Judge: Holly J. Fujie, Case: 23STCV05533, Date: 2023-09-18 Tentative Ruling

Case Number: 23STCV05533    Hearing Date: September 18, 2023    Dept: 56

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES - CENTRAL DISTRICT

AND RELATED CROSS-ACTION

MOVING PARTY: Cross-Defendant Arch Hoffman (“Hoffman”)

RESPONDING PARTY: Defendants/Cross-Complainants Kevin Young (“Young”) and GB7 LLC (“GB7”) (collectively, “Cross-Complainants”)

            The Court has considered the moving, opposition and reply papers.

BACKGROUND

This action arises out of an employment relationship.  The currently operative first amended complaint (the “FAC”) alleges: (1) sexual battery; (2) sexual assault; (3) gender violence; (4) sexual harassment and harassment based on sex, gender, national origin, and race in violation of the Fair Employment and Housing Act; (5) constructive discharge in violation of public policy; and (6) intentional infliction of emotional distress. 

Cross-Complainants’ cross-complaint (the “XC”), filed on May 8, 2023 alleges: (1) conspiracy to defraud; (2) breach of fiduciary duty; (3) breach of contract; (4) conversion; (5) money had and received; and (6) money paid.  The XC details alleged wrongful conduct undertaken by Hoffman, an employee of RBC Capital Markets, LLC (“RBC”), while he worked with Cross-Defendants as Young’s wealth manager. 

On August 18, 2023, Hoffman filed a motion to compel arbitration and stay action (the “Motion”) on the grounds that the claims asserted against him in the XC must be adjudicated in binding arbitration pursuant to arbitration clauses contained in written contracts signed by Young. 

DISCUSSION

The purpose of the Federal Arbitration Act (“FAA”) is to move the parties in an arbitrable dispute out of court and into arbitration as quickly and easily as possible.  (Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp. (1983) 460 U.S. 1, 23.)  The FAA is consistent with the federal policy to ensure the enforceability, according to their terms, of private agreements to arbitrate.  (Mastrobuono v. Shearson Lehman Hutton, Inc. (1995) 514 U.S. 52, 57.) 

California law, like federal law, favors enforcement of valid arbitration agreements.  (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97 (“Armendariz”).)  Under California Code of Civil Procedure (“CCP”) section 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.  (CCP § 1281.)  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 unless grounds exist not to compel arbitration.  (CCP § 1281.2.) 

In ruling on a petition to compel arbitration, the trial court first decides whether an enforceable arbitration agreement exists between the parties, and then determines whether the plaintiff’s claims are covered by the agreement.  (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.)  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.)  The trial court may resolve a motion to compel arbitration in summary proceedings.  (Gamma Eta Chapter of Pi Kappa Alpha v. Helvey (2020) 44 Cal.App.5th 1090, 1097.)  Factual issues may be submitted on declarations and affidavits, or by oral testimony in the court’s discretion.  (Juen v. Alain Pinel Realtors, Inc.  (2019) 32 Cal.App.5th 972, 978.)  When the enforceability of an arbitration clause may depend upon which of two sharply conflicting factual accounts is to be believed, the better course would normally be for the trial court to hear oral testimony and allow the parties the opportunity for cross-examination.  (See Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 414.)

Existence of Agreement to Arbitrate

In support of the Motion, Hoffman provides evidence that he has been employed by RBC since March 2019.  (Declaration of Arch Hoffman (“Hoffman Decl.”) ¶ 2.)  On March 22, 2019, in Hoffman’s presence, Young entered into a Master Services Agreement (the “MSA”) with RBC.  (Hoffman Decl. ¶ 13, 19, Exhibit D.)  In accordance with RBC’s policies, Hoffman provided Young with the entire MSA, which consists of three parts.  (See Hoffman Decl. ¶¶ 8, 15, 18.)  Hoffman retained the signature page and left the remainder of the MSA documents with Young.  (Hoffman Decl. ¶ 13.)

Part I of the MSA includes a section entitled “Arbitration Agreement,” which provides, in part:

“YOU AGREE THAT ANY CONTROVERSY ARISING OUT OF OR RELATING DIRECTLY OR INDIRECTLY TO THE MASTER AGREEMENT, OR ANY INVESTMENT BY OR ON BEHALF OF YOU HEREUNDER, OR WITH RESPECT TO TRANSACTIONS OF ANY KIND EXECUTED BY OR WITH RBC WM, ITS OFFICERS, DIRECTORS, AGENTS, EMPLOYEES OR AFFILIATES, OR WITH RESPECT TO THE MASTER AGREEMENT OR ANY OTHER AGREEMENTS ENTERED INTO WITH RBC WM RELATING TO THE ACCOUNTS WITH RBC WM OR THE BREACH THEREOF, SHALL BE SETTLED BY ARBITRATION PURSUANT TO THE FEDERAL ARBITRATION ACT AND IN ACCORDANCE WITH THE RULES, THEN IN EFFECT, OF THE FINANCIAL INDUSTRY REGULATORY AUTHORITY (“FINRA”). JUDGMENT UPON ANY AWARD RENDERED BY THE ARBITRATORS MAY BE ENTERED IN ANY COURT HAVING JURISDICTION THEREOF.”  (Hoffman Decl. ¶ 18, Exhibit E 15 at 12.)

The signature line signed by Young is immediately beneath an “Acknowledgements” provision that provides that the signatory acknowledges that they have read and agreed to the terms of the MSA.  (See Hoffman Decl., Exhibit D at 2.)  The final acknowledgement directly above the signature line states, in bold font: “THE MASTER AGREEMENT INCLUDES A PRE-DISPUTE ARBITRATION CLAUSE ON PAGE 12 OF THIS MASTER AGREEMENT UNDER THE HEADING ‘ARBITRATION AGREEMENT.’”  (Id.) 

On March 22, 2019, Young also entered into a Client Account Agreement (the “CAA”) on behalf of GB7.  (Hoffman Decl. ¶ 21, Exhibit G.)  The signature line of the CAA is directly below an acknowledgement that states “By signing below, I certify that the information provided on this form is true, correct and complete.  I understand that this account is governed by the Client Account Agreement which contains a pre-dispute arbitration provision in Section 18 on Page 5.”  (Hoffman Decl., Exhibit G at 4.)

The arbitration provision in the CAA provides, in part:

“I AGREE THAT ALL CONTROVERSIES OR DISPUTES THAT MAY ARISE BETWEEN ME AND RBC WM, OR ANY OF RBC WM’S AFFILIATES, EMPLOYEES OR AGENTS, CONCERNING ANY TRANSACTION(S), OR THE CONSTRUCTION, PERFORMANCE OR BREACH OF THIS OR ANY OTHER AGREEMENT BETWEEEN ME AND RBC WM PERTAINING TO SECURITIES AND OTHER PROPERTY, WHETHER ENTERED INTO PRIOR, ON OR SUBSEQUENT TO THE DATE HEREOF, SHALL BE DETERMINED BY ARBITRATION.”  (Hoffman Decl., Exhibit F at 9.)

Hoffman declares that has never entered into any oral or written contractual relationships with Cross-Complainants aside from the MSA and CAA.  (See Hoffman Decl. ¶ 17.)

In support of the opposition (the “Opposition”), Young disputes Hoffman’s narrative of the MSA’s execution.  Young declares that he initially retained Hoffman as his personal wealth manager in 2006 and that Hoffman orally agreed to keep Young’s financial information private.  (Declaration of Kevin Young (“Young Decl.”) ¶ 3.)  Young declares that he had never seen Parts I and II of the MSA when he signed the document and has neither physical nor electronic copies of the documents in his records.  (Young Decl. ¶ 5.)  Young further declares that Hoffman failed to review the terms of the Acknowledgements section on the signature page or otherwise mention arbitration before he entered into the MSA.  (See Young Decl. ¶¶ 8-9.)

The Court finds that Hoffman has met his burden to establish the existence of an agreement to arbitrate. The signature forms explicitly acknowledge the existence of binding arbitration provisions.  Cross-Complainants’ failure to read the arbitration provisions or acknowledgements of the provisions on their corresponding signature forms is insufficient to refute their existence and validity.  (See Desert Outdoor Advertising v. Superior Court (2011) 196 Cal.App.4th 86, 872-73.)

Enforcement by Nonsignatories

An entity seeking to compel arbitration must generally establish it was a party to an arbitration agreement.  (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1236.)  Only in limited circumstances may an arbitration agreement be enforced by a nonsignatory.  (See id.)  One such circumstance is where a benefit is conferred on the nonsignatory as a result of the agreement, making the nonsignatory a third party beneficiary of the arbitration agreement.  (Jensen v. U-Haul Co. of California (2017) 18 Cal.App.5th 295, 301.)  Another is when the equitable estoppel doctrine applies and 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.)

By relying on contract terms in a claim against a nonsignatory defendant, even if not exclusively, a plaintiff may be equitably estopped from repudiating the arbitration clause contained in that agreement.  (Boucher v. Alliance Title Company, Inc. (2005) 127 Cal.App.4th 262, 272.)  That the claims are cast in tort rather than contract does not avoid the arbitration clause.  (Id.)  When asserting claims against two defendants that “rely on, make reference to, and presume the existence of” an employment agreement, the Plaintiff is estopped from avoiding arbitration of his causes of action against the nonsignatory defendant.  (Id.) 

Here, although the XC alleges that Hoffman and Young began a business relationship in around 2006 and that at all relevant times, Hoffman worked as Young’s wealth manager, the thrust of XC’s allegations relate to the time period during which Hoffman worked for RBC, and the XC explicitly cites Hoffman’s employment with RBC as a basis for liability.  (See XC ¶¶ 11, 33.)  Young has offered little evidence to refute Hoffman’s position that the allegations in the XC do not flow from the access to information and knowledge of his affairs that were gained as a result of Hoffman’s employment with RBC.  Moreover, the terms of the arbitration provisions in both the MSA and CAA extend to any disputes relating to RBC’s, its agents’, or its employees’ management of the accounts.  The Court therefore finds that Hoffman is entitled to enforce the arbitration provisions as a non-signatory.

Unconscionability

Unconscionability has both a procedural and a substantive element, with the former focusing on oppression or surprise due to unequal bargaining power and the latter on overly harsh or one-sided results.  (Sanchez v. Valencia Holding Company, LLC (2015) 61 Cal.4th 899, 910.)  Though both procedural and substantive unconscionability need to be shown, they need not be present to the same degree; 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.  (Armendariz, supra, 24 Cal.4th at 114.)

1.     Procedural Unconscionability

Procedural unconscionability “pertains to the making of the agreement.”  (Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 795.)  Procedural unconscionability focuses on two factors: “oppression” and “surprise.”  (Zullo v. Superior Court (2011) 197 Cal.App.4th 477, 484.)  Oppression arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice.  (Id.)  Surprise involves 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.  (Id.)

Here, notwithstanding the dispute over whether Young reviewed the underlying contracts in their entirety, it is undisputed that the signed signature pages of both the MSA and CAA make explicit reference to the existence of binding arbitration agreements.  Young’s failure to read the disclosures before signing does not constitute surprise.  The Opposition does not present other evidence of circumstances that constitute the oppression or surprise required to support a finding of procedural unconscionability—rather, the evidence demonstrates that Young agreed to enter the MSA during his second meeting with Hoffman regarding the subject.  The contracts were thus not offered on a take-it-or-leave-it basis and there is no evidence of uneven bargaining power.  The Court therefore finds that the arbitration provisions are not procedurally unconscionable, and as a result, the Court need not analyze substantive unconscionability.

            Based on the foregoing, the Court GRANTS the Motion.  The Court sets a status conference regarding the arbitration on March 6, 2024 at 8:30 a.m. in this department.  The parties are ordered to file a joint status report regarding the status of the arbitration by February 28, 2024.  This action is STAYED pending the conclusion of the arbitration proceedings.

 Moving party is ordered to give notice of this ruling. 

Parties who intend to submit on this tentative must send an email to the Court at SMC_DEPT56@lacourt.org as directed by the instructions provided on the court website at www.lacourt.org.  If the department does not receive an email and there are no appearances at the hearing, the motion will be placed off calendar.

    Dated this 18th day of September 2023