Castro v. Castro-Harrison et al

Filing 52

STATEMENT OF REASONS IN SUPPORT OF 42 ORDER GRANTING 20 MOTION TO COMPEL ARBITRATION AND STAY PROCEEDINGS. Signed by Judge Carmen C. Cerezo on 5/8/2018. (mld)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
ARTURO C. CASTRO
Plaintiff
vs
ROBERTO HARRY CASTRO
HARRISON; UBS FINANCIAL
SERVICES OF PUERTO RICO;
LUIS BLANCO MATOS, ESQ.;
VICTORIA LYNN CASTRO
HARRISON a/k/a VICTORIA L.
BABB
Defendants

CIVIL 16-2731CCC

STATEMENT OF REASONS IN SUPPORT
OF ORDER GRANTING MOTION TO COMPEL
ARBITRATION AND STAY PROCEEDINGS (D.E. 42)
Plaintiff Arturo Celestino Castro (“Castro”) filed a pro se complaint on
September 27, 2016, claiming violations of the Securities and Exchange Act
of 1934 and the Uniform Commercial Code. §§ 3 and 4. Plaintiff is questioning
the validity of the liquidation of a UBS account belonging to the Estate of his
mother, Dorothy H. Castro (“Mrs. Castro”), as the result of judicial proceedings
that took place in the Commonwealth Court. Mrs. Castro passed away on
December 7, 2014. (d.e. 20-2).
Before the Court is defendant UBS’ Motion to Compel Arbitration and
Stay Proceedings (d.e. 20) filed on January 30, 2017, plaintiff’s opposition
(d.e. 27) filed on February 22, 2017, and UBS’ reply (d.e. 30) filed on
March 17, 2017. UBS argues that plaintiff is bound by the arbitration clause
in the UBS Client Relationship Agreement (“Agreement”) executed by
Mrs. Castro on October 12, 2012 (d.e. 25-1, p. 19). Plaintiff contends that

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because his complaint includes claims under Puerto Rico estate laws that
involve the administration of his mother’s Estate, compelling arbitration is
improper (d.e. 27, ¶¶ 3-4, 7, 11, 21).
Having granted defendant UBS’ Motion to Compel Arbitration and Stay
proceedings on September 29, 2018 (d.e. 42), the Court now sets forth the
following:

STATEMENT OF REASONS
The Federal Arbitration Act (“FAA”) provides that “[a] written provision
in [] a contract evidencing a transaction involving commerce to settle by
arbitration a controversy thereafter arising out of such contract or transaction,
or the refusal to perform the whole or any part thereof, or an agreement in
writing to submit to arbitration an existing controversy arising out of such a
contract, transaction, or refusal, shall be valid, irrevocable, and enforceable,
save upon such grounds as exist at law or in equity for the revocation of any
contract.” 9 U.S.C. § 2. Thus, “[w]here a contract contains an arbitration
clause, ‘there is a presumption of arbitrability in the sense that [a]n 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.’” Crespo v. Matco Tools Corp.,
274 F. Supp. 3d 15 (D.P.R. 2017) (citing Eazy Electronics & Tech., LLC v.
LG Electronics, Inc., 226 F. Supp. 3d 68, 73 (D.P.R. 2016)).
In order to compel arbitration, UBS must show “that a valid agreement to
arbitrate exists, that the movant is entitled to invoke the arbitration clause, that

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the other party is bound by that clause, and that the claim asserted comes
within the clause's scope.” Dialysis Access Ctr., LLC v. RMS Lifeline, Inc.,
638 F.3d 367, 375 (1st Cir. 2011) (citing InterGen N.V. v. Grina,
344 F.3d 134, 142 (1st Cir. 2003)).

1.

Validity of Agreement’s Arbitration Provisions
“The existence of a valid arbitration agreement is based on the consent

of the parties to arbitrate at least some of their claims and to forgo a judicial
remedy for those claims.” Johnson & Johnson Int'l v. Puerto Rico Hosp.
Supply, Inc., 258 F. Supp. 3d 255, 260 (D.P.R.), reconsideration denied,
322 F.R.D. 439 (D.P.R. 2017) (referring to

McCarthy v. Azure,

22 F.3d 351, 354-55 (1st Cir. 1994)). The Agreement’s relevant arbitration
provisions state, in part:
This Agreement contains a pre-dispute arbitration clause. By
signing an arbitration agreement the parties agree as follows:
•

All parties to this Agreement are giving up the right to sue
each other in court, including the right to a trial by jury,
except as provided by the rules of the arbitration forum in
which a claim is filed.

This arbitration Agreement represents the standard industry
practice and binds you and us to arbitrate any disagreements that
may arise between us.
By opening an account at UBS, and by UBS Financial Services Inc.
or UBS Financial Services Incorporated of Puerto Rico by
accepting your application and carrying your account, you,
UBS Financial Services Inc. and UBS Financial Services
Incorporated of Puerto Rico agree as follows:
•

We agree to resolve any controversy, claim or issue in any
controversy that may arise by arbitration, whether it happens
before or after, or at the time of this Agreement was
executed, including but not limited to controversies, claims or

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issues in any controversy concerning any account,
transaction, dispute or the construction, performance or
breach of this Agreement or any other Agreement.
•

Any arbitration under this Agreement shall be governed by
the Federal Arbitration Act and shall be conducted before an
arbitration panel convened by the Financial Industry
Regulatory Authority (FINRA) . . .

(d.e. 25-1, pp. 16-17).
The terms of the provisions are clear that the parties gave up their right
to resolve disputes resulting from UBS’ performance of the Agreement in court
and are subject instead to arbitration. UBS provided an executed copy of the
Agreement, signed by Mrs. Castro on October 24, 2012. (d.e. 25-1, p. 21).
The signature page directs the accountholder to the arbitration provision,
reminding the signatory that: “[t]he Client Relationship Agreement contains a
pre-dispute arbitration clause located in the final section under the title
‘Arbitration.’” Id.
Castro concedes that the Agreement was signed by his mother (d.e. 27,
¶¶ 32, 38), but questions whether the signature page corresponds to the
Agreement and whether the Agreement is the contract that controls his
mother’s account. Id. at ¶¶ 32, 36, 37. As to the first matter, Castro’s
imputations are baseless because the signature page thrice refers to the
“Client Relationship Agreement” and its page number follows sequentially from
those in the Agreement. In terms of whether another document regulates his
mother’s account, the ‘Introduction’ section of the Agreement states:
Please note: this Client Relationship Agreement applies to all of
your accounts at UBS, including any Accounts you may already
have with us and Accounts you may open in the future.
(d.e. 25-1, p. 1).

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Castro’s

allegations,

5
unsupported,

for

example,

by

another

UBS document that applies to IRA/401K accounts, fail to rebut the presumption
that the signature page UBS provided is coupled to the Agreement and that the
arbitration provisions are thus enforceable. Defendant has shown that a valid
agreement to arbitrate exists.

2.

UBS is Entitled to Invoke Arbitration Provisions
Castro brings claims of breaches of fiduciary duties and under the U.C.C.

(d.e. 1, ¶¶ 61-65). These claims are “intertwined” with the Agreement. See
Johnson & Johnson Int'l, 258 F. Supp. 3d at 261 (stating “claims are
intertwined with the agreement when they directly or indirectly invoke the terms
of that agreement or when the agreement must referenced when resolving the
dispute”).

As a non-signatory party who asserts claims related to the

defendant’s management and distribution of his mother’s account, Castro
embraces the Agreement and is equitably estopped from avoiding its arbitration
provisions. See Sourcing Unlimited, Inc. v. Asimco Int'l, Inc., 526 F.3d 38, 4748 (1st Cir. 2008). UBS is entitled to invoke the arbitration provisions of the
Agreement against Castro.

3.

Plaintiff is beneficiary and thus bound by Clause
The Agreement provides that if an accountholder does not designate a

beneficiary, then at the time of death, the beneficiary of the assets will be the
surviving spouse of the accountholder or the estate if no surviving spouse
exists:

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According to the UBS IRA Custodial Agreements,
UBS Financial Services Inc. is named as the custodian of your IRA
when we accept the Account. At your death, the beneficiary or
beneficiaries whose name(s) are shown on the Account
Information pages of the Completing Your New Account Process
package will become entitled to your IRA.
Beneficiaries must be named in writing. Your written
designation may apply to future accounts, and in that case, we will
confirm your designation in the Completing Your Account Opening
Process package. If you do not designate beneficiaries, or your
beneficiary designation does not effectively dispose of the assets,
your beneficiary with respect to the IRA or any part of the IRA not
effectively disposed of, will be your surviving spouse, or your estate
if you do not have a surviving spouse.
(d.e. 25-1, p. 3).
His mother having failed to designate a beneficiary and as a member of
his mother’s Estate, Castro is a third-party beneficiary to the Agreement. “[A]
third-party beneficiary of a contract containing an arbitration clause can be
subject to that clause and compelled to arbitrate on the demand of a signatory.”
InterGen N.V., 344 F.3d at 146. Castro is bound by terms of the Agreement,
including its arbitration provisions.

4.

Scope of Agreement
“To determine the scope of the arbitration clause, the Court first

considers the factual allegations underlying Plaintiffs' claims in the Complaint.”
Crespo v. Matco Tools Corp., 274 F. Supp. 3d 15 (D.P.R. 2017) (referring to
Dialysis Access Ctr., LLC, 638 F.3d at 378; Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth Inc., 473 U.S. 614, 622 n. 9, 105 S.Ct. 3346, 87 L.Ed. 2d
444 (1985)). In the complaint, Castro avers having informed UBS to “freeze”
his mother’s account (d.e. 1, ¶ 70) and to “stop payment” of all transactions in

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the UBS account (Id. at ¶ 72). The factual allegations against UBS all involve
the defendant’s management of his mother’s account. They fall within the
scope of the Agreement’s arbitration provisions, as these subject to arbitration
“any controversy, claim or issue . . . that may arise . . . concerning any account,
transaction, dispute or the construction, performance or breach of this
Agreement . . .” (d.e. 25, p. 17).

CONCLUSION
For the reasons stated herein, the Court concludes that Castro’s claims
against defendant UBS are arbitrable under the Agreement’s arbitrations
provisions. UBS’ Motion to Compel Arbitration and Stay Proceedings (d.e. 20)
is GRANTED.
SO ORDERED.
At San Juan, Puerto Rico, on May 9, 2018.

S/CARMEN CONSUELO CEREZO
United States District Judge