Judge Elaine Lu, Case 22STCV30425 2023-04-04 Tentative Ruling

On September 16, 2022, Plaintiffs Jessie Garcia (“Garcia”) and Diana Valverde (“Valverde”) (jointly “Plaintiffs”) filed the instant fraud action against Defendants Lynn A. Bethurum dba MixAgent (“Bethurum”) and MixAgent, Inc. (jointly “Defendants”). The complaint asserted thirteen causes of action for (1) Fraud, (2) Constructive Fraud, (3) Breach of Fiduciary Duty, (4) Accounting, (5) Recission, (6) Cancellation of Instruments, (7) Usury, (8) Violation of Civil Code § 1671, (9) Breach of Contract, (10) Violation of Labor Code § 1700.5, (11) Violation of Labor Code § 1702.5, (12) Violation of Business & Professions Code § 17200 et seq., and (13) Violation of Business & Professions Code § 17500 et seq.

On October 25, 2023, Defendants filed the instant motion to compel arbitration of the entire action except as to the first and second causes of action for fraud, which Defendants move to stay until the completion of arbitration. On January 23, 2023, Plaintiffs filed the operative first amended complaint (“FAC”) against Defendants, asserting twelve causes of action for (1) Fraud, (2) Constructive Fraud, (3) Breach of Fiduciary Duty, (4) Accounting, (5) Recission, (6) Cancellation of Instruments, (7) Usury, (8) Violation of Civil Code § 1671,(9) Violation of Labor Code § 1700.5, (10) Violation of Labor Code § 1702.5, (11) Violation of Business & Professions Code § 17200 et seq., and (12) Violation of Business & Professions Code § 17500 et seq. On January 25, 2023, Plaintiffs filed an opposition to the instant motion to compel arbitration. On January 26, 2023, Defendants filed a reply. On February 1, 2023, the Court continued the instant motion to April 4, 2023.

California law incorporates many of the basic policy objectives contained in the Federal Arbitration Act, including a presumption in favor of arbitrability. (See Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971-72.) Under CCP § 1281, a “written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.”

“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:

(c) 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. . . .” (CCP §1281.2.)

The right to arbitration depends upon contract; a petition to compel arbitration is simply a suit in equity seeking specific performance of that contract. (Marcus & Millichap Real Estate Inv. Brokerage Co. v. Hock Inv. Co. (1998) 68 Cal.App.4th 83, 88.) When presented with a petition to compel arbitration, the trial court's first task is to determine whether the parties have in fact agreed to arbitrate the dispute. (Id.)

“Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394] explained: ‘[W]hen a petition to compel arbitration is filed and accompanied by prima facie evidence of a written agreement to arbitrate the controversy, the court itself must determine whether the agreement exists and, if any defense to its enforcement is raised, whether it is enforceable. Because the existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance of the evidence. If the party opposing the petition raises a defense to enforcement—either fraud in the execution voiding the agreement, or a statutory defense of waiver or revocation (see §1281.2(a), (b))—that party bears the burden of producing evidence of, and proving by a preponderance of the evidence, any fact necessary to the defense.’ (Rosenthal, supra, at 413.) According to Rosenthal, facts relevant to enforcement of the arbitration agreement must be determined ‘in the manner . . . provided by law for the . . . hearing of motions.’ (Rosenthal, supra, at 413, quoting §1290.2.) This ‘ordinarily mean[s] the facts are to be proven by affidavit or declaration and documentary evidence, with oral testimony taken only in the court’s discretion.’ (Rosenthal, supra, at 413–414; . . .).” (Hotels Nevada v. L.A. Pacific Center, Inc. (2006) 144 Cal.App.4th 754, 761-62.)

Under both the Federal Arbitration Act and California law, arbitration agreements are valid, irrevocable, and enforceable, except on such grounds that exist at law or equity for voiding a contract. (Winter v. Window Fashions Professions, Inc. (2008) 166 Cal.App.4th 943, 947.) In ruling on a motion to compel arbitration, the court must first determine whether the parties actually agreed to arbitrate the dispute, and general principles of California contract law help guide the court in making this determination. (Mendez v. Mid-Wilshire Health Care Center (2013) 220 Cal.App.4th 534, 541.) “With respect to the moving party’s burden to provide evidence of the existence of an agreement to arbitrate, it is generally sufficient for that party to present a copy of the contract to the court.” (Baker v. Italian Maple Holdings, LLC (2017) 13 Cal.App.5th 1152, 1160.)

Defendants provide evidence that Plaintiff Garcia executed a Personal Management Agreement that contained a valid pre-dispute nonbinding arbitration clause. In support of this contention, Defendants present the declaration of Defendant Bethurum, the CEO of Defendant MixAgent. Bethurum states that on July 6, 2018, Plaintiff Garcia and Defendant Bethurum signed a Personal Management Agreement. (Bethurum Decl. ¶ 3, Exh. 1.) Defendant Bethurum states that on April 9, 2019, Plaintiff Garcia and Defendant Bethurum signed another Personal Management Agreement. (Bethurum Decl. ¶ 4; Complaint, Exh. B; FAC Exh. B.) Both Personal Management Agreements provide identically in relevant part that:

9. Arbitration - In the event of any dispute under or relating to the terms of this Agreement, or the breach, validity or legality thereof (herein “Claim”), it is agreed that same shall be submitted to non-binding arbitration with three (3) arbitrators before the American Arbitration Association in the County of Los Angeles, State of California, in accordance with the rules promulgated by the said Association, including the right to conduct discovery and judgment upon the award rendered by the arbitrators and may be entered in any court having jurisdiction thereof in the County of Los Angeles, State of California. Any claims of fraud shall be excluded from the arbitration process and shall be submitted directly to any federal or state court having jurisdiction located in the County of Los Angeles, State of California. The prevailing party in said non-binding arbitration shall be entitled to recover his or her reasonable attorney’s fees and other costs incurred in the enforcement of the terms of this Agreement or for the breach thereof, whether incurred before or after the entry of judgment.

The Personal Management Agreements appear to bear Plaintiff Garcia’s signature. (Bethurum Decl. ¶ 3, Exh. 1; Complaint, Exh. B; FAC Exh. B.) The July 6, 2018 personnel agreement appears to be signed by Defendant Bethurum on behalf of a MixAgent, LLC. The April 9, 2019 Personal Management Agreement appears to be signed by Defendant Bethurum on behalf of an unspecified MixAgent.

“[D]efendants may meet their initial burden to show an agreement to arbitrate by attaching a copy of the arbitration agreement purportedly bearing the opposing party’s signature.” (Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1060; see also Bannister v. Marinidence Opco, LLC (2021) 64 Cal.App.5th 541 [“The party seeking arbitration can meet its initial burden by attaching to the petition a copy of the arbitration agreement purporting to bear the respondent's signature.”].) Accordingly, Defendants have met their initial burden by attaching an arbitration agreement purportedly bearing Plaintiff Garcia’s signature.

In opposition, Plaintiffs contends that (1) Defendants and Plaintiff Valverde are not named parties to the Personal Management Agreements, (2) the claims under the Talent Agencies Act are not subject to arbitration, and (3) the agreements are unconscionable.

“A party seeking to enforce an arbitration agreement has the burden of showing FAA preemption.” (Lane v. Francis Capital Mgmt. LLC (2014) 224 Cal.App.4th 676, 684.) California law provides that parties may expressly designate that any arbitration proceeding should move forward under the FAA's procedural provisions rather than under state procedural law.^{^[1]} (Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal. 4th 376, 394). Otherwise, the FAA provides for enforcement of arbitration provisions in any “‘contract evidencing a transaction involving commerce.’ (9 USC § 2.)” (Allied-Bruce Terminix Companies, Inc. v. Dobson (1995) 513 U.S. 265, 277.) Accordingly, “[t]he party asserting the FAA bears the burden to show it applies by presenting evidence establishing the contract with the arbitration provision has a substantial relationship to interstate commerce[.]” (Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 234, [italics added].) Moreover, as noted above, California contract law applies to the validity of the arbitration agreement. (Winter, supra, 166 Cal.App.4th at p. 947.)

Here, the arbitration agreement does not specifically invoke the FAA. However, Defendants provide evidence establishing that the Personal Management Agreement has a substantial relationship to interstate commerce. Under the Personal Management Agreements, Defendants were paid a percentage of Plaintiff Garcia’s income that he earned from hosting a nationwide radio show. (Bethurum Decl. ¶¶ 2, 5.) In addition, under the Personal Management Agreements, Defendants would set up Plaintiff Garcia’s website and schedule interstate travel for Plaintiff Garcia to appear at a festival in Las Vegas, Nevada. (Bethurum Decl. ¶ 6.) Moreover, Plaintiffs do not dispute that the FAA applies.

Accordingly, as Defendants have shown that the Personal Management Agreements have a substantial relationship to interstate commerce, the FAA applies.

“‘[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.’ [Citations.]” (Howsam v. Dean Witter Reynolds, Inc. (2002) 537 U.S. 79, 83.) “It is well established that a court will not grant a petition to compel arbitration filed pursuant to Code of Civil Procedure section 1281.2 if the subject matter to be arbitrated is not within the scope of the arbitration agreement. [Citation.] Generally, a court will look to the arbitration agreement itself to determine its scope.” (United Teachers of Los Angeles v. Los Angeles Unified School Dist. (2012) 54 Cal.4th 504, 516.)

However, “[t]he question whether the parties have submitted a particular dispute to arbitration, i.e., the ‘question of arbitrability,’ is ‘an issue for judicial determination [u]nless the parties clearly and unmistakably provide otherwise.’ [Citations.]” (Howsam supra, 537 U.S. at p.83.)

Here, the arbitration agreement does not clearly and unmistakably delegate the question of arbitrability to the arbitrator. Thus, the Court must first determine whether the claims at issue fall within the scope of the arbitration agreement.

“In determining the scope of an arbitration clause, ‘[t]he court should attempt to give effect to the parties’ intentions, in light of the usual and ordinary meaning of the contractual language and the circumstances under which the agreement was made.’ ” (Victoria v. Superior Court (1985) 40 Cal.3d 734, 744.) “As a general rule, arbitration should be upheld ‘ “ ‘unless it can be said with assurance that the arbitration clause is not susceptible to an interpretation covering the asserted dispute.’ ” ’[Citations.]” (Ahern v. Asset Management Consultants, Inc. (2022) 74 Cal.App.5th 675, 688.) “Nonetheless, this policy does not override ordinary principles of contract interpretation.” (Rice v. Downs (2016) 248 Cal.App.4th 175, 185.) “[T]he terms of the specific arbitration clause under consideration must reasonably cover the dispute as to which arbitration is requested.” (Bono v. David (2007) 147 Cal.App.4th 1055, 1063.)

“ ‘[T]he decision as to whether a contractual arbitration clause covers a particular dispute rests substantially on whether the clause in question is “broad” or “narrow.” ’ ” (Rice, supra, 248 Cal.App.4th at p.186.) “A broad clause includes language that requires arbitration of ‘ “ ‘any claim arising from or related to’ ” ’ the agreement.” (Ahern, supra, 74 Cal.App.5th at p.689.) “A narrow clause, on the other hand, typically includes language that requires arbitration of ‘a claim, dispute, or controversy “arising from” or “arising out of” an agreement, i.e., excluding language such as “relating to this agreement” or “in connection with this agreement.” ’ [Citation.] Narrow arbitration clauses are generally interpreted ‘ “ ‘to be more limited in scope’ ” ’ [Citations] and ‘apply only to disputes regarding the interpretation and performance of the agreement’ [Citations].” (Ahern, supra, 74 Cal.App.5th at pp.689–690.)

The arbitration provision in the instant case provides “any dispute under or relating to the terms of this Agreement, or the breach, validity or legality thereof (herein “Claim”), it is agreed that same shall be submitted to non-binding arbitration with three (3) arbitrators before the American Arbitration Association in the County of Los Angeles, State of California, in accordance with the rules promulgated by the said Association, including the right to conduct discovery and judgment upon the award rendered by the arbitrators and may be entered in any court having jurisdiction thereof in the County of Los Angeles, State of California. Any claims of fraud shall be excluded from the arbitration process and shall be submitted directly to any federal or state court having jurisdiction located in the County of Los Angeles, State of California.” (Bethurum Decl., Exh. 1, [Italics Added].) Thus, the arbitration provision is broad and covers all contractual or tort claims relating to the Agreement, including claims relating to the breach, validity, or legality of the Agreement, excepting only fraud claims which are expressly excluded.

Here, the claims in the FAC clearly include claims beyond that of fraud. The FAC asserts only two causes of action for fraud – i.e., the first and second causes of action. The remaining causes of action either do not arise from fraud – i.e., the eighth cause of action for unlawful liquidated damages provision in the Personal Management Agreement – or are only related to fraud – i.e., the twelfth cause of action for false advertising. The Personal Management Agreements specifically note that only claims for fraud are exempt from arbitration – not claims related to fraud. The Personal Management Agreements’ use of broad language including the term “relating to” in delineating the claims covered by the Agreements and the absence of such broad language in delineating claims excluded from arbitration indicates the intent of the Agreements to exempt only claims specifically of fraud from arbitration – i.e., such as the first and second causes of action.

The remaining claims clearly related to the Personal Management Agreements as Plaintiffs seek to invalidate the Personal Management Agreements and are thereby subject to arbitration.

Plaintiffs claim that because the Labor Commissioner has exclusive original jurisdiction over claims under the Talent Agency Act, (Lab. Code, § 1700.44), the claims under the Talent Agency Act – i.e., the ninth and tenth causes of action – cannot be compelled to arbitration. However, the FAA preempts the Talent Agency Act in this regard. “[T]he FAA supersedes state laws lodging primary jurisdiction in another forum, whether judicial or administrative.” (Preston v. Ferrer (2008) 552 U.S. 346, 359.) “[T]he United States Supreme Court decided Preston v. Ferrer (2008) 552 U.S. 346 (Preston), which held that the Labor Commissioner's original and exclusive jurisdiction under the Talent Agencies Act (§ 1700 et seq.) was preempted when the parties entered into an arbitration agreement governed by the FAA.” (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1126–1127.)

As the FAA applies to the arbitration agreement, the FAA preempts the Labor Commissioner’s original jurisdiction of claims under the Talent Agency Act.

Plaintiffs contend that Defendants are not parties to the arbitration agreement and that the arbitration agreement cannot be enforced against Plaintiff Valverde because she is a nonsignatory to the Personal Management Agreements. As noted above, both Personal Management Agreements are signed by Plaintiff Garcia. (Bethurum Decl. ¶ 3, Exh. 1; Complaint, Exh. B; FAC Exh. B.) The July 6, 2018 personnel agreement is signed by Defendant Bethurum on behalf of a MixAgent, LLC. The April 9, 2019 Personal Management Agreement appears to be signed by Defendant Bethurum on behalf of an unspecified MixAgent. Defendants are not specifically named as parties to the Agreement, and Plaintiff Valverde is not a signatory to the agreement.

However, the arbitration clause is enforceable by Defendants against Plaintiffs in the instant action.

The operative complaint alleges that Defendant Bethurum is doing business as MixAgent. (FAC ¶ 22.) The April 9, 2019 Personal Management Agreement is signed by Defendant Bethurum as MixAgent. (FAC, Exh. B.) Thus, as Plaintiffs conceded in the FAC, Defendant Bethurum is a party to the April 9, 2019 Personal Management Agreement. As to Defendant MixAgent, Inc., the FAC alleges that MixAgent, Inc. is the alter-ego of Defendant Bethurum. (FAC ¶ 23; See 24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th 1199, 1199–1200 [finding that in an action concerning a former employee’s claims against the employer and various employees for sexual harassment in the workplace, that while the employee defendants were not parties to the contract, they were entitled to the benefit of the arbitration agreement if, as the complaint alleged, they were acting as agents for the employer at the time of the alleged wrongful conduct.]; See also Jenks v. DLA Piper Rudnick Gray Cary US LLP (2015) 243 Cal.App.4th 1, 10 [finding that under both federal and California decisional authority, a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are “intimately founded in and intertwined” with the underlying contract obligations.].)

As stated in Thomas v. Westlake (2012) 204 Cal.App.4th 605, a plaintiff's allegations of an agency relationship among defendants is sufficient to allow the alleged agents to invoke the benefit of an arbitration agreement executed by their principal even though the agents are not parties to the agreement. (Thomas v. Westlake (2012) 204 Cal.App.4th 605, 614-615.) By having alleged that all defendants acted as agents of one another, Plaintiffs are bound by the legal consequences of their allegations because it would be unfair to the defendants to allow Plaintiffs to invoke agency principles when it is to their advantage to do so but to disavow those same principles when it is not. (Thomas v. Westlake (2012) 204 Cal.App.4th 605, 614-615.) Therefore, all Defendants are entitled to enforce the arbitration agreement.

Moreover, “[w]hen a plaintiff brings a claim which relies on contract terms against a defendant, the plaintiff may be equitably estopped from repudiating the arbitration clause contained in that agreement.” (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1239.) This principle is applicable to nonsignatory plaintiffs as well as “[t]here is no reason why this doctrine should not be equally applicable to a nonsignatory plaintiff. When that plaintiff is suing on a contract—on the basis that, even though the plaintiff was not a party to the contract, the plaintiff is nonetheless entitled to recover for its breach, the plaintiff should be equitably estopped from repudiating the contract's arbitration clause.” (Id. at pp.1239–1240.)

As Plaintiff Valverde seeks claims based on the Personal Management Agreements, the arbitration agreements within the Personal Management Agreements are enforceable against Plaintiff Valverde as well.

“Once such a document is presented to the court, the burden shifts to the party opposing the motion to compel, who may present any challenges to the enforcement of the agreement and evidence in support of those challenges.” (Baker v. Italian Maple Holdings, LLC (2017) 13 Cal.App.5th 1152, 1160.)

“California courts analyze unconscionability as having a procedural and a substantive element.” (Kinney v. United Healthcare Services, Inc. (1999) 70 Cal.App.4th 1329.) “[B]oth elements must be present before a contract or contract provision is rendered unenforceable on grounds of unconscionability.” (Id.) 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.” (Ibid.) 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.) “Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves. [Citations.] In other words, the more substantively unconscionable the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Ibid.) “The party resisting arbitration bears the burden of proving unconscionability.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Dev. (US), LLC (2012) 55 Cal.4th 223, 247.)

Here, Plaintiffs contend that the Personal Management Agreements are unenforceable because of the usurious interest rate that the Agreement allows. However, this relates to the unconscionability of the entire Personal Management Agreement -- not the arbitration clause.

Section 2 of the FAA “places arbitration agreements on an equal footing with other contracts.” (Rent-A-Center, West, Inc. v. Jackson (2010) 561 U.S. 63, 67.) Thus, “[l]ike other contracts . . . they may be invalidated by ‘generally applicable contract defenses, such as fraud, duress, or unconscionability.’ [Citation].” (Id. at p.68.) However, “as a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract.” (Buckeye Check Cashing, Inc. v. Cardegna (2006) 546 U.S. 440, 445.) Therefore, “unless the challenge is to the arbitration clause itself, the issue of the contract's validity is considered by the arbitrator in the first instance.” (Id. at pp.445–446; accord Rent-A-Center, West, Inc., supra, 561 U.S. at p.70, [“a party's challenge to another provision of the contract, or to the contract as a whole, does not prevent a court from enforcing a specific agreement to arbitrate.”].) Accordingly, as the arbitration clause is severable from the agreement of which it is a part, Plaintiffs’ contention that other provisions of the Personal Management Agreements are unconscionable as a whole is immaterial to enforceability of the arbitration clause.

Accordingly, Plaintiffs fail to show that the arbitration clause is unconscionable.

Based on the foregoing, Defendants Lynn A. Bethurum dba MixAgent and MixAgent, Inc.’s motion to compel arbitration is GRANTED except as to the first and second causes of action for fraud.

This case is stayed in its entirety for all purposes pending arbitration pursuant to Code of Civil Procedure section 1281.4. A status conference regarding the progress of arbitration and the stay is set for September 6, 2023 at 8:30 am.

[1] “But the parties may ‘expressly designate that any arbitration proceeding [may] move forward under the FAA's procedural provisions rather than under state procedural law.’ [Citation.] Absent such an express designation, however, the FAA’s procedural provisions do not apply in state court.” (Valencia v. Smyth (2010) 185 Cal.App.4th 153, 174; see also Rodriguez v. American Technologies, Inc. (2006) 136 Cal.App.4th 1110, 1122.)

Superior Court of California

County of Los Angeles

Department 26