Judge: Michael E. Whitaker, Case: 22STCV00772, Date: 2022-08-19 Tentative Ruling

Case Number: 22STCV00772    Hearing Date: August 19, 2022    Dept: 32

PLEASE NOTE:   Parties are encouraged to meet and confer concerning this tentative ruling to determine if a resolution may be reached.  If the parties are unable to reach a resolution and a party intends to submit on this tentative ruling, the party must send an email to the Court at sscdept32@lacourt.org indicating that party’s intention to submit.  The email shall include the case number, date and time of the hearing, counsel’s contact information (if applicable), and the identity of the party submitting on this tentative ruling.  If the Court does not receive an email indicating the parties are submitting on this tentative ruling and there are no appearances at the hearing, the Court may place the motion off calendar or adopt the tentative ruling as the order of the Court.  If all parties do not submit on this tentative ruling, they should arrange to appear in-person or remotely (which is highly encouraged).  Further, after the Court has posted/issued a tentative ruling, the Court has the inherent authority to prohibit the withdrawal of the subject motion and adopt the tentative ruling as the order of the Court. 

 

TENTATIVE RULING

 

DEPARTMENT

32

HEARING DATE

July 15, 2022 – CONTINUED TO AUGUST 19, 2022

CASE NUMBER

22STCV00772

MOTION

Petition to Compel Arbitration

MOVING PARTY

Defendant Studio City Convalescent Hospital, Inc. d/b/a Studio City Rehabilitation Center

OPPOSING PARTY

Plaintiff Paul Bermudez

 

MOTION

 

Defendant Studio City Convalescent Hospital, Inc. d/b/a Studio City Rehabilitation Center (“Petitioner”) petitions to compel Plaintiff Paul Bermudez (“Respondent”), individually and as heir and successor in interest to Luz Bermudez (“Decedent”), to arbitrate Respondent’s claims for violations of the Elder and Dependent Adult Civil Protection Act, Welfare & Institutions Code section 15600 et seq. (“Elder Abuse Act”), negligence, and wrongful death.  Respondent opposes the petition.

 

ANALYSIS

 

  1. MOTION TO COMPEL ARBITRATION – LEGAL STANDARDS

     

                “[T]he advantages of arbitration include a presumptively less costly, more expeditious manner of resolving disputes.  It follows a party to a valid arbitration agreement has a contractual right to have its dispute with another party to the contract resolved quickly and inexpensively.”  (Henry v. Alcove Investment, Inc. (1991) 233 Cal.App.3d 94, 99–100 [cleaned up].)  Thus, “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 if it determines that an agreement to arbitrate the controversy exists.”  (Code Civ. Proc., § 1281.2; see also

    EFund Capital Partners v. Pless (2007) 150 Cal.App.4th 1311, 1320 [the language in section 1281.2 compelling arbitration is mandatory].) The right to compel arbitration exists unless the court finds that the right has been waived by a party’s conduct, other grounds exist for revocation of the agreement, or where a pending court action arising out of the same transaction creates the possibility of conflicting rulings on a common issue of law or fact.  (Code Civ. Proc., § 1281.2, subds. (a)-(c).)   

     

                “On a petition to compel arbitration, the trial court must first determine whether an agreement to arbitrate the controversy exists.  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.  The party seeking arbitration can meet its initial burden by attaching to the petition a copy of the arbitration agreement purporting to bear the respondent's signature.”  (Bannister v. Marinidence Opco, LLC (2021) 64 Cal.App.5th 541, 543-544 [cleaned up].)  The party seeking to compel arbitration must also “plead and prove a prior demand for arbitration and a refusal to arbitrate under the agreement.”  (Mansouri v. Superior Court (2010) 181 Cal.App.4th 633, 640-641.) 

     

                And while the moving party on a motion to compel arbitration “bears the burden of proving the existence of a valid arbitration agreement by a preponderance of the evidence, [a] party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense.  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.”  (Ruiz v. Moss Bros. Auto Group, Inc. (2014) 232 Cal.App.4th 836, 842 [cleaned up]; see also Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236 [“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”].) 

     

  2. ENFORCEABLE ARBITRATION AGREEMENTS

     

    Petitioner neither alleges, nor offers evidence showing, Respondent has improperly denied Petitioner’s demand for arbitration pursuant to an arbitration agreement with Respondent.  But the opposing party’s refusal to arbitrate may be demonstrated by its filing of a lawsuit rather than commencing arbitration proceedings, as required by the parties’ agreement.  (See Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1060 [moving party meets initial burden by showing agreement exists, and need only establish its validity on challenge by opponent].) 

     

                As to the existence of an enforceable arbitration agreement, Petitioner advances the declaration of counsel for Petitioner, Cecille L. Hester (“Hester”).  Included with Hester’s declaration as Exhibits A and B are documents Hester purports to be copies of the applicable arbitration agreements between Petitioner and Respondent and Petitioner and Decedent (collectively, “Arbitration Agreements”).  In opposition, Respondent objects to both exhibits for lack of foundation because Hester does not have personal knowledge of the documents’ authenticity and, thus, cannot authenticate either exhibit. 

     

                But despite Respondent’s evidentiary objections, he nevertheless acknowledges that he signed an arbitration agreement with Petitioner on November 6, 2020, as part of Decedent’s transfer to Petitioner’s facility on that date.  (See Declaration of Paul Bermudez, ¶¶ 8-11.) It follows, then, that Respondent does not dispute the existence of the Arbitration Agreements, but only that Petitioner’s reliance on the exhibits included with Hester’s declaration is faulty.  Accordingly, absent a direct dispute as to the existence of any arbitration agreement between Petitioner and either Decedent or Respondent, the Court overrules Respondent’s evidentiary objections.

     

    1. WAIVER

       

                  “Waiver of the right to arbitrate does not require a voluntary relinquishment of a known right.  For example, a party may waive the right by an untimely demand even without any intent to forgo the procedure.  In this circumstance, waiver is similar to a forfeiture arising from the nonperformance of a required act.”  (Hoover v. American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1203 (hereafter, Hoover) [cleaned up].)  “Although participation in litigation of an arbitrable claim does not itself waive a party's right later to seek arbitration, at some point, litigation of the issues in dispute justifies a finding of waiver.”  (Id. at p. 1204.)  On the issue of what constitutes a “reasonable time” to demand arbitration, the Hoover court noted:

       

      There is no fixed stage in a lawsuit beyond which further litigation waives the right to arbitrate. Rather, the court views the litigation as a whole in determining whether the parties' conduct is inconsistent with a desire to arbitrate.  A defendant's removal of a case filed in state court to federal court does not by itself constitute an implicit waiver of the right to compel arbitration.  But, a defendant's removal of a case to federal court, coupled with participation in several months of litigation, waives the right to arbitrate because electing to proceed in federal court on an arbitrable dispute is presumptive waiver of the right to arbitrate.

       

      (Ibid. [cleaned up].)  On the issue of prejudice, the Hoover court stated:

       

      The presence or absence of prejudice from the litigation is a determinative issue.  Because of the strong policy favoring arbitration, prejudice typically is found only where the petitioning party has unreasonably delayed seeking arbitration or substantially impaired an opponent's ability to use the benefits and efficiencies of arbitration.  Prejudice sufficient for waiver will be found where instead of seeking to compel arbitration, a party proceeds with extensive discovery that is unavailable in arbitration proceedings.

       

      (Id. at p. 1205 [cleaned up].)  Similarly, in finding there was no waiver to arbitrate, the California Supreme Court noted, in part:

       

      Although we have found no California or United States Supreme Court decisions on point, other courts that have addressed this issue hold that a petitioning party does not waive its arbitration rights merely by seeking to change judicial venue of an action prior to requesting arbitration. In so holding, those courts reason that a party is not required to litigate the issue of arbitration in an improper or inconvenient venue, and that a party's position on venue does not necessarily reflect a position on arbitrability. We agree with that reasoning, and find it consistent with California and federal case law holding that a waiver determination requires the consideration of all circumstances, including the absence or presence of prejudice.

       

      (St. Agnes Medical Center v. PacifiCare of Cal. (2003) 31 Cal.4th 1187, 1205 (hereafter, St. Agnes) [cleaned up].) 

       

                  In Hoover, the appellate court held that the defendant waived its right to arbitration by “actively litigating this action for more than a year and causing prejudice to Hoover.”  (Hoover, supra, 206 Cal.App.4th at p. 1203.)  In particular, the Hoover court determined that the defendant waived its right because it “[d]id not introduce the question of arbitration for almost a full year and [the defendant] conducted litigation in a style inconsistent with the right to arbitrate.  The two failed efforts to remove the case to federal court and [the defendant’s] recalcitrant responses to discovery suggest its policy has been one of delay rather than seeking a more prompt and expeditious resolution through arbitration.  During that time, [the defendant] availed itself of discovery mechanisms like depositions not available in arbitration.  [The defendant] also solicited putative class members, in an effort to reduce the size of the class. Hoover was certainly strongly affected and prejudiced by [the defendant’s] delay, causing significant legal expenses.”

      (Id. at p. 1205 [cleaned up]; but see St. Agnes, supra, 31 Cal.4th at p. 1201 [“a waiver generally does not occur where the arbitrable issues have not been litigated to judgment].) 

       

                  Here, Respondent claims that Petitioner waived the right to arbitration. Respondent’s argument is premised on the following procedural history. 

       

 

    1. UNCONSCIONABILITY

       

                  “Unconscionability is ultimately a question of law for the court.”  (Flores v. Transamerica Homefirst, Inc. (2001) 93 Cal.App.4th 846, 851.)  “However, numerous factual issues may bear on that question.” (Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77, 89.)  As such, Respondent must show two elements to establish the unconscionability defense: (1) procedural unconscionability, which focuses on the manner in which the contract was negotiated, and (2) substantive unconscionability, which concerns whether the contract’s terms are unreasonably one-sided. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 113-115 (hereafter, Armendariz).)

       

                  “The prevailing view is that procedural and substantive unconscionability must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability. But they need not be present in the same degree. Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.  In other words, 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 p. 114 [cleaned up].) 

       

      1. SUBSTANTIVE UNCONSCIONABILITY

         

                    Substantive unconscionability refers to agreement terms which are overly harsh, unduly oppressive, unreasonably unfavorable, or so one-sided as to shock the conscience – which, for practical purposes, all mean the same thing.  (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 915, (hereafter, Sanchez).)  With regard to demonstrating substantive unconscionability, an “old-fashioned bad bargain” or a contract term which “merely gives one side a greater benefit” is insufficient.  (Id. at pp. 911-912.)  The test for substantive unconscionability is whether the terms impair the integrity of the bargaining process or otherwise contravene public policy, or the terms “attempt to alter in an impermissible manner fundamental duties otherwise imposed by the law” or “negate the reasonable expectations of the nondrafting party.” (Sonic-Calabassas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1145; see also Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 247 [“outside the reasonable expectation of the nondrafting party or is unduly oppressive”]; Dougherty v. Roseville Heritage Partners (2020) 47 Cal.App.5th 93, 104-107 (hereafter, Dougherty) [arbitration agreement that curtailed plaintiffs’ ability to recover statutory remedies, such as punitive damages and attorney fees, and contained limitations on discovery that risked frustrating plaintiffs’ statutory elder abuse claims was substantively unconscionable].) 

         

                    Respondent argues that the Arbitration Agreements frustrate Respondent’s statutory rights under the Elder Abuse Act, to the extent that they limit discovery, unfairly restrict the arbitrator from awarding punitive or compensatory damages, fees, and other costs, and apportions the expenses and fees of the arbitrator equally among the parties.  Respondent thus asserts that the Arbitration Agreements are substantively unconscionable.    

         

                    Respondent relies on Dougherty in support of his assertion that the Arbitration Agreements are substantively unconscionable.  In Dougherty, the court of appeal found that an arbitration agreement was both procedurally and substantively unconscionable.  That agreement was to be construed under the Federal Arbitration Act (“FAA”) and would follow the American Arbitration Association (AAA) commercial arbitration rules. 

         

                    With respect to the issue of substantive unconscionability, the plaintiffs in Dougherty argued in part:

         

        [t]he Agreement was substantively unconscionable because it “sharply curtail[ed]” plaintiffs’ discovery rights. Although the governing AAA commercial rules allowed for document exchange, plaintiffs noted there was no provision allowing for form or special interrogatories, and depositions were only allowed in “ ‘exceptional cases ... [and] upon good cause shown.’ ” According to plaintiffs, these restrictions were unfair because the Elder Abuse and Dependent Adult Civil Protection Act (the Act) (Welf. & Inst. Code, § 15600 et seq.) requires a plaintiff to “prove systematic elder abuse as opposed to isolated mistakes by a facility.” Plaintiffs argued the discovery limitations would prevent them from investigating systematic abuse, including defendants’ staffing practices, training, oversight, and regulatory compliance.

         

        (Dougherty, supra, 47 Cal.App.5th at p. 100.)   In upholding the trial court’s denial of petition to compel arbitration, the court of appeal noted:

         

        We agree with the trial court that the discovery limitations here unfairly and unreasonably favor defendants. As operators of an elder residential care facility, it is foreseeable that defendants would face suits under the Act such as the one brought by plaintiffs. Even though the law requires plaintiffs to establish their elder abuse claims under the clear and convincing evidence standard, the governing AAA commercial rules only permit depositions in “exceptional cases” at the discretion of the arbitrator, upon a showing of good cause, and “consistent with the expedited nature of arbitration.” It is unclear whether an arbitrator would consider plaintiffs’ case to be “exceptional” with sufficient “good cause” to warrant depositions. In addition, although the arbitrator has authority to require document discovery, there is no provision for interrogatories or requests for admissions. These discovery restrictions run the risk of frustrating plaintiffs’ statutory rights under the Act.

         

        (Id. at p. 106.) 

         

                    Here, the Arbitration Agreements are “governed by the Federal Arbitration Act and the procedural rules set forth in the Federal Arbitration Act . . .  shall govern any petition to compel arbitration and the selection of an arbitrator, should the parties be unable to mutually agree upon the appointment of a single neutral arbitrator.”  (See Arbitration Agreements, Article 7, p. 2) 

        Per the FAA, in pertinent part:

         

        The arbitrators selected either as prescribed in this title or otherwise, or a majority of them, may summon in writing any person to attend before them or any of them as a witness and in a proper case to bring with him or them any book, record, document, or paper which may be deemed material as evidence in the case. The fees for such attendance shall be the same as the fees of witnesses before masters of the United States courts. Said summons shall issue in the name of the arbitrator or arbitrators, or a majority of them, and shall be signed by the arbitrators, or a majority of them, and shall be directed to the said person and shall be served in the same manner as subpoenas to appear and testify before the court; if any person or persons so summoned to testify shall refuse or neglect to obey said summons, upon petition the United States district court for the district in which such arbitrators, or a majority of them, are sitting may compel the attendance of such person or persons before said arbitrator or arbitrators, or punish said person or persons for contempt in the same manner provided by law for securing the attendance of witnesses or their punishment for neglect or refusal to attend in the courts of the United States.

         

        (FAA, 9 U.S.C.A. § 7 (West).)  There is no other provision in the Arbitration Agreements or the FAA which addresses the parties right to, and scope of, discovery.  And as set forth in the FAA, there is no clear authority for an arbitrator to compel pre-hearing discovery in the form of depositions, requests for production of documents, interrogatories or request for admissions similar to what may be available to the parties outside of any arbitration proceedings.  And the Court finds the rationale in Dougherty to be persuasive. 

         

                    As highlighted by the appellate court, the applicability of AAA rules in Dougherty was the focal point of the trial court’s finding of substantive unconscionability.  The AAA rules limit discovery and those limitations were potentially an impediment to the plaintiffs uncovering evidence related to their claim under the Elder Abuse Act, frustrating their statutory rights.  (See Dougherty, supra, 47 Cal.App.5th at pp. 99, 106.)  The Court of Appeal also noted that under AAA rules, the plaintiffs may be granted equitable relief and damages (economic and noneconomic, but were not entitled to punitive damages and attorneys’ fees.  As such, the limits on discovery and the plaintiffs’ potential recovery warranted a finding of substantive unconscionability.  (Id. at pp. 99, 107.)   The same must be said for the Arbitration Agreements at issue. 

         

                    In its supplemental memorandum of points and authorities, Petitioner argues that the Arbitration Agreements are not governed solely by the FAA.  The Court finds that Petitioner’s reading of Article 7 runs contrary to the plain reading of the terms in the article.  First, Article 7 states unequivocally that “this Agreement is to be governed by the Federal Arbitration Act.”  Second, Article 7 states the FAA procedural rules shall govern the petition to compel arbitration and the selection of the arbitrator if the parties cannot agree to an arbitrator.  These two provisions of Article 7 are distinct.  When read in context, per Article 7, the FAA does not apply to the Arbitration Agreements only if the parties cannot agree on the selection of the arbitrator.  If Petitioner’s reading of Article 7 is correct, then the term “this Agreement is to be governed by the Federal Arbitration Act” would be superfluous. 

         

                    Petitioner also argues that the Arbitration Agreements are governed by California law vis-à-vis discovery rights, citing Article 1.  Petitioner’s interpretation of Article 1 is faulty.  As stated plainly, the terms of Article 1 apply to “medical malpractice” claims.  But Respondent has asserted claims for Violations of the Elder And Dependent Adult Civil Protection Act, Violations of Resident Rights, and Wrongful Death in addition to a claim for negligence.  Thus, based upon Article 1, only Respondent’s claim for negligence may be subject to its terms. 

                   

      2. PROCEDURAL UNCONSCIONABILITY

         

        Procedural unconscionability examines the “oppression that arises from unequal bargaining power and the surprise to the weaker party that results from hidden terms or the lack of informed choice.”  (Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 795.)  Preprinted forms buried within a volume of documents offered on a “take or leave it basis” evidence a high degree of procedural unconscionability.  (See Dougherty, supra, 47 Cal.App.5th at pp. 102-104.)  Most consumer contracts are adhesive and therefore present some procedural unconscionability.  (Sanchez, supra, 61 Cal.4th at p. 915.)  “[A] finding of procedural unconscionability does not mean that a contract will not be enforced, but rather that courts will scrutinize the substantive terms of the contract to ensure they are not manifestly unfair or one-sided.”  (Ibid.) 

         

        The Court first notes that the top of the Arbitration Agreements is the phrase in bold:  “Residents shall not be required to sign this arbitration agreement as a condition of admission to this facility.”  This principle is repeated in Article 3 of the agreements:  “The execution of this Arbitration Agreement is not a precondition to receiving medical treatment, care, services and/or for admission to the Facility and is not a requirement to continue to receive medical treatment, care and services at the Facility.”  Equally important, the agreements contain before the two signature blocks warnings about the impact of agreements in bold red capital letters.  Those warnings are as follows: