Judge: Melvin D. Sandvig, Case: 16A00899, Date: 2022-08-10 Tentative Ruling

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Case Number: 16A00899    Hearing Date: August 10, 2022    Dept: F47

Dept. F47

Date: 8/10/22

Case #CHA16A00899




Motion filed on 3/25/22.


MOVING PARTY: Cross-Defendant Sunlan LDP, LLC

RESPONDING PARTY: Defendant Vivian Laditi



RELIEF REQUESTED: An order compelling Cross-Complainant Vivian Laditi to arbitration. 


RULING: The motion is denied. 


This action arises from a promissory note (Note) Vivian Laditi (Laditi) entered with non-party CashCall, Inc. which contained an arbitration provision.  (Robert Decl., Ex.A).  After Laditi’s default on the Note, Sunlan LDP, LLC (Sunlan) purchased the Note from CashCall acquiring all right, title and interest thereon.  (Ross Decl. ¶¶1-5; Robert Decl. ¶¶1-4).


On 1/19/16, Sunlan filed a limited civil collection action against Laditi for breach of contract and common counts.  On 12/6/16, default judgment was entered against Laditi in the amount of $11,918.09.  (See 12/6/16 Default Judgment).  On 2/9/22, pursuant to Laditi’s motion, the default judgment was set aside and vacated.  (See 2/9/22 Minute Order). 


In addition to filing her Answer to the Complaint, on 2/9/22, Laditi filed a Cross-Complaint against Sunlan for (1) Breach of Contract, (2) Violation of the Fair Debt Collection Practices Act and (3) Violation of the Rosenthal Fair Debt Collection Act.  On 2/22/22, Laditi filed a First Amended Cross-Complaint asserting the same causes of action.  On 2/23/22, Sunlan made a demand for arbitration with regard to the First Amended Cross-Complaint which was rejected on 3/15/22.  (Wootton Decl., Ex.A-C).


On 3/25/22, Sunlan filed and served the instant motion seeking an order compelling Cross-Complainant Vivian Laditi to arbitration.  Laditi has opposed the motion.


Sunlan’s Request for Judicial Notice is granted.


The arbitration provision provides, in relevant part:




GOVERNING LAW. This Note will be governed by the laws of the State of California except to the extent governed by federal law. This Arbitration Provision is governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-16 ("FAA").


WAIVER OF JURY TRIAL AND ARBITRATION PROVISION. Arbitration is a process in which persons with a dispute: (a) waive their rights to file a lawsuit and proceed in court and to have a jury trial to resolve their disputes; and (b) agree, instead, to submit their disputes to a neutral third person (an "arbitrator") for a decision. Each party to the dispute has an opportunity to present some evidence to the arbitrator. Prearbitration discovery may be limited. Arbitration proceedings are private and less formal than court trials. The arbitrator will issue a final and binding decision resolving the dispute, which may be enforced as a court judgment. A court rarely overturns an arbitrator's decision. We have a policy of arbitrating all disputes with customers which cannot be resolved in a small claims tribunal, including the scope and validity of this Arbitration Provision and any right you may have to participate in an alleged class action. THEREFORE, YOU ACKNOWLEDGE AND AGREE AS FOLLOWS:


For purposes of this Waiver of Jury Trial and Arbitration Provision, the words "dispute" and "disputes" are given the broadest possible meaning and include, without limitation (a) all claims, disputes, or controversies arising from or relating directly or indirectly to the signing of this Arbitration Provision, the validity and scope of this Arbitration Provision and any claim or attempt to set aside this Arbitration Provision; (b) all federal or state law claims, disputes or controversies, arising from or relating directly or indirectly to the Loan Agreement, the information you gave us before entering into this Agreement, including the customer information application, and/or any past agreement or agreements between you and us; (c) all counterclaims, cross-claims and third-party claims; (d) all common law claims, based upon contract, tort, fraud, or other intentional torts; (e) all claims based upon a violation of any state or federal constitution, statute or regulation; (f) all claims asserted by us against you, including claims for money damages to collect any sum we claim you owe us; (g) all claims asserted by you individually against us and/or any of our employees, agents, directors, officers, shareholders, governors, managers, members, parent company or affiliated entities (hereinafter collectively referred to as "related third parties"), including claims for money damages and/or equitable or injunctive relief; (h) all claims asserted on your behalf by another person;….


* * *


1. You acknowledge and agree that by entering into this Arbitration Provision:






* * *


3. Any party to a dispute, including related third parties, may send the other party written notice by certified mail return receipt requested of their intent to arbitrate and setting forth the subject of the dispute along with the relief requested, even if a lawsuit has been filed. Regardless of who demands arbitration, you shall have the right to select any of the following arbitration organizations to administer the arbitration: the American Arbitration Association (1-800-778-7879) http://www.adr.org or JAMS (1-800-352-5267) http://www.jamsadr.com. The parties may also agree to select an arbitrator who resides within your federal judicial district who is an attorney, retired judge, or arbitrator registered and in good standing with an arbitration association, and arbitrate in accordance with such arbitrator's rules. The party receiving notice of arbitration will respond in writing by certified mail return receipt requested within twenty (20) days. If you demand arbitration, you must inform us in your demand of the arbitration organization you have selected or whether you desire to select a local arbitrator. If related third parties or we demand arbitration, you must notify us within twenty (20) days in writing by certified mail return receipt requested of your decision to select an arbitration organization. If you fail to notify us, then we have the right to select an arbitration organization. The parties to such dispute will be governed by the rules and procedures of such arbitration organization applicable to consumer disputes, to the extent those rules and procedures do not contradict the express terms of this Arbitration Provision, including the limitations on the arbitrator below. You may obtain a copy of the rules and procedures by contacting the arbitration organization listed above.


4. Regardless of who demands arbitration, at your request we will pay your portion of the arbitration expenses, including the filing, administrative, hearing and arbitrator's fees ("Arbitration Fees")….


5.  All parties, including related third parties, shall retain the right to seek adjudication in a small claims tribunal in the county of your residence for disputes within the scope of tribunal’s jurisdiction.  Any dispute, which cannot be adjudicated within the jurisdiction of a small claims tribunal shall be resolved by binding arbitration.


6.  This Arbitration Provision is made pursuant to a transaction involving interstate commerce and shall be governed by the FAA….


(See Robert Decl., Ex.A, pp.3-5).


Laditi is not arguing that a valid arbitration agreement does not exist or that it is otherwise unenforceable.  Rather, Laditi’s refusal to arbitrate is based on her claim that Sunlan has waived its right to arbitrate by litigation conduct.  This Court agrees.


Contrary to Sunlan’s assertion, whether it waived its right to arbitrate is not a “gateway issue” to be decided by the arbitrator.  The arbitration provision at issue is governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-16 (FAA).  (Robert Decl., Ex.A, pp.3, 5).  Therefore, the Court must apply federal law in deciding whether Sunlan waived its right to compel arbitration. 


Under federal law, there are two categories of “gateway issues” on motions to compel arbitration with the first being decided by the court and the second being decided by the arbitrator.  See Martin (9th Cir. 2016) 829 F.3d 1118, 1122-1123.  The first category of gateway issues is a question of arbitrability – i.e., whether the parties are bound by the arbitration provision or whether it applies to a particular type of controversy.  Id.  The second category of gateway issues involves procedural issues – i.e., whether a party met the arbitral forum’s statute of limitations for filing a case.  Whether a party has waived the right to compel arbitration by its litigation conduct is part of the first category to be decided by the court unless the parties clearly and unmistakably provide otherwise.  Id. at 1122-1124; See also Cox (9th Cir. 2008) 533 F.3d 1114, 1117, 1120; Jurosky (S.D. Cal. 2020) 441 F.Supp.3d 963, 975-976; Hong (2013) 222 CA4th 240, 257-258. 


Here, Sunlan has failed to overcome the presumption that the gateway issue of whether it waived its right to arbitration is to be decided by the Court.  As such, this Court will determine the issue of whether Sunlan waived its right to arbitration in this matter. 


A party seeking to prove the right to compel arbitration has been waived must show: (1) knowledge of an existing right to compel arbitration and (2) intentional acts inconsistent with that existing right.  See Fisher (9th Cir. 1986) 791 F.2d 691, 694.  The Fisher opinion set forth a third requirement to establish waiver: prejudice to the person opposing arbitration from such inconsistent acts.  Id.  However, the United States Supreme Court has recently held that the Federal Arbitration Act does not allow courts to create a special rule, i.e., prejudice, when considering the waiver argument.  See Morgan (2022) 142 S.Ct. 1708, 1713-1714.


Sunlan stands in the shoes of CashCall, which entered the Note with Laditi.  (See Robert Decl., Ex.A, p.5, number 7).  Therefore, Sunlan had knowledge of its right to arbitrate its claims when it filed the limited collection action.  Additionally, once Laditi made her cross-claims against Sunlan, Sunlan moved to compel the arbitration of those claims further establishing its knowledge of its right to arbitrate. 


The filing of the limited collection action and proceeding to default judgment (which has now been set aside) was an intentional act by Sunlan inconsistent with its right to arbitrate.  The only court action allowed by the arbitration provision is a small claims action, not a limited civil action.  (Robert Decl., Ex.A, p.4, number 1.(b)).  The Court finds the language in the arbitration provision which states that the parties may demand arbitration “even if a lawsuit has been filed” is intended to apply to a party against whom a lawsuit has been filed.  (Id. at p.4, number 3).  To interpret otherwise would essentially render the requirement to arbitrate meaningless.


Finally, the Court notes that the motion indicates that Sunlan is making the motion as “Cross-Defendant,” not Plaintiff and Cross-Defendant, against “Cross-Complainant,” not against Defendant and Cross-Complainant.  (See Motion, p.1:6, p.1:15, p.2:3-5).  Further, the declaration of attorney Wootton filed in support of the motion indicates that she demanded arbitration regarding the First Amended Cross-Complaint/ Laditi’s cross-claims.  (Wootton Decl. ¶¶2, 6 Ex.A).  Sunlan never specifically states that it is seeking to arbitrate its claims against Laditi.  Presumably, Sunlan intended to seek to compel the arbitration of both its claims against Laditi and Laditi’s cross-claims.  However, the relief sought is not clearly set forth in the notice of motion.  See CRC 3.1110(a).  If Sunlan is seeking to only compel the arbitration of Laditi’s cross-claims and have its claims resolved in this Court, Sunlan cannot have it both ways.  Regardless, as set forth above, the Court finds that Sunlan waived its right to compel arbitration of either its claims against Laditi or Laditi’s cross-claims.