Compel”).  Plaintiff Gregory Kosinovsky (“Plaintiff”) opposes Defendant’s Motion to Compel, arguing that the arbitration agreement at issue is unconscionable.

“The prevailing view is that [procedural and substantive unconscionability] must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.”   (Armendariz v. Foundation Health Psychcare Services [“Armendariz”] (2000) 24 Cal.4th 83, 114 [internal citation and quotation marks omitted].)

As a preliminary matter, Defendant has established that Plaintiff executed a Schwab IRA account application and opened an IRA account with Schwab.  The account application contained an IRA account agreement which expressly provided that the parties settle by binding arbitration any disputes in connection with Plaintiff’s Schwab accounts and/or any transactions with Schwab’s agents or employees.  Plaintiff’s signature appears on the foot of the page of the IRA account application/agreement which sets forth the arbitration clause.  (See Decl. of Gregory Scanlon [“Scanlon Decl.”], ¶ 2, Exh. A thereto.)  The arbitration provisions are printed in all capital letters, in contrast with other account provisions.  (Ibid.)  Defendant has also established that Plaintiff’s claims herein for breach of fiduciary responsibility and intentional and negligent infliction of emotional distress fall within the scope of the arbitration clause.

Plaintiff argues that the arbitration agreement is procedurally unconscionable because it was offered on a take-it-or-leave-it basis.  There is no dispute that the IRA account application/agreement was drafted by Schwab and it appears to be a standard, pre-printed form which has characteristics of what is commonly referred to in the present context as a “contract of adhesion.”   Here, however, Plaintiff does not submit a declaration concerning the circumstances under which the arbitration agreement was executed which would support a conclusion that it was presented as non-negotiable.  Under these circumstances, there is only a minimal showing of procedural unconscionability.

Plaintiff argues that the arbitration agreement is substantively unconscionable because it allowed Schwab to unilateral amend the IRA account agreement periodically.  While this provision demonstrates an element of substantive unconscionability, the effect is not overly harsh or so one-sided as to tilt the scales towards a determination that the arbitration provision is void for unconscionability—particularly in light of the relatively weak showing of procedural unconscionability.

For these reasons, the Court finds that the arbitration provision in the IRA account application/agreement is enforceable.

In consideration of the foregoing, Defendant’s petition to compel arbitration is GRANTED, and this action is stayed pending arbitration.  The currently-scheduled CMC date (9-9-14) is hereby VACATED.  The matter is re-set for arbitration status review on January 8, 2015, at 10:30 a.m. in Dept. 5.