Judge Gail Killefer, Case Number: 23STCV20662, Date: 2024-01-05 Tentative Ruling

CASE NAME: Santa Anita Convalescent Hospital & Retirement Center, Inc., et al. v. Mildred DeCastro, Inc., et al.

MOVING PARTY: Defendants Mildred DeCastro Inc., Synergy Healthcare Resources & Solutions Group; Estrella “Star” Choy; Mildred DeCastro

OPPOSING PARTY: Plaintiffs Santa Anita Convalescent Hospital & Retirement Center; 1100 South Alvarado Street, LLC; San Fernando Subacute Rehabilitation Center, LLC; and Sylmar Health & Rehabilitation Center, Inc.

TENTATIVE: defendants’ Motion to Compel Arbitration and Stay the Action is granted. The court sets an OSC Re: Status of Arbitration for January 6, 2025, at 8:30 a.m. Defendants to give notice.

The Complaint alleges four causes of action: (1) Breach of Written Consulting Service Agreements; (2) Breach of Quasi Contract; (3) Breach of Fiduciary Duty; and (4) Aiding and Abetting Breach of Fiduciary Duty.

On October 12, 2023, Defendants filed a Motion to Compel Plaintiffs’ action to arbitration. Plaintiffs oppose the Motion. The matter is now before the court.

motion to compel arbitration

Parties may be compelled to arbitrate a dispute upon the court finding that: (1) there was a valid agreement to arbitrate between the parties; and (2) said agreement covers the controversy or controversies in the parties’ dispute.¿(CCP § 1281.2; Omar v. Ralphs Grocery Co. (2004)¿118 Cal.App.4th 955, 961.)¿¿

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 the evidence, any fact necessary to its defense. (Banner Entertainment, Inc. v. Superior Court¿(1998) 62 Cal.App.4th 348, 356-57.)¿¿¿

“If a court of competent jurisdiction, whether in this State or not, has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies.” (CCP § 1281.4.)¿¿

The Court may take judicial notice of records of any court of record of the United States. (Evid. Code § 452(d)(2).) However, the court may only judicially notice the existence of the record, not that its contents are the truth. (Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1565.)

1) Exhibit A: A true and correct copy of the Complaint filed in related case Golden State Health Centers, Inc., et al. v. Genstar Labs Management LLC, et al., Superior Court of the State of California, County of Los Angeles, Case No. 23STCV06198 (“Golden State Litigation”).

2) Exhibit B: A true and correct copy of the Minute Order re Motion to Compel Arbitration, dated September 27, 2023, from the Golden State Litigation.

Plaintiffs submit evidentiary objections to the Declaration of Mildred DeCastro filed in support of this Motion:

Plaintiffs object to the various characterizations of the facts presented in the DeCastro Declaration but fail to articulate an evidentiary basis for the objections. Therefore, the court overrules Plaintiffs’ objections to the declaration of Mildred DeCastro. Moreover, the court will disregard any statements made in the Mildred DeCastro declaration that are unsupported by facts showing personal knowledge or that are hearsay.

Defendants submit evidentiary objections to the Declarations of Laurence M. Berman and Jacob Unger filed in opposition to this Motion:

The court agrees with Defendants’ assertion that the Plaintiffs do not rely on the Berman and Unger Declarations to oppose the Motion. The objections cited by Defendants pertain to statements that have little relevance to this Motion because they concern Plaintiffs’ efforts to obtain discovery on other agreements not currently before this court. For this reason, the court declines to rule on Defendants’ evidentiary objections.

Defendants submit evidentiary objections to the Declaration of Ben Steinfeld filed in opposition to this Motion:

Defendants move for an Order to stay the action and compel Plaintiffs to arbitrate their claims according to various arbitration agreements between Plaintiffs and Defendants.

Defendants point out that Plaintiffs’ Complaint admits to the existance of valid agreements to arbitrate. “In 2018, Synergy entered into Consulting Service Agreements (“CSAs”) with Plaintiffs Santa Anita, Olympia, and Golden Legacy through its predecessor, San Fernando Subacute Rehabilitation Center, to provide clinical consulting services to them.” (Compl. ¶ 14.) Copies of the CSAs are attached as Exhibits 1, 2, and 3 of the Complaint. (See Compl. Ex. 1 at p. 6, ¶ 13 titled “Dispute Resolution and Arbitration”, Ex. 2 at p. 6, ¶ 13 “Dispute Resolution and Arbitration”, Ex. 3 at p. 6, ¶ 13 titled “Dispute Resolution and Arbitration”.) “In December 2020, Synergy and Plaintiff Sylmar entered into a Supplemental Staffing Agreement to provide Registry Services to Sylmar.” (Compl. ¶ 70, Ex. 10 at p. 6, ¶ 16 titled “Dispute Resolution and Arbitration”.)

Defendants further state that an entity, Golden State Health Center, Inc. (“Golden State”), operates all the nursing homes involved in this action, entered into a “master” service agreement (“CSA”) with Synergy in 2018, and that the agreement encompasses the services provided by Synergy to all of Golden State’s “group of facilities,” including Plaintiffs. (DeCastro Decl. Ex. J.) However, the November 2, 2023, Informal Discovery Conference (“IDC”) stated that Defendant would not rely on the Master CSA and the Santa Anita Staffing Service Agreement (“CSSSA”) in support of their Motion to Compel. (Min. Or. 11/02/23.)

Therefore, the basis of compelling this action to arbitration depends on the provisions of the individual CSAs each Plaintiff entered into with Defendant.

Agreement, except for injunctive relief due to breach or threatened breach of confidentiality provision of Agreement or for payment of money due to [Synergy], must be settled exclusively by binding arbitration, which will be conducted in Orange County, California, unless the parties mutually agree upon another venue, in accordance with the American Health Lawyers Association Alternative Dispute Resolution Service Rules of Procedure for Arbitration, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The parties will share equally all administrative charges and arbitrators’ fees; however, each party is responsible for their own attorney fees and expenses.

(Compl. Ex. 1 at p. 6, ¶§13 titled “Dispute Resolution and Arbitration”, Ex. 2 at p. 6, § 13 “Dispute Resolution and Arbitration”, Ex. 3 at p. 6, § 13 titled “Dispute Resolution and Arbitration”; see also DeCastro Decl. Ex. B, C, D & I at § 13.)

The CSAs “automatically renew” per their terms and conditions. (See DeCastro Decl. Ex. B, C, D, & I at ¶ 2 entitled “Terms and Termination”.) Defendants maintain that the Agreements have not been terminated by either party. (DeCastro Decl. ¶ 16, Ex. K.) The Plaintiff’s opposition also does not dispute this point.

“Although the scope of an arbitration clause is generally a question for judicial determination, the parties may, by clear and unmistakable agreement, elect to have the arbitrator, rather than the court, decide which grievances are arbitrable.” (Rodriguez v. American Technologies, Inc. (2006) 136 Cal.App.4th 1110, 1123 (Rodriguez).) “There are two prerequisites for a delegation clause to be effective. First, the language of the clause must be clear and unmistakable. [Citation.] Second, the delegation must not be revocable under state contract defenses such as fraud, duress, or unconscionability.” (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 242.) “The ‘clear and unmistakable’ test reflects a ‘heightened standard of proof’ that reverses the typical presumption in favor of the arbitration of disputes. [Citation.]” (Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, 892 (Aanderud )[italics original].)

On reply, Defendants argue that the CSAs contain a delegation clause due to the following language:

Any disputes, controversies or claims arising under or relating to this Agreement, except for injunctive relief due to breach or threatened breach of confidentiality provision of Agreement or for payment of money due to [Synergy], must be settled exclusively by binding arbitration, . . . in accordance with the American Health Lawyers Association Alternative Dispute Resolution Service Rules of Procedure for Arbitration, . . . .”

Defendants point out that Section 3.1 of the American Health Lawyers Association Alternative Dispute Resolution Service Rules of Procedure for Arbitration (the “AHLA Rules”) states the following:

If the filing party (Claimant) produces a document that arguably requires arbitration of the claim under the Rules, the Administrator will appoint an arbitrator pursuant to the process described in this Section. After receiving appropriate evidence and argument, the arbitrator, once appointed, shall have the power to determine his or her jurisdiction and any issues of arbitrability. AHLA’s decision to accept a claim has no bearing on the arbitrator’s determination regarding jurisdiction.

Accordingly, Defendants argue that it is for the arbitrator to decide if Plaintiff’s claims are subject to arbitration. “An arbitration provision's reference to, or incorporation of, arbitration rules that give the arbitrator the power or responsibility to decide issues of arbitrability may constitute clear and unmistakable evidence the parties intended the arbitrator to decide those issues.” (Aanderud, supra, 13 Cal.App.5th at p. 892; see also Rodriguez, supra, 136 Cal.App.4th at p. 1123 [contract mandated arbitration in accordance with American Arbitration Association (AAA) construction arbitration rules that specify arbitrator's authority to determine the scope of the clause]; Dream Theater, Inc. v. Dream Theater (2004) 124 Cal.App.4th 547, 556 [incorporation of AAA commercial arbitration rules which specified the arbitrator will decide issues over the scope of the arbitration agreement].)

Plaintiffs do not allege that the arbitration provision in the CSAs is ambiguous. That the arbitration provision references the AHLA Rules makes it clear and unmistakable that the arbitrator determines jurisdiction and issues of arbitrability. (Aanderud, supra, 13 Cal.App.5th at p. 893 [“The Arbitrator has the authority to determine jurisdiction and arbitrability issues as a preliminary matter. Thus, the reference to the JAMS Rules further evidences the parties' clear and unmistakable intent to submit issues of arbitrability to the arbitrator”] [internal quotation marks omitted].) Because the arbitration provision clearly and unmistakably delegates to the arbitrator “[a]ny issues, controversies, or claims arising under or related to” the CSAs, the court may only determine issues expressly exempt from the arbitration provision, specifically if Plaintiff’s claims relate to “payment of money due to [Synergy].”

Whether the CSAs cover Nurse Registry Services and whether such services are outside the scope of the CSAs are issues for the arbitrator to decide due to the delegation language in the arbitration provision and the incorporation of the AHLA Rules.

Furthermore, the CSAs provide that Synergy “may perform additional services using a qualified nurse consultant including but not limited to registered nurses, licensed vocational with certification given by professional organizations.” .” (DeCastro Decl. Exs. B–D at Ex. A-3 § 1 & Ex. E at Ex. A-4 § 1 [italics added].) Synergy was also responsible for providing “facility support services of key personnel as needed in case of vacancies.” (DeCastro Decl. Exs. B–D at Ex. A-3 § 1(F) & Ex. E at Ex. A-4 § 1(F).) Therefore, any claim related to the payment for nurse staffing is a claim that arises or relates to the CSAs. Furthermore, the Plaintiffs’ Complaint alleges that Defendants overbilled for the services provided under the CSAs. (See Compl. ¶ 79 [“Beginning in 2021, Synergy breached these CSAs with these Plaintiffs by overcharging and” misbilling them for the clinical consulting services as alleged herein”].) As the CSAs and its terms are at issue, it is for the arbitrator to decide any issues of arbitrability, including what disputes the CSAs encompass.

As Defendants have shown that a valid agreement to arbitrate exists, the burden shifts to Plaintiff to show why the action should not be compelled to arbitration.

B. Plaintiffs’ Breach of Contract Claims Are Not Exempt from Arbitration

Plaintiffs argue their Breach of Contract and Breach of Quasi Contract are claims not subject to arbitration because the claims fall within the exception of the arbitration clause since the Plaintiffs dispute the contention that certain payments were due to Synergy.

Plaintiffs’ reliance on Turi v. Main Street Adoption Services, LLP (6th Cir. 2011) 633 F.3d 496 to suggest that a “a claim regarding fees charged by us” supports a finding that Plaintiffs’ claims fall within the arbitration exception in the CASs is misplaced.

While the plaintiffs in Turi sought to recover fees paid to the defendant, “the plaintiffs’ other claims go beyond the recovery of the fees that they paid to [defendant].” (Id. at p. 510.) “The plaintiffs' claims for RICO violations, civil conspiracy, fraudulent misrepresentation, innocent misrepresentation, intentional infliction of emotional distress, and negligent infliction [] do more than merely recast the plaintiffs' claims for fees; they seek damages based on Main Street's alleged fraud that are separate from the fees paid to [defendant].” (Id. at p. 510.)

Based on this rationale, the Sixth Circuit found that the above claims were nonfee claims that were independent from their claims for fees such that the limited arbitration clauses at issue requiring “a claim regarding fees charged by us exceeds $5,000, it shall be resolved by arbitration” may exempt the plaintiff’s claims from arbitration. (Id. at p. 511.)

So too here, the plaintiffs' nonfee claims are independent of their claims for fees because the nonfee claims require proof of additional elements beyond the claims for the recovery of their fees. And the nonfee claims by their nature allow plaintiffs to recover damages beyond the recovery of fees allegedly misappropriated by [Defendant]. Moreover, the RICO claims are statutorily based. Although separating these claims between arbitration and the court will entail added effort, ‘the parties [may] only be compelled to arbitrate matters within the scope of their agreement ... even when the result may be piecemeal litigation.’ [Citation.]

Like the plaintiffs in Turi, here Plaintiffs’ breach of contract claims seeks compensatory damages for any and all economic loss, including attorney’s fees and costs. (Compl. at p. 20: 11-14.) The breach of quasi contract and unjust enrichment and restitution claim seeks disgorgement and return of the gains and benefits Defendants wrongfully and unjustly obtained due to Defendants’ overbilling and misbilling. (Compl. at p. 20:18-20.) Accordingly, the claims at issue encompass damages that exceed that of a mere fee dispute “for payment of money due to [Synergy].”

In Choice Hotels Intern., Inc. v. BSR Tropicana Resort, Inc. (4th Cir. 2001) 252 F.3d 707, 709, the Fourth Circuit interpreted the following arbitration provision:

Except for claims for indemnification, actions for collection of moneys owed [to Choice] under this Agreement, or actions seeking to enjoin [BSR] from using [Choice's trademarks] in violation of this Agreement, any controversy or claim relating to this Agreement, or the breach of this Agreement, including any claim that this Agreement or any part of this Agreement is invalid, illegal, or otherwise voidable or void, will be sent to final and binding arbitration....

Due to the Fourth Circuit’s interpretation of the words “collection” and “owed” the Fourth Circuit determined that the exception to arbitration applied only to an “action for collection” and not all actions seeking monetary damages. (Choice Hotel Intern., Inc., supra, 252F.3d at p. 711.) “Accordingly, we reject Choice's interpretation of the collection exemption and adhere to the conclusion that only traditional collection actions are excluded from the arbitration requirement.” (Ibid.)

As illustrated above, the Fourth Circuit narrowly interpreted the arbitration exception. Moreover, California law favors a narrow interpretation of arbitration exceptions. “California has a strong public policy favoring arbitration and, as a result, ambiguities or doubts about the scope of the arbitration provision should be resolved in favor of arbitration. [Citation.] In accordance with this policy, ‘an exclusionary clause in an arbitration provision should be narrowly construed.’ [Citation.]” (Eminence Healthcare, Inc. v. Centuri Health Ventures, LLC (2022) 74 Cal.App.5th 869, 875–876 (Eminence Healthcare, Inc.).)

According to Black’s Law Dictionary, the word “due” is interpreted to mean “immediately enforceable” such as “payment is due on delivery” and “owing or payable; constituting a debt” such as “the tax refund is due from the IRS.” (Black's Law Dictionary (11th ed. 2019).) Therefore, “for payment of money due to [Synergy]” means a debt collection that pertains to payment obligations owed to Synergy that are fixed by the CSAs and not contingent on additional events or causes of action.

Furthermore, the Plaintiffs fail to point to case law[1] that would support the interpretation that the phrase “for payment of money due to [Synergy]” encompasses causes of action based on breach of contract. The arbitration provisions in the CSAs broadly state—“Any disputes, controversies or claims arising under or relating to this Agreement” are to be settled “exclusively by binding arbitration.” (DeCastro Decl. Ex. B, C, D & I at § 13.) The court is not inclined to interpret the phrase “for payment of money due to [Synergy]” as broadly encompassing breach of contract claims or any claim for monetary damages. Such an interpretation would defeat the broad scope of the arbitration provision. “ ‘This would permit a party to obtain from a court essentially the same relief as that otherwise reserved for the arbitrator. It would make little sense to include such an expansive loophole in what is otherwise a sweeping arbitration provision.’” (Eminence Healthcare, Inc., supra, 74 Cal.App.5th at p. 877 citing Information Systems Audit and Control Association, Inc. v. TeleCommunication Systems, Inc. (N.D. Ill., June 23, 2017, No. 17 C 2066) 2017 WL 2720433, at p. *4.)

For this reason, the court finds that the Plaintiffs’ breach of contract claims fall do not fall within the narrow arbitration exception outlined in the CSAs.

C. The Doctrine of Equitable Estoppel Applies to Plaintiffs’ Claims Against Mildred DeCastro

Defendants argue that Plaintiffs’ claims against individual Defendant Mildred DeCastro are also subject to arbitration under the doctrine of equitable estoppel. Under the doctrine of equitable estoppel “a nonsignatory is allowed to enforce an arbitration clause because the claims against the nonsignatory are dependent on, or inextricably intertwined with, the contractual obligations of the agreement containing the arbitration clause.” (Jarboe v. Hanlees Auto Group (2020) 53 Cal.App.5th 539, 549.)

Plaintiffs argue that the doctrine of equitable estoppel does not apply to Defendant DeCastro because the claims alleged against her are for aiding and abetting Defendant Estrella “Star” Choy (“Choy”) in breaching her fiduciary duty owed to the Plaintiffs. (Compl. ¶ 111.) Choy owed Plaintiffs a fiduciary duty due to her role as Chief Operations Officer and senior manager for Plaintiffs’ operations. (Compl. ¶¶ 7, 19.) DeCastro is alleged to have facilitated Choy’s wrongful conduct “by directing that more overbilling be directed to Plaintiffs, Santa Anita, Olympia and Golden Legacy facilities where Choy and DeCastro had no ownership interests.” (Compl. ¶ 114.) While “directing that less be billed to the Two Palms, Rose Garden, and Millbrae facilities where Choy and DeCastro had ownership interests.” (Compl. ¶ 101.)

The court disagrees with Plaintiffs’ contention that the claims against Mildred DeCastro do not depend on the CSAs because whether Defendant Choy breached her fiduciary duty to the Plaintiffs depends on whether the Plaintiffs were overbilled for the services provided in the CSAs. If there was a finding that the Plaintiffs were not overbilled for the services provided by Defendants, then Plaintiff’s breach of fiduciary duty claims against Choy, as well as the aiding and abetting claim alleged against Mildred DeCastro, would also fail and there would be no other basis for liability against these Defendants. In this manner, the Plaintiffs’ claims are “inextricably intertwined with, the contractual obligations” Defendants owed Plaintiff under the CSAs. (Jarboe, supra, 53 Cal.App.5th at p. 549.) Moreover, the Plaintiffs fail to rebut the Defendants’ evidence that DeCastro signed the serve of agreement with the Plaintiffs on behalf of Synergy and an agent of Synergy she is entitled to rely on the arbitration clause. (Thomas v. Westlake (2012) 204 Cal.App.4th 605, 613, 139 [The agency exception applies where a defendant acted as an agent of a party subject to an arbitration agreement].)

Therefore, the court agrees that Plaintiffs’ claims against Mildred DeCastro are subject to arbitration.

Based on the foregoing, Defendants’ Motion is granted, and the action is stayed pending arbitration.

defendants’ Motion to Compel Arbitration and Stay the Action is granted. The court sets an

OSC Re: Status of Arbitration for January 6, 2025, at 8:30 a.m. Defendants to give notice.

[1] Plaintiffs rely on Zenger-Miller, Inc. v. Training Team, GmbH (N.D. Cal. 1991) 757 F.Supp. 1062 for the proposition that “fee disputes” are subject to arbitration but the case does not apply because the arbitration provision in Zengler-Miller did not relate to an exception to arbitration but to an arbitration clause that covered all controversies “relating to amounts due and owing.” (Id. at p. 1067.) As explained below, arbitration exceptions are narrowly construed.