Rosenthal v. Great Western Fin. Securities Corp

In Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, the defendant, a securities corporation, moved to compel arbitration on the grounds that the plaintiffs had executed a client agreement containing an arbitration clause. (Rosenthal, supra, 14 Cal.4th at pp. 402-403.) In opposition, the plaintiffs argued that the arbitration agreement was unenforceable because "'there was fraud in the inception of the contract'" and submitted declarations containing evidence that the defendant's representatives did not tell them that the client agreement contained an arbitration clause and assured them that the client agreement was a mere formality needed to open an account. (Id. at p. 403.) In reply, the defendant's representatives offered declarations wherein they denied making the allegedly fraudulent statements. (Id. at p. 404.) Without holding an evidentiary hearing, the trial court denied the defendant's petition to compel arbitration, concluding that the plaintiffs "'presented sufficient evidentiary support for their allegations of fraud in the inception of the arbitration agreement.'" (Ibid.) The California Supreme Court granted review to address "the procedures by which petitions to compel arbitration . . . are to be determined in the superior courts." (Rosenthal, supra, 14 Cal.4th at p. 402.) The Rosenthal court rejected the defendant's argument that the trial court must conduct an evidentiary hearing whenever "declarations and documentary evidence present a material factual dispute as to the existence or enforceability of the arbitration agreement." (Id. at p. 414.) The court explained, "There is simply no authority for the proposition that a trial court necessarily abuses its discretion, in a motion proceeding, by resolving evidentiary conflicts without hearing live testimony. Nonetheless, we agree that where -- as is common with allegations of fraud such as are made here -- the enforceability of an arbitration clause may depend upon which of two sharply conflicting factual accounts is to be believed, the better course would normally be for the trial court to hear oral testimony and allow the parties the opportunity for cross-examination." (Ibid.) The Rosenthal court ultimately concluded that the majority of the plaintiffs' declarations "did not present legally sufficient evidence that they reasonably relied on fraudulent representations as to the essential character of the client agreements they signed." (Id. at p. 402.) In Rosenthal v. Great Western Fin. Securities Corp. (1996) the arbitration agreement was attacked on the basis of fraud, rather than unconscionability. In that context, the Supreme Court stated that if a party, with a reasonable opportunity to do so, fails to learn the nature of a document he or she signs, such negligence precludes a finding that the contract is void for fraud in the execution. ( Id., at p. 423.) Stated simply, one should read a contract before signing it. In response to claims by some of the plaintiffs in Rosenthal that they were not given time to read the agreement, or that they felt rushed or pressured to sign, the court stated: "Without evidence that the defendants actually took some action or said something to hurry or pressure the prospective client, however, these claims add nothing to plaintiffs' showing." ( Id., at p. 424, fn. 12.)