Judge Mark A. Young, Case Number: 23SMCV02673, Date: 2024-01-24 Tentative Ruling

Judge: Mark A. Young, Case: 23SMCV02673, Date: 2024-01-24 Tentative Ruling

Case Number: 23SMCV02673 Hearing Date: January 24, 2024 Dept: M

CASE NAME: Guiora LLC, et al., v. Raines Feldman LLP, et al.

CASE NO.: 23SMCV02673

MOTION: Petition/Motion to Compel Arbitration

HEARING DATE: 1/24/2024

Legal Standard

Under California and federal law, public policy favors arbitration as an efficient and less expensive means of resolving private disputes. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 8-9; AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 339.) Accordingly, whether an agreement is governed by the California Arbitration Act (“CAA”) or the Federal Arbitration Act (“FAA”), courts resolve doubts about an arbitration agreement’s scope in favor of arbitration. (Moncharsh, supra, 3 Cal.4th at 9; Comedy Club, Inc. v. Improv West Assocs. (9th Cir. 2009) 553 F.3d 1277, 1284; see also Engalla v. Permanente Med. Grp., Inc. (1997) 15 Cal.4th 951, 971-972 [“California law incorporates many of the basic policy objectives contained in the Federal Arbitration Act, including a presumption in favor of arbitrability [citation] and a requirement that an arbitration agreement must be enforced on the basis of state law standards that apply to contracts in general”].) “[U]nder both the FAA and California law, ‘arbitration agreements are valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.’ ” (Higgins v. Superior Crout (2006) 140 Cal.App.4th 1238, 1247.)

“Code of Civil Procedure section 1281.2 requires a trial court to grant a petition to compel arbitration if the court determines that an agreement to arbitrate the controversy exists.” (Avery v. Integrated Healthcare Holdings, Inc. (2013) 218 Cal.App.4th 50, 59, quotations omitted.) Accordingly, “when presented with a petition to compel arbitration, the court’s first task is to determine whether the parties have in fact agreed to arbitrate the dispute.” (Ibid.) A petition to compel arbitration is in essence a suit in equity to compel specific performance of a contract. (Id. at 71.) As with any other specific performance claim, “a party seeking to enforce an arbitration agreement must show the agreement’s terms are sufficiently definite to enable the court to know what it is to enforce.” (Ibid. [internal citations omitted].) “Only the valid and binding agreement of the parties, including all material terms well-defined and clearly expressed, may be ordered specifically performed.” (Ibid.) An arbitration agreement “must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.” (Civ. Code, § 1636.) The language of the contract governs its interpretation if it is clear and explicit. (Civ. Code, § 1368.) If uncertainty exists, “the language of a contract should be interpreted most strongly against the party who caused the uncertainty to exist.” (Civ. Code, § 1654.)

The party seeking to compel arbitration bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972.) It would then be plaintiff’s burden, in opposing the motion, to prove by a preponderance of the evidence any fact necessary to her opposition. (See Ibid.) “In these summary proceedings, the trial court sits as a trier of fact, weighing all the affidavits, declarations, and other documentary evidence, as well as oral testimony received at the court’s discretion, to reach a final determination.” (Ibid.)

EVIDENTIARY ISSUES

Defendants’ objection is SUSTAINED.

Defendants’ request for judicial notice is GRANTED.

Analysis

Defendants Raines Feldman LLP and Hamid Rafatjoo move to compel Plaintiffs Haim Revah and Lucinda Revahm, as Co-Trustees of the Haim Revah and Lucinda Revah Trust Dated June 2, 2005 (“Trustees”), and Guiora, LLC’s (“Guiora”) claims to arbitration. Defendants assert that the instant claims are required to go to arbitration because Guiora signed an arbitration agreement covering their claims, and the agreement may be enforced against the Trustees as third parties.

As with any contract, mutual assent or consent is necessary for the formation of a valid arbitration agreement. (Civ. Code, §§ 1550, 1565.) “Consent is not mutual, unless the parties all agree upon the same thing in the same sense.” (Civ. Code, § 1580.) The moving party bears the initial burden of showing the existence of an agreement to arbitrate by a preponderance of the evidence. (Mitri v. Arnel Mgmt. Co. (2007) 157 Cal.App.4th 1164, 1169 [“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.”].)

Plaintiffs allege malpractice against Defendants in connection with their representation of Guiora in an underlying Chapter 11 bankruptcy case known as In re Guiora, LLC, United States Bankruptcy Court for the Central District of California - Los Angeles Division, Case No. 2:21-BK-12775-ER (“Bankruptcy Action”). Defendants advised Plaintiffs to use Guiora as a shell and to transfer their home to that entity for no consideration. The bankruptcy was dismissed by the bankruptcy court, finding it was filed in bad faith, and Plaintiff Trustees lost their home.

On March 10, 2021, Raines Feldman and Guiora entered into a written attorney-client fee agreement, which Haim Revah executed on Guiora’s behalf. (Rafatjoo Decl., ¶ 22, Ex. 10.) The Agreement includes an arbitration agreement in Schedule 1, which provides in part:

By signing this engagement letter, both parties agree that, in the event of any dispute or claim arising out of or relating to this Agreement, our relationship, our charges, or our services (including but not limited to disputes or claims regarding our charges, professional malpractice, errors or omissions, breach of contract, breach of fiduciary duty, fraud, or violation of any statute or Rules of Professional Conduct), SUCH DISPUTE OR CLAIM SHALL BE RESOLVED BY SUBMISSION TO FINAL AND BINDING ARBITRATION BEFORE JAMS IN LOS ANGELES COUNTY, CALIFORNIA PURSUANT TO THE JAMS COMPREHENSIVE ARBITRATION RULES AND PROCEDURES. BOTH PARTIES FURTHER AGREE THAT THE ARBITRATION SHALL BE CONDUCTED BEFORE A SINGLE JAMS ARBITRATOR WHO IS A RETIRED CALIFORNIA OR FEDERAL JUDGE OR JUSTICE. BY AGREEING TO ARBITRATE, YOU WAIVE ANY RIGHT YOU HAVE TO A COURT OR JURY TRIAL.

(COE Ex. 13.)

There is no reasonable dispute that this broad clause would apply to the claims at hand as, at least, the claims made by Guiora. The only dispute is whether to enforce this arbitration provision against the Trustees.

The Court concurs that the arbitration provision may be enforced against Trustees on equitable estoppel grounds. In circumstances such as this, the doctrine of estoppel is applicable and can be properly used to compel arbitration of this matter. (Suh v. Superior Court (2010) 181 Cal.App.4th 1504, 1513.) Arbitration is required under the estoppel principle if the non-party has asserted claims that are “dependent upon, or inextricably intertwined with, the obligations” imposed by the agreement containing the arbitration clause. (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1239.) The test is whether the non-party “relies on the agreement” containing the arbitration provision “to establish its cause of action.” (Goldman v. KPMH, LLP (2009) 173 Cal.App.4th 209, 229-230.) Here, Trustees have asserted a claim dependent upon, or inextricably intertwined with Guiora’s claim. Trustees assert the exact same malpractice cause of action as Guiora. Trustees’ claims are therefore entirely dependent on the agreement containing the arbitration clause.

Plaintiffs assert that the agreement is substantively unconscionable because agreements which do not allow for a waiver of arbitration costs by a party financially unable to pay are unconscionable in violation of California’s public policy of ensuring that all litigants have access to the justice system regardless of their financial means. Guiora argues that it has no assets and cannot pay for arbitration. The Court disbelieves the proffered conclusory evidence that Guiora has no assets and cannot pay for its fair share of arbitration. Notably, Guiora fails to explain how it could prosecute this action in court if it has no assets or ability to pay. Notably, Plaintiffs have not applied for fee waivers. The Trustees also argue, without authority, that they cannot be made to pay for any costs for arbitration. In support, they cite general descriptions of third-party beneficiaries to a contract, to wit, that a third-party beneficiary need not supply any consideration to enforce an agreement made for its benefit. (Principal Mut. Life Ins. Co. v. Vars (1998) 65 Cal.App.4th 1469, 1488-89.) This generic authority has no bearing or discussion on the payment of arbitration fees by third-party beneficiaries. Plaintiffs otherwise do not show that they would be denied “equal access to justice” or a violation of any public policy. (See Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77 [discussing public policy within the employment litigation context].) Since the Court does not find that Plaintiffs lack financial means to pay for arbitration, Plaintiffs do not show that the agreement is unconscionable as applied.

Moreover, the doctrine of unconscionability requires additional showings, including the necessary element of procedural unconscionability. (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1133; Armendariz v. Found Health Psychcare Servs., Inc. (2000) 24 Cal.4th 83, 114.) Thus, the Court will not deny the motion on unconscionability grounds.

Defendants therefore meet their burden to demonstrate the existence of an arbitration agreement between the parties that covers Plaintiffs’ claims. Plaintiffs, in turn, fail to demonstrate that the agreement is unconscionable or otherwise unenforceable. Defendants’ motion is therefore GRANTED and the Court orders Plaintiffs’ claims to arbitration, as discussed above. The entire action is STAYED pending the completion of the arbitration. (CCP § 1281.4.)

The Court set a status conference re arbitration for October 24, 2024, at 8:30 a.m. The parties shall file a brief status report on the arbitration proceedings three court days before this hearing.