Judge Alison Mackenzie, Case Number: 24STCV16155, Date: 2025-02-19 Tentative Ruling

Judge: Alison Mackenzie, Case: 24STCV16155, Date: 2025-02-19 Tentative Ruling

Case Number: 24STCV16155 Hearing Date: February 19, 2025 Dept: 55

NATURE OF PROCEEDINGS: Hearing on Cross River Bank's Motion to Compel Arbitration

Cross River Bank's Motion to Compel Arbitration is granted.

BACKGROUND

Plaintiff Maritza Guevara and Joel Urbina filed this action against All Premium Contractors Inc., Cross River Bank, and Hudson Insurance Company (Defendants), alleging claims relating to the purchase, financing, and performance of a solar energy system.

Cross River Bank (CRB) filed a Motion to Compel Arbitration. Plaintiffs oppose the motion.

LEGAL STANDARD

“On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists….” Code Civ. Proc. § 1281.2. “The party seeking arbitration bears the burden of proving the existence of an arbitration agreement, and the party opposing arbitration bears the burden of proving any defense, such as unconscionability.” Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236. A party meets its initial burden simply by reciting the terms of the governing provision, or by attaching a copy of the provisions. Sprunk v. Prisma LLC (2017) 14 Cal.App.5th 785, 793. Once the petitioner meets its burden, “the burden shifts to the party opposing the motion to compel, who may present any challenges to the enforcement of the agreement and evidence in support of those challenges.” Baker v. Italian Maple Holdings, LLC (2017) 13 Cal.App.5th 1152, 1160.

EVIDENTIARY OBJECTION

Plaintiffs’ objection to the Goller Declaration is overruled.

ANALYSIS

I. Proof of Agreement to Arbitrate

Courts apply a three-step burden-shifting process to determine whether an agreement to arbitrate exists. Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 164. “First, the moving party bears the burden of producing ‘prima facie evidence of a written agreement to arbitrate the controversy.’” Id. at 165 (quoting Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413. The moving party can meet this initial burden by attaching a copy of the arbitration agreement purporting to bear the opposing party’s signature or setting forth the agreement’s provisions in the motion. Ibid. “For this step, ‘it is not necessary to follow the normal procedures of document authentication.” Ibid. (quoting Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218).

“If the movant bears its initial burden, the burden shifts to the party opposing arbitration to identify a factual dispute as to the agreement’s existence—in this instance, by disputing the authenticity of their signatures. To bear this burden, the arbitration opponent must offer admissible evidence creating a factual dispute as to the authenticity of their signatures. The opponent need not prove that his or her purported signature is not authentic, but must submit sufficient evidence to create a factual dispute and shift the burden back to the arbitration proponent, who retains the ultimate burden of proving, by a preponderance of the evidence, the authenticity of the signature.” Iyere v. Wise Auto Group (2023) 87 Cal.App.5th 747, 755,

Here, Plaintiffs allege that “On or about August 5, 2021, Plaintiffs Joel Urbina and Maritza Guevara entered into a loan agreement (“Loan”) with CRB, through its representative Sunlight Financial LLC (“SUNLIGHT”), to finance the [solar energy system].” FAC ¶ 12.

CRB provides a copy of the loan agreement supported by the declaration of Adam Goller, its Executive Vice-President and Head of FinTech. The loan agreement contains an arbitration provision which states that “either party may elect to require arbitration of any Claim under this Provision.” Goller Decl. Ex. 1 at p. 25.

The Court finds that CRB met its initial burden by providing a copy of the loan agreement, which purportedly bears Plaintiffs’ electronic signatures. Goller Decl. ¶ 3, Ex. 1. The burden then turns to Plaintiffs to provide evidence disputing the signatures’ authenticity. Plaintiffs state in their declarations that they signed financing documents without out reading them and are not sure if the loan agreement offered by CRB is one they signed. Guevara Decl. ¶¶ 3, 5; Urbina Decl. ¶¶ 3, 5. Because nothing in their declarations creates a factual dispute as to the authenticity of their signatures, Plaintiffs have failed to meet their burden. Accordingly, the Court accepts the validity of Plaintiffs’ electronic signatures on the loan agreement on its face and need not address whether Defendant properly authenticated it.

II. Governing Law

By its terms the Federal Arbitration Act applies to arbitration agreements arising out of transactions involving interstate commerce. 9 U.S.C. § 2. However, “the presence of interstate commerce is not the only manner under which the FAA may apply…the parties may also voluntarily elect to have the FAA govern enforcement of the Agreement….” Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 355.

Here, the loan agreement specifically provides it is governed by “the Federal Arbitration Act regarding the ARBITRATION PROVISION.” Goller Decl. ¶ 3, Ex. 1 at. p. 20. Accordingly, the FAA governs.

III. Unconscionability

Plaintiffs argue that the arbitration provision is unconscionable.

Like any other contract, arbitration agreements are subject to a defense of unconscionability. Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83,113 (Armendariz). “The general principles of unconscionability are well established. A contract is unconscionable if one of the parties lacked a meaningful choice in deciding whether to agree and the contract contains terms that are unreasonably favorable to the other party. Unconscionability has both a procedural and a substantive element. The party resisting enforcement of an arbitration agreement has the burden to establish unconscionability.” Ramirez v. Charter Communications, Inc. (2024) 16 Cal.5th 478, 492 (citations omitted) (internal quotation marks omitted).

“[P]rocedural and substantive unconscionability must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability. But they need not be present in the same degree. Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves. In other words, the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1243-44 (Baltazar) (cleaned up).

A. Procedural unconscionability.

Plaintiffs argue that the arbitration agreement is procedurally unconscionable because it is a contract of adhesion.

A “contract of adhesion” is “a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” Armendariz, supra, 24 Cal.4th at 113 (quoting Neal v. State Farm Ins. Cos. (1961) 188 Cal. App. 2d 690, 694. “[C]ontracts of adhesion, although they are indispensable facts of modern life that are generally enforced, contain a degree of procedural unconscionability even without any notable surprises, and bear within them the clear danger of oppression and overreaching.” Baltazar, supra, 62 Cal.4th 1237, 1244 (citation omitted) (internal quotation marks omitted).

In Cabatit v. Sunnova Energy Corp. (2020) 60 Cal.App.5th 317, the court found that a contract was procedurally unconscionable where a solar company drafted the agreement and there was no indication the consumers were given any option other than to take it or leave it. There, the salesperson did not explain the terms of the agreement which he presented on an electronic device and scrolled through to the parts to be signed or initialed. The salesperson told the consumers they needed to sign the agreement before work could start, and they were not provided a copy of the agreement after it was signed.

Here, like Cabatt, Plaintiffs testify that the salesperson for the solar panel system instructed them to sign the documents on his electronic tablet, informed them the documents were for financing, but did not otherwise explain what they were signing. Guevara Decl. ¶ 3; Urbina Decl. ¶ 3. They further state, “He did not provide copies of the documents or show us the documents before instructing us to sign. After we signed, he did not provide copies of the documents.” Ibid. They did not receive a copy of the loan agreement until three to four weeks later. Guevara Decl. ¶ 5; Urbina Decl. ¶ 5.

Based on Plaintiffs’ testimony, the Court finds that the arbitration provision is part of an adhesion contract and therefore contains at least a low level of procedural unconscionability.

B. Substantive Unconscionability

Plaintiff argues that the arbitration agreement is substantively unconscionable because it allows the arbitrator to award attorney fees and costs if it finds that Plaintiffs’ claims are “frivolous or asserted for an improper purpose.”

Code of Civil Procedure section 1284.3 provides, “[n]o neutral arbitrator or private arbitration company shall administer a consumer arbitration under any agreement or rule requiring that a consumer who is a party to the arbitration pay the fees and costs incurred by an opposing party if the consumer does not prevail in the arbitration, including, but not limited to, the fees and costs of the arbitrator, provider organization, attorney, or witnesses.”

Here, the arbitration agreement does not require Plaintiffs to pay the fees and costs incurred by CRB if they do not prevail. It only requires Plaintiffs to pay CRB’s fees and costs if the arbitrator makes a finding that their claims are frivolous. This is no different than the requirement that claims brought in court be non-frivolous under penalty of sanction. See Code Civ. Proc., § 128.7. In Armendariz, the court held “the arbitration agreement or arbitration process cannot generally require the employee to bear any type of expense that the employee would not be required to bear if he or she were free to bring the action in court.” Armendariz v. supra, Cal.4th at pp. 110-111. Therefore, to the extent that Plaintiffs would be subject to sanction in Court for filing a frivolous case, they may likewise be forced to pay such fees and costs in arbitration. Therefore, the arbitration agreement is not substantively unconscionable.

In sum, the Court finds only a minimal degree of procedural unconscionability and no substantive unconscionability. As such, the arbitration provision in the loan agreement remains enforceable.

IV. Code Civ. Proc., § 1281.2

Next, Plaintiffs argue that Code of Civil Procedure section 1281.2, subdivision (c) allows the Court to “decline to enforce an arbitration agreement if a party to the agreement is also a party to a pending court action with a third party, ‘arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact.’” Nixon v. AmeriHome Mortg. Co., LLC, 67 Cal. App. 5th 934, 951 (2021) (quoting Cal. Code Civ. Proc. § 1281.2, subd. (c)).

Plaintiffs argue that because defendant All Premium Contractors Inc. defaulted and cannot be brought into arbitration, this creates a risk of conflicting rulings. This argument fails because the California Arbitration Act is preempted by the FAA. See Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 342-343 (“[T]he parties incorporated the procedural provisions of the FAA into the Agreement; thus the court could not look to Section 1281.2(c) to deny the [motion to compel arbitration].”).

Likewise, Plaintiffs’ argument that Code of Civil Procedure section 1281.2 (b) provides an exception to arbitration where “grounds exist for recission of the agreement” fails because it is preempted by the FAA. Additionally, the agreement provides that “any dispute or argument that concerns the validity or enforceability of this Note as a whole is for the arbitrator, not a court, to decide.” Goller Decl. ¶ 3, Ex. 1 at. p. 25. Such delegation clauses are enforceable where, as here, they are “clear and unmistakable”. Mondragon v. Sunrun Inc. (2024) 101 Cal.App.5th 592, 603. Accordingly, CBR’s motion to compel arbitration is granted.

CONCLUSION

CBR’s motion to compel arbitration is granted. The Court hereby stays the case as to Cross River Bank only.