Arges v. LPL Financial CA4/1 ( 2020 )

Filed 11/24/20 Arges v. LPL Financial CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for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.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
TERRANCE ARGES, D076790
Plaintiff and Appellant,
v. (Super. Ct. No. 37-2019-
00014334-CU-BC-CTL)
LPL FINANCIAL, LLP,
Defendant and Respondent.
APPEAL from an order of the Superior Court of San Diego County,
Ronald F. Frazier, Judge. Affirmed.
Mirch Law Firm, Kevin J. Mirch and Marie C. Mirch for Plaintiff and
Appellant.
Markin Zusman Freniere & Compton and Kevin K. Eng for Defendant
and Respondent.
I
INTRODUCTION
Plaintiff Terrance Arges appeals an order granting defendant LPL
Financial LLP’s (LPL) special motion to strike Arges’s complaint under Code
of Civil Procedure section 425.16 (the anti-SLAPP law).1 LPL, a securities
broker-dealer firm, and Arges, a broker who worked for LPL, were named as
defendants in a lawsuit filed by an individual named Yulia Romero
(hereafter, the Romero litigation). In that lawsuit, Romero alleged Arges
engaged in investment-related misconduct while he was an agent of LPL.
LPL disclosed the Romero litigation to Financial Industry Regulatory
Authority, Inc. (FINRA), a self-regulatory organization that oversees
securities firms that do business with the public. (Flowers v. Financial
Industry Regulatory Authority, Inc. (2017) 16 Cal.App.5th 946, 949
(Flowers).) Arges then filed this action against LPL based on LPL’s
disclosure of the Romero litigation to FINRA.
We conclude the trial court properly granted LPL’s anti-SLAPP motion.
LPL’s disclosure was protected conduct as a communication made before an
official proceeding. (§ 425.16, subd. (e)(1).) Further, Arges did not establish a
probability of success as to his causes of action because LPL’s disclosure was
protected by the official proceeding privilege codified in Civil Code section 47,
subdivision (b). (§ 425.16, subd. (b)(1).) Therefore, we affirm the order
granting LPL’s anti-SLAPP motion.
II
BACKGROUND
A
FINRA
FINRA is a private, not-for-profit corporation and a self-regulatory
organization authorized under title 15 United States Code section 78o-3 et
seq. (Flowers, supra, 16 Cal.App.5th at p. 949.) FINRA is “ ‘ “responsible for
1 All further statutory references are to the Code of Civil Procedure
unless otherwise noted.
2
regulatory oversight of all securities firms that do business with the public;
professional training, testing and licensing of registered persons; [and]
arbitration and mediation” ’ ” of disputes between investors and securities
firms. (Lickiss v. Financial Industry Regulatory Authority (2012) 208
Cal.App.4th 1125, 1128 (Lickiss).) It is “subject to extensive oversight” by the
U.S. Securities and Exchange Commission (SEC) (Flowers, at p. 950), and it
has the “power to promulgate rules that, once adopted by the SEC, have the
force of law,” (McDaniel v. Wells Fargo Investments, LLC (9th Cir. 2013) 717
F.3d 668, 673).2
“Before engaging in activities as a registered representative for a
FINRA-member firm, all registered representatives of broker-dealers,
investment advisors, and securities issuers must sign a ‘Uniform Application
for Securities Industry Registration or Transfer,’ commonly referred to as
Form U-4.” (Valentine Capital Asset Management, Inc. v. Agahi (2009) 174
Cal.App.4th 606, 613; see Cal. Code Regs., tit. 10, § 260.210, subd. (a).) “The
Form U-4 is a contract between the regulatory organization (here FINRA)
and the individual registrant.” (Valentine, at p. 613.) It “requires a detailed
history of the applicant’s background, including past history in the securities
industry and any customer complaints that may have arisen in that
connection.” (5 Hazen, Treatise on the Law of Securities Reg. (7th ed. 2020)
FINRA Reg. of Associated Persons, § 14:67.) After the Form U-4 is
completed, the member-firm must file the executed Form U-4 with FINRA on
2 “Prior to 2007, FINRA was known as the National Association of
Securities Dealers (the NASD); in 2007, the NASD consolidated its regulatory
functions with the regulatory functions … [of] the New York Stock Exchange
and changed its name to FINRA.” (Flowers, supra, 16 Cal.App.5th at p. 949.)
3
behalf of the registered representative.3 (FINRA Bylaws, Art. V, § 2; FINRA
Rule 1010; Cal. Code Regs., tit. 10, § 260.210, subd. (b)(1).)
When a registered representative departs a member-firm, the firm is
required to file with FINRA a Uniform Termination Notice for Securities
Industry Registration Form (Form U-5) (together with the Form U-4, the U-
Forms). (FINRA Bylaws, Art. V, § 3(a); see Cal. Code Regs., tit. 10,
§ 260.210, subd. (b)(4).) The Form U-5 requires the firm to “explain the
reasons for termination” and answer “questions that address whether the
employee ha[s] been subject to criminal charges, customer complaints or an
internal review for violating investment-related rules.”4 (Rosenberg v.
3 The FINRA bylaws, rules, and U-Forms are not part of the record,
although the parties reference them in their briefs. We take judicial notice of
these materials on our own motion. (Evid. Code, §§ 452, subd. (h), 459; Royal
Alliance, Inc. v. Liebhaber (2016) 2 Cal.App.5th 1092, 1097.)
4 For instance, Question 7E(1) states: “In connection with events that
occurred while the individual was employed by or associated with your firm,
was the individual named as a respondent/defendant in an investment-
related, consumer-initiated arbitration or civil litigation which alleged that
the individual was involved in one or more sales practice violations and
which: [¶] (a) is still pending, or; [¶] (b) resulted in an arbitration award or
civil judgment against the individual, regardless of amount, or; [¶] (c) was
settled, prior to 05/18/2009, for an amount of $10,000 or more, or; [¶] (d) was
settled, on or after 05/18/2009, for an amount of $15,000 or more?”
In addition, Question 7E(2) states: “In connection with events that
occurred while the individual was employed by or associated with your firm,
was the individual the subject of an investment-related, consumer-initiated
(written or oral) complaint, which alleged that the individual was involved in
one or more sales practice violations, and which [¶] (a) was settled, prior to
05/18/2009, for an amount of $10,000 or more, or; [¶] (b) was settled, on or
after 05/18/2009, for an amount of $15,000 or more?”
If the firm answers one or more of these questions in the affirmative, it
must then complete a disclosure reporting page providing additional detail
concerning the arbitration, civil litigation, or complaint.
4
Metlife, Inc. (2007) 8 N.Y.3d 359, 362 (Rosenberg).) The Form U-5 alerts
FINRA to “possible misconduct by members of the securities industry, and
investigations of misconduct reported on the Form U-5 frequently lead to the
initiation of disciplinary action” by FINRA against registered
representatives. (Wright, Form U-5 Defamation (1995) 52 Wash. & Lee
L.Rev. 1299, 1304; see FINRA Reg. Notice 10-39 (Sept. 2010).)
Under the Securities Exchange Act of 1934, FINRA is required to
“maintain information in a central registration depository (CRD) database
about its member firms as well as their current and former registered
representatives, including their broker representatives.” (Flowers, supra, 16
Cal.App.5th at p. 950; see 15 U.S.C. § 78o-3(i)(1)(A).) “In general,
information in the CRD system is obtained through [U-Forms] ….”
(Securities and Exchange Com., Release No. 34-88760 (Apr. 28, 2020), 85
Fed.Reg. 26502, 26503 (May 4, 2020).) Certain information from the CRD—
including information obtained from U-Forms—is published and made
available to the public on an online application called BrokerCheck. (Lickiss,
supra, 208 Cal.App.4th at p. 1129.)
B
The Romero Litigation
Arges is a financial broker. In March 2013, he became a registered
representative of LPL, a securities broker-dealer firm licensed and registered
with FINRA. Arges departed LPL in April 2016.
In March 2017, an individual named Yulia Romero filed a state court
complaint against Arges and LPL based on conduct Arges allegedly
undertook while he was a registered representative of LPL. Romero alleged
Arges convinced her to “entrust her funds to his control and decision-making,
so that he could create and build a client portfolio ….” She alleged Arges
5
opened a stock trading account in her name, “traded, gambled, and lost
$120,000 of [her] money on speculative, unsuitable, risky, market-timing
stock trades,” and threatened her to “prevent her from seeking redress for his
improprieties.” She also alleged LPL, in its capacity as Arges’s principal,
failed to advise her of the risks associated with Arges’s stock trades. Based
on these allegations, Romero asserted a negligence cause of action against
LPL and breach of fiduciary duty, breach of contract, fraud, negligent
misrepresentation, unfair business practices, negligence, and extortion
causes of action against Arges.
Soon after Romero filed suit, Romero and LPL reached a settlement
agreement. Under the settlement agreement, Romero dismissed LPL from
the case in return for $15,000.
Arges filed a cross-complaint against Romero, the details of which are
not apparent from the record. Romero and Arges later reached a settlement
agreement under which Romero dismissed her causes of action against Arges.
According to Arges, Romero “pa[id] a substantial settlement amount” to him
under the settlement agreement.
LPL reported the Romero litigation to FINRA on its U-Form filings.
The reported information was added to the CRD and made publicly-available
on Arges’s BrokerCheck report. Under a heading that reads “Customer
Dispute - Settled,” Arges’s BrokerCheck report includes two disclosures
related to the Romero litigation.
LPL provided the first disclosure, which identifies the Romero litigation
by caption, docket number, and court, and summarizes the Romero litigation
as follows:
[ROMERO] ALLEGES BREACH OF FIDUCIARY DUTY,
BREACH OF CONTRACT, FRAUD, MISREPRESENTATION,
NEGLIGENCE, EXTORTION, FAILURE TO SUPERVISE WITH
6
REGARD TO CLAIMS THAT [ARGES] SOLICITED HER TO
INVEST IN ALLEGEDLY UNSUITABLE SECURITIES VIA AN
ONLINE BROKERAGE ACCOUNT, WHICH BROKERAGE
ACCOUNT WAS NEITHER OFFERED NOR APPROVED BY
LPL, AND FURHTER [sic] THAT SHE SUSTAINED LOSSES
OF $120,000, WHICH [ARGES] EXTORTED HER NOT TO
DISCLOSE.
LPL’s disclosure states the Romero litigation was settled, there was a
“Monetary Compensation Amount” of $15,000, and there was an “Individual
Contribution Amount” of zero for the settlement. It also includes a statement
from LPL indicating that, according to LPL’s records, Romero was not an
LPL customer.
Arges provided the second disclosure, which includes substantially the
same information as LPL’s disclosure, as well as the following statement
from Arges:
[Romero] is my ex-fiancé who sued me after our relationship
ended. She traded her own account at a discount broker [sic] and
made some of the trades I did in my account. She also bought
stocks that I did not. I never asked for or received any
commissions. She chose not to open an account with me to avoid
paying any fees to my firm. There was no contract,
compensation, or brokerage relationship. The claims are false
and I will seek expungement under the applicable FINRA rules.
C
The FINRA Arbitration and the Present Litigation
Arges undertook a two-prong approach to remove the information
concerning the Romero litigation from the CRD and BrokerCheck.
First, Arges filed an arbitration with FINRA’s Office of Dispute
Resolution to expunge the information under FINRA Rule 2080. In his
statement of claim, Arges alleged he never served as Romero’s broker,
Romero’s complaint was false, and the publicly-available information
concerning the Romero litigation impeded his ability to obtain employment
7
and clients. He filed a declaration from Romero in which she averred she was
never a customer of LPL and she supported the expungement request.5 LPL
did not oppose the expungement request. Ultimately, the arbitration panel
found Romero’s allegations were “entirely false” and recommended
expungement of the Romero litigation information from Arges’s records.
Arges filed a petition to confirm the arbitration award, which was pending at
the time the parties filed their briefs in this appeal.6
Second, Arges filed the present litigation against LPL for reporting the
Romero litigation on its U-Forms. He alleged the charges in the Romero
litigation were false and Romero sued him because he and Romero were in a
romantic relationship that ended poorly. He alleged LPL knew Romero’s
allegations were false and reported them to FINRA “to undermine his ability
to obtain and keep his financial clients.” Arges asserted breach of contract,
breach of the implied covenant of good faith and fair dealing, negligence,
intentional misrepresentation, negligent misrepresentation, and defamation
causes of action against LPL. He sought damages and declaratory relief
expunging the Romero litigation from the CRD and his BrokerCheck records.
5 According to Arges, the settlement agreement between Arges and
Romero required Romero “to aid in the removal” of information concerning
the Romero litigation from BrokerCheck.
6 On the literal eve of oral argument in this appeal, Arges requested
judicial notice of a trial court order confirming the arbitration award, dated
August 7, 2020. We deny the request for judicial notice. The recent trial
court order is not relevant to whether LPL’s earlier disclosure to FINRA—
which occurred years ago—was privileged. Nor is it relevant to any other
issue presented in this appeal.
8
D
The Anti-SLAPP Motion
Shortly after Arges filed suit, LPL filed a special motion to strike
Arges’s complaint under the anti-SLAPP law. LPL argued Arges’s causes of
action arose from protected conduct because they were based on LPL’s U-
Form disclosures to FINRA, which LPL claimed were “written or oral
statement[s] or writing[s] made before a[n] … official proceeding authorized
by law ….” (§ 425.16, subd. (e)(1).) LPL asserted Arges could not establish a
probability of success on his causes of action because LPL’s disclosures were
absolutely privileged under Civil Code section 47, subdivision (b). Together
with its motion, LPL filed the complaint from the Romero litigation and
Arges’s BrokerCheck report.
Arges opposed LPL’s anti-SLAPP motion. In a one-paragraph
discussion, he asserted his causes of action did not arise from protected
conduct because LPL disclosed the Romero litigation “privately in accordance
with FINRA rules and regulations,” not as part of “an official proceeding or
petition ….” Next, he contended there was a likelihood he would prevail on
his causes of action because LPL’s U-Form disclosures were not privileged.
He argued U-Form disclosures are, at most, entitled to a qualified privilege—
not an absolute privilege—and the allegedly malicious nature of LPL’s
conduct precluded application of even a qualified privilege. Further, Arges
asserted the absolute privilege bars civil liability only for torts and, therefore,
the privilege did not apply to his breach of contract cause of action.
Arges did not file evidence together with his opposition brief. However,
he sought judicial notice of the following documents: (1) the statement of
claim from his FINRA arbitration; (2) LPL’s answer from the FINRA
arbitration; and (3) two FINRA arbitration awards in which arbitration
9
panels ordered expungement of allegedly defamatory U-Form statements and
awarded damages to the prevailing claimants. The prevailing claimants were
not parties to the present litigation, but Arges claimed the awards were
nonetheless relevant to show “FINRA has awarded damages for defamation
for language put on a [sic] U-5 in many arbitrations.”
The trial court granted Arges’s request for judicial notice of the filings
from his own FINRA arbitration, denied his request for judicial notice of the
non-party FINRA arbitration awards, and granted LPL’s anti-SLAPP motion.
The court found Arges’s complaint arose from LPL’s “filing of forms U-4 and
U-5 with FINRA” and concluded the forms were protected “communications
made before an official proceeding.” The court also determined Arges did not
establish a probability of success on his causes of action because LPL’s
statements were absolutely privileged under Civil Code section 47,
subdivision (b). It found the privilege barred Arges’s entire complaint,
including the breach of contract cause of action, because “[t]he gravamen of
all of [Arges’s] causes of action [was] the statements contained in Forms U-4
and U-5 ….” Therefore, the court struck Arges’s complaint and entered
judgment in LPL’s favor.
III
DISCUSSION
A
Anti-SLAPP Law
“Enacted by the Legislature in 1992, the anti-SLAPP statute is
designed to protect defendants from meritless lawsuits that might chill the
exercise of their rights to speak and petition on matters of public concern.
[Citations.] To that end, the statute authorizes a special motion to strike
claims ‘arising from any act of that person in furtherance of the person’s right
10
of petition or free speech under the United States Constitution or the
California Constitution in connection with a public issue.’ ” (Wilson v. Cable
News Network, Inc. (2019) 7 Cal.5th 871, 883–884 (Wilson).)
“A court evaluates an anti-SLAPP motion in two steps. ‘Initially, the
moving defendant bears the burden of establishing that the challenged
allegations or claims “aris[e] from” protected activity in which the defendant
has engaged.’ ” (Wilson, supra, 7 Cal.5th at p. 884.) “A defendant satisfies
the first step of the analysis by demonstrating that the ‘conduct by which
plaintiff claims to have been injured falls within one of the four categories
described in subdivision (e) [of section 425.16]’ [citation], and that the
plaintiff’s claims in fact arise from that conduct [citation].” (Rand Resources,
LLC v. City of Carson (2019) 6 Cal.5th 610, 620.)
If the defendant satisfies its burden under the first step of the analysis,
“ ‘the burden shifts to the plaintiff to demonstrate the merit of [its] claim[s]
by establishing a probability of success.’ ” (Monster Energy Co. v. Schechter
(2019) 7 Cal.5th 781, 788 (Monster Energy).) At this second step, the plaintiff
“ ‘may not rely solely on its complaint, even if verified; instead, its proof must
be made upon competent admissible evidence.’ ” (Ibid.) “ ‘The court does not
weigh evidence or resolve conflicting factual claims. Its inquiry is limited to
whether the plaintiff has stated a legally sufficient claim and made a prima
facie factual showing sufficient to sustain a favorable judgment. It accepts
the plaintiff’s evidence as true, and evaluates the defendant’s showing only to
determine if it defeats the plaintiff’s claim as a matter of law. [Citation.]
“[C]laims with the requisite minimal merit may proceed.” ’ ” (Ibid.)
We review an order granting or denying an anti-SLAPP motion de
novo. (Monster Energy, supra, 7 Cal.5th at p. 788.)
11
B
Step One: Protected Activity
Under the first step of the anti-SLAPP analysis, we must examine
whether LPL’s U-Form disclosures were protected communications. The trial
court found, and LPL maintains, the disclosures were protected because they
were “written or oral statement[s] or writing[s] made before … [an] official
proceeding authorized by law.” (§ 425.16, subd. (e)(1).) We agree.
In reaching this conclusion, we are guided by Fontani v. Wells Fargo
Investments, LLC (2005) 129 Cal.App.4th 719, 729 (Fontani), disapproved on
another ground by Kibler v. Northern Inyo County Local Hospital Dist. (2006)
39 Cal.4th 192, 203, fn. 5 (Kibler). In Fontani, an employer-firm terminated
a broker-dealer and reported the reasons for the termination (the broker-
dealer failed to provide a prospectus with a solicitation, engaged in twisting,
and solicited clients outside California) to NASD (FINRA’s predecessor) on a
Form U-5. (Id. at pp. 725–726.) The broker-dealer sued the firm for
defamation and interference with prospective advantage based on the firm’s
Form U-5 disclosures. (Id. at p. 726.) The firm moved to strike these causes
of action under the anti-SLAPP law, the trial court denied the motion without
elaboration, and the Court of Appeal reversed. (Id. at pp. 726–727, 737.)
As the Fontani court explained, NASD was an official body for purposes
of section 425.16, subdivision (e)(1) because it stood “as a regulatory
surrogate for the SEC” in its “capacity as the recipient of the Form U-5 ….”
(Fontani, supra, 129 Cal.App.4th at p. 729.) Further, the court reasoned the
Form U-5 disclosure was a statement or writing made before an “official
proceeding,” regardless of whether NASD ultimately investigated the broker-
dealer, because “investigation [was] at least one potential consequence of
[the] Form U-5 filing that contain[ed] allegations of improper conduct by a
12
broker dealer.” (Fontani, at p. 731.) We agree with, and adopt, the Fontani
court’s conclusion that U-Form statements are communications made before
an official proceeding where, as here, they may result in an investigation.7
Arges does not dispute that FINRA is an official body or that
disclosures on U-Forms, under appropriate circumstances, can be protected
communications made before an official proceeding. However, he claims
LPL’s U-Form disclosures were not protected because LPL was not required
to report the Romero litigation to FINRA. He argues the U-Forms require
disclosure only of investment-related actions initiated by consumers and
Romero was his ex-fiancé—not a consumer. In effect, Arges contends LPL
had no duty to disclose the Romero litigation because it was meritless and
LPL knew, or should have known, Romero’s allegations were untrue. We are
not persuaded.
As an initial matter, Arges did not present the trial court with his
claim that LPL’s disclosures were unprotected activities based on Romero’s
alleged status as a non-consumer. Arges has forfeited the argument by
raising it for the first time on appeal. (See World Financial Group, Inc. v.
HBW Insurance & Financial Services, Inc. (2009) 172 Cal.App.4th 1561,
1569, fn. 7 [“Although we review the trial court’s ruling on a SLAPP motion
de novo, our task is to determine whether defendants demonstrated to the
7 FINRA possesses other attributes confirming that U-Form statements
may be protected communications made before an official proceeding. FINRA
“serves an important public interest,” (Kibler, supra, 39 Cal.4th at p. 199), as
its rules are intended “to prevent fraudulent and manipulative acts and
practices … and, in general, to protect investors and the public interest ….”
(15 U.S.C. § 78o-3(b)(6).) FINRA’s disciplinary determinations—which can
result from disclosures on U-Forms—are also subject to review by the SEC
(15 U.S.C. § 78s(d)(2)) and, thereafter, by the appropriate U.S. Court of
Appeals (15 U.S.C. § 78y(a)(1)). (See Kibler, at p. 200.)
13
trial court that the lawsuit arises from protected activity.”]; see also Hunter v.
CBS Broadcasting, Inc. (2013) 221 Cal.App.4th 1510, 1526.)
In any event, whether Romero’s allegations were the machinations of
an ex-fiancé had no effect on LPL’s duty to disclose the Romero litigation or
whether LPL’s disclosure might have resulted in a FINRA investigation. The
U-Forms do not restrict firms’ disclosure duties to encompass only
meritorious investment-related complaints, arbitrations, or civil litigations.
Such a limitation would inject an unwelcome degree of subjectivity and
uncertainty into the disclosure regime. It would also impede one of the main
purposes of the U-Forms—providing FINRA with “information to help
identify and sanction individuals who violate FINRA rules and applicable
federal statutes and regulations.” (FINRA Reg. Notice 10-39 (Sept. 2010).)
Indeed, FINRA mandates the reporting of credible and baseless
investment-related actions alike. (Dawson v. New York Life Insurance Co.
(7th Cir. 1998) 135 F.3d 1158, 1164 [“[E]ven meritless complaints against
agents must be reported on Forms U–5”] disapproved on another ground as
recognized by Glickenhaus & Co. v. Household International, Inc. (7th Cir.
2015) 787 F.3d 408.) To the extent Arges claims that certain references on
the U-Forms to “consumer-initiated” actions restrict firms’ disclosure duties
only to those situations in which firms know the complainants are consumers,
we do not adopt Arges’s cramped reading of the U-Forms. (See Andrews v.
Prudential Securities, Inc. (6th Cir. 1998) 160 F.3d 304, 307–309 [concluding
firm-solicited consumer claims constituted consumer-initiated claims subject
to disclosure on Form U-5].) Rather, we conclude a firm’s duty to disclose
turns on whether a registered representative was named as a defendant in,
or the subject of, an investment-related complaint, arbitration, or lawsuit in
14
which it is alleged that he or she committed sales practice violations against
a consumer. (Form U-4 Question 14I(1)–(5); Form U-5 Question 7E(1)–(5).)
The Romero litigation plainly meets this threshold. In her lawsuit,
Romero alleged Arges served as her financial advisor and broker. She
further alleged Arges, as an agent of LPL, engaged in investment-related
misconduct, including losing $120,000 of her funds, failing to disclose known
risks associated with his stock trades, and depriving her of investor
protections. This is precisely the type of action that is subject to disclosure on
a U-Form. Thus, it is evident LPL was obligated to disclose the Romero
litigation to FINRA. And it is equally evident that a FINRA investigation
was a possible consequence of LPL’s disclosures. Because LPL’s disclosures
were preparatory to an investigation, we conclude they were protected
communications made before an official proceeding.8
C
Step Two: Probability of Success
Under the second step of the anti-SLAPP analysis, we must determine
whether Arges established a probability of success on his causes of action.
(§ 425.16, subd. (b)(1).) The trial court found Arges failed to meet this burden
because LPL’s U-Form disclosures were privileged under Civil Code
section 47, subdivision (b). We discern no error in the trial court’s finding.
Civil Code section 47, subdivision (b), establishes a privilege applicable
to communications made in any legislative, judicial, or other legally-
8 Arges asserts in passing that LPL was not required to notify FINRA of
the Romero litigation because he departed LPL before the Romero litigation
was filed. There is no merit to this argument. LPL was required to amend
its Form U-5 when it learned of facts causing its previously-filed Form U-5 to
become inaccurate or incomplete. (FINRA Bylaws, Art. V, § 3(b).) This duty
to amend arose when LPL learned of the Romero litigation, which concerned
allegations of wrongdoing during Arges’s tenure at LPL.
15
authorized official proceeding, or in the initiation or course of any other
proceeding authorized by law and reviewable under the statutes governing
writs of mandate. It “is referred to as an ‘absolute’ privilege, and it bars all
tort causes of action except a claim for malicious prosecution.” (Hagberg v.
California Federal Bank (2004) 32 Cal.4th 350, 360 (Hagberg).) The official
proceeding privilege “serves the important public policy of assuring free
access to the courts and other official proceedings” and “ ‘ “assure[s] utmost
freedom of communication between citizens and public authorities whose
responsibility is to investigate and remedy wrongdoing.” ’ ” (Ibid.)
“The ‘official proceeding’ privilege has been interpreted broadly to
protect communications to or from governmental officials which may precede
the initiation of formal proceedings.” (Slaughter v. Friedman (1982) 32
Cal.3d 149, 156.) “If the communication is made ‘in anticipation of or [is]
designed to prompt official proceedings, the communication is protected.’ ”
(Hagberg, supra, 32 Cal.4th at p. 368; see Wise v. Thrifty Payless, Inc. (2000)
83 Cal.App.4th 1296, 1303 [the “privilege is not limited to the courtroom, but
encompasses actions by administrative bodies and quasi-judicial proceedings.
[Citation.] The privilege extends beyond statements made in the
proceedings, and includes statements made to initiate official action.”].)
Applying these principles, the Fontani court determined the filing of a
Form U-5 can be privileged under Civil Code section 47, subdivision (b).
(Fontani, supra, 129 Cal.App.4th at p. 734.) The court reasoned that “Civil
Code section 47, subdivision (b) protects communications made in
preparation for or to prompt an investigation.” (Id. at p. 734.) In the case
before the Fontani court, the defendant-employer’s U-Form statements
concerning the basis for the broker-dealer’s termination was a “precursor to
an investigation” by NASD. (Id. at p. 735.) Therefore, the Fontani court
16
determined the statements were subject to the official proceeding privilege.
(Ibid.; see also Adjian v. JPMorgan Chase Bank, N.A. (9th Cir. 2017) 697
Fed.Appx. 528, 530 [“The filing of the Form U-5 under the circumstances of
this case was absolutely privileged under § 47(b).”]; Sullivan v. SII
Investments, Inc. (N.D. Cal., Feb. 20, 2018, 18-cv-00666-SI) 2018 U.S. Dist.
Lexis 28067 [firm’s “U5 filing [was] protected by absolute privilege under
section 47”].)
Similarly, LPL’s U-Form disclosures concerning the Romero litigation—
specifically, its disclosures concerning Romero’s allegations of Arges’s
investment-related misconduct while he acted as an agent of LPL—could
have prompted a FINRA investigation and disciplinary proceedings against
LPL and/or Arges. For the reasons expressed in Fontani, we conclude LPL’s
disclosures were privileged under Civil Code section 47, subdivision (b). As
the trial court noted, Arges’s entire complaint arises from LPL’s privileged
disclosures. Accordingly, the trial court correctly found that Arges did not
satisfy his second-step burden under the anti-SLAPP law. (Laker v. Board of
Trustees of California State University (2019) 32 Cal.App.5th 745, 767.)
Arges asserts four arguments as to why the official proceeding privilege
did not preclude him from establishing a probability of success on his claims.
First, Arges claims the official proceeding privilege did not apply to
LPL’s disclosure because Romero was not a consumer of LPL and, therefore,
LPL was not obligated to report the Romero litigation. We previously
discussed and rejected this argument in our first-step anti-SLAPP analysis.
For the reasons previously articulated, we reject the argument here as well.
Second, Arges—relying on decisions from other jurisdictions—claims U-
Form statements should be subject only to a qualified immunity, which can
be overcome by a showing of malice. As the Fontani court persuasively
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explained, however, the jurisdictions in which these decisions were issued
generally “do not afford the litigation privilege to the preliminary or
investigative stages of otherwise protected proceedings.” (Fontani, supra,
129 Cal.App.4th at p. 734.) By contrast, California extends the official
proceeding privilege to “communications made in preparation for or to
prompt an investigation.” (Ibid.) Given the reach of our state’s official
proceeding privilege, we adopt the Fontani court’s conclusion that an absolute
privilege applies to qualifying U-Form disclosures. (Ibid.; cf. Rosenberg,
supra, 8 N.Y.3d at pp. 367–368 [Form U-5 statements receive absolute
privilege under New York law].)9
Indeed, we recently reiterated these principles in Tilkey v. Allstate
Insurance Co. (2020) 56 Cal.App.5th 521 (Tilkey). As we explained in Tilkey,
when a Form U-5 “identifies allegations of improper conduct by a broker-
dealer, an issue that FINRA may need to investigate, it can on those
occasions be considered ‘a communication made “in anticipation of an action
or other official proceeding.” [Citation.]’ [Citation.] In those instances, the
information reported on the Form U5 would be protected by the absolute
privilege outlined in Civil Code section 47, subdivision (b).” (Id. at p. 545.)
Stated differently, “the absolute privilege extends to communications
required by FINRA, i.e., fraud- and securities-related information and other
9 As noted, the trial court denied Arges’s request for judicial notice of
arbitration awards in favor of non-party claimants. Arges asserts judicial
notice was warranted because the awards showed that U-Form filings are not
absolutely privileged. We disagree. The awards did not mention, let alone
analyze, whether statements on U-Form filings may be privileged. “[C]ases
are not authority for propositions not considered.” (Hagberg, supra, 32
Cal.4th at p. 374.) In any event, Arges presents no authority or analysis as to
why the arbitrators’ determinations on these matters would be binding on the
trial court or the Court of Appeal.
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information covered by its rules.”10 (Id. at p. 546.) As previously noted, the
Form U-5 filed by LPL contained precisely the type of fraud and investment-
related allegations that may give rise to a FINRA investigation. It was,
therefore, absolutely privileged.11
Third, Arges claims the official proceeding privilege does not apply to
his breach of contract cause of action. “[G]enerally the [section 47] privilege
is ‘described as one that precludes liability in tort, not liability for breach of
contract.’ ” (McNair v. City & County of San Francisco (2016) 5 Cal.App.5th
1154, 1169.) However, the privilege can bar liability for a breach of contract
cause of action when it “would further the policies underlying the privilege”
to do so. (Vivian v. Labrucherie (2013) 214 Cal.App.4th 267, 275.) This is one
such case. The gravamen of Arges’s breach of contract cause of action is that
LPL, without having investigated the merits of the Romero litigation,
disclosed the Romero litigation to FINRA. Because Arges’s breach of contract
cause of action, like his other causes of action, arises from LPL’s disclosure of
10 In Tilkey, a FINRA firm terminated an employee based on his arrest for
a domestic violence offense and then filed a Form U-5 reporting the reason
for the termination. (Tilkey, supra, 56 Cal.App.5th at p. 543.) On appeal
from a judgment in favor of the employee, we concluded the firm’s filing of the
Form U-5 was not absolutely privileged. (Id. at p. 549.) However, we
reached that conclusion only because the Form U-5 in Tilkey, unlike the
Form U-5 that LPL filed in the present case, lacked “allegations of improper
securities conduct, theft, or allegations or charges of fraud or dishonesty.”
(Id. at p. 547; see id. at p. 549 [“[T]he statement in [the Form U-5] did not
relate to [the employee’s] business activities or any violation of FINRA Rules
and was therefore not protected by an absolute privilege.”].)
11 Because we conclude LPL’s disclosure was absolutely privileged, we do
not address whether it was independently entitled to a conditional (or
qualified) privilege under Civil Code section 47, subdivision (c).
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the Romero litigation to FINRA, we conclude application of the official
proceeding privilege furthers the policies underpinning the privilege.
Fourth, Arges contends, without support or analysis, that the official
proceeding privilege does not apply to his request for an order of declaratory
relief expunging the Romero litigation from his CRD records and
BrokerCheck. Arges misunderstands the nature of declaratory relief.
Declaratory relief is an equitable remedy, not a standalone cause of action.
(Faunce v. Cate (2013) 222 Cal.App.4th 166, 173.) Arges’s expungement
request thus stands or falls with the causes of action he alleges in the
complaint. For the reasons previously stated, the trial court correctly
determined those causes of action should be stricken. Therefore, the court
did not err in striking Arges’s related request for declaratory relief.
Because the challenged action falls within the official proceeding
privilege and Arges failed to satisfy his second-step anti-SLAPP burden, the
trial court correctly struck Arges’s complaint. (§ 425.16, subd. (b)(1).)
IV
DISPOSITION
The order is affirmed. LPL is entitled to recover its fees and costs on
appeal, in an amount to be determined by the trial court. (§ 425.16, subd. (c);
Bel Air Internet, LLC v. Morales (2018) 20 Cal.App.5th 924, 946.)
McCONNELL, P. J.
WE CONCUR:
HUFFMAN, J.
IRION, J.
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