Judge: Christopher K. Lui, Case: 24STCV12687, Date: 2024-11-07 Tentative Ruling

Case Number: 24STCV12687    Hearing Date: November 7, 2024    Dept: 76

The following tentative ruling is issued pursuant to Rule of Court 3.1308 at 11:30 a.m. on November 6, 2024. 

Notice of intent to appear is REQUIRED pursuant to California Rule of Court 3.1308(a)(1).  The Court does not desire oral argument on the motion addressed herein. 

As required by Rule 3.1308(a)(1), any party seeking oral argument must notify ALL OTHER PARTIES and the staff of Department 76 by 4:00 p.m. on November 6, 2024.

Notice to Department 76 may be sent by email to smcdept76@lacourt.org or telephonically at 213-830-0776.

Per Rule of Court 3.1308, if notice of intention to appear is not given, oral argument will not be permitted.

            This is a legal malpractice action. 

            Defendants Greenberg Glusker Fields Claman & Machtinger LLP, Fred A. Fenster, and Pierce H. O’Donnell move to compel arbitration and stay this proceeding.

TENTATIVE RULING

Defendants Greenberg Glusker Fields Claman & Machtinger LLP, Fred A. Fenster, and Pierce H. O’Donnell’s motion to compel arbitration is GRANTED. The case is stayed pending arbitration.

            A status conference regarding arbitration proceedings is set for May 9, 2025 at 8:30 a.m.

ANALYSIS

Motion To Compel Arbitration

Discussion

            Defendants Greenberg Glusker Fields Claman & Machtinger LLP, Fred A. Fenster, and Pierce H. O’Donnell move to compel arbitration and stay this proceeding.

Existence of Agreement To Arbitrate

            Under California law, arbitration agreements are valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. (Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334, 1343; Code Civ. Proc., § 1281.) A party petitioning to compel arbitration has the burden of establishing the existence of a valid agreement to arbitrate and the party opposing the petition has the burden of proving by a preponderance of evidence any fact necessary to its defense. (Banner Entertainment, Inc. v. Superior Court (1998) 62 Cal.App.4th 348, 356.) The court may weigh the evidence by considering affidavits, declarations, documents and oral testimony. (Id. at 357.)

            Defendants submits an arbitration agreement signed by Plaintiff on September 30, 2020 (Declaration of Lee A. Dresie, ¶ 3; Exh. B.) Plaintiff does not dispute that he signed this agreement.

            Plaintiff alleges causes of action for negligence (legal malpractice), breach of fiduciary duty and breach of contract arising out of Defendants’ legal representation of Plaintiff in a business dispute/handwritten settlement agreement between Plaintiff and his stepson involving investment funds the two had created.

The Court now examines the purported scope of the arbitration agreement, which  provides in pertinent part:

Arbitration: 

We appreciate the opportunity to serve as your attorneys and look forward to a harmonious relationship unmarred by disputes between us. In the event you become dissatisfied for any reason with the fees charged or the services we have performed, we encourage you to bring that to our attention immediately; we will do the same if we perceive a problem with the representation. It is our belief that most such problems can be resolved by good faith discussion between the parties. Nevertheless, it is always possible that some dispute may arise which cannot be resolved by discussion between us. We believe that such disputes can be resolved more expeditiously and with less expense to all concerned by binding arbitration than by court action.

Arbitration is a process by which both parties to a dispute agree to submit the matter to a judge or arbitrator who has expertise in the area and to abide by the arbitrator's decision. In arbitration, there is no right to a trial by jury and the arbitrator's legal and factual determinations are generally not subject to appellate review. Rules of evidence and procedure are often less formal and rigid than in a court trial. Arbitration usually results in a decision much more quickly than proceedings in court, and the attorneys' fees and other costs incurred by both sides are usually substantially less.

By signing this letter, you agree that, in the event of any dispute arising out of or relating to this agreement, our relationship, or the services performed (including but not limited to disputes regarding attorneys' fees or costs and those alleging negligence, breach of fiduciary duty, fraud or any claim based upon a statute), such dispute shall be resolved by submission to binding arbitration in Los Angeles County, California, before a retired judge or justice under the auspices of the Judicial Arbitration and Mediation Services ("JAMS"). If the parties are unable to agree on an arbitrator, the arbitrator will be determined pursuant to JAMS' normal procedures then in effect. Notwithstanding the foregoing, if California law then provides that you cannot agree to mandatory binding arbitration of disputes regarding fees and costs prior to the dispute, that dispute, and only that dispute, will be submitted to non-binding arbitration and trial de novo as may be required by law.

In any such arbitration, the parties shall be entitled to take discovery in accordance with the provisions of the California Code of Civil Procedure, but either party may request that the arbitrator limit the amount or scope of such discovery, and in determining whether to do so, the arbitrator shall balance the need for the discovery against the parties' mutual desire to resolve disputes expeditiously and inexpensively.

The prevailing party in any action, arbitration, or proceeding arising out of or to enforce any provision of this Agreement, with the exception of a fee arbitration or mediation under Business and Professions Code Sections 6200-6206, will be awarded reasonable attorneys' fees and costs incurred in that action, arbitration, or proceeding, or in the enforcement of any judgment or award rendered.

(Declaration of Lee A. Dresie, Exh. B, Pages 19 – 20 [bold emphasis in original, underlining added].)

The scope of the language is broad enough to include all claims asserted by Plaintiff in the Complaint. The Court need not address the Armendariz factors because nonwaivable statutory civil rights in the workplace are not involved. (Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 711-12),

            The Court finds that an agreement exists whereby Plaintiff agreed to submit all of the claims asserted against Defendants asserted in his Complaint to mandatory arbitration. The burden shifts to Plaintiff to demonstrate that the arbitration agreement should not be enforced.

            Plaintiff argues that the arbitration agreement is unconscionable.

The doctrine of unconscionability was summarized in Walnut Producers of California v. Diamond Foods, Inc. (2010) 187 Cal.App.4th 634, 645-48 as follows:

“ ‘To briefly recapitulate the principles of unconscionability, the doctrine has “ ‘both a “procedural” and a “substantive” element,’ the former focusing on ‘ “oppression” ’ or ‘ “surprise” ’ due to unequal bargaining  power, the latter on ‘ “overly harsh” ’ … or ‘ “one-sided” ’ results.” [Citation.] The procedural element of an unconscionable contract generally takes the form of a contract of adhesion, “ ‘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.’ ” … [¶] Substantively unconscionable terms may take various forms, but may generally be described as unfairly one-sided.’ [Citation.]” (Citation omitted.)

“Under this approach, both the procedural and substantive elements must be met before a contract or term will be deemed unconscionable. Both, however, need not be present to the same degree. A sliding scale is applied so that ‘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.’ (Citations omitted.)

(Bold emphasis added.)

Procedural Unconscionability

“The procedural element of the unconscionability analysis concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. [Citation.] The element focuses on oppression or surprise. [Citation.] ‘Oppression arises from an inequality of bargaining power that results in no real negotiation and an absence of meaningful choice.’ [Citation.] Surprise is defined as ‘ “the extent to which the supposedly agreed-upon terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms.” ’ [Citation.]” (Citation omitted.)

Plaintiffs claim the Agreement is procedurally unconscionable because it is an adhesion contract. An adhesion contract is “a standardized contract … imposed upon the subscribing party without an opportunity to negotiate the terms.” (Citation omitted.) “The term 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.]” (Citation omitted.)

The California Supreme Court has consistently stated that “ ‘[t]he procedural element of an unconscionable contract generally takes the form of a contract of adhesion … .’ ” (Citations omitted.)

“Whether the challenged provision is within a contract of adhesion pertains to the oppression aspect of procedural unconscionability. A contract of adhesion is ‘ “ ‘ “imposed and drafted by the party of superior bargaining strength” ’ ” ’ and ‘ “ ‘ “relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” ’ ” ’ (Citations omitted.) “[A]bsent unusual circumstances, use of a contract of adhesion establishes a minimal degree of procedural unconscionability notwithstanding the availability of market alternatives.” (Citation omitted.)

(Walnut Producers of California v. Diamond Foods, Inc. (2010) 187 Cal.App.4^th 634, 645-46 [bold emphasis added].)

            Substantive Unconscionability

“A provision is substantively unconscionable if it ‘involves contract terms that are so one-sided as to “shock the conscience,” or that impose harsh or oppressive terms.’ [Citation.] The phrases ‘harsh,’ ‘oppressive,’ and ‘shock the conscience’ are not synonymous with ‘unreasonable.’ Basing an unconscionability determination on the reasonableness of a contract provision would inject an inappropriate level of judicial subjectivity into the analysis.  ‘With a concept as nebulous as “unconscionability” it is important that courts not be thrust in the paternalistic role of intervening to change contractual terms that the parties have agreed to merely because the court believes the terms are unreasonable. The terms must shock the conscience.’ [Citations.]” (Citation omitted

(Walnut Producers of California, supra, 187 Cal.App.4th at 647-48.)

            Plaintiff argues that the Court should infer that the arbitration provision at issue in this Engagement Agreement is in fact Defendants’ standard, adhesive arbitration provision which is offered on a take it or leave it basis to all prospective clients.           

Plaintiff argues that, while Defendant O’Donnell explained some of the material terms of the fee agreement to Plaintiff, he did not disclose the arbitration provision to Plaintiff, a lay person, or explain its implications. (Rickel Decl., ¶ 4.) Plaintiff argues that Defendants’ failure to disclose the arbitration provision is demonstrated by, amongst other things, the fact that Defendants did not require Plaintiff to put his initials next to the arbitration provision.1  (Cf. Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77, 89, as modified on denial of reh’g (Jan. 8, 2004) [finding arbitration clause unconscionable where, among other reasons, plaintiff was “not required to initial the arbitration clause”].)

            Plaintiff argues that the placement and wording of the arbitration clause makes the paragraph virtually impenetrable to a layperson. Plaintiff also refers to another mention of arbitration elsewhere in the agreement, which Defendant redacted out. Plaintiff submits an unredacted copy of the retainer agreement which contains references to fee arbitration at Page 2 in the second paragraph, which states in relevant part: “If we cannot agree on what constitutes a reasonable fee, the dispute shall be resolved by arbitration.” There is also a reference to fee arbitration at Page 3 in the “Net recovery” section, which states in relevant part: “If we cannot agree as to the value of the non-cash, the value shall be settled by arbitration.”

            Plaintiff argues that these two single sentences buried in paragraphs would lull him into believing that the five paragraphs under the separate section entitled “Arbitration” “merely explains or encapsulates the two prior pronouncements in the Agreement regarding arbitration. This argument is frivolous. The Arbitration section was conspicuously labelled, and consisted of five separate paragraphs, including one that was bold emphasized. Plaintiff’s claim that the arbitration provision was hidden or a surprise is not credible.

Moreover, to accept Plaintiff’s argument that two single sentences buried in earlier paragraphs excused him from reading the five-paragraph Arbitration provision would render written contract meaningless, because a person could always say that he was lulled into not reading further in the contract after a mere earlier mention of a word.

            Instead the following rule of law clearly applies to this case:

"Ordinarily, one who accepts or signs an instrument, which on its face is a contract, is deemed to assent to all its terms, and cannot escape liability on the ground that he has not read it. If he cannot read, he should have it read or explained to him." (Citation omitted.) This is not only the California but the general rule. (3 Corbin, Contracts (1960) § 607, pp. 668-669, fn. omitted ["One who signs an instrument when for some reason, such as illiteracy or blindness, he can not read it, will be bound by its terms in case the other party acts in good faith without trick or misrepresentation. The signer should have had the instrument read to him."].)

(Randas v. YMCA of Metropolitan Los Angeles (1993) 17 Cal.App.4th 158, 163.) 

[T]he law effectively presumes that everyone who signs a contract has read it thoroughly, whether or not that is true. A basic rule of contract law is, “ ‘in the absence of fraud, overreaching or excusable neglect, that one who signs an instrument may not avoid the impact of its terms on the ground that he failed to read the instrument before signing it.’ ” (Citation omitted.) Moreover, courts must also presume parties understood the agreements they sign, and that the parties intended whatever the agreement objectively provides, whether or not they subjectively did: “ ‘Where the parties have reduced their agreement to writing, their mutual intention is to be determined, whenever possible, from the language of the writing alone.’ … ‘[T]he parties’ expressed objective intent, not their unexpressed subjective intent, governs.’ ” (Citation omitted.)

     (Roldan v. Callahan & Blaine (2013) 219 Cal.App.4th 87, 93 [bold emphasis added].)

            In this regard, whether or not Defendants verbally explained arbitration to Plaintiff does not excuse Plaintiff’s failure to read the written explanation of arbitration. Nor does the failure to require that Plaintiff initial the arbitration clause render this particular agreement procedurally unconscionable, because there is no requirement that a party initial each provision in a retainer agreement in order to be deemed to have agreed to the entirety of the agreement.

            Further, the Court does not find to be credible any claim by Plaintiff that this was a contract of adhesion, presented on a take it or leave it basis. This is not an employer-employee situation where the employee was arguably under economic pressure to accept the terms as a condition of earning a livelihood. Rather, Plaintiff alleges in the Complaint that the underlying matter was a business dispute involving a handwritten settlement agreement between Plaintiff and his stepson involving investment funds the two had created. (Complaint, ¶ 8.) In the grand scheme of things, this a less urgent situation is hard to imagine. Clearly, Plaintiff could have chosen to negotiate out or a different arbitration clause or choose to retain different counsel if he did not want an arbitration clause.

            Plaintiff also argues that the provision at issue is fatally vague as to the rules that would apply to the arbitration, stating only that “such dispute shall be resolved by submission to binding arbitration in Los Angeles County, California, before a retired judge or justice under the auspices of the Judicial Arbitration and Mediation Services (‘JAMS’).”  (Rickel Decl., Ex. A at pp. 4-5 [emphasis added].) Plaintiff argues that the phrase “under the auspices” does not indicate which rules should apply, and Defendants failed to attach a copy of the arbitration rules.

            However:

[U]nder [CCP] section 1281.6[1], the absence of a specified forum or set of rules in an arbitration clause does not invalidate the agreement to arbitrate. Rather, in the absence of such provisions, “the parties to the agreement who seek arbitration and against whom arbitration is sought may agree on a method of appointing an arbitrator …”—including the forum and rules that will govern the arbitration—or, if the parties cannot agree, “the court, on petition of a party to the arbitration agreement, shall appoint the arbitrator.” (§ 1281.6.)

(HM DG, Inc. v. Amini (2013) 219 Cal.App.4th 1100, 1110.)

            Plaintiff argues that the by imposing certain terms and rules for arbitration (without attaching those rules), the arbitration provision potentially eviscerates substantive protections (including adequate discovery and limitations on Claimant’s share of arbitration fees) sub silencio, by implication, without any fair notice to the client in a consumer arbitration. This contradicts Plaintiff’s argument that no rules are specified. Further, the argument goes to substantive unconscionability because it pertains to the terms of the arbitration, not the process in which the arbitration agreement was reached, i.e., procedural unconscionability.

            Plaintiff claims—without citation to any authority—that the failure to apply the Ethics Standards, Standard 2(d), applicable to a consumer party contract, renders this contract unconscionable. The Court rejects this argument as without any precedential basis relative to the unconscionability doctrine.

            In short, the Court finds that no procedural unconscionability exists. As such, the Court need not, and does not, consider Plaintiff’ substantive unconscionability arguments regarding the adequacy of discovery and award of attorneys’ fees in arbitration:

A court should consider substantive unconscionability only after procedural unconscionability has been established. A “conclusion that a contract contains no element of procedural unconscionability is tantamount to saying that, no matter how one-sided the contract terms, a court will not disturb the contract because of its confidence that the contract was negotiated or chosen freely, that the party subject to a seemingly one-sided term is presumed to have obtained some advantage from conceding the term or that, if one party negotiated poorly, it is not the court's place to rectify these kinds of errors or asymmetries.” (Citation omitted.)

     (Ramirez v. Charter Communications, Inc. (2024) 16 Cal. 5th 478, 494.)

            As such, Plaintiff has not met his burden of demonstrating the arbitration agreement is unenforceable because it is unconscionable.

            The motion to compel arbitration is GRANTED. The case is stayed pending arbitration.

            A status conference regarding arbitration proceedings is set for May 9, 2025 at 8:30 a.m.