Judge: Anne Richardson, Case: 23STCV29374, Date: 2024-03-05 Tentative Ruling
Case Number: 23STCV29374 Hearing Date: March 5, 2024 Dept: 40
|
ANTONIO BECERRA
AND GUADALUPE BECERRA, Plaintiff, v. ROGER ANDERSON, TRUSTEE OF THE RWA TRUST DATED MARCH 14, 2014; FCI
LENDER SERVICES INC.; CALIFORNIA TD SPECIALISTS; AND DOES 1-20 INCLUSIVE, Defendants. |
Case No.: 23STCV29374 Hearing Date: 3/5/24 Trial Date: N/A [TENTATIVE] RULING RE: Defendants Roger
Anderson, FCI Lender Services Inc., and California TD Specialists’ Petition
to Compel Arbitration. |
Pleadings
Plaintiffs Antonio Becerra and Guadalupe Becerra (the Becerras) sue
Defendants Defendant Roger Anderson, Trustee of the RWA Trust Dated March 14,
2014 (the Trust), FCI Lender Services Inc. (FCI), California TD Specialists
(Cal TD), and Does 1-20 pursuant to a December 1, 2023 Complaint.
The Complaint alleges claims of (1) Violation of California Constitution
Article XV, Section One and California Civil Code section 1916-3, (2)
Violations of Welfare & Institutions Code §15600 et seq. (Elder Abuse), (3)
Breach of Contract, (4) Breach of the Implied Covenant of Good Faith and Fair
Dealing, (5) Unfair Business Practices, (6) Slander of Title, (7) Fraud, and
(8) Negligent Misrepresentation. The case involves real property belonging to
the Becerras at 1008 Adelante Avenue, which became the security for a deed of
trust and promissory note.
Petition Before the Court
On January 2, 2024, Defendants the
Trust, FCI, and Cal TD filed a petition to compel arbitration of the claims
stated in the Complaint, as based on arbitration clauses in two agreements
between Plaintiffs and the Trust: (1) the November 25, 2019 Loan Security
Agreement (the Loan Agreement) signed by Plaintiffs that references a separate
document that will contain the arbitration terms for the Loan Agreement; and
(2) the November 25, 2019 Arbitration and Waiver of Right to Jury Trial
Agreement (the Arbitration Agreement), which is the instrument referred to in
the Loan Agreement.
On February 21, 2024, Plaintiffs
filed an opposition to Defendants’ motion.
On February 27, 2024, the Trust,
FCI, and Cal TD filed a reply to Plaintiffs’ opposition.
Plaintiffs’ motion is now before
the Court.
I.
Opposition’s Request for
Judicial Notice
Per Plaintiff’s request, the Court
takes judicial notice of certain filings made in this action. (Opp’n, RJN, Exs.
2-10; Evid. Code, §§ 452, subd. (d), 453, subds. (a)-(b).)
However, the Court declines to take
judicial notice of the declaration of Imre S. Szalai in a 2021 District Court
of Oregon case, which is not relevant to the Court’s determination here. (People
ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 422, fn. 2 (Lockyer)
[“There is, however, a precondition to the taking of judicial notice in either
its mandatory or permissive form—any matter to be judicially noticed must be
relevant to a material issue”].)
II.
Reply’s Request for Judicial
Notice
Based on lack of relevance—and
without discussing other bases for objecting to this request—the Court declines
to take judicial notice of the court order made in Van Manh Luong v. Roger
Anderson, as Trustee of the RWA Trust Dated March 14, 2024, et al. in LASC
No. 20STCV21797. (Reply, RJN, Ex. 1; Lockyer, supra, 24 Cal.4th at
p. 422, fn. 2.)
I.
Opposition Objections to
Petition’s Fink Declaration
Objection Nos. 1-3: OVERRULED.
II.
Reply Objection to Opposition’s
Request for Judicial Notice
Objection to Imre Declaration:
SUSTAINED [see Request for Judicial Notice discussion supra].
III.
Plaintiff’s Objection to New
Arguments and Evidence on Reply
OVERRULED, in part, as discussed
below [see Section III.C.1.a.i.I. discussion infra].
Otherwise SUSTAINED.
IV.
Plaintiffs’ Objection to Reply
RJN
Objection No. 1: SUSTAINED [see
Request for Judicial Notice discussion supra].
V.
Plaintiffs’ Objection to Reply’s
Supplemental Aronson Declaration
Objection Nos. 1-3: OVERRULED.
Plaintiffs’
Objection to Reply’s Supplemental Anderson Declaration
Objection
Nos. 1, 3, 5, 6: SUSTAINED [personal knowledge for transaction not directly
involving declarant].
Objection
Nos. 2, 4, 7, 8: OVERRULED.
I.
Procedural Requirements
“A petition to compel arbitration
or to stay proceedings pursuant to Code of Civil Procedure sections 1281.2 and
1281.4 must state, in addition to other required allegations, the provisions of
the written agreement and the paragraph that provides for arbitration. The
provisions must be stated verbatim or a copy must be physically or
electronically attached to the petition and incorporated by reference.” (Cal.
Rules of Court, rule 3.1330.)
Here, the relevant arbitration
agreements are attached to the moving papers. (Petition, Fink Decl., Ex. 1, §§
3-5 [arbitration terms in Arbitration Agreement] & Ex. 4, §§ 8.15-8.17
[arbitration terms in Loan Agreement].)
II.
Legal Standard
A party to an arbitration agreement
may seek a court order compelling the parties to arbitrate a dispute covered by
the agreement. (Code Civ. Proc., § 1281.2.) Absent a viable defense to
enforcement, the court must grant the motion if it determines there is an
agreement to arbitrate that has not been rescinded. (See Code Civ. Proc., §
1281.2; see also Cinel v. Barna (2012) 206 Cal.App.4th 1383, 1389
[“Under section 1281.2, the court shall order a matter to arbitration if it
determines that there is an agreement to arbitrate and (1) the agreement has
not been waived or (2) the agreement has not been revoked”].) Even where the
FAA governs the interpretation of arbitration clauses, California law governs
whether an arbitration agreement has been formed in the first instance. (Baker
v. Osborne Development Corp. (2008) 159 Cal.App.4th 884, 893.)
The party seeking arbitration has
the “burden of proving the existence of a valid arbitration agreement by a
preponderance of the evidence[.]” (Ruiz v. Moss Bros. Auto Group, Inc.
(2014) 232 Cal.App.4th 836, 842.) “Once that burden is satisfied, the party
opposing arbitration must prove by a preponderance of the evidence any defense
to the petition.” (Lacayo v. Cataline Restaurant Group Inc. (2019) 38
Cal.App.5th 244, 257.) “The trial court sits as the trier of fact, weighing all
the affidavits, declarations, and other documentary evidence, and any oral
testimony the court may receive at its discretion, to reach a final
determination.” (Ruiz v. Moss Bros. Auto Group, Inc., supra, at
p. 842.) “A party required to prove something by a preponderance of the
evidence ‘need prove only that it is more likely to be true than not true.’
[Citation.] Preponderance of the evidence means ‘“that the evidence on one side
outweighs, preponderates over, is more than, the evidence on the other side,
not necessarily in number of witnesses or quantity, but in its effect on those
to whom it is addressed.”’ [Citations.] In other words, the term refers to
‘evidence that has more convincing force than that opposed to it.’
[Citations.]” (People ex rel. Brown v. Tri-Union Seafoods, LLC (2009)
171 Cal.App.4th 1549, 1567.)
“California has a strong public
policy in favor of arbitration and any doubts regarding the arbitrability of a
dispute are resolved in favor of arbitration.” (Coast Plaza Doctors Hospital
v. Blue Cross of California (2000) 83 Cal.App.4th 677, 686.) “This strong
policy has resulted in the general rule that arbitration should be upheld
unless it can be said with assurance that an arbitration clause is not
susceptible to an interpretation covering the asserted dispute.” (Id.
[internal quotations omitted].) Generally, thus, on a petition to compel
arbitration, the court must grant the petition unless it finds either (1) no
written agreement to arbitrate exists; (2) the right to compel arbitration has
been waived; (3) grounds exist for revocation of the agreement; or (4)
litigation is pending that may render the arbitration unnecessary or create
conflicting rulings on common issues. (Cal. Code Civ. Proc., § 1281.2; see Condee
v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218-219.)
Nonetheless, California’s policy in favor of arbitration does not override
ordinary principles of contract interpretation holding that the contractual
terms themselves must be carefully examined before the parties to the contract
can be ordered to arbitration. (Rice v. Downs (2016) 248 Cal.App.4th
175, 185.)
III.
Order Compelling Arbitration:
DENIED.
A.
Whether Arbitration Agreement
Exists
“Parties are not required to
arbitrate their disagreements unless they have agreed to do so. [Citation.] A
contract to arbitrate will not be inferred absent a ‘clear agreement.’
[Citation.] When determining whether a valid contract to arbitrate exists, we
apply ordinary state law principles that govern contract formation. [Citation.]
In California, a ‘clear agreement’ to arbitrate may be either express or
implied in fact. [Citation.]” (Davis v. Nordstrom, Inc. (9th Cir. 2014)
755 F.3d 1089, 1092-93 [applying California law].) The court is only required
to make a finding of the agreement’s existence, not an evidentiary
determination of its validity. (Condee v. Longwood Management Corp., supra,
88 Cal.App.4th at p. 219.)
After review, the Court finds that
an agreement to arbitrate exists between Plaintiffs and the Trust, as based on
two agreements. (Petition, Fink Decl., Ex. 1, §§ 3-5 & Ex. 4, §§
8.15-8.17.)
This conclusion is not disputed by
the opposition, which focuses on there being no agreement to arbitration
between Plaintiffs and FCI or Cal TD. (Opp’n, pp. 7-9.)
As to FCI and Cal TD, the Court
finds that these parties may also invoke the arbitration clauses at issue.
The Complaint alleges (1) constitutional
and statutory violations, as well as breach of contract claims against Roger
Anderson alone, (2), unfair business practices against all Defendants, and (3)
slander of title, fraud, negligent misrepresentation against Anderson and FCI.
(Complaint, ¶¶ 28-137.)
The claims stated against all
Defendants or against Anderson and FCI involve allegations that surround FCI’s
and/or Cal TD’s involvement in instituting the allegedly unlawful usurious
interest rate on the Property. (See, e.g., Complaint, ¶¶ 83-89 [Defendants’ UCL
liability based on conduct by Anderson], 90-95 [all Defendants charged interest
rate from May 1, 2023 onward], 96-99 [reliance and excuse of Plaintiffs’
obligations], 100-103 [injuries and prayer]; see also Complaint, ¶¶ 121-122
[Roger Anderson and FCI charge usurious rate], 124-129 [Anderson’s conduct],
130 [Anderson’s and FCI’s conduct alleged together], 131 [reliance and excuse
of Plaintiffs’ obligations], 133-137 [injuries and prayer].)
Such claims are clearly intertwined
between the obligations of Roger Anderson, FCI, and Cal TD to Plaintiffs and FCI
and Cal TD’s involvement on Roger Anderson’s side of the transactions giving
rise to this action, thus supporting FCI and Cal TD’s right to involve the the
arbitration clauses in the agreements between Plaintiffs and Anderson pursuant
to the doctrine of equitable estoppel. The doctrine provides that “a
nonsignatory defendant may invoke an arbitration clause to compel a signatory
plaintiff to arbitrate its claims when the causes of action against the
nonsignatory are ‘intimately founded in and intertwined’ with the underlying
contract obligations” (JSM Tuscany, LLC v. Superior Court (2011) 193
Cal.App.4th 1222, 1237), e.g., where the signatory alleges “substantially
interdependent and concerted misconduct” by the nonsignatory against a
signatory and the alleged misconduct is “founded in or intimately connected
with the obligations of the underlying agreement.” (Goldman v. KPMG, LLP
(2009) 173 Cal.App.4th 209, 218-219.) These circumstances are satisfied as
discussed above.
The Court thus finds that
agreements exist between Plaintiffs and Roger Anderson, which contain
arbitration clauses that Anderson, FCI, and Cal TD may invoke.
B.
Scope of the Arbitration
Agreement
“[T]he decision as to whether a
contractual arbitration clause covers a particular dispute rests substantially
on whether the clause in question is ‘broad’ or ‘narrow.’” (Bono v. David
(2007) 147 Cal.App.4th 1055, 1067.) “‘A “broad” clause includes those using
language such as “any claim arising from or related to this agreement”‘
[Citation] or ‘arising in connection with the [a]greement’ [Citation.]” (Rice
v. Downs (2016) 248 Cal.App.4th 175, 186 [italics omitted].) “But clauses
requiring arbitration of a claim, dispute, or controversy ‘arising from’ or ‘arising
out of’ an agreement, i.e., excluding language such as ‘relating to this
agreement’ or ‘in connection with this agreement,’ are ‘generally considered to
be more limited in scope than would be, for example, a clause agreeing to
arbitrate “‘any controversy … arising out of or relating to this agreement[.]’”
[Citations.]” (Id. at p. 186-87 [italics omitted].) “Several Ninth
Circuit cases have held that agreements requiring arbitration of ‘any dispute,’
‘controversy,’ or ‘claim’ ‘arising under’ or ‘arising out of’ the agreement are
intended to encompass only disputes relating to the interpretation and
performance of the agreement.” (Id. at p. 187.)
Here, the Court determines that the
claims stated in the Complaint—arising from transactions related to a loan on
the Property—fall within the broad scope of the Loan and Arbitration Agreements.
(See Petition, p. 15.)
The moving papers raised this
argument (Petition, p. 15), which Plaintiffs’ opposition failed to address,
instead limiting itself to standing against FCI and Cal TD and
unconscionability. (Opp’n, pp. 7-19.)
C.
Defenses to the Arbitration
Agreement
A “party opposing arbitration must
prove by a preponderance of the evidence any defense to the petition” to compel
arbitration in the matter. (Lacayo v. Cataline Restaurant Group Inc., supra,
38 Cal.App.5th at p. 257.)
Here, Plaintiffs’ only remaining
arguments relate to the defense of unconscionability. (Opp’n, pp. 10-19.)
1. Unconscionability
“Both procedural unconscionability
and substantive unconscionability must be shown [for a finding of
unconscionability to exist], but ‘they need not be present in the same degree’
and are evaluated on a ‘sliding scale.’ [Citation.] ‘[T]he 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.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Dev. (US), LLC
(2017) 55 Cal.4th 223, 247 (Pinnacle).)
Whether an arbitration provision is
unconscionable is a question of law. (Suh v. Superior Court (2010) 181
Cal.App.4th 1504, 1511-1512.)
Unconscionability is determined
from facts arising at the time the contract was made. (Martinez v. Master
Protection Corp. (2004) 118 Cal.App.4th 107, 116 (Martinez) [“‘The
critical juncture for determining whether a contract is unconscionable is the
moment when it is entered into by both parties—not whether it is unconscionable
in light of subsequent events,’” citation omitted]; see Code Civ. Proc., §
1670.5 [where the court as a matter of law finds the
contract or any clause of the contract to have been unconscionable at the time it was made, the
court may refuse to enforce the contract, or it may enforce the remainder of
the contract without the unconscionable clause], limited on preemption grounds
in AT&T Mobility, LLC
v. Concepcion (2011) 563 U.S. 333, 340-350 (Concepcion) [limitation as to
class-action waivers in arbitration agreements].)
A party claiming that one or more
provisions of an arbitration agreement is unconscionable, must not only prove
unconscionability in the abstract, but also show how such unconscionability
specifically affects the party’s arbitration claim. (Chin v. Advanced Fresh
Concepts Franchise Corp. (2011) 194 Cal.App.4th 704, 714 [partial
limitation on award of fees and costs for “all claims” limiting amount to
one-third of any compensatory damages awarded may be unconscionable, but is not
a defense in the absence of a showing that the party would in fact be entitled
to recover attorney’s fees], disagreed with in Tiri, supra, 226
Cal.App.4th at p. 241, fn. 4 [disagreement re: when to analyze delegation
clause issues].)
a. Procedural
Unconscionability
Procedural unconscionability
“addresses the circumstances of contract negotiation and formation, focusing on
oppression or surprise due to unequal bargaining power.” (Pinnacle, supra,
55 Cal.4th at p. 246.) Established case law explains that “‘[o]ppression’
arises from an inequality of bargaining power which results in no real
negotiation and ‘an absence of meaningful choice’ [and] ‘[s]urprise’ involves
the extent to which the supposedly agreed-upon terms of the bargain are hidden
[in the agreement] by the party seeking to enforce the disputed terms.” (Zullo
v. Superior Court (2011) 197 Cal.App.4th 477, 484.)
i. Oppression
Plaintiff raises a single ground
for oppression: contract by adhesion. (Opp’n, pp. 10-12.)
I. Contract of
Adhesion
“‘The term [contract of adhesion]
signifies 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.’ [Citation.] If the
contract is adhesive, the court must then determine whether ‘other factors are
present which, under established legal rules—legislative or judicial—operate to
render it [unenforceable].’” (Armendariz v. Foundation Health Psychcare
Services, Inc. (2000) 24 Cal.4th 83, 113.)
The finding that a contract of
adhesion exists usually connotes a small degree of procedural unconscionability.
(See Dotson v. Amgen, Inc. (2010) 181
Cal.App.4th 975, 981 [discussing low level of procedural unconscionability in
the adhesion contract at issue and going on to discuss substantive
unconscionability]; Roman v. Superior Court (2009) 172 Cal.App.4th 1462,
1470, fn. 2 [“When bargaining power is not grossly unequal and reasonable
alternatives exist, oppression typically inherent in adhesion contracts is
minimal”].)
Here, the Court fails to find a
Plaintiffs carry their burden of showing a contract of adhesion.
Plaintiffs submitted declarations
indicating that at the time of the loan transaction, Plaintiffs were not
represented by counsel, Plaintiffs were unsophisticated based on education
level, a notary offered the Loan and Arbitration Agreements on a
take-it-or-leave-it basis, Plaintiffs were only given 30 minutes to sign, and
no one explained that Plaintiffs would forfeit a right to trial. However, those
declarations fail to clearly tie any misconduct by the notary to the Trust,
FCI, or Cal TD. (Opp’n, A Becerra Decl., ¶¶ 10-14; Opp’n, G. Becerra Decl., ¶¶
10-14.)
Moreover, the Trust, FCI, and Cal
TD filed responsive evidence showing that these Defendants did not participate
in the circumstances surrounding the signing of the agreements, which were
handled by the title company and notary it sent to Plaintiffs. (Reply, Anderson
Decl., ¶¶ 10-11.) The Court considers this evidence in reply because it is
responsive to first-instance opposition arguments, for which reason Plaintiffs
are not prejudiced by the introduction of that evidence, permitting its
inclusion. (See Hahn v. Diaz-Barba (2011) 194 Cal.App.4th 1177, 1193.)
Based on the above reasoning, the
Court determines that Plaintiffs’ adhesion argument does not support a finding
of procedural unconscionability based on oppression.
ii. Surprise
Plaintiffs present various
arguments for surprise, which are analyzed in turn. (Opp’n, pp. 12-15.)
I. Surprise – Small
Font, Unintelligible Legal Jargon
Arbitration agreements that are
wordy (prolix), filled with complex sentences, and filled with statutory
references and legal jargon can rise to an unconscionable agreement based on
surprise because, under such circumstances, the agreement itself and the manner
of its presentation did not promote voluntary or informed agreement to its
terms. (See, e.g., OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 129 (OTO).)
Here, contrary to the opposition
arguments (Opp’n, p. 12), the Court fails to find that the arbitration
agreement is wordy or overly complex—even if it may be confusing in places, as
discussed below. The arbitration agreements are essentially comprised of three
short paragraphs in the Loan Agreement and Arbitration Agreement, with the Loan
Agreement’s paragraphs being brief in nature, and the Arbitration Agreement
containing longer, more detailed paragraphs. Both sets of paragraphs are set
out in the same font as the preceding and succeeding paragraphs. (Petition,
Fink Decl., Ex. 1, §§ 3-5 [arbitration terms in Arbitration Agreement] &
Ex. 4, §§ 8.15-8.17 [arbitration terms in Loan Agreement].)
The fact that the Arbitration
Agreement contains terms to the effect that “Borrower and Lender agree that in
the event of an action for judicial foreclosure pursuant to California Code of
Civil Procedure § 726,” and the “statute of limitations, estoppel, waiver,
laches, and similar doctrines” does not change the Court’s determination.
(Opp’n, p. 12.) The key is that the Loan and Arbitration Agreements are not
overly wordy as to the arbitration provisions at issue here, and instead quite
plainly explain the arbitration procedure—however unconscionable on other
grounds, as discussed below.
Based on the above reasoning, the
Court determines that Plaintiffs’ legalese argument does not support a finding
of procedural unconscionability based on surprise.
II. Arbitration Rules
After review, the Court determines
that limited procedural unconscionability arises from the lack of attaching specified
arbitration provider rules in the Loan and Arbitration Agreements.
It is true that California courts
have found that an arbitration that references but fails to attach arbitration
provide rules may be, in conjunction with other conduct, unconscionable. (See Aljarice
Hasty v. American Automobile Association of Northern California, Nevada, &
Utah (2023) 98 Cal.App.5th 1041, 1061-1062 [substantive unconscionability
supported where arbitration agreement provided broken hyperlink for arbitration
rules and procedures because of uncertainty as to how employee would know the
terms he or she was agreeing to at the time of the signing of the agreement
when the rules and procedural may be different when the dispute].)
However—in contrast to Plaintiffs’
arguments (Opp’n, p. 12)—the circumstances before the Court more closely
resemble Davis v. Kozak (2020) 53 Cal.App.5th
897, 908 (Davis). There, the court of appeal did not find “an element of
surprise in the agreement’s failure to identify a specific arbitration provider”
where the arbitration “agreement clearly spell[ed] out that the parties w[ould]
attempt to mutually agree on an arbitrator, and if that fail[ed], the parties
will utilize the services of AAA[,] … thus afford[ing] [the plaintiff] the
opportunity to request a preferred arbitrator, with AAA as the fallback if the
parties cannot agree,” making “nothing surprising or hidden in this regard.”
(Ibid.)
Here, the Loan Agreement does not
provide for arbitration rules, instead incorporating the Arbitration Agreement
and its terms. (Petition, Fink Decl., Ex. 4, §§ 8.15-8.17 [arbitration terms in
Loan Agreement].)
In turn, as in Davis, the
Arbitration Agreement fails to specify an arbitration service provider and
instead provides a several-step process pursuant to which the parties would
agree to an arbitrator or have two arbitrators, one chosen by each party,
select a third arbitrator to in fact direct the arbitration. (Petition, Fink
Decl., Ex. 1, §§ 3-5 [arbitration terms in Arbitration Agreement].)
The Court also notes that the
California Supreme Court has explicitly held that failure to attach arbitration
rules is only significant when a party alleges those unattached rules are
substantively unconscionable. (Baltazar v.
Forever 21, Inc. (2016) 62 Cal.4th 1237, 1246.) Mere failure to attach the applicable rules does
not establish procedural unconscionability. (Ibid.) This is because where
the failure to attach JAMS rules to an agreement “… has nothing to do … with
the rules themselves …” such failure does not establish procedural
unconscionability. (Baltazar, supra, at p. 1246, discussed in Lange
v. Monster Energy Company (2020) 46 Cal.App.5th 436, 447 (Lange).)
Here, the agreement does not
provide for an arbitration service provider and thus it is not possible in
advance to determine whether the arbitration provider service that will be in
place has rules that are unconscionable.
Based on the above reasoning, the
Court determines that there is an element of procedural unconscionability based
on the lack of certainty regarding which arbitration rules will apply.
III. Confusing Terms
– Contradictions
Confusing terms may lead to a
finding of procedural unconscionability. (See, e.g., (Penilla v. Westmont
Corp. (2016) 3 Cal.App.5th 205, 214-217 [finding of procedural
unconscionability partially premised on confusing terms in agreement, which
were sometimes contradictory as to what claims were covered]; cf. Murrey v.
Sup.Ct. (Gen. Elec. Co.) (Jan. 30, 2023) 87 Cal.App.5th 1223, 1235,
1247-1256 [trial court did not abuse its discretion in finding that confusing
terms—in addition to numerous one-side provisions favoring employer, e.g., restrictive
discovery and confidentiality provisions—rendered agreement substantively
unconscionable and not amenable to severance].)
After review, the Court determines
that there are several confusing terms in the Loan and Arbitration Agreements.
First, the Arbitration Agreement
contains a delegation clause submitting questions of contract formation to the
arbitrator (Petition, Fink Decl., Ex. 1, § 3), but the Loan Agreement contains
a clause permitting courts to determine the invalidity of the Loan Agreement, where
the Arbitration Agreement is merely supplemental to the Loan Agreement.
(Petition, Fink Decl., Ex. 4, § 8.17.) Such terms are contradictory and may
leave the non-drafting party confused as to the terms to which he or she has
agreed.
Moreover, there are two different
paragraphs that relate to the waiver of a jury trial – one is in paragraph 4,
entitled “Arbitration Related Waiver.” Of course, parties to an arbitration
agreement may waive a trial by jury. (Code Civ. Proc. § 1281.)
However, the Agreement goes on to
state in a much longer paragraph entitled simply “Waiver of Jury Trial” that the
parties “agree to waive their respective rights to a jury trial of any claim or cause of action based on or arising from
the loan documents. The scope of this waiver is intended to be all-encompassing
of any and all disputes that may be filed in any court . . . “ To the extent
this is interpreted as relating to an agreement to arbitrate, it is not clear
why a second paragraph was necessary, since the first paragraph explicitly
referenced arbitration. To the extent it is attempting to enforce a pre-dispute
waiver of any non-arbitrable claim, it is unenforceable, and adds to a finding
of substantive unconscionability. (See Grafton Partners v. Superior Court
(2005) 36 Cal.4th 944, 961 [“Resolving any ambiguity in favor of preserving the
right to jury trial, …[] we conclude section 631 [of the Code of Civil
Procedure] does not authorize predispute waiver of th[e] right [to a jury
trial]”] without some legislative authorization.)
The Court also notes that confusing
terms arise from the Arbitration Agreement’s provisions relating to discovery,
as discussed below in Section III.D.A.2.a.V relating to substantive
unconscionability.
Based on the above reasoning, the
Court determines that Plaintiffs’ confusing terms argument supports a finding
of procedural unconscionability based on surprise.
b. Substantive
Unconscionability
Substantive unconscionability
focuses on the terms of the agreement and whether those terms are so one-sided
as to shock the conscience.” (Kinney v. United HealthCare Servs., Inc.
(1999) 70 Cal.App.4th 1322, 1330.)
i.
Here, Plaintiff raises various
substantive unconscionability arguments, which are each addressed in turn.
(Opp’n, pp. 15-19.)
I. Arbitration Costs
But
California courts have also held that where a claim is not “tethered to a
statute” or “based on policies carefully tethered to fundamental policies,”
Code of Civil Procedure section 1284.2 applies and provides that each party to
the arbitration pay his or her pro-rata share of the expenses and fees of the
neutral arbitrator, etc. These courts reasoned, for example, that Armendariz
was not extended by the Supreme Court to apply to common law claims, which
include claims for breach of the implied covenant of good faith and fair
dealing. (Boghos v. Certain Underwriters at Lloyd’s of London (2005) 36
Cal.4th 495, 507-508.)
After review, the Court finds that
the equal split of costs in the Arbitration Agreement is a factor toward
finding the Loan and Arbitration substantively unconscionable. (Opp’n, pp.
15-17.)
The opposition cites Plaintiffs’
declarations for evidentiary support of Plaintiffs’ limited income and
inability to pay arbitration costs (Opp’n, pp. 15-17), which the Court accepts.
The Arbitration Agreement specifically
provides that the parties would equally split costs in arbitration. (Petition,
Fink Decl., Ex. 1, § 3 [“The costs of the arbitrator shall be split equally by
the parties but shall be a recoverable cost for the party prevailing in the
arbitration]”].)
The Loan Agreement is silent on
this issue but incorporates the terms of the Arbitration Agreement. (Petition,
Fink Decl., Ex. 4, § 8.15.1.-.2.)
Here, some of Plaintiff’s claims
are either tethered to a statute (Violations of Welfare & Institutions
Code, § 15600 et seq.; Unfair Business Practices) or are based on policies
carefully tethered to fundamental policies (Violation of California
Constitution, article XV, section One). The Court determines that equally
splitting costs discourages the constitutional and statutory rights to due
process in those authorities, for which reason a split of costs here is not
appropriate to the non-common law claims.
Based on the above reasoning, the
Court determines that Plaintiffs’ argument related to the splitting of
arbitration costs supports a finding of substantive unconscionability.
II. Lack of Clarity
as to Rules.
“[A] true arbitration agreement [contains]:
(1) a third party decisionmaker; (2) a mechanism for ensuring neutrality with
respect to the rendering of the decision; (3) a decision maker who is chosen by
the parties; (4) an opportunity for both parties to be heard, and (5) a binding
decision.” (Cheng-Canindin v. Renaissance Hotel Assocs. (1996) 50
Cal.App.4th 676, 684-685.)
After review, the Court finds that
the relevant clauses of the Loan and Arbitration Agreements are not, when
viewed alone, opaque or lacking in clarity. (See Petition, Fink Decl., Ex. 1,
§§ 3-5 [arbitration terms in Arbitration Agreement] & Ex. 4, §§ 8.15-8.17
[arbitration terms in Loan Agreement]; see also III.C.1.a.ii.I. discussion
supra.)
The Court notes, however, that even
though the individual clauses are clear, some of them are contradictory. (See
Section III.C.1.a.ii.III. discussion supra.) Thus, this leads in support of a finding
of substantive unconscionability.
III. Lack of Mutuality
One-sided contractual terms may
support a finding of substantive unconscionability. (See, e.g., Armendariz, supra, 24 Cal.4th at pp. 120-121 [reversing court of appeal and
affirming trial court ruling denying employer’s petition to compel arbitration
of sex discrimination claims brought by two plaintiffs where arbitration
provision was deemed unilateral because it applied to claims only by employees];
Bakersfield College v. California Comm. College Athletic Assn
(2019) 41 Cal.App.5th 753, 767-768, 770 [lack of mutuality regarding fees,
coupled with other findings of substantive unconscionability and with findings
of procedural unconscionability, made agreement unenforceable]; see also Dennison
v. Rosland Capital LLC (2020) 47 Cal.App.5th 204, 211-213 [lack of
mutuality as to obligation to arbitrate and as to allocation of fees and costs
caused court to find unconscionability and no severance of offending
substantive provisions “permeated by unconscionability”].)
Unilaterality may exist where parties are compelled to arbitrate claims
they were most likely to bring, while retaining for itself the right to
litigate those claims it was most likely to bring, the employer created an
essentially unilateral arbitration agreement. (See, e.g., Mercuro v.
Superior Court (2002) 96 Cal.App.4th 167, 176-177 (Mercuro) [reversing trial court
order compelling arbitration where agreement required employees to arbitrate
common law contract and tort claims, statutory discrimination claims, and
claims for violation of any federal, state, or local statutes, ordinances, and
regulations but excluded employee workers compensation and unemployment
benefits claims, and employer claims for injunctive and equitable relief for
intellectual property violations, unfair competition, and the unauthorized use
or disclosure of trade secrets or confidential information].)
After review, the Court agrees with
Plaintiffs as to the lack of mutuality in parts of the Arbitration Agreement
(and the Loan Agreement through incorporation of the Arbitration Agreement).
(Opp’n, pp. 18-19.)
As argued by Plaintiffs, the
Arbitration Agreement allows the Trust to seek judicial foreclosure on the
note, but forces Plaintiffs to submit all claims related to the note to
arbitration, thus showing a lack of mutuality. (Petition, Fink Decl., Ex. 1, §
2.2.1.; Cf. Mercuro, supra, 96 Cal.App.4th at pp. 176-177 [lack
of mutuality factor in unconscionability finding].) These circumstances have
been found unconscionable by California courts. (Flores v. Transamerica
HomeFirst, Inc. (2001) 93 Cal.App.4th 846, 854 (Flores).)
While the Trust, FCI, and Cal TD
argue that no unconscionability can arise from leaving claims that cannot be
arbitrated out of the scope of arbitration, e.g. foreclosure (Reply, pp.
10-11), Flores is good authority and is applicable here.
Based on the above reasoning, the
Court determines that Plaintiffs’ argument related to lack of mutuality in arbitrable
claims supports a finding of substantive unconscionability.
IV. Lack
of Mutuality in Attorney’s Fees
Moreover, the Court notes that the
attorney’s fees clause in the Arbitration Provision—which is incorporated into
the Loan Agreement—is unconscionable based on unilaterality in favor of the
Trust.
An arbitration provision awarding
one party the right to recoup attorney’s fees but does not grant the same right
to the other party may be substantially unconscionable. (See, e.g., Ajamian
v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 799-800 [employment
agreement providing for fees for prevailing defendant without providing for
fees for prevailing employee].)
Here, the Arbitration Agreement’s attorney’s
fees clause is unilateral in favor of the Trust and applies as soon as any
legal action is commenced but does not provide the same relief from Plaintiffs.
(Petition, Fink Decl., Ex. 1, § 6 [fees clause]; Petition, Fink Decl., Ex. 4, §
8.15.1.-.2. [incorporation of Arbitration Agreement].)
This issue was not raised by the
parties and was thus not addressed in the reply. (See Reply, pp. 10-11.)
Nevertheless, based on the above
reasoning, the Court determines that the unilaterality of the Arbitration
Agreement’s fees clause supports a finding of substantive unconscionability.
The Court notes that the
Arbitration Agreement also waives the right to pretrial discovery in one
paragraph (Petition, Fink Decl., Ex. 1, § 4 [“The parties hereby freely waive the
right to . . .pretrial discovery”]) while simultaneously providing elsewhere that
discovery is allowed. (Petition, Fink Decl., Ex. 1, § 3 [“If the arbitration is
commenced, the parties agree to permit discovery proceedings of the type
provided under California law both in advance of, and during recesses of, the
arbitration hearings”].)
These terms are plainly contradictory
and support a finding of procedural unconscionability based on surprise as
discussed in Section III.D.a.1.b.III. above.
To the extent that the Arbitration Agreement comprises a
waiver of the right to pretrial discovery, limitations on discovery may support
a finding of substantive unconscionability. “A limitation on discovery is an
important way in which arbitration can provide a simplified and streamlined
procedure for the resolution of disputes.” (Davis, supra, 53
Cal.App.5th at p. 910.) “At the same time, ‘[a]dequate discovery is
indispensable for the vindication of statutory claims’ [citation], and ‘[t]he
denial of adequate discovery in arbitration proceedings leads to the de facto
frustration of’ statutory rights [citation].” (Ibid.) “In this context,
‘adequate’ does not mean ‘unfettered.’” (Ibid.) “In striking the
appropriate balance between the desired simplicity of limited discovery and an
employee’s statutory rights, courts assess the amount of default discovery
permitted under the arbitration agreement, the standard for obtaining
additional discovery, and whether the plaintiffs have demonstrated that the
discovery limitations will prevent them from adequately arbitrating their
statutory claims.” (Id. at 910-911.)
Here, the waivers of pretrial discovery—if effective over
any agreement to submit to arbitration procedures in accordance with California
law—are unconscionable on their face because they limit rights that Plaintiffs
would have in a judicial forum by making Plaintiffs forfeit their common law
and statutory rights to discovery, as tied to Plaintiffs’ claims, in
contravention of the balance explained by Davis.
The reply fails to address limitations on discovery as this
issue was not directly raised in the opposition. (See Reply, pp. 2-11.)
Based
on the above reasoning, the Court determines that the confusing discovery terms
in the Arbitration Agreement supports a finding of procedural unconscionability
based on surprise and that the waiver of pretrial discovery in the Arbitration
Agreement’s fees clause supports a finding of substantive unconscionability.
D.
Severability
“A trial court has the discretion
to refuse to enforce an agreement as a whole if it is permeated by …
unconscionability.” (Carmona v. Lincoln Millennium Car Wash, Inc. (2014)
226 Cal.App.4th 74, 90 (Carmona), citing Armendariz, supra,
24 Cal.4th at p. 122.) “‘The overarching inquiry is whether “‘the interests of
justice … would be furthered’” by severance.’” (Carmona, supra,
at p. 90.) If the central purpose of a contractual provision, such as an
arbitration agreement, is tainted with illegality, then the provision as a
whole cannot be enforced. (Ibid.) If the illegality is collateral to the
main purpose of the contractual provision, and can be severed or restricted
from the rest, then severance is appropriate. (Ibid.)
An agreement to arbitrate is
considered “permeated” by unconscionability where, for example, it contains
more than one unconscionable provision. (Magno v. The College Network, Inc.
(2016) 1 Cal.App.5th 277, 292.) This is because such multiple defects indicate
a systematic effort to impose arbitration on an employee not simply as an
alternative to litigation but as an inferior forum that works to the employer’s
advantage. (Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 254.)
The Court has discretion, but is not required, to find that the entire
agreement is permeated by unconscionability in the presence of multiple
unconscionable terms. (Lange, supra, 46 Cal.App.5th at p. 455 [“we
agree with the trial court that the parties’ arbitration agreement is permeated
with too high a degree of unconscionability for severance to rehabilitate”].)
Based on this Court’s finding of multiple
grounds for unconscionability, the Court determines that the Arbitration
Agreement, as well as the Loan agreement, either by its own terms or
incorporation of the Arbitration Agreement’s terms, are so permeated by
unconscionability that severance would not further the interests of justice and
instead reward the drafting party of an unconscionable agreement. (See Section III.C.1.a.ii.III.
& III.C.1.b.i.I & III.C.1.b.i.III-.VI. discussions supra [confusing
terms re: delegation to arbitrator, splitting of costs in case with Elder Abuse
component, lack of mutuality in arbitrable claims, lack of mutuality in fees
clause, confusing terms re: limits on discovery, jury trial waiver, and pretrial
discovery]; see Murrey, supra, 87 Cal.App.5th at pp. 1235,
1247-1256 [trial court did not abuse its discretion in finding numerous
one-side provisions favoring employer, including restrictive discovery and
confidentiality provisions, coupled with confusing terms, rendered agreement
substantively unconscionable and not amenable to severance].)
E.
Conclusion on Arbitration
Because Plaintiff has raised valid
defenses against enforcement of the arbitration clauses in the Loan and
Arbitration Agreements, the Trust, FCI, and Cal TD’s motion is DENIED.
IV.
Dismissal or Stay of Action
“If a court of competent
jurisdiction, whether in this State or not, has ordered arbitration of a
controversy which is an issue involved in an action or proceeding pending
before a court of this State, the court in which such action or proceeding is
pending shall, upon motion of a party to such action or proceeding, stay the
action or proceeding until an arbitration is had in accordance with the order
to arbitrate or until such earlier time as the court specifies.” (Code Civ.
Proc., § 1281.4.)
Based on the outcome of the motion to compel arbitration, the question of stay or dismissal is MOOT.
Defendants Roger Anderson, FCI Lender Services Inc., and California TD
Specialists’ Petition to Compel Arbitration is DENIED.