Judge: Daniel S. Murphy, Case: 20STCV42954, Date: 2022-12-14 Tentative Ruling

Case Number: 20STCV42954    Hearing Date: December 14, 2022    Dept: 32

BACKGROUND

            On June 22, 2021, Hamid Hariri, Nahid Hariri, and H and N Property Management, LLC (collectively “Plaintiffs”) filed the operative Second Amended Complaint (“SAC”) against Cashbloom LLC and others (collectively “Defendants”) alleging breach of promissory note and eight other causes of action arising from loans Plaintiffs made to Cashbloom.

            Plaintiffs made various loans to Cashbloom from May 2011 to December 2017 totaling $1.95 million. The loans were undocumented until two promissory notes issued in January 2016 for $300,000 and $400,000. The last and operative promissory note was issued in December 2017 for $1.95 million. Plaintiffs’ lawsuit arises from the December 2017 note.

            At the same time as the December 2017 promissory note, Plaintiffs, Defendant, and Wells Fargo also entered into a Subordination Agreement wherein Plaintiffs agreed to subordinate their loan to that of Wells Fargo. Plaintiffs previously alleged that the Subordination Agreement was induced by fraud but have since dismissed that contention, leaving the sole issue of money owed under the promissory note. The remaining causes of action are breach of promissory note, fraudulent transfer, and unlawful distributions. Defendant fully paid off Wells Fargo before Plaintiffs filed this action.

Plaintiffs Nahid Hariri and Hamid Hariri have assigned their rights in the note to their company, Plaintiff H and N Property Management, LLC. The Hariris have been dismissed from the action, leaving H and N Property as the sole Plaintiff.

             On November 10, 2022, Hamid Hariri filed the instant motion to quash Defendants’ subpoena to the City of Carson, Hariri’s former employer. Defendants seek Hariri’s entire employment file from January 1, 2010 to February 1, 2015, excluding tax documents.

LEGAL STANDARD

“If a subpoena requires the attendance of a witness or the production of books, documents, electronically stored information, or other things …, the court, upon motion reasonably made . . . may make an order quashing the subpoena entirely, modifying it, or directing compliance with it upon those terms or conditions as the court shall declare, including protective orders.” (Code Civ. Proc., § 1987.1(a), (b).) Good cause must be shown to require a non-party to produce documents. (See Calcor Space Facility, Inc. v. Superior Court (1997) 53 Cal.App.4th 216, 224.)

DISCUSSION

            Defendants fail to establish good cause for the production of Hariri’s employment records. (See Calcor, supra, 53 Cal.App.4th at p. 224.) Defendants claim that “Hariri’s employment records could lead to the discovery of admissible evidence that is relevant to Hariri’s credibility and could prove or disprove disputed facts.” (Opp. 4:17-19.) However, Defendants do not explain how Hariri’s entire employment file is necessary to determine Hariri’s credibility.  

Defendants also do not point to any disputed facts that the employment file would address. Defendants point to a single allegation in the SAC where Hariri alleged that Defendants communicated with him in Farsi but prepared agreements in English. (SAC ¶ 26.) However, Hariri is no longer a plaintiff and is not pursuing any claims regarding Defendants’ purported scheme to defraud him. Thus, Hariri’s English fluency is not material to this action, and in any case, Defendants do not articulate how Hariri’s employment file would address the issue. Hariri has also admitted in written discovery and his deposition that he speaks and reads English with ease and spoke English with his coworkers while employed by the City. (Reply 7:4-12.)    

Additionally, “personnel records and employment history are within the scope of the protection provided by the state and federal Constitutions.” (San Diego Trolley, Inc. v. Superior Court (2001) 87 Cal.App.4th 1083, 1097, overruled in part on other grounds by Williams v. Superior Court (2017) 3 Cal.5th 531, 557.) “[P]ublic employees do not forfeit all rights to privacy by working for the government.” (City of San Jose v. Superior Court (2017) 2 Cal.5th 608, 626; see also Beck v. Department of Justice (D.C. Cir. 1993) 997 F.2d 1489, 1494 [“A government employee has at least some privacy interest in his own employment records . . .”].) Even if there is no privacy concern, that does not automatically render the records discoverable. As discussed above, Defendants have not made the threshold showing of good cause for the records. (See Calcor, supra, 53 Cal.App.4th at p. 224.)

CONCLUSION

            Hamid Hariri’s motion to quash subpoena is GRANTED.

BACKGROUND

            On June 22, 2021, Hamid Hariri, Nahid
Hariri, and H and N Property Management, LLC (collectively “Plaintiffs”) filed
the operative Second Amended Complaint (“SAC”) against Cashbloom LLC and others
(collectively “Defendants”) alleging breach of promissory note and eight other
causes of action arising from loans Plaintiffs made to Cashbloom.

            Plaintiffs made various loans to
Cashbloom from May 2011 to December 2017 totaling $1.95 million. The loans were
undocumented until two promissory notes issued in January 2016 for $300,000 and
$400,000. The last and operative promissory note was issued in December 2017
for $1.95 million. Plaintiffs’ lawsuit arises from the December 2017 note.

            At the same time as the December
2017 promissory note, Plaintiffs, Defendant, and Wells Fargo also entered into
a Subordination Agreement wherein Plaintiffs agreed to subordinate their loan
to that of Wells Fargo. Plaintiffs previously alleged that the Subordination
Agreement was induced by fraud but have since dismissed that contention,
leaving the sole issue of money owed under the promissory note. The remaining
causes of action are breach of promissory note, fraudulent transfer, and
unlawful distributions. Defendant fully paid off Wells Fargo before Plaintiffs
filed this action.

Plaintiffs Nahid Hariri and Hamid Hariri
have assigned their rights in the note to their company, Plaintiff H and N
Property Management, LLC. The Hariris have been dismissed from the action,
leaving H and N Property as the sole Plaintiff.

             On November 16, 2022, Defendants Cashbloom LLC
and FRN Holdings LLC filed the instant motion to compel arbitration based on an
arbitration provision in the Subordination Agreement.

LEGAL STANDARD

The Federal Arbitration Act (“FAA”) states
that “[a] written provision in any . . . contract evidencing a transaction involving
commerce to settle by arbitration a controversy thereafter arising out of such
contract or transaction . . . shall be valid, irrevocable, and enforceable,
save upon such grounds as exist at law or in equity for the revocation of any
contract.” (9 U.S.C. § 2.) The term “involving commerce” is interpreted to mean
simply “affecting commerce” to give the FAA the broadest reach possible, and
does not require a transaction that is actually “within the flow of interstate
commerce.” (See
Allied-Bruce Terminix Co. v. Dobson (1995) 513 U.S. 265, 273-74; Citizens
Bank v. Alafabco, Inc. (2003) 539 U.S. 52, 56.) Moreover, parties may agree
to apply the FAA notwithstanding any effect on interstate commerce. (Victrola
89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 355.)

California law incorporates many of the
basic policy objectives contained in the Federal Arbitration Act, including a
presumption in favor of arbitrability. (Engalla v. Permanente Medical Group,
Inc. (1997) 15 Cal.4th 951, 971-72.) California law states that “[o]n
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….” (Code Civ. Proc, § 1281.2.) “The party
seeking arbitration bears the burden of proving the existence of an arbitration
agreement, and the party opposing arbitration bears the burden of proving any defense,
such as unconscionability.” (Pinnacle Museum Tower Assn. v. Pinnacle Market
Development (US), LLC (2012) 55 Cal.4th 223, 236.)

DISCUSSION

I.
The Parties Did Not Agree to Arbitrate the Present Dispute¹

            The Subordination Agreement provides
that all claims “arising out of or relating to this Agreement” are subject to
arbitration. (Shamsili Decl., Ex. A, § 17.) The issue is whether the
arbitration clause in the Subordination Agreement requires arbitration of
Plaintiff’s claims to recover money due under the promissory note.

            The Court of Appeal dealt with a
substantially similar issue in Banc of California, National Assn. v.
Superior Court (2021) 69 Cal.App.5th 357. In that case, the plaintiff
(Banc) loaned $3.5 million to the defendant (Holdings) to purchase a commercial
aircraft. (Id. at p. 360.) The parties executed seven loan documents and
an eighth aircraft usage agreement concerning Banc’s charter of Holding’s
aircraft. (Ibid.) Holdings defaulted on the loan, and Banc sued for
breach of the terms of the loan documents. (Ibid.) Holdings petitioned
to compel arbitration based on an arbitration provision in the aircraft usage
agreement, but Banc later dismissed the two causes of action based on the usage
agreement, leaving only the claims based on breach of the loan documents. (Ibid.) The trial court granted the petition, but the Court of Appeal
reversed.

_____________________________________________________________________________

¹ The Court, not the arbitrator, will resolve this
issue in the first instance. “[W]here a party seeks to arbitrate a dispute that
arises from a contract without an arbitration clause, the court is not required
under Schein to
defer to the arbitrator on the threshold determination of arbitrability.” (Banc of California, National Assn. v. Superior Court (2021) 69 Cal.App.5th 357, 369.) “Rather, where the party moving to
compel arbitration asserts a different contract with an arbitration provision
shows the parties' intent to arbitrate, the question of the parties' intent is
for the court to resolve.” (Ibid.)

The court noted
that “once Banc dismissed its third and fourth causes of action, the remaining
causes of action related only to the seven loan documents, none of which
contained an arbitration clause.” (Banc of
California, supra, 69 Cal.App.5th at p. 370.) Instead, “five of the
seven loan documents, including the pivotal loan agreement and promissory note,
specified which courts would have jurisdiction ‘[i]f there is a lawsuit.’” (Ibid.) The court
rejected Holdings’ argument that it “should interpret the language in the
aircraft usage agreement requiring arbitration of any dispute ‘relating to this
Agreement’ broadly . . . .” (Ibid.) The court held that “even if the loan documents had some relationship
to the aircraft usage agreement, the question for the trial court was whether
the parties' dispute related to the aircraft usage agreement.
It did not.” (Ibid.) Holdings could not rely “on the stray allegations in the complaint
containing facts that previously supported the since-dismissed third and fourth
causes of action . . . .” (Id. at p. 371.)

            Here,
the promissory note similarly contemplates court jurisdiction over any claims
arising out of the promissory note. (Shamsili Decl., Ex. B, § 12.) Although the
arbitration provision in the Subordination Agreement covers all claims “relating
to this Agreement” and the Subordination Agreement broadly defines the types of
debts that it covers, that does not mean the parties’ dispute actually relates
to the Subordination Agreement. (See Banc of
California, supra, 69 Cal.App.5th at p. 370.) Plaintiff is suing to
recover money owed under the promissory note, which is unrelated to the issue
of subordination. The claims alleging fraud in connection with the Subordination
Agreement have been dismissed. There is no indication that the parties intended
for the arbitration clause in the Subordination Agreement to apply to the current
dispute. Defendant does not cite any authority compelling a different conclusion
than that reached in Banc of California, nor offer any basis to distinguish this case from Banc.

            The
Court finds that Defendant has not satisfied its burden of proving an
arbitration agreement between the parties.

II. Defendant Waived Its Right to Compel
Arbitration

            Even
if the
Court finds that an arbitration agreement exists, it may still deny the
petition if it finds that “[t]he right to compel arbitration has been waived by
the petitioner.” (Code Civ. Proc., § 1281.2(a).) Where an arbitration agreement
is governed by the Federal Arbitration Act (FAA), federal rules of waiver
apply. (Davis v. Shiekh Shoes, LLC (Oct. 31, 2022) 2022
Cal.App.LEXIS 899, at *10, 15.) Under federal law, “[t]he essential question is
whether, under the totality of the circumstances, the defaulting party has
acted inconsistently with the arbitration right.” (National Foundation for
Cancer Research v. A.G. Edwards & Sons, Inc. (1987) 821 F.2d 772,
774.) Prejudice is not a prerequisite for a finding of waiver. (Morgan v.
Sundance, Inc. (2022) 142 S.Ct. 1708, 1714.)

            In Davis, the defendant had
waived arbitration by demanding a jury trial, participating in a case
management conference, and conducting discovery. (Davis, supra, 2022
Cal.App.LEXIS 899, at *21.) “In light of Shiekh's nearly
one-and-a-half-year delay in moving to compel arbitration, request for trial,
active participation in discovery, acquiescence to the trial and discovery
schedule, and court appearances, the trial court had ample evidence from which
to conclude Shiekh's actions were inconsistent with an intent to arbitrate.” (Id. at
*22-23.)

            Here, Defendants waited two years
before demanding arbitration. No valid reason is provided for this delay. (See Davis,
supra, 2022 Cal.App.LEXIS 899, at *20 [“the absence of a
reasonable explanation for delay is a significant factor weighing in favor of
finding waiver”].) Furthermore, Defendants participated in litigation,
including discovery and Plaintiff’s motion for summary adjudication on the
merits. Trial is one month away. Defendants rely on Hansber v. Ulta Beauty
Cosmetics, LLC (E.D. Cal., Nov. 9, 2022, No. 121CV00022AWICDB) 2022 WL
16836627 for the proposition that their actions are not inconsistent with the
right to arbitrate. However, the defendant in Hansber consistently
asserted throughout the course of litigation that it had a right to arbitrate.
(Id., at *4.) There is no indication that Defendants made similar
assertions here. The Court finds that “under the totality of the circumstances,
[Defendant] has acted inconsistently with the arbitration right.” (See National
Foundation for Cancer Research, supra, 821 F.2d at p. 774.)

            Lastly, Defendants argue that even
if they waived their right to arbitrate, “Plaintiff revived Defendants’ right
to compel arbitration due to their recent voluntary dismissals . . . .” (Opp.
4:7-10.) To support this proposition, Defendants rely on nonbinding and
distinguishable caselaw. Defendants cite to Solis v. Experian Information
Solutions, Inc. (C.D. Cal., Sept. 21, 2022, No. SACV2200102CJCKESX) 2022 WL
4376077 for the proposition that “altering the scope of potential liability by adding
class claims revived defendants’ right to compel arbitration even if it had
previously been waived.” (Reply 4:16-18.)

However, Plaintiff did not add
claims to expand the scope of litigation. Instead, Plaintiff removed claims and
narrowed the scope of the dispute. It is unclear how this justifies reviving
Defendants’ right to arbitrate. Even the court in Solis acknowledged
that “the filing of an amended complaint does not automatically revive all
defenses or objections that the defendant may have waived in response to the
initial complaint.” (Solis, supra, 2022 WL 4376077, at *3.) The plaintiff
in Banc of California also dismissed claims that would otherwise have
been subject to arbitration. (Banc of
California, supra, 69 Cal.App.5th
at p. 360.) The court nonetheless held that the remaining claims were not
subject to arbitration. Therefore, Defendants’ right to arbitrate has not been
revived.

CONCLUSION

            Defendants Cashbloom LLC’s and FRN
Holdings LLC’s motion to compel arbitration is DENIED.