Judge: Anne Richardson, Case: 23STCV30066, Date: 2024-02-28 Tentative Ruling

Case Number: 23STCV30066    Hearing Date: February 28, 2024    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

Background

Plaintiff Careismatic Brands, LLC, formerly known as Strategic Partners, Inc. (Careismastic Brands) sues Defendants Michelman & Robinson (M&R), Sanford L. Michelman (Michelman), and Does 1-100 pursuant to a December 8, 2023 Complaint alleging claims of (1) Breach of Fiduciary Duty against All Defendants, (2) Breach of Written Contract [Engagement Agreement] against M&R, and (3) Declaratory Relief against All Defendants.

The claims arise from allegations that Plaintiff engaged Defendants to represent Plaintiff in Strategic Partners, Inc. v. FIGS, Inc., et al., United States District Court, Central District of California, case no. 2:19-cv-02286-JWH-KSx (the ‘FIGS case’) and that in the course of the representation, Defendants breached fiduciary and contractual obligations owed to Careismatic Brands by: (1) misrepresenting the amount of fees Defendants would incur on an hourly basis in order to induce Plaintiff to enter the two flat fee arrangements; (2) concealing the actual daily “burn rate” of its fees until after the client agreed to the flat fee arrangements; (3) negotiating the flat fee agreements with their existing client knowing that Defendants would be receiving a substantial financial benefit, to the detriment of their client, who was operating under false assumptions regarding material facts; (4) charging Plaintiff fees pursuant to the flat fee agreements that Defendants knew to greatly exceed the fees it would have charged under the initial hourly arrangement; (5) knowingly providing Plaintiff unreliable and inaccurate litigation budgets to induce Plaintiff to continue the FIGS case litigation; (6) overbilling Plaintiff by overstaffing the FIGS case, having multiple billers perform the same tasks, and performing unnecessary and/or redundant work; and (7) charging Plaintiff an unconscionable fee.

On December 28, 2023, M&R and Michelman filed a motion to compel arbitration of the claims alleged in the Complaint.

On January 8, 2024, Careismatic Brands filed a limited opposition, assenting to arbitration as against M&R but arguing that Defendant Michelman has no standing to invoke any arbitration agreement in the Engagement Agreements between Careismatic Brands and M&R.

No reply appears in the record as of the date of this ruling.

Defendants M&R and Michelman’s motion is now before the Court.

Motion to Compel Arbitration

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, then, 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.) The strong public policy in favor of arbitration does not extend to those who are not parties to an arbitration agreement. (Benasra v. Marciano (2001) 92 Cal.App.4th 987, 990.)

I.

Order Compelling Arbitration of Claims Against M&R: GRANTED; ACTION STAYED.

Based on Plaintiff’s assent to submitting its claims against M&R to arbitration (Opp, p. 1), Defendants’ motion is GRANTED as to Defendant M&R.

II.

Order Compelling Arbitration of Claims Against Michelman: GRANTED; ACTION STAYED.

The Court’s remaining discussion focuses on whether arbitration of Careismatic Brands’ claims against Defendant Michelman is proper under the two Engagement Agreements between Careismatic Brands and M&R. (Mot., Camhi Decl., § 12 at Exs. 6-7 [arbitration clause in Engagement Agreements].)

A.

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 motion attaches the two Engagement Agreements upon which relief is sought. (Mot., Camhi Decl., Exs. 6-7.)

B.

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.)

The two arbitration clauses at issue appear in two Engagement Agreements between Careismatic Brands and M&R. As detailed by M&R and Michelman, (1) “[o]n October 7, 2022, M&R and Plaintiff executed the October 1, 2022 Engagement Agreement pertaining to M&R’s trial preparation services in the FIGS litigation for the period from October 1, 2022 through October 16, 2022,” and (2) “[o]n October 17, 2023, CBI executed the October 13, 2023 engagement agreement (‘October 13 Engagement Agreement’) related to M&R actually trying the FIGS matter on CBI’s behalf whereby CBI agreed to pay to M&R the amount of $200,000.00 per day of trial.” Those agreements are attached as Exhibits 6 and 7 to the Camhi declaration attached to the moving papers. (Mot., p. 4, citing Mot., Camhi Decl., § 12 at Exs. 6-7 [arbitration clause in Engagement Agreements].)

After review, the Court determines that Defendant Michelman may invoke the arbitration clause in the Engagement Agreements based on two theories: equitable estoppel and agency liability.

Under the doctrine of equitable estoppel, “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.) The doctrine applies in either of two circumstances: (1) when the signatory must rely on the terms of the written agreement containing the arbitration clause in asserting its claims against the nonsignatory; or (2) when 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.) At bottom, “the linchpin for equitable estoppel is equity—fairness.” (Id. at p. 220.) A nonsignatory seeking to enforce an arbitration agreement has the burden to establish at least one of these circumstances applies. (Jones v. Jacobson (2011) 195 Cal.App.4th 1, 16.)

Here, a review of the first cause of action shows that the claim alleges a breach of fiduciary claim against all Defendants based on allegations that “Plaintiff’s attorneys in the FIGS case, Defendants[,] owed Plaintiff fiduciary duties, including, but not limited to, an undivided duty of loyalty, a duty of honesty, and a duty to charge reasonable fees.” (Complaint, ¶ 18.) The Complaint attaches the October 1, 2022 Engagement Agreement—the first of the two Engagement Agreements—to the Complaint itself and alleges it as an operative agreement that should be found void between the parties in the declaratory relief claim. (Complaint, Ex. 2; Complaint, ¶¶ 12-13, 29-39.) Because the breaches of the fiduciary duties alleged against “All Defendants” involve at least one of the two Engagement Agreements, it follows that the first—and even the third cause of action—are stated against Defendant Michelman in such a way as to intertwine liability with duties arising from that Engagement Agreement between Careismatic Brands and M&R.

Defendant Michelman also has standing to invoke the arbitration clause in the Engagement Agreements because “[w]hen a plaintiff alleges a defendant acted as an agent of a party to an arbitration agreement, the defendant may enforce the agreement even though the defendant is not a party thereto. [Citations.]” (Thomas v. Westlake (2012) 204 Cal.App.4th 605, 614.) Here, the Complaint alleges all Defendants as agents of one another. (Complaint, ¶ 5; Mot., pp. 9-10 [making this argument].)

The case of Benasra v. Marciano (2001) 92 Cal.App.4th 987, cited by Plaintiff, does not require a contrary result. There, a plaintiff sued an individual and a company for libel. The company moved to compel arbitration on the ground that the dispute was related to ongoing business disputes between Guess and the plaintiff’s company, PLB. However, in that case, the plaintiff had signed an arbitration agreement on behalf of the company only, not in his individual capacity. In that context, the Court held that Benasra, who had not signed the agreement on his own behalf, and was not seeking the benefits of the agreement, could not be compelled into arbitration. (92 Cal.App.4th at pp. 989-990.)

By contrast, here, and as in Dryer v. Los Angeles Rams (1985) 40 Cal.3d 406, 418, plaintiff has instead sued several parties, alleging that they were parties to and breached an agreement.  While Plaintiff here claims not to have made such an allegation in its complaint (see Opp’n, p. 3:26-27), the plain language of the Complaint shows that it has where it repeatedly refers to both Defendants, not just the lawfirm: see, e.g., “Plaintiff engaged Defendants” (Complaint, ¶ 9); “The parties’ initial engagement agreement . . . provided that Defendants would represent Plaintiff” (Complaint, ¶ 10); “Each defendant was the agent, alter-ego, employee. . . or in some other capacity derivatively responsible for each of the acts of the other defendants”) (Complaint, ¶ 5), and “Defendants owed Plaintiff fiduciary duties . . . and Defendants breached these duties.” (Complaint, ¶¶18-19.)  Thus as in Dryer, and unlike in Benasra, the plaintiff is asking for the benefit of the agreement, and defendants are affirmatively accepting the plaintiff’s characterization of their status. (Cf. Benasra, 92 Cal.App.4th at p. 990.)

C.

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 finds that the scope of the October 1, 2022 Engagement Agreement contains an arbitration provision that is applicable to the claims alleged against Defendant Michelman, i.e., breach of fiduciary duty and declaratory relief regarding that Agreement: “[A]ny and all disputes, claims or controversies that cannot be resolved informally through discussion will be resolved by final and binding arbitration before ADR ….” (Mot., Camhi Decl., at Ex. 6, § 12 [arbitration clause in Engagement Agreement].) This scope is broad because it subjects to arbitration all claims between the parties “that cannot be resolved informally through discussion,” conceivably encompassing all imaginable claims between the parties, not only those arising from the Engagement Agreements.

However, for the purposes of this section, it is enough to note that the scope of the arbitration agreement encompasses the first and third causes of action, as alleged against Defendant Michelman.

D.

 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, the limited opposition limits its arguments to Defendant Michelman’s standing to enforce the arbitration clause in the Engagement Agreements. (Opp’n, pp. 3-6.)

The Court has rejected those arguments and thus, no defense is otherwise properly raised against enforcement of the arbitration clause in, at the least, the October 1, 2022 Engagement Agreement by Defendant Michelman.

Defendant Michelman’s motion is therefore GRANTED.

E.

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.)

Here, the Court STAYS this action pending the outcome of the arbitration between the parties or until such earlier time as the Court specifies. (Code Civ. Proc., § 1281.4; see Opp’n, p. 6 [not opposing stay of entire action pending arbitration of claims against M&R].) 

Conclusion

Defendants Michelman & Robinson, LLP, and Sanford Michelman’s Motion to Compel Arbitration is GRANTED.

The Court STAYS this action pending the outcome of the arbitration between the parties or until such earlier time as the Court specifies. The Court will set an OSC re status of arbitration about 12 months into the future.