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Davis v. Wells Fargo Advisors LLC

United States District Court, D. Arizona

April 8, 2014

Christopher Davis, Lori Davis, Plaintiffs,
Wells Fargo Advisors LLC, Wells Fargo Bank, N.A., Unknown Parties, Defendants.


NEIL V. WAKE, District Judge.

Before the Court is Defendants Wells Fargo Advisors, LLC and Wells Fargo Bank, National Association's Motion to Strike Class Allegations from Complaint and to Compel Arbitration (Doc. 8), the Response (Doc. 15), and the Reply (Doc. 18). For the following reasons, the Plaintiffs' class allegations will be stricken and arbitration will be ordered.


Plaintiffs Christopher and Lori Davis are a married couple living in Arizona. Both are practicing attorneys. In 2007, the Davises earned around $2 Million in contingency fees from two lawsuits. The money was substantially more than the Davises usually earned in a year, and they deposited the money in an investment account with Wachovia Securities.

After consulting with an accountant, the Davises were advised that they would owe approximately $600, 000 in taxes on their income from 2007. Rather than pay their tax obligation straight out, their broker at Wachovia Securities suggested they leave the full amount of their earnings in the investment account and pay the tax obligation with an Asset-Backed Line of Credit ("ABLOC") provided by Wachovia Bank. The ABLOC functioned as a loan collateralized by the investment account, and their broker suggested the payments on the ABLOC loan could be made from profits earned on the investment account. The Davises believed this arrangement would allow them a better overall return on investment.

To obtain the ABLOC loan, the Davises entered into a separate agreement with Wachovia Bank for a $700, 000 credit line, which they drew on in 2008 to satisfy their 2007 tax debt obligation. During that time, Wachovia was purchased by Wells Fargo & Company. Wachovia Bank then became Wells Fargo Bank and Wachovia Securities became Wells Fargo Financial Advisors, LLC.

A. The Davises' Agreements with Wells Fargo Financial Advisors

The Davises entered into an Asset Advisor Client Agreement with Wachovia Securities to engage Wachovia's investment management services. (Doc. 8, Exh. C.) The agreement provided that Wachovia would work with the Davises to manage their investments and accomplish their financial goals. ( Id. at ¶ 5.) Over the years, the Davises signed three versions of that agreement: an Asset Advisor Client Agreement with Wachovia Securities on January 4, 2005 (Doc. 8, Exh. C); an Account Agreement with Wachovia Securities on March 29, 2007 (Doc. 8, Exh. D); and another Asset Advisor Client Agreement on February 9, 2008 (Doc. 15, Exh. G).[1] The 2008 Agreement contained essentially the same investment management terms as the earlier agreements but notified the Davises that, in the event of a successful merger between Wachovia and Wells Fargo, their Agreements would be assigned to Wells Fargo & Company, the parent company of Wells Fargo Bank and Wells Fargo Financial Advisors. (Doc. 15, Exh. G ¶ 22.) In the 2008 Asset Advisor Client Agreement, the investment account was entitled "WBNA Collateral Acct FBO Chris Lori Davis." ( Id. ) The Davises assert this agreement was necessary to identify their investments as collateral for the ABLOC loan, but Wells Fargo claims the 2008 Agreement was executed only to position Wells Fargo as Wachovia's successor. Except for the title, nothing in the 2008 Asset Advisor Client Agreement mentions the ABLOC loan.

All three agreements contained nearly identical pre-dispute arbitration clauses, requiring the parties to arbitrate any disputes arising between the parties that concerned "any transaction or the construction, performance or breach of this Agreement or any other agreement between us, whether entered into prior to, on, or subsequent to the date of the Agreement." (Doc. 15, Exh. G ¶ 25; see also Doc. 8, Exh. C ¶ 22, Exh. D ¶ 19.) The agreements explicitly exclude class actions from the arbitration requirement. ( Id. )

B. The Davises' Agreements with Wells Fargo Bank

In March 2008, the Davises executed an Asset Advantage Agreement with Wachovia Bank. (Doc. 8, Exh. A.) The Asset Advantage Agreement outlined the terms of the ABLOC loan and assigned the securities in the Davises' investment account as collateral for the loan. The agreement contained an arbitration provision which allowed either party to elect binding arbitration of claims:

(1) under local, state or federal law whether based on a constitution, statute or regulation, in contract, tort or otherwise, and whether for money damages, penalties, or declaratory or equitable relief; (2) relating to the validity, enforceability, interpretation, or scope of this arbitration provision; (3) between the Parties, or between a Party and another Party's employee, agent, parent, subsidiary, affiliate, licensee, successor, assign, or heir; (4) relating to any phase of this loan transaction including any subsequent modification, extension or renewal of this Agreement; or (5) relating to the interpretation, performance or breach of any provision of this Agreement or any other document prepared or submitted for this loan transaction, the sale and/or financing of any ancillary products or services, or to the conduct of any Party to this loan transaction.

(Doc. 8, Exh. A ¶ 38) (emphasis added). In the same agreement, the parties also waived their right to bring any claims on behalf of, or as members of, a class:

All Claims will be arbitrated on an individual basis. No Party will participate as a representative or member of any class of ...

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