Judge Jill Feeney, Case Number: 23STCV18376, Date: 2024-02-26 Tentative Ruling

This is an action for breach of contract, intentional misrepresentation, fraudulent suppression of material fact, constructive fraud, intentional interference with contractual relationship, negligent misrepresentation, negligent interference with economic relationship, unfair competition and business practices, and declaratory relief. Plaintiff Textile House, Inc. alleges that in 2019, unauthorized wireless phone numbers were added to its account, causing Plaintiff to incur fraudulent charges in excess of $10,000. Although Defendants determined these charges were fraudulent and agreed to cancel the charges, Defendants thereafter refused to remove the charges and discontinued Plaintiff’s phone service.

California law reflects a strong public policy in favor of arbitration as a relatively quick and inexpensive method for resolving disputes. To further that policy, California Code of Civil Procedure section 1281.2 requires a trial court to enforce a written arbitration agreement unless one of three limited exceptions applies. Those statutory exceptions arise where (1) a party waives the right to arbitration; (2) grounds exist for revoking the arbitration agreement; and (3) pending litigation with a third party creates the possibility of conflicting rulings on common factual or legal issues.” (Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal.App.4th 959, 967 [citations omitted]; Code Civ. Proc. § 1281.2.)

In deciding a petition to compel arbitration, trial courts must decide first whether an enforceable arbitration agreement exists between the parties, and then determine the second gateway issue whether the claims are covered within the scope of the agreement. (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.) The party seeking arbitration has the “burden of proving the existence of a valid arbitration agreement by a preponderance of the evidence, while a party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense.” (Ruiz v. Moss Bros. Auto Group, Inc. (2014) 232 Cal.App.4th 836, 842.) The trial court “sits as the trier of fact, weighing all the affidavits, declarations, and other documentary evidence, and any oral testimony the court may receive at its discretion, to reach a final determination.” (Id.) General principles of contract law govern whether parties have entered a binding agreement to arbitrate. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236; see also Winter v. Window Fashions Professions, Inc. (2008) 166 Cal.App.4th 943, 947.)

Whether there is a written agreement to arbitrate is a matter of contract, and courts must enforce arbitration contracts according to their terms. (Banc of California, National Association v. Superior Court of Los Angeles County (2021) 69 Cal.App.5th 357, 366.) A party cannot be required to submit to arbitrate any dispute to which he has not agreed to arbitrate. (Id.)

A contract is not formed without mutual assent. (Civ. Code, §§ 1550, 1565.) However, “[t]he existence of mutual assent is determined by objective criteria, not by one party’s subjective intent. The test is whether a reasonable person would, from the conduct of the parties, conclude that there was a mutual agreement.” (Marin Storage & Trucking, Inc. v. Benco Contracting and Engineering, Inc. (2001) 89 Cal.App.4th 1042, 1050)

A signature is not required to demonstrate express acceptance of an arbitration agreement. (Pinnacle Museum Tower Ass’n v. Pinnacle Market Dev. (US), LLC (2012) 55 Cal.4th 223, 23.) An arbitration clause within a contract may be binding on a party even if the party never actually read the clause. (24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th 1199, 1215.)

Defendants contend that when Plaintiff activated two new telephone numbers for wireless services on March 6, 2014, Plaintiff would have “been required to accept AT&T Terms of service.” ((Schuddeboom Decl., ¶7.) Defendants maintain that the Wireless Customer Agreement (Schuddeboom Decl., Exhibit A) which contains an arbitration provision is the agreement that would have been effect on March 6, 2014.

Here, Defendants fail to provide evidence that Plaintiff accepted the Wireless Customer Agreement. Defendants’ Associate Director, Andrew Schuddeboom, testifies that customers are required to accept AT&T’s terms of service. (Schuddeboom Decl., ¶5.) In September 2010, Plaintiff began receiving AT&T wireless services. (Id., ¶7.) In March 2014, Plaintiff activated two new telephone numbers and would have been required to accept AT&T’s terms of service. (Id.) Although Schuddeboom’s testimony shows that customers are typically required to accept AT&T’s terms of service, Defendants provide no evidence that Plaintiff ever expressly accepted the Wireless Customer Agreement containing the arbitration agreement and provides no indication of how any customer would have expressly accepted these terms.

Defendants’ argument that Plaintiff’s acceptance was implied in fact fails because there is no evidence that Plaintiff ever received the Wireless Customer Agreement. A party’s acceptance of an agreement to arbitrate may also be implied in fact. (Pinnacle Museum Tower Ass’n v. Pinnacle Market Dev. (US), LLC, supra., 55 Cal.4th at p. 236.) For example, an employee’s continued employment constitutes acceptance of an arbitration agreement proposed by an employer. (Craig v. Brown & Root, Inc. (2000) 84 Cal.App.4th 416, 422.) Here, Plaintiff’s principal, Iraj Okhovat, testifies that when he originally purchased telephone numbers from AT&T in the 1980s, the entire transaction took place over the telephone. (Okhavat Decl., ¶3.) When Okhavat moved the business to a new address, he called AT&T to transfer the numbers to the new address. (Id.,¶7.) Okhavat was never provided with the Wireless Customer Agreement. (Id., ¶8.) Unlike Craig, where a plaintiff continued working for her employer after receiving a memorandum containing the arbitration agreement, there is no evidence here that Plaintiff ever received the Wireless Customer Agreement. Therefore, evidence that Plaintiff continued using AT&T’s services is not sufficient to show that Plaintiff impliedly accepted the arbitration agreement.

The arbitration agreement in the Internet Terms of Service, which Plaintiff received through a link in a 2018 Customer Service Summary, does not cover the subject of this litigation, the addition of allegedly unauthorized wireless phone numbers to Plaintiff’s account. Defendants reference an arbitration agreement included in AT&T’s Internet Terms of Service which was effective at the time Plaintiff purchased internet service from AT&T. (Schuddeboom Decl., ¶¶11-12.) Plaintiff began receiving AT&T Internet services in November 2013. (Id., ¶10.) Plaintiff upgraded its internet service in November 2018 and would have been required to accept AT&T’s terms of service. (Id.) Defendants emailed a Customer Service Summary containing a link to the Terms of Service to Plaintiff at the time of the upgrade. (Id., ¶11.)

Here, unlike the Wireless Customer Agreement, Defendants’ evidence shows Plaintiff did receive the Internet Terms of Service and continued to use AT&T internet services. However, the Terms of Service appear in the Customer Service Summary, which states “you agree that any dispute arising under or relating to your agreements or service with AT&T related to U-verse TV or Internet…will be resolved through binding arbitration as fully set forth in the application terms and conditions. (Schuddeboom Decl., Exh. B, p. 4.) Additionally, the Internet Terms of Service references AT&T’s internet service products in its terms and the document’s title. (Id., Exh. C.) The products and entities covered by the contract’s terms include AT&T Fiber, Internet, and High Speed Internet. (Id., Exh. C, Schedule 1.) The Terms of Service does not appear to encompass AT&T’s phone services because the terms do not contain any terms or provisions about AT&T’s phone service. Additionally, the contract also states mobile broadband internet services are subject to the wireless agreement, meaning services related to phone service, such as mobile internet service, are subject to a different agreement. Thus, the Internet Terms of Service refers consistently to AT&T’s internet services, does not reference phone services, and points out phone services are subject to a different agreement. Therefore, the context in which the arbitration agreement appears shows that the agreement does not encompass disputes related to AT&T’s phone services. Because this litigation involves a dispute over the addition of two phone lines to Plaintiff’s account, this action does not fall within the scope of the arbitration agreement in the Internet Terms of Service.