Judge Michael P. Linfield, Case 22STCV05509 2022-09-14 Tentative Ruling

Judge: Michael P. Linfield, Case: 22STCV05509, Date: 2022-09-14 Tentative Ruling

Resp. Party: Plaintiffs Yaakov Feingold (“Feingold”), Fenton Villa, Inc.; Home of Compassion No. 2, Inc.; Family Circle CLHF, Inc; Valley Living Center, Inc.; Potter Care LLC; Healthy Life Congregate Care; Valley View Congregate Living Facility; Corbin Congregate Home, Inc.; Royal Haven LLC; AGLB, Inc. Doing Business As La Tuna Home; and Rancho Maria CLHF, LLC. (“Plaintiffs”)

Moving Party: Defendants Elisha Kamornick, EK Healthcare Consulting, LLC, Max Health Inc., and CLHF Homes, LLC (“Defendants”)

Resp. Party: Plaintiffs Yaakov Feingold, Fenton Villa, Inc.; Home of Compassion No. 2, Inc.; Family Circle CLHF, Inc; Valley Living Center, Inc.; Potter Care LLC; Healthy Life Congregate Care; Valley View Congregate Living Facility; Corbin Congregate Home, Inc.; Royal Haven LLC; AGLB, Inc. Doing Business As La Tuna Home; and Rancho Maria CLHF, LLC.

Defendant Max Health Inc.’s Demurrer to the Fifty-Second Cause of Action for Intentional Interference with Prospective Economic Advantage in Plaintiffs’ Second Amended Complaint is OVERRULED.

Defendants Elisha Kamornick, EK Healthcare Consulting, LLC, Max Health Inc., and CLHF Homes, LLC's Petition to Compel Arbitration and Stay Proceedings is DENIED.

On February 14, 2022, Plaintiffs Yaakov Feingold, Fenton Villa, Inc.; Home Of Compassion No. 2, Inc.; Family Circle CLHF, Inc; Valley Living Center, Inc.; Potter Care LLC; Healthy Life Congregate Care; Valley View Congregate Living Facility; Corbin Congregate Home, Inc.; Royal Haven LLC; AGLB, Inc. Doing Business As La Tuna Home; Rancho Maria CLHF, LLC; and CLHF Homes LLC filed a complaint against Defendants Elisha Kamornick, EK Healthcare Consulting, LLC, Max Health Inc., Acute Care Catering Specialists LLC and Stephanie Kamornick, alleging fifty-two causes of action including breach of fiduciary duty, breach of contract, accounting, declaratory relief, conversion, and intentional interference with economic prospective advantage.

On June 6, 2022 Plaintiffs Yaakov Feingold, Fenton Villa, Inc.; Home Of Compassion No. 2, Inc.; Family Circle CLHF, Inc; Valley Living Center, Inc.; Potter Care LLC; Healthy Life Congregate Care; Valley View Congregate Living Facility; Corbin Congregate Home, Inc.; Royal Haven LLC; AGLB, Inc. Doing Business As La Tuna Home; Rancho Maria CLHF, LLC filed a First Amended Complaint against Defendants Elisha Kamornick, EK Healthcare Consulting, LLC, Max Health Inc., Acute Care Catering Specialists, LLC, CLHF Homes LLC, and Stephanie Kamornick alleging fifty-four causes of action including breach of fiduciary duty, breach of contract, accounting, declaratory relief, conversion, and intentional interference with economic prospective advantage.

On July 14, 2022, Plaintiffs Yaakov Feingold, Fenton Villa, Inc.; Home Of Compassion No. 2, Inc.; Family Circle CLHF, Inc; Valley Living Center, Inc.; Potter Care LLC; Healthy Life Congregate Care; Valley View Congregate Living Facility; Corbin Congregate Home, Inc.; Royal Haven LLC; AGLB, Inc. Doing Business As La Tuna Home; Rancho Maria CLHF, LLC filed a Second Amended Complaint against Defendants Elisha Kamornick, EK Healthcare Consulting, LLC, Max Health Inc., Acute Care Catering Specialists, LLC, CLHF Homes LLC, and Stephanie Kamornick alleging fifty-three causes of action including breach of fiduciary duty, breach of contract, accounting, declaratory relief, conversion, and intentional interference with economic prospective advantage.

On August 10, 2022, Defendant Max Health Inc. (“Max Health”) demurred to the Fifty-Second Cause of Action for Intentional Interference with Prospective Economic Advantage in Plaintiffs’ Second Amended Complaint (“SAC”) on the grounds that this claim fails to state sufficient facts to constitute a cause of action pursuant to CCP § 430.10(e).

On August 10, 2022, Defendants Elisha Kamornick, EK Healthcare Consulting, LLC, Max Health Inc., and CLHF Homes, LLC petitioned the Court, “pursuant to California Code of Civil Procedure (“CCP”) Sections 1281.2, 1281.4, and 1281.7 for an order compelling arbitration of this matter and staying the underlying action.” (Petition to Compel Arbitration (“Petition”), p. 2:6-7.)

On August 25, 2022, Plaintiffs opposed Defendants Elisha Kamornick, EK Healthcare Consulting, LLC, Max Health Inc., and CLHF Homes, LLC’s petition to compel arbitration.

On September 7, 2022, Defendants Elisha Kamornick, EK Healthcare Consulting, LLC, Max Health Inc., and CLHF Homes, LLC replied to Plaintiffs’ opposition to their petition to compel arbitration.

On September 7, 2022, Max Health replied to Plaintiffs opposition to Max Health’s demurrer.

On September 7, 2022, Defendants Elisha Kamornick, EK Healthcare Consulting, LLC, Max Health Inc., and CLHF Homes, LLC (“Defendants”) made evidentiary objections to the “Declaration of Avrohom Gutman (“Gutman Decl.”) and the Declaration of Yaakov Feingold (“Feingold Decl.”), which were submitted by Plaintiffs in support of their Opposition to Defendants’ Petition/Motion to Compel Arbitration and Stay Proceedings.” (Defendants’ Evidentiary Objections, p. 1:3-5.)

Objection
1	SUSTAINED
2	SUSTAINED
3	SUSTAINED
4	SUSTAINED
5	SUSTAINED
6		OVERRULED
7		OVERRULED
8		OVERRULED
9	SUSTAINED

A demurrer is a pleading used to test the legal sufficiency of other pleadings. (Cty. of Fresno v. Shelton (1998) 66 Cal.App.4th 996, 1008–09; Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) It raises issues of law, not fact, regarding the form or content of the opposing party’s pleading. It is not the function of the demurrer to challenge the truthfulness of the complaint. (Unruh-Haxton v. Regents of Univ. of California (2008) 162 Cal.App.4th 343, 365, as modified (May 15, 2008).) For purpose of the ruling on the demurrer, all facts pleaded in the complaint are assumed to be true, however improbable they may be. (CCP §§ 422.10, 589.)

A demurrer can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311.) No other extrinsic evidence can be considered (i.e., no “speaking demurrers”). A demurrer is brought under Code of Civil Procedure § 430.10 (grounds), § 430.30 (as to any matter on its face or from which judicial notice may be taken), and § 430.50(a) (can be taken to the entire complaint or any cause of action within).

A demurrer may be brought under Code of Civil Procedure section 430.10, subdivision (e) if insufficient facts are stated to support the cause of action asserted. A demurrer for uncertainty may be brought pursuant to Code of Civil Procedure section 430.10, subdivision (f). “A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616.) “In general, ‘demurrers for uncertainty are disfavored, and are granted only if the pleading is so incomprehensible that a defendant cannot reasonably respond.’” (Lickiss v. Financial Industry Regulatory Authority (2012) 208 Cal.App.4th 1125, 1135.)

“The court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that:

(c) A party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact. For purposes of this section, a pending court action or special proceeding includes an action or proceeding initiated by the party refusing to arbitrate after the petition to compel arbitration has been filed, but on or before the date of the hearing on the petition. This subdivision shall not be applicable to an agreement to arbitrate disputes as to the professional negligence of a health care provider made pursuant to Section 1295.” (CCP § 1281.2.)

A proceeding to compel arbitration is in essence a suit in equity to compel specific performance of a contract. (Freeman v. State Farm Mutual Auto Insurance Co. (1975) 14 Cal.3d 473, 479.) Such enforcement may be sought by a party to the arbitration agreement. (CCP § 1280(e)(1).) Under both the Federal Arbitration Act and California law, arbitration agreements are valid, irrevocable, and enforceable, except on such grounds that exist at law or equity for voiding a contract. (Winter v. Window Fashions Professions, Inc. (2008) 166 Cal.App.4th 943, 947.) The party moving to compel arbitration must establish the existence of a written arbitration agreement between the parties. (CCP § 1281.2.)

The petition to compel arbitration functions as a motion and is to be heard in the manner of a motion, i.e., the facts are to be proven by affidavit or declaration and documentary evidence with oral testimony taken only in the court's discretion. (CCP §1290.2; Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413, 414.) The petition to compel must set forth the provisions of the written agreement and the arbitration clause verbatim, or such provisions must be attached and incorporated by reference. (Cal. Rules of Court, rule 3.1330; see Condee v. Longwood Mgmt. Corp. (2001) 88 Cal.App.4th 215, 218, 219.)

To decide a petition to compel arbitration, trial courts must first decide whether an enforceable arbitration agreement exists between the parties, and then determine whether the claims are covered within the agreement’s scope. (Omar v. Ralphs Grocer Co. (2004) 118 Cal.App.4th 955, 961.)

The Court may decline to enforce an arbitration agreement if the party opposing arbitration can establish that the agreement is unconscionable. It is traditionally stated that for an arbitration agreement to be unenforceable as unconscionable, both procedural and substantive unconscionability must be present. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114.) Procedural and substantive unconscionability need not be present to the same degree. (Ibid.) “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.” (Ibid.)

An arbitration agreement is lawful if it “(1) provides for neutral arbitrators, (2) provides for more than minimal discovery, (3) requires a written award, (4) provides for all of the types of relief that would otherwise be available in court, and (5) does not require employees to pay either unreasonable costs or any arbitrators' fees or expenses as a condition of access to the arbitration forum.” (Armendariz, supra, 24 Cal.4th at 102.)

1. Demurrer to the Fifty-Second Cause of Action for Intentional Interference with Prospective Economic Advantage in Plaintiffs’ Second Amended Complaint

“For intentional interference, the plaintiff must plead and prove: (1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship. With respect to the type of intentional disruptive acts that are actionable, they must be wrongful by some independent legal measure, beyond interference.

Next, an intentional interference claim requires setting forth facts of (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant. A proximate cause showing is required for a plaintiff to recover for harm that is closely connected to the defendant's alleged wrongful conduct.” (Golden Eagle Land Investment, L.P. v. Rancho Santa Fe Assn. (2018) 19 Cal.App.5th 399, 429–430 (cleaned up); see also San Jose Construction, Inc. v. S.B.C.C., Inc. (2007) 155 Cal.App.4th 1528, 1544-1545.)

Plaintiffs allege in the SAC (1) the existence of an economic relationship between Plaintiffs and a third-party, Max Health’s knowledge of those relationships, Max Health’s intentional acts designed to disrupt the relationship, actual disruption of Plaintiffs’ relationships with third parties, and economic harm to Plaintiffs proximately caused by Max Health’s conduct. (SAC, ¶¶ 425-433.) The Court finds that Plaintiffs’ demurrer alleges sufficient facts to constitute a cause of action for Intentional Interference with Prospective Economic Advantage.

Plaintiffs SAC references a Master Acquisition and Management Agreement (“MAMA”) between the parties, along with other Management Agreements; each contains the following Arbitration Provision. (SAC, Exs. 1-10.)

“Governing Law; Dispute Resolution; Waiver of Jury Trial. ALL PARTIES WAIVE TRIAL BY JURY IN RESPECT OF ANY CLAIM, COUNTERCLAIM, ACTION, OR CAUSE OF ACTION RELATING TO OR ARISING OUT OF THIS AGREEMENT. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY ALL PARTIES AND ALL PARTIES HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY PERSON OR ENTITY TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THIS PROVISION IS A MATERIAL INDUCEMNET [sic] FOR THE PARTIES ENTERING INTO THIS AGREEMENT. ALL PARTIES ARE HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER OF JURY TRIAL. ALL PARTIES FURTHER REPRESENT AND WARRANT THAT THEY HAVE BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL OR HAVE HAD THE OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND THAT THEY HAVE HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER AND THIS AGREEMENT WITH COUNSEL OR HAVE ELECTED NOT TO DO SO IN THEIR SOLE AND ABSOLUTE DISCRETION. ANY DISPUTE, CLAIM OR CONTROVERSY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR TO THE BREACH, TERMINATION, ENFORCEMENT, INTERPRETATION OR VALIDITY THEREOF, INCLUDING THE DETERMINATION OF THE SCOPE OR APPLICABILITY OF THIS AGREEMENT TO ARBITRATE, SHALL BE DETERMINED BY ARBITRATION. NO PARTY SHALL RESORT TO ANY COURT OR AUTHORITY FOR THE RESOLUTION OF ANY DISPUTE OTHER THAN A COURT OF JEWISH LAW THAT RULES IN ACCORDANCE WITH ORTHODOX JEWISH LAW (THE "ARBITRATOR"). THE PROCESS OF THE ARBITRATOR SHALL BE AN ALTERNATIVE DISPUTE RESOLUTION MECHANISM WITH RESPECT TO ANY AND EACH DISPUTE AND ALL PARTIES WAIVE ANY RIGHT TO A JURY TRIAL OR ANY USE OF ANY COURT OR AUTHORITY OTHER THAN THE ARBITRATOR. THE RULING OF THE ARBITRATOR WITH RESPECT TO ANY AND EACH DISPUTE SHALL BE BINDING UPON ALL PARTIES AND SHALL NOT BE APPEALABLE. NOTWITHSTANDING THE PROVISIONS OF THIS AGREEMENT THAT REQUIRE ANY AND BACH [sic] DISPUTE TO BE RESOLVED BY THE ARBITRATOR, THE DECISION OF THE ARBITRATOR MAY BE ENFORCED IN SECULAR COURT AS THE RULING OF BINDING ARBITRATION. THE ABOVE HAS BEEN VALIDATED THROUGH "KINYAN SUDDER" ACCORDING TO THE TENENTS OF OUR RABBINIC SAGES OF BLESSED MEMORY.” (SAC, Ex. 1.)

Plaintiff Feingold and Defendant Elisha Kamornick signed each of the Management Agreements and the Master Acquisition and Management Agreement, along with the Addendums to the MAMA. Their signatures evidence a willingness to be governed by this agreement (SAC, Exhs. 1-10.) The Court finds that an arbitration agreement exists between the parties.

“Procedural unconscionability concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. It focuses on factors of oppression and surprise. The oppression component arises from an inequality of bargaining power of the parties to the contract and an absence of real negotiation or a meaningful choice on the part of the weaker party.” (Parada v. Superior Court (2009) 176 Cal.App.4th 1554, 1570.) “Procedural surprise focuses on whether the challenged term is hidden in a prolix printed form or is otherwise beyond the reasonable expectation of the weaker party.” (Parada, 176 Cal.App.4th at 1571.)

No evidence has been provided to suggest that Plaintiff Feingold was an unsophisticated party, or that he was presented with an adhesion contract on a take-it-or-leave-it basis. (Reply, p. 6:6-14.) Further, the Arbitration Provision is printed in all capital letters. The Court finds that the Arbitration Provision is set off from other Management Agreement sections though a bolded and underlined header. (SAC, Ex. 1.)

The Court finds insufficient evidence to conclude that Plaintiffs were oppressed by an unequal bargaining power with Defendants during the negotiation over MAMA and the Management Agreements. The Court finds minimal if any procedural unconscionability.

The Arbitration Provisions states that “No party shall resort to any court or authority for the resolution of any dispute other than a court of Jewish law that rules in accordance with orthodox Jewish law.” However, there is no specification as to what constitutes “Orthodox Jewish law.” Nothing has been provided in the MAMA or the Management Agreements to suggest what elements of orthodox Jewish law would apply to resolve the conflicts between these parties.

My grandfather was a rabbi, as was his father and his father’s father. Each of them would have had a different understanding of “orthodox Jewish law.” There are many strands of orthodoxy in modern (American) Jewish life; it is not clear what “orthodox” law would be followed, what rabbi would be selected or how the beit din would be chosen. Assume for a moment that the losing party in the beit din arbitration were to then to petition this Court to vacate the arbitration award on the grounds that the rabbi(s) conducting the arbitration did not follow “orthodox Jewish law.” How would this Court rule on such motion to vacate? Certainly, this Court could not anoint itself the arbiter or what constitutes “orthodox Jewish law” without violating the First Amendment.

Defendants argue that “[a]greements to resolve disputes before a rabbinical court of Jewish law have been enforced by courts around the country. See Dial 800 v. Fesbinder, 118 Cal. App. 4th 32, 46-47 (2004).” (Reply, p. 8:10-12.) However, defendants’ citation does not support their argument. The Fesbinder Court was concerned with a pending dispute in Israel. Fesbinder simply noted that “[i]n the present case, the uncontroverted evidence indicates the parties expect the three rabbis to return what will amount to an arbitration award. Further, the evidence, none of which is disputed, indicates such an award would be enforceable in Israeli courts.” (Dial 800 v. Fesbinder (2004) 118 Cal.App.4th 32, 47.)

This Court also notes that the arbitration agreement in Fesbinder did not require that the arbitration must “rule[] in accordance with orthodox Jewish law” as is required here. Defendants have not cited any binding California or federal precedent that requires this Court to compel arbitration in this circumstance.

(Note: it is not clear to this Court whether the above concerns regarding “orthodox Jewish law” should be analyzed under substantive unconscionability or procedural unconscionability. Either way, this Court believes that this basic provision of the arbitration agreement is unconscionable. Of course, if it were deemed to be procedurally conscionable because of this clause, then there would be both procedural and substantive unconscionability in the agreement.)

As indicated above, an arbitration agreement is only lawful if it “(1) provides for neutral arbitrators, (2) provides for more than minimal discovery, (3) requires a written award, [and] (4) provides for all of the types of relief that would otherwise be available in court. . . .” (Armendariz, supra, 24 Cal.4th at 102.)

The Arbitration Provision fails on all four issues. It lacks any affirmative statements to suggest that it (1) provides for a neutral arbitrator, (2) provides for any discovery, (3) requires a written award or (4) provides all the types of relief available in court. The Court notes the complete absence of these Armendariz factors in the Arbitration Provision and finds the Arbitration Provision substantially unconscionable to a high degree.

The Court holds that the Arbitration Provision found in the MAMA and the Management Agreements is so substantively unconscionable as to be unenforceable. “[W]here the degree of substantive unconscionability is high — i.e., the contract terms are extremely harsh or unreasonable — ‘evidence of procedural unconscionability’ becomes less important, i.e., a court may ‘disregard[ ] the regularity of the procedural process of the contract formation’ and find the contract unconscionable based solely on the high level of substantive unfairness. (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 144–145 [Chin, dis.], quoting (Armendariz, supra, 24 Cal.4th at 114.)

Further, the Court finds that enforcing the arbitration provision might well require this Court to determine what is “orthodox Jewish law,” a determination that the Constitution forbids this Court to make.

The Court finds that the Arbitration Provisions are unenforceable as a matter of law.

Defendant Max Health Inc.’s Demurrer to the Fifty-Second Cause of Action for Intentional Interference with Prospective Economic Advantage in Plaintiffs’ Second Amended Complaint is OVERRULED.

Defendants Elisha Kamornick, EK Healthcare Consulting, LLC, Max Health Inc., and CLHF Homes, LLC's Petition to Compel Arbitration and Stay Proceedings is DENIED.