Judge: Colin Leis, Case: 21STLC06962, Date: 2023-03-10 Tentative Ruling

Case Number: 21STLC06962    Hearing Date: March 10, 2023    Dept: 74

Superior Court of California

County of Los Angeles – CENTRAL District

Department 74

MOVING PARTY:                Defendant Shift Operations, LLC

RESPONDING PARTY:       Plaintiff Jaquelyn Medina

Defendant Shift Operation LLC’s Motion to Compel Arbitration and Motion to Stay Proceedings

The court considered the moving papers, opposition, and reply filed in connection with this motion.

BACKGROUND

On September 23, 2021, Plaintiff Jacquelyn Medina (“Plaintiff”) filed the instant action for permanent injunctive relief and damages for violation of the Consumer Legal Remedies Act against Defendant Shift Operations, LLC (“Defendant”).  (See Compl., ¶¶16-17 and Prayer for Relief.)

            On September 21, 2022, the Court reclassified the case from limited to unlimited due to the permanent injunctive relief sought in the Complaint.

            Defendant moves to compel arbitration of all of Plaintiff’s claims and to stay the action pending completion of arbitration.

REQUEST FOR JUDICIAL NOTICE

            The court grants Defendant’s request for judicial notice in its entirety.

LEGAL STANDARD

In a motion to compel arbitration, the moving party must prove by a preponderance of evidence the existence of the arbitration agreement and that the dispute is covered by the agreement.  The burden then shifts to the resisting party to prove by a preponderance of evidence a ground for denial (e.g., fraud, unconscionability, etc.).  (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413-414; Hotels Nevada v. L.A. Pacific Center, Inc. (2006) 144 Cal.App.4th 754, 758.)

Generally, 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.  (Code Civ. Proc., § 1281.2; Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218-219.)

“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.”  (Ibid. [internal quotations omitted].)  This is in accord with the liberal federal policy favoring arbitration agreements under the Federal Arbitration Act (“FAA”), which governs all agreements to arbitrate in contracts “involving interstate commerce.”  (9 U.S.C. § 2, et seq.; Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1247.)

DISCUSSION

Refusal to Arbitrate

Subject to exceptions, Code of Civil Procedure section 1281.2 states: “On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that 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 …” (Italics added.) (Code Civ. Proc., § 1281.2.) 

Plaintiff argues that the Court cannot grant Defendant’s motion on the grounds that it failed to prove Plaintiff’s refusal to arbitrate.  In reply, Defendant argues that Plaintiff’s conduct clearly shows Plaintiff’s refusal to arbitrate, making it irrelevant whether Defendant asked Plaintiff to stipulate to arbitration.  The Court agrees.

In Hyundai Amco America, Inc. v. S3H, Inc. (2014) 232 Cal.App.4th 572, 574, the Court of Appeal held that the defendant “was not required to make a formal demand for arbitration because [the plaintiff’s] filing of a complaint invoked the protections and procedures of the court system, and thus was an effective refusal of arbitration.”  The court found that the plaintiff’s “filing of a lawsuit rather than commencing arbitration proceedings as required by the agreement affirmatively establishes [the plaintiff’s] refusal to arbitrate the controversy,” stating that “[a]rbitration can be refused without a formal demand ever having been made.”  (Id. at p. 577.)  The court distinguished that case from Mansouri v. Superior Court (2010) 181 Cal.App.4th 633, 640, where the court there found that the motion to compel arbitration should be denied on the grounds that the defendant failed to show the plaintiff’s refusal to arbitrate.  (Id. at 577-578 [“We do not disagree with the analysis of Mansouri in the factual context of that case.  The facts in Mansouri are far different from those before us, however.  In Mansouri, as explained ante, the petitioning party tried to compel arbitration on different terms from those set forth in the arbitration agreement and on different terms from those in its own demand letter.  Quite simply, the demand for arbitration did not match the terms of the parties’ arbitration agreement.  In this case, we hold only that [the plaintiff’s] lawsuit against [the defendant] for a controversy clearly related to the parties’ performance under the agreement sufficed to show [the plaintiff’s] refusal to arbitrate the controversy.].)  The court stated that “Section 1281.2 requires only that the party seeking to compel arbitration allege in the petition or motion, ‘the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy.’  The statute does not include a requirement that the petitioning party have made a demand for arbitration, only that the other party has refused to arbitrate.”  (Id. at p. 577.)

Although Plaintiff argues that Defendant failed to submit any evidence showing Plaintiff’s refusal to arbitrate on the basis that Defendant never asked Plaintiff if she was willing to arbitrate, the Court finds otherwise.  Like in Hyundai, where the plaintiff’s filing of the lawsuit rather than commencing arbitration proceedings as required by the agreement was sufficient to establish the plaintiff’s refusal to arbitrate, similarly here, Plaintiff’s conduct was sufficient to satisfy the procedural requirement under Code of Civil Procedure section 1281.2.  Unlike in Mansouri, where the defendant attempted to compel arbitration on different terms set forth in the arbitration agreement and from the demand letter, here, Plaintiff’s lawsuit arises from her contract which required her to resolve disputes by arbitration.  Defendant has shown Plaintiff’s refusal to arbitrate which is evidenced by her initiation of this instant action.  Defendant also raised this as an affirmative defense.  (See Answer p. 9:11-17 [“Defendant is informed and believes and thereon alleges that Plaintiff has waived the right to a class action lawsuit based on the arbitration clause that they signed for the subject vehicle that gives rise to this action and therefore, this case must be adjudicated through arbitration within the terms and conditions of the said arbitration clause.”].)

Agreement to Arbitrate

Defendant submits evidence that Plaintiff purchased the 2018 Jeep Wrangler Unlimited with VIN 1 C4HJXEG9JW173447 (“Subject Vehicle”) from Shift Operations pursuant to a Retail Installment Sale Contract – Simple Finance Charge (with Arbitration Provision) (the “Contract”).  (Chu Decl., ¶ 3, Exh. A.)

The Contract contains an arbitration provision which states in pertinent part:

1.      EITHER YOU OR WE MAY CHOOSE TO HAVE ANY DISPUTE BETWEEN US DECIDED BY ARBITRATION AND NOT IN COURT OR BY JURY TRIAL.  

2.      IF A DISPUTE IS ARBITRATED, YOU WILL GIVE UP YOUR RIGHT TO PARTICIPATE AS A CLASS REPRESENTATIVE OR CLASS MEMBER ON ANY CLASS CLAIM YOU MAY HAVE AGAINST US INCLUDING ANY RIGHT TO CLASS ARBITRATION OR ANY CONSOLIDATION OF INDIVIDUAL ARBITRATIONS.  

3.      DISCOVERY AND RIGHTS TO APPEAL IN ARBITRATION ARE GENERALLY MORE LIMITED THAN IN A LAWSUIT, AND OTHER RIGHTS YOU AND WE WOULD HAVE IN COURT MAY NOT BE AVAILABLE IN ARBITRATION.  

(Chu Decl., ¶ 3, Exh. A at p. 7.)

The arbitration provision provides that “[a]ny claim, dispute or controversy, whether in contract, tort, statute or otherwise (including the interpretation and scope of this Arbitration Provision, and the arbitrability of the claim or dispute), between you and us or our employees, agents, successors or assigns, which arises out of or relates to your ... purchase or condition of this vehicle, this contract or any resulting transaction or relationship (including any such relationship with third parties who do not sign this contract) shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action.”  (Chu Decl., ¶ 3, Exh. A at p. 7.)  The provision further provides that “[a]ny arbitration under this Arbitration Provision shall be governed by the Federal Arbitration Act....”  (Id.)

Directly above the signature line on the Contract is the following statement, set forth in bold and in capital letters: “You agree to the terms of this contract.  You confirm that before you signed this contract, we gave it to you, and you were free to take it and review it.  You acknowledge that you have read all pages of this contract, including the arbitration provision on page 7 of this contract, before signing below.  You confirm that you received a completely filled-in copy when you signed it.”  (Chu Decl., ¶ 3, Exh. A at p. 6.)

In a separate box that requires a separate signature is another arbitration acknowledgement which states as follows: “By signing below, you agree that, pursuant to the Arbitration Provision on page 7 of this contract, you or we may elect to resolve any dispute by neutral, binding arbitration and not by a court action.  See the Arbitration Provision for additional information concerning the agreement to arbitrate.”  (Chu Decl., ¶ 3, Exh. A at p. 1.)

Additionally, Plaintiff executed a document titled, Buyer Acknowledgment, which states: “Except for small claims and claims to protect a party’s intellectual property rights, all other disputes between the parties (including those related to use of the Shift platform or those arising before this Agreement) shall be resolved by binding arbitration.”  (Chu Decl., ¶ 4, and Exhib. B.)

Here, Plaintiff’s causes of action fall within the broad scope of this arbitration provision because the causes of action relate to the purchase and condition of the Subject Vehicle.  (See Vianna v. Doctors’ Management Co. (1994) 27 Cal.App.4th 1186, 1189 (noting that “arbitration agreements should be liberally interpreted, and arbitration should be ordered unless the agreement clearly does not apply to the dispute in question”).)

Waiver

Plaintiff argues that Defendant has waived any right to arbitration by filing this instant motion almost one year after being served, by invoking the litigation machinery, and answering the Complaint without referring to arbitration.  Plaintiff also argues that granting this instant motion to compel arbitration would prejudice Plaintiff because Defendant delayed the entire course of litigation.

In opposition, Defendant argues that it did not engage in any action inconsistent with the right to compel arbitration since it asserted arbitration as an affirmative defense in its answer to complaint filed October 27, 2021 (Second Request for Judicial Notice (“Second RJN”) at ¶ 1; Reply Sidran Decl. filed Exhib. D at ¶ 2), in response to Plaintiff’s first set of written discovery, on June 17, 2022, Defendant served all objections, including an objection that, “[t]h[e] discovery is barred by the arbitration clause in the applicable contract”  (Reply Sidran Decl. at ¶ 4, Exhibs. E, F, G), in response to Plaintiff’s motion to compel further responses, Defendant opposed on the grounds that the discovery is barred by the arbitration clause between the parties on September 8, 2022. (Second RJN, at ¶¶ 2-7, Exhibs. H, I, J, K, L, M; Reply Sidran Decl. at ¶ 5.) 

Here, Defendant has not participated in the litigation process to the extent of finding that it acted inconsistently with the right to arbitrate.  Defendant filed an answer, which set forth an affirmative defense for arbitration (Answer p. 9:4-17), an opposition to Plaintiff’s motion to compel, a motion to compel arbitration prior to the case being reclassified as an unlimited case, and the instant motion to compel arbitration.  Defendant has not filed any demurrers, motions to strike, or otherwise engaged in the merits of Plaintiffs’ claims.  With regards to discovery, Plaintiff filed a motion to compel further answers but in her motion noted that Defendant “gave zero substantive answers” and that Defendant’s counsel responded to Plaintiff’s meet and confer efforts by “evading the issues and simply stating it intends to file a motion to compel arbitration.”  (7/1/22 Motion to Compel Further x4154 p. 3:4-7.)  Defendant, however, has not propounded any discovery of its own. 

Based upon the above, the Court finds Defendant’s action to be insufficient to be considered as participating in litigation.  Although Defendant filed its first motion to compel on September 13, 2022, or a little less than a year after Defendant was served with notice of this suit on September 27, 2021, the Court finds that Defendant’s delay does not demonstrate that it was intentional or for an improper purpose.  Additionally, mere participation in the litigation is insufficient, standing alone, to establish waiver.  (St. Agnes, supra, 31 Cal.4th at p. 1203.)  There must also be some judicial litigation of the merits of arbitrable issues.  (Ibid.)  Here, Plaintiff make no showing that there has been judicial litigation of the merits of arbitrable issues.  The waiver argument is not well taken.   

In sum, given the relatively short period of time between filing an answer and moving to compel arbitration, as well as Defendants relatively minimal participation in the litigation process, the Court finds that Defendant has not waived its right to compel arbitration.   

Unconscionability

Plaintiff contends that the arbitration clause in the Buyer Acknowledgement Agreement is unconscionable because it is restrictive and unlike the Retail Installment Sales Contract, which Sanchez v. Valencia Holding Co. (2015) 61 Cal.4th 899, found to be enforceable.  (See Opp. p. 4:5-7 [“Sanchez dealt only with an arbitration provision similar to the one in Retail Installment Sales Contract in this matter.  The second arbitration provision which Defendant relies on is significantly more restrictive and is unlike anything considered in the Sanchez matter.”].)  Plaintiff argues that the Buyer Acknowledgment arbitration clause requires pre-arbitration negotiation and vehicle inspection, does not allow for Plaintiff to choose an arbitration forum, and bars fee shifting.  Plaintiff claims that these restrictions contradict with the provisions in the arbitration clause of the RISC as they are not the rights that the consumer actually has.  Finally, Plaintiff argues that the fee-shifting clause in the Buyer Acknowledgment agreement is independently unconscionable as a bar on fee-shifting would render almost all consumer disputes infeasible.

In reply, Defendant contends that to the extent the two arbitration provisions are inconsistent, the more specific provision contained in the Buyer Acknowledgment controls.  (Reply p. 7:17-20 [“‘It is settled law that where general and specific provisions of a contract are inconsistent, the specific provision will control.’  (Code Civ. Proc., § 1859; Martins v. Superior Court, 12 Cal.App.3d 870, 875 (Cal. Ct. App. 1970).)”].)  Defendant argues that Plaintiff’s interpretation that inconsistent provisions render a contract unconscionable is inconsistent with the purpose of Code of Civil Procedure section 1859, which states, “a particular intent will control a general one that is inconsistent with it.”  Further, in the event the Buyer Acknowledgment controls, Defendant argues there is nothing unconscionable about that provision and that it would not contradict the arbitration provision in the RISC under the basic principles of contract interpretation since the specific provision would control.  Defendant argues that there is no bar on fee-shifting since the language states “unless prohibited by law.”  Finally, Defendant contends that there is no contractual right to attorney’s fees and recovery would be only under statute, and that this is simply a negotiation of a contractual right. 

The doctrine of unconscionability refers to “an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.”  (Sonic-Calabasas A, Inc. v. Moreno (2013)¿57 Cal.4th 1109, 1133.)  It consists of procedural and substantive components, “the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results.”  (Id.)  Although both components of unconscionability must be present to invalidate an arbitration agreement, they need not be present in the same degree.  (Armendariz v. Found. Health¿Psychcare¿Servs., Inc. (2000)¿24 Cal.4th 83, 114 (abrogated in-part on other grounds by¿Concepcion, 563 U.S. 333).)¿¿¿  

Here, Plaintiff does not argue that there was any procedural unconscionability.  Plaintiff only argues that the terms of the arbitration provision are unconscionable, thus invoking substantive unconscionability.

An agreement is substantively unconscionable if it imposes terms that are “overly harsh,” “unduly oppressive,” “unreasonably favorable,” or “so one-sided as to ‘shock the conscience.’”¿  (Sanchez v. Valencia Holding Co., LLC¿(2015) 61 Cal.4th 899, 910-911¿(Sanchez).)¿  “All of¿these formulations point to the central idea that unconscionability doctrine is concerned not with ‘a simple old-fashioned bad bargain’ [citation], but with terms that are ‘unreasonably favorable to the more powerful party.’  [Citation.]”¿  (Id. at p. 911.)¿  “These include ‘terms that impair the integrity of the bargaining process or otherwise contravene the public interest or public policy; terms (usually of an adhesion or boilerplate nature) that attempt to alter in an impermissible manner fundamental duties otherwise imposed by the law, fine-print terms, or provisions that seek to negate the reasonable expectations of the¿nondrafting¿party, or unreasonably and unexpectedly harsh terms having to do with price or other central aspects of the transaction.’ ” ¿ (Id. at p. 911.)¿ 

Here, the Court does not find that two arbitration provisions that may contradict one another makes the Agreement substantively unconscionable.  The Court agrees with Defendant’s argument of basic contract interpretation in which the specific provision controls.  As to the actual language of the arbitration provision in the Buyer Acknowledgment, the Court finds that the requirements of pre-arbitration negotiation, vehicle inspection, and pre-decided arbitration forum does not render the clause unconscionable.  There is nothing overly harsh, unduly oppressive, unreasonably favorable, or so one-sided as to shock the conscious.  As to Plaintiff’s argument concerning fee shifting, the Court finds that the inclusion of the language “unless prohibited by law” makes this not a true bar on fee-shifting, and also it is not so unreasonable as to render the provision unconscionable.  However, even if this was unconscionable, it is insufficient to invalidate the Agreement. 

CONCLUSION

Based on the foregoing, the Court grants Defendant’s motion to compel arbitration. 

The Court orders that this action is stayed pending completion of arbitration of Plaintiff’s arbitrable claims.

The court sets an arbitration completion status conference on ______, at 8:30 a.m. in Dept. 74.  The parties are ordered to file a joint report regarding the status of the arbitration by _______. 

IT IS SO ORDERED.

DATED:  March 10, 2023

_____________________________

Colin Leis

Judge of the Superior Court