Judge: Alison Mackenzie, Case: 24STCV04771, Date: 2024-07-15 Tentative Ruling

Case Number: 24STCV04771    Hearing Date: July 15, 2024    Dept: 55

NATURE OF PROCEEDINGS: Hearing on Demurrer – without Motion to Strike

BACKGROUND

Plaintiff Bassam Samih Chelico sued defendants American Arbitration Association, Inc. (“AAA”), Rolex Watch, U.S.A., Inc. (“Rolex”), Denise Crow, Patrick Tatum, Tyler Douglas Meine, and Does 1-100 for (1) violation of the False Advertising Law, Business & Professions Code section 17500 et seq.; (2) violation of the Bane Act, Civil Code section 52.1 et seq.; (3) conspiracy; (4) gross negligence; and (5) gross negligent hiring.

Plaintiff formerly worked as a salesperson for a Rolex store. In April 2021, he sued the store and Rolex. The court in that case, LASC Case No. 21SMCV00703, ordered the parties to arbitrate their claims before the AAA (“the Rolex Arbitration”).

In this case, Plaintiff alleges AAA falsely holds itself out to the public as a neutral arbitrator. Plaintiff alleges that in the course of the Rolex Arbitration, AAA and its arbitrators flouted their own procedures and exhibited pervasive bias toward the employer/respondents.

The AAA, Crowe, and Tatum (together “Defendants”) demurred to Plaintiffs’ complaint. Plaintiff opposes the demurrer.

LEGAL STANDARD

Where pleadings are defective, a party may raise the defect by way of a demurrer. (Coyne v. Krempels (1950) 36 Cal.2d 257, 262.) A demurrer for sufficiency tests whether the complaint alleges facts sufficient to constitute a cause of action. (Cal. Code Civ. Proc. § 430.10; Young v. Gannon (2002) 97 Cal.App.4th 209, 220.)

When considering a demurrer, a court reads the allegations stated in the challenged pleading liberally and in context, and “treat[s] the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.” (Serrano v. Priest (1971) 5 Cal.3d 584, 591.) Put differently: for purposes of demurrer, the court treats all facts alleged – but only the facts alleged – in the complaint as true. (Picton v. Anderson Union High School District (1996) 50 Cal.App.4th 726, 732.) “The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.” (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.)

MEETING & CONFERENCE

Code of Civil Procedure section 430.41 requires a demurring party to meet and confer before filing. Defendants’ counsel submitted a declaration establishing section 430.41 is satisfied. (Backus Decl., ¶ 2.)

REQUEST FOR JUDICIAL NOTICE

The Court grants Defendant’s Request for Judicial Notice as to Exhibits 1-10 and 12.

The Court denies Defendant’s Request for Judicial Notice as to Exhibit 11.

ANALYSIS

The demurring parties are the AAA, under whose auspices the Rolex Arbitration was conducted; Denise Crow, the Fresno-based AAA case manager tasked to “oversee” the Rolex Arbitration; and Patrick Tatum, the AAA vice president who “oversees” Crow and the Fresno office. (Compl., ¶¶ 7-9.)

Defendants demur to all causes of action in Plaintiff’s complaint on the grounds that they are barred by the doctrine of arbitral immunity and are fatally uncertain.

1. Arbitral Immunity (Second through Fifth Causes of Action)

An arbitrator is immune from tort liability for conduct taking place during private contractual arbitration. (See La Serena Properties, LLC v. Weisbach (2010) 186 Cal.App.4th 893, 901, citing Moore v. Conliffe (1994) 7 Cal.4th 634, 650.) An arbitrator’s immunity extends to the arbitration provider the arbitrator operates through. (See Stasz v. Schwab (2004) 121 Cal.App.4th 420, 433, citing American Arbitration Assn. v. Superior Court (1992) 8 Cal.App.4th 1131, 1133-1134.)

Nearly all of Plaintiff’s operative allegations arise from the manner in which AAA and its staff (i.e., Crow and Tatum) conducted the Rolex Arbitration. AAA and its staff are immune from suit the way they conducted that arbitration.

Plaintiff’s case law does not require otherwise. In both of his primary cases – Barr v. Tigerman (1983) 140 Cal.App.3d 979 and Morgan Phillips, Inc. v. JAMS/Endispute, L.L.C. (2006) 140 Cal.App.4th 795 – the Courts of Appeal imposed liability because an arbitrator entirely failed to exercise his or her duties. Here, Plaintiff argues AAA and its agents exercised their duties, but they did so unjustly. Such a claim falls squarely within the doctrine of arbitral immunity.

The Court sustains the demurrer to Plaintiff’s second through fifth causes of action, without leave to amend.

            2. False Advertising (First Cause of Action) vs defendant AAA

Plaintiff’s false advertising claim is distinguishable from his other four.

As with the other causes of action, Defendants argue Plaintiff’s false advertising claim is premised on activity that took place during the Rolex Arbitration. Defendants are largely correct. And to the extent they are correct, Plaintiff cannot state a claim.

But unlike the other causes of action, there is another dimension to Plaintiff’s false advertising claim. Plaintiff’s false advertising claim slightly exceeds the scope of the arbitration itself.

For conduct occurring outside arbitration, Defendants do not enjoy arbitral immunity. Defendants’ advertisement of their services did not occur during the arbitration. Plaintiff’s false advertising claim requires more discussion because it depends in part on the way that Defendants advertise their services to Plaintiff and others, apart from any individual arbitral proceeding.

“[A] false advertising cause of action is based upon Business and Professions Code section 17500, which is known as the false advertising law  [citation] ... .” (Peviani v. Arbors at California Oaks Property Owner, LLC (2021) 62 Cal.App.5th 874, 888.) “The UCL and the false advertising law ‘prohibit “not only advertising which is false, but also advertising which[,] although true, is either actually misleading or which has a capacity, likelihood or tendency to deceive or confuse the public.” [Citation.]’ ” (Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 226.)

“ ‘[T]o state a claim under ... the false advertising law, based on false advertising or promotional practices, “it is necessary only to show that ‘members of the public are likely to be deceived.’ ” ’ ... ‘ “Allegations of actual deception, reasonable reliance, and damage are unnecessary.” ’ ... .” (Peviani v. Arbors at California Oaks Property Owner, LLC, supra, 62 Cal.App.5th at p. 888, citations omitted.)

There is a single paragraph of Plaintiff’s complaint that refers to AAA’s advertising or promotional materials and does not rely on the conduct of any particular arbitration:

“For years, the American Arbitration Association (hereinafter, ‘AAA’) misled aggrieved California employees who were compelled to arbitrate their statutory and nonwaivable claims by holding itself as a neutral forum. AAA prides and distinguishes itself from other forums with its so called ‘neutrals’ and so called ‘Employment Due Process Protocol’ in Employment Arbitration Cases.”

(Compl., ¶ 1.)

Defendants have requested, and the Court has taken, judicial notice of AAA’s Employment Arbitration Rules, which contain the “Employment Due Process Protocol” Plaintiff refers to in his complaint. Defendants argue Plaintiff has not stated a claim because the Protocol is not an “advertisement” for purposes of the False Advertising Law.

The Court disagrees.

First of all, the term “advertisement” does not appear in the operative provision of the False Advertising Law. That broadly-phrased section, Business and Professions Code section 17500, reads in pertinent part:

“It is unlawful for any person, firm, [etc.] with intent directly or indirectly ... to perform services, professional or otherwise, ... or to induce the public to enter into any obligation relating thereto, to make or disseminate or cause to be made or disseminated ... , in ... any advertising device, ... or in any other manner or means whatever, ... any statement, concerning ... those services, professional or otherwise, ... which is untrue or misleading... .”

(Bus. & Prof. Code, § 17500, emphasis added.)

It is undisputed that AAA disseminates its Rules, including the Due Process Protocol, to the public. And whether or not the Protocol is a statement of opinion, as AAA contends, it can be inferred from the Complaint that it is used “to induce the public to enter into [an] obligation” to use AAA’s services. Other parts of the AAA’s Rules might be similarly construed.

Although the AAA is not immune from a false advertising claim, Plaintiff hasn’t stated one. To properly state a cause of action, an operative complaint must sufficiently allege (1) “every¿element¿of [that]¿cause¿of¿action” and (2) the plaintiff's standing to sue. (Rossberg v. Bank of America, N.A.¿(2013) 219 Cal.App.4th 1481, 1490-1491, 162 Cal.Rptr.3d 525;¿Peterson v. Cellco Partnership¿(2008) 164 Cal.App.4th 1583, 1589, 80 Cal.Rptr.3d 316.) “A person has standing to bring a claim under the unfair competition law, the false advertising law, or the CLRA only if she establishes that (1) she ‘has suffered’ ‘economic injury’ or ‘damage,’ and (2) this injury or damage ‘was the result of, i.e., caused by,’ the unfair business practice, false advertising or the CLRA violation ‘that is the gravamen of [her] claim.’ [Citation.]” (Shaeffer v. Califia Farms, LLC (2020) 44 Cal.App.5th 1125, 1137.) Plaintiff has not clearly alleged that he suffered any injury specifically caused by a purported false advertisement.

Plaintiff’s single paragraph in his complaint making reference to the AAA Rules also does not satisfy basic fact pleading standards. California’s “fact pleading” rules require a pleading to apprise an adversary of the factual basis of the plaintiff’s claim, providing information detailed enough for the adversary to prepare a defense. (See Semole v. Sansoucie (1972) 28 Cal.App.3d 714, 719-721.) Because Plaintiff’s complaint relies almost entirely on facts for which Defendants are immune from liability, his complaint does not clearly state any claim based solely on the FAL.

AAA’s demurrer to the first cause of action is sustained, but the Court grants leave for Plaintiff to amend.

            3. False Advertising (First Cause of Action) vs defendants Crow and Tatum

As to the individual defendants, Crow and Tatum, the Court does not permit amendment. There is no readily apparent set of facts wherein Crow and Tatum are responsible for drafting or disseminating any part of the AAA Rules. More importantly, Plaintiff offers no such facts, in his complaint or otherwise; it is his burden to show he can cure deficiencies by amendment. (See Hendy v. Losse (1991) 54 Cal.3d 723, 742.). As to Crow and Tatum, he has not done so.

As to defendants Crow and Tatum, the demurrer is sustained in its entirety without leave to amend.

The demurrer is sustained, with thirty days’ leave to amend, as to the first cause of action only, and only as to defendant AAA. The demurrer is otherwise sustained without leave to amend.