Judge: Barbara M. Scheper, Case: 23STCP00403, Date: 2024-10-09 Tentative Ruling

Case Number: 23STCP00403    Hearing Date: October 9, 2024    Dept: 30

Dept. 30

Calendar No.

Winter, et. al. v. Parker, Milliken, Clark, et. al., Case No. 24STCV03284

Winter, et. al. v. Parker, Milliken, Clark, et. al., Case No. 23STCP00403

Tentative Ruling re:  Defendants’ Motions to Compel Arbitration

Defendants move for an order compelling Plaintiffs to submit all the claims alleged against Defendants in Plaintiffs’ Complaint to arbitration and stay this action pending resolution of the arbitration. The motion is denied.

“On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such 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, unless it determines that: (a) The right to compel arbitration has been waived by the petitioner; or (b) Grounds exist for the revocation of the agreement.”  (Code Civ. Proc. § 1281.2, subds. (a), (b).)

A proceeding to compel arbitration is in essence a suit in equity to compel specific performance of a contract. (Freeman v. State Farm Mutual Auto Insurance Co. (1975) 14 Cal.3d 473, 479.) Such enforcement may be sought by a party to the arbitration agreement. (Code Civ. Proc., § 1280, subd. (e)(1).)

            The petition to compel arbitration functions as a motion and is to be heard in the manner of a motion, i.e., the facts are to be proven by affidavit or declaration and documentary evidence with oral testimony taken only in the court’s discretion. (Code Civ. Proc., §1290.2; Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413–414.) The petition to compel must set forth the provisions of the written agreement and the arbitration clause verbatim, or such provisions must be attached and incorporated by reference. (Cal. Rules of Court, rule 3.1330; see Condee v. Longwood Mgmt. Corp. (2001) 88 Cal.App.4th 215, 218.) 

            Once petitioners allege that an arbitration agreement exists, the burden shifts to respondents to prove the falsity of the purported agreement, and no evidence or authentication is required to find the arbitration agreement exists. (See Condee, supra, 88 Cal.App.4th at p. 219.) However, if the existence of the agreement is challenged, “petitioner bears the burden of proving [the arbitration agreement’s] existence by a preponderance of the evidence.” (Rosenthal, supra, p. 413; see also Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1058–1060.)

Existence of the Agreement

A “successor trustee is bound by a valid arbitration agreement executed by a predecessor. [Citation].” (Thomas v. Westlake (2012) 204 Cal.App.4th 605, 613 fn5.)

“[A] trustee is not personally liable on a contract properly entered into in the trustee’s fiduciary capacity . . . unless the trustee fails to reveal the trustee’s representative capacity or identify the trust in the contract.” (Prob. Code, § 18000, subd. (a).) Thus, liability in contract does not fall on a trust where the trustee fails to identify the trust in the contract. “A claim based on a contract entered into by a trustee in the trustee’s representative capacity, on an obligation arising from ownership or control of trust property, or on a tort committed in the course of administration of the trust may be asserted against the trust by proceeding against the trustee in the trustee's representative capacity, whether or not the trustee is personally liable on the claim.” (Id., § 18004.)

Here, Defendants assert that the Plaintiffs are bound by the fee agreements signed by a former trustee of the Menlo Family Trust, Lesile Klein, because the Plaintiffs are Klein’s successors in interest. (Defendants’ motion to compel arbitration, Lines 20–25, p. 1.)

            Lesile Klein entered separate legal contracts for legal services with Buchalter and Parker Milliken. (Wachtell Decl. ¶ 3, Ex.1 and Nunan Decl. ¶ 3, Ex. 2.)

The Buchalter Agreement states the following:

“By signing this Agreement, You agree that, if any dispute arises out of or relating in any way to this Agreement, our relationship, or the services performed (including but not limited to disputes regarding attorneys’ fees or costs and claims of negligence, breach of contract or fiduciary duty, fraud or any claim based upon a tort or statute), such dispute shall be resolved by submission to binding arbitration in Los Angeles County, California, before a retired judge or justice with ADR Services, Inc. pursuant to the ADR Services Arbitration Rules in effect at the time of any such dispute.” (Wachtell Decl., Ex.1.)

Plaintiffs argue that the trust is not bound by Defendants’ fee agreements with Klein. Plaintiffs state that the requirements of Probate Code section 18000 were not met because The Franklin Menlo Trust is not identified in any fee agreement. However, the Buchalter Agreement does identify the Menlo Trusts stating, “You [Klein] are hiring the Firm to represent You in your individual capacity and as Trustee in connection with the Menlo Litigation and as Trustee of the other approximately 79 Menlo family trust agreements.” (Wachtell Decl., Ex.1.) The Menlo Litigation is separately defined as involving the Frank Henry Menlo Irrevocable trust. (Ibid.)

Here, Lesile Klein entered an Agreement for Legal Services with Buchalter in his individual capacity and in his capacity as a trustee. (Wachtell Decl., Ex.1.) Plaintiffs are suing Buchalter for an alleged breach of fiduciary duty which is covered by the terms of the Buchalter Agreement. Therefore, the Court finds that an arbitration agreement exists between the parties and the Plaintiffs would be bound to it because they are Klein’s successor in interest, if not for the Parker Milliken Agreement.

The Parker Milliken Agreement dated October 5, 2012, states the following:

            “Any dispute between us concerning our fees or charges not so submitted to binding arbitration under the rules of the California State Bar, or which remains unresolved after non-binding arbitration under such rules, and any other dispute between or among you and us or any of our attorneys and agents, including but not limited to claims of malpractice, errors or omissions, breach of this agreement, or any other claim of any kind regardless of the facts or the legal theories, shall be finally settled by mandatory binding arbitration in Los Angeles, California, conducted in accordance with California Code of Civil Procedure §§ 1282 et seq., including, but not limited to, section 1283.05, with each party to bear its own costs and attorneys' fees and disbursements.” (Nunan Decl., Ex. 2, ¶ 13.)

            Lesile Klein signed the October 5, 2012, agreement in his individual capacity but not in his capacity as a trustee. (Ibid.) The agreement states that “Parker, Milliken will be representing only you as the Client and will not be representing any person related or unrelated to Client nor any parent, subsidiary, or other affiliated entity.” (Ibid.) While the agreement does mention the Menlo trust dispute and that Klein is a trustee, this clause precludes any representation of Klein in his representative capacity as trustee. Rather, the agreement purports to represent Klein personally “in connection with the contested proceedings concerning the Menlo trusts, of which you are trustee.” (Ibid.) Thus, this agreement is not binding on the trust through section 18000, subdivision (a).

Klein signed an additional agreement with Parker Milliken on January 13, 2022. (Id., Ex. 3.) This agreement did extend representation to Klein in his representative capacity “as Trustee in administering the 73 Menlo Trusts that are set forth in Exhibit 1.” (Ibid.) However, the trust at issue in the present case was not listed among them. Similarly, the August 1, 2022, agreement between Klein and Parker Milliken only applied to Klein “as Trustee of the Emily Winter Trust.” Thus, the 2022 agreements are also not binding on the Franklin Henry Menlo Trust.

The Court finds that a valid arbitration agreement exists between Plaintiffs and Buchalter, but not between Plaintiffs and Parker Milliken. Under Code of Civil Procedure section 1281.2, subdivision (c), the court should not order arbitration if “[a] party to the arbitration agreement is also a party to a pending court action or special proceeding 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.” Such is the case here. Plaintiffs are a party to an arbitration agreement with Buchalter, but also a party in the present action against Parker Milliken. The cases against both parties arise out of the same series of related transactions, namely alleged participation in Klein’s schemes. (Compl. ¶ 26.) If the Court were to compel arbitration with respect to Buchalter, there would be a risk of conflicting rulings because both parties are heavily involved in Plaintiffs’ case. (Id. ¶ 4.)

The Court exercises its authority under section 1281.2 to refuse to enforce the arbitration agreement between Plaintiffs and Buchalter. All parties are joined in the present action.

Equitable Estoppel

            Defendants argue that Plaintiffs should be compelled to arbitrate this case because their proposed claims are based on the existence of an attorney-client relationship created and governed by the agreements with arbitration clauses. However, Plaintiffs need not share a contractual attorney-client relationship with Defendants to support a claim for professional negligence. (Coscia v. McKenna & Cuneo (2001) 25 Cal.4th 1194, 1199.) Attorneys may owe a duty of care to third parties outside the representation. (Roberts v. Ball, Hunt, Hart, Brown & Baerwitz (1976) 57 Cal.App.3d 104, 110.) Indeed, Plaintiffs are not claiming that Defendants represented Plaintiffs or the trust. They claim that Defendants committed malpractice by personally and knowingly representing Klein as he embezzled funds from the trust. (Compl. ¶ 26.) Thus, Defendant’s equitable estoppel defense fails.