Judge Bruce G. Iwasaki, Case Number: 24STCV12395, Date: 2024-08-28 Tentative Ruling

Tentative Ruling: (1) Defendant Public Storage’s Demurrer is overruled in its entirety and Motion to Strike is denied in its entirety;

(2) Plaintiff Nydia McFadden’s Motion for Attorney Fees is continued. Plaintiff is instructed to submit a supplemental declaration that includes either unredacted billing records or forgoes the request for fees as to such entries.

This case arises out of Plaintiff Nydia McFadden’s lease of a storage unit at a facility belonging to Defendant Public Storage (Defendant) in Montclair, California. Plaintiff Nydia McFadden (Plaintiff) alleges that her storage unit was burglarized twice on February 6, 2021 and March 5, 2021 by transients who stayed overnight at Defendant’s Montclair facility without any supervision.

Pursuant to the arbitration provision stated within the storage rental agreement, Plaintiff initiated consumer arbitration before JAMS on March 1, 2022. Plaintiff was required to pay the initial arbitration fees to initiate the proceedings, and Defendant was responsible for paying all other fees in order to maintain arbitration. On August 21, 2023, JAMS issued an invoice to Defendant for $27,000 for its services, which was due upon receipt. By October 4, 2023, the arbitration fees remained unpaid. Consequently, on October 1, 2023, Plaintiff withdrew from arbitration pursuant to Code of Civil Procedure § 1281.97 and JAMS Rule 10 because Defendant was in material breach of its obligations under the arbitration provision. Arbitration closed on October 13, 2023.

Plaintiff filed this action on May 15, 2023 against Defendant for fraud, battery, and negligence. On June 5, 2024, Plaintiff filed a motion for attorney fees pursuant to Code of Civil Procedure § 1281.98. Defendant opposes the motion for attorney fees, and Plaintiff replied.

On June 20, 2024, Defendant demurred to each cause of action raised in the Complaint on the grounds that the claims are time-barred and that insufficient facts have been alleged. Defendant separately moves to strike the entirety or portions of Paragraphs 24-28, 30, 37, 44 in the body of the Complaint and portions of the Prayer for Relief. Plaintiff opposes the demurrer and motion to strike, and Defendant replied. The declaration of Defendant’s counsel, Craig L. Dunkin, satisfies the meet-and-confer requirement.

The Court shall first address Defendant’s demurrer and motion to strike before considering Plaintiff’s motion for attorney fees.

A demurrer is an objection to a pleading, the grounds for which are apparent from either the face of the complaint or a matter of which the court may take judicial notice. (Code Civ. Proc., § 430.30, subd. (a); see also Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The purpose of a demurrer is to challenge the sufficiency of a pleading “by raising questions of law.” (Postley v. Harvey (1984) 153 Cal.App.3d 280, 286.) “In the construction of a pleading, for the purpose of determining its effect, its allegations must be liberally construed, with a view to substantial justice between the parties.” (Code Civ. Proc., § 452.) The court “ ‘ “treat[s] the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law . . ..” ’ ” (Berkley v. Dowds (2007) 152 Cal.App.4th 518, 525.)

“The court may, upon a motion made pursuant to Section 435, or at any time in its discretion, and upon terms it deems proper: (a) Strike out any irrelevant, false, or improper matter inserted in any pleading. (b) Strike out all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court.”¿ (Code Civ. Proc., § 436.)

Attorney’s fees are recoverable as costs when authorized by contract, statute, or law. (Code Civ. Proc., § 1033.5, subd. (a)(10).)

If an employee or consumer withdraws a claim from arbitration and proceeds in a court of appropriate jurisdiction pursuant to Code of Civil Procedure § 1281.98(b)(1): (1) the employee or consumer may bring a motion, or a separate action, to recover all attorney’s fees and all costs associated with the abandoned arbitration proceeding, without regard to any findings on the merits in the underlying action or arbitration; and (2) the court shall impose sanctions on the drafting party in accordance with Section 1281.99. (Code Civ. Proc., §§ 1281.98, subds. (c)(1)-(2).)

The Court must impose a monetary sanction against the drafting party that materially breached the arbitration agreement by ordering the drafting party to pay the reasonable expenses, including attorney’s fees and costs, incurred by the employee or consumer as a result of the material breach. (Code Civ. Proc., § 1281.99.)

Defendant requests the Court to take judicial notice of Rule 8 of the JAMS Streamlined Arbitration Rules, entitled “Interpretation of Rules and Jurisdiction Challenges.” The Court takes judicial notice of the existence of this document only because the interpretation of these rules would likely be a source of dispute. (Evid. Code § 452(h).)

In assessing a demurrer challenging the complaint based on a statute of limitations defense, the Court must determine whether such a defense is plain on the face of the complaint. “‘A demurrer on the ground of the bar of the statute of limitations will not lie where the action may be, but is not necessarily barred.’ [Citations omitted.] It must appear clearly and affirmatively that, upon the face of the complaint, the right of action is necessarily barred. [Citations omitted.] This will not be the case unless the complaint alleges every fact which the defendant would be required to prove if he were to plead the bar of the applicable statute of limitation as an affirmative defense.” (Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 881 [citations omitted].)

Defendant first argues that the entire action is barred by the one-year contractual limitations contained within an agreement attached to the Complaint. (Demurrer at pg. 6.) In particular, Defendant relies on a provision found within the storage agreement that Plaintiff had alleged it entered into with Defendant in 2014 when Plaintiff moved her belongings from Defendant’s facility in Sherman Oaks, California to Defendant’s facility in Montclair, California (2014 Agreement). (See Compl. ¶ 5, Exh. A at ¶ 4.) This argument presumes that the 2014 Agreement is the controlling agreement between the parties. However, the Complaint further alleges that Plaintiff entered into a third agreement with Defendant on April 13, 2021 (2021 Agreement). (Compl. ¶ 12, Exh. B.) Pursuant to the 2021 Agreement, there is no indication that it contains a contractual statute of limitations provision, and in fact, it dispels such an assertion by stating unequivocally that the 2021 Agreement is “subject to the laws of the State of California,” which would encompass statutes of limitations prescribed by California law. (Id. at ¶ 17.) Furthermore, it covers claims that occurred prior to its signing and contemplates that this agreement supersedes all prior agreements. (Id. at ¶¶ 6.2, 21.) Therefore, because a superseding contract has been alleged, Defendant’s reliance on the 2014 Agreement lacks merit.

Accordingly, because the Complaint on its face does not indicate that Plaintiff’s claims are time-barred, the Court overrules the demurrer on this ground.

Defendant also argues that the first cause of action for fraud is subject to demurrer because Plaintiff entered into 2021 Agreement after knowing that the alleged burglary had occurred, causing her to waive any claim for damages linked to fraud. (Demurrer at pg. 8, relying on Schied v. Bodinson Mfg. Co. (1947) 79 Cal.App.2d 134, 142-143.)

“The question of waiver or nonwaiver [is] one of fact for the trial court to pass upon, and the acts or conduct which the defendant claims constituted said waiver [are] the evidence to be considered by in determining the ultimate fact of waiver or nonwaiver.” (French v. Freeman (1923) 191 Cal. 579, 590.)

Because the issue of waiver is a question of fact, Defendant improperly requests the Court to adjudicate this issue at the pleading stage through the instant demurrer. Furthermore, there is nothing within the Complaint that would indicate on its face that Plaintiff’s fraud claim has not been sufficiently pleaded. While it is alleged that Plaintiff entered into a new contract following the discovery of the alleged burglaries, there is no indication that Plaintiff accepted “substantial payments, property or the performance of work or labor not required by the original contract” to have waived her right to damages arising from fraud. (Schied, supra, 79 Cal.App.2d 134, 142-143.)

Accordingly, because the first cause of action has been sufficiently alleged, the demurrer is overruled.

Next, Defendant argues that the second cause of action for breach of contract has not been sufficiently alleged based on the exculpatory clause found within the 2014 Agreement. (Demurrer at pp. 8-9.) As stated above, Defendant’s reliance on the 2014 Agreement lacks merit because it was superseded by the 2021 Agreement. Also, regardless of which agreement controls, both agreements include provisions stating that Defendant could still be liable in instances of fraud, which has been sufficiently alleged. (Compl., Exh. A at ¶ 7; Exh. B at ¶ 4.1.)

Accordingly, the demurrer to the second cause of action is overruled on this ground.

Defendant also demurs to the third cause of action for negligence, but it has failed to raise any specific arguments as to why the demurrer should be sustained. Those arguments are presumed abandoned because they were not raised within its memorandum of points and authorities. (Cal. Rules of Court, Rule 3.1113.) To the extent that Defendant relies on the exculpatory clause found within the agreements between the parties, this is not persuasive because the Complaint alleges that Defendant had continued to rent storage units to transient individuals despite knowing that those individuals were committing burglaries of other storage units within the facility. (Compl. ¶ 47.) Therefore, it can be inferred that Defendant’s conduct was willful and reckless, which falls under an exception to the agreements’ exculpatory clause. (Compl., Exh A at ¶ 7, Exh. B at ¶ 4.1.)

Defendant moves to strike the entirety or portions of Paragraphs 24-28, 30, 37, 44 in the body of the Complaint and portions of the Prayer for Relief. These points of the complaint refer to an allegation of fraud as well as Plaintiff’s claim for attorney’s fees, compensatory damages, and punitive damages. The Court shall address these in turn.

Defendant argues that the Complaint includes a false allegation that the subject unit was “safe and secure” because the 2014 Agreement expressly disclaimed any representation of safety or security. (Motion re: Strike at pp. 10-11; Compl. ¶ 30, Exh. A at ¶ 16.) However, this argument lacks merit because Plaintiff has sufficiently alleged a cause of action of fraud. (McClain v. Octagon Plaza, LLC (2008) 159 Cal.App.4th 784, 794 [“a party to a contract who committed fraud in the inducement cannot absolve himself or herself from fraud by any stipulation in the contract, either that no representations were made or that any right that might be grounded upon them was waived.”].)

Defendant also moves to strike Plaintiff’s claim for punitive damages. (Motion re: Strike at pg. 11.)

The basis for punitive damages must be pled with specificity. Plaintiff must allege specific facts showing that Defendant's conduct was oppressive, fraudulent, or malicious. (Civ. Code, § 3294, subd. (a).) A¿plaintiff’s “conclusory characterization of defendant’s conduct as intentional, willful and fraudulent is a patently insufficient statement of ‘oppression, fraud,¿or malice, express or implied,¿within the meaning of section 3294.”¿ (Brousseau v. Jarrett¿(1977) 73 Cal.App.3d 864, 872.)

Here, because Plaintiff’s fraud claim has been sufficiently alleged, it follows that the Complaint has sufficiently alleged a claim for punitive damages. Therefore, the motion to strike is denied on this ground.

Defendant also argues that Plaintiff’s compensatory damages are limited to $5,000 based on a provision found within the 2014 Agreement. (Motion re: Strike at pp. 8-9; Compl., Exh. A at ¶ 4.) However, as stated above in connection with Defendant’s demurrer, there is a question of fact concerning whether the 2014 Agreement or the 2021 Agreement controls in this case. Therefore, it would be improper to strike the amount of compensatory damages sought within the Complaint.

Defendant argues that Plaintiff’s claim for attorney fees arising from a material breach of the arbitration agreement should be stricken because any such claim is pre-empted by the Federal Arbitration Act and questions of arbitrability are reserved for the arbitrator. (Motion re: Strike at pp. 5-8.)

As to the former argument, Defendant relies on Hernandez v. Sohnen Enterprises, Inc. (2024) 102 Cal. App. 5th 222, 244 for the proposition that “section 1281.97 violates the equal-treatment principle because it mandates findings of material breach and waiver for late payment that do not apply generally to all contracts or even to all arbitrations.” Thus, it is reasoned that the same preemption should apply to Code of Civil Procedure section 1281.98.

In opposition, Plaintiff argues that Hernandez should not be followed because a more recent appellate court decision is more persuasive. (Opposition at pg. 3.) In Keeton v. Tesla, Inc. (2024) 103 Cal.App.5th 26, the appellate court acknowledged that California case law has established that the Code of Civil Procedure sections 1281.97 and 1281.98 are not preempted by the FAA based on the legislative history surrounding these statutes. (Id. at pp. 33, 36.) Gallo v. Wood Ranch USA, Inc. (2022) 81 Cal.App.5th 621, Espinoza v. Sup. Ct. (2022) The Court agrees because it has been repeated upheld that Code of Civil Procedure § 1281.97 and 1281.98 have furthered the goals of the FAA. (Gallo v. Wood Ranch USA, Inc. (2022) 81 Cal.App.5th 621, Espinoza v. Sup. Ct. (2022) 83 Cal.App.5th 761, De Leon v. Juanita’s Foods (2022) 85 Cal.App.5th 740) Also, Hernandez is distinguishable from the instance case because the arbitration there was solely governed by federal law, and in this instance, the arbitration provision states that California law applies. (Hernandez, supra, 102 Cal.App.5th at 242; Compl., Exh. B at ¶ 17.) The weight of authority indicates that Hernandez should not be adopted; the Keeton and Gallo line of cases concluding that sections 1281.97 and 1281.98 are not preempted better serve the policy that arbitration proceedings should be expeditious. Thus, while the 2021 Agreement states that arbitration is governed by the FAA (Compl., Exh. B at ¶ 6), it cannot be ignored that the parties agreed to also apply California law. Thus, Code of Civil Procedure sections 1281.97 and 1281.98 would have equal application.

The Court rejects the contention that it lacks jurisdiction to adjudicate Plaintiff’s claim for attorney’s fees pursuant to Code of Civil Procedure § 1281.98 because the statute intended for the Court to exercise jurisdiction as a matter of law once a party has unilaterally withdrawn from arbitration. (Williams, v. West Coast Hospitals, Inc. (2022) 86 Cal.App.5th 1054, 1069.) Therefore, the issue of whether Plaintiff is entitled to attorney’s fees pursuant to Code of Civil Procedure § 1281.98 is within the jurisdiction of this Court. This result is appropriate because Defendant, by its conduct, forfeited the right to arbitrate. It cannot insist that an arbitrator decide any issue when there is no longer any arbitration proceeding.

Accordingly, because Plaintiff’s claim for attorney’s fees pursuant to Code of Civil Procedure § 1281.98 is not preempted by the FAA and the Court has jurisdiction to consider that issue, the motion to strike is denied on this ground.

Plaintiff moves for award of $72,712.50 in attorney’s fees and $250 in JAMS arbitration fees and costs pursuant to Code of Civil Procedure sections 1281.98 and 1281.99.

As a preliminary matter, Defendant’s arguments of preemption and lack of jurisdiction have no merit based on the analysis above relating to those same issues. Also, Defendant’s contention that Plaintiff’ claim for attorney fees is barred by the one-year contractual limit imposed by the 2014 Agreement is unpersuasive. Irrespective of whether the 2014 Agreement or 2021 Agreement controls, a plaintiff may initiate an action in court, separate from the claims raised during arbitration, to be awarded their attorney fees associated with the abandonment of the arbitration process. (Code Civ. Proc., § 1281.98(c)(1).)

The Court begins this inquiry “with the ‘lodestar,’ i.e., the number of hours reasonably expended multiplied by the reasonable hourly rate.” (PLCM Group v. Drexler (2000) 22 Cal.4th 1084, 1095.) From there, the “lodestar figure may then be adjusted [according to a multiplier enhancement] based on consideration of factors specific to the case, in order to fix the fee at the fair market value for the legal services provided.” (Ibid.) Relevant multiplier factors include “(1) the novelty and difficulty of the questions involved, (2) the skill displayed in presenting them, (3) the extent to which the nature of the litigation precluded other employment by the attorneys, [and] (4) the contingent nature of the fee award.” (Ketchum v. Moses (2001) 24 Cal.4th 1122, 1132.) No specific findings reflecting the court’s calculations for attorney’s fees are required; the record need only show that the attorney’s fees were awarded according to the “lodestar” or “touchstone” approach. (Rebney v. Wells Fargo Bank (1991) 232 Cal.App.3d 1344, 1349.) The Court has broad discretion to determine the amount of a reasonable attorney’s fee award, which will not be overturned absent a “manifest abuse of discretion, a prejudicial error of law, or necessary findings not supported by substantial evidence.” (Bernardi v. County of Monterey (2008) 167 Cal.App.4th 1379, 1393-94.)

Here, Plaintiff’s counsels Charles M. Coate and Michael M. Plotkin attest that their hourly rates are each $525 per hour. (Motion re: Attorney Fees at pg. 9; Coate Decl. ¶ 12; Plotkin Decl. ¶ 7.) In opposition, Defendant argues that these hourly rates are excessive considering that the claimed property loss is less than $100,000 and that the case did not require two seasoned attorneys to work on it. (Opposition re: Attorney Fees at pp. 4-5, 14.) However, based on the attorneys’ experience and the Court’s knowledge of the legal market, the claimed hourly rates are reasonable. Defendant has failed to present any opposing evidence that would undermine the reasonableness of these rates.

As to claimed hours of the work performed, Defendant points out that numerous entries are entirely redacted. This prevents the Court from adjudicating whether the time spent on those tasks were reasonable or whether they amounted to duplicative or excessive work. For this reason, before Court can adjudicate the issues of whether the claimed hours of work performed was reasonable and to what amount Plaintiff is entitled to recover her attorney fees, Plaintiff is instructed to submit a supplemental declaration that includes either unredacted billing records or forgoes the time spent for such work.

Accordingly, the motion for attorney fees is granted as to entitlement to fees. The Court continues the hearing to determine the appropriate amount of fees to be awarded. Plaintiff shall submit a supplemental attorney fee declaration with a revised exhibit of time entries.

Defendant’s demurrer and motion to strike are denied in their entirety. Plaintiff’s motion for attorney fees is continued for supplemental briefing. Plaintiff is instructed to submit a supplemental declaration that either includes unredacted billing records or foregos seeking fees for such entries.