Judge: Michelle Williams Court, Case: 22STCV05754, Date: 2022-10-04 Tentative Ruling

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Case Number: 22STCV05754    Hearing Date: October 4, 2022    Dept: 74

22STCV05754           DEVIN REDMOND vs ALTVIEW LAW GROUP, LLP

Defendants’ Motion to Compel Arbitration and for Stay of Action

TENTATIVE RULING:  Defendants’ Motion to Compel Arbitration and for Stay of Action is DENIED.  Defendants “shall have 15 days after any denial of the petition to plead to the complaint.” (Code Civ. Proc. § 1281.7.)

Background

On February 15, 2022, Plaintiff Devin Redmond filed this action against Defendants Altview Law Group, LLP and John Begakis. The complaint asserts causes of action for (1) negligence (legal malpractice); (2) breach of fiduciary duty; and (3) breach of contract arising out of Defendant’s representation of Devin Redmond in Redmond v. Chronicle Books, LLC, San Francisco Superior Court Case No. CGC-20-583353.

Motion

On April 22, 2022, Defendants Altview Law Group, LLP and John Begakis filed the instant motion to compel Plaintiff to arbitrate pursuant to the fee agreement between the parties.

Opposition

In opposition, Plaintiff contends the Court must decide whether the fee agreement is enforceable, the agreement is voidable because it violates the Business and Professions Code as well as the Rules of Professional Conduct, and the arbitration provision itself is unconscionable.

Reply

In reply, Defendants contend the parties delegated arbitrability to the arbitrator, the fee agreement is not voidable under the Business and Professions Code, does not violate the Rules of Professional Conduct, and the arbitration provision is not unconscionable.

Request for Judicial Notice

Defendants filed a request for judicial notice in connection with their motion with a typographical error indicating non-party “Turo. Inc.” requests judicial notice of the complaint filed in this action. The request is GRANTED, (Evid. Code § 452(d)), though Defendants need not seek judicial notice of the operative complaint in this action in connection with any motion.

Motion to Compel Arbitration

Standard

“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, 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; Code Civ. Proc. § 1281.2.) Similarly, “under the FAA, the strong federal policy favoring arbitration agreements requires courts to resolve any doubts concerning arbitrability in favor of arbitration.” (Valencia v. Smyth (2010) 185 Cal.App.4th 153, 176 (internal quotations omitted).) 

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 opposing party has the burden to establish any defense to enforcement. (Gatton v. T-Mobile USA, Inc. (2007) 152 Cal.App.4th 571, 579 (“The petitioner, T–Mobile here, bears the burden of proving the existence of a valid arbitration agreement and the opposing party, plaintiffs here, bears the burden of proving any fact necessary to its defense.”).) 

If a party asserts the applicability of the Federal Arbitration Act (“FAA”), that party “bears the burden to show it applies by presenting evidence establishing [that] the contract with the arbitration provision has a substantial relationship to interstate commerce . . . .” (Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 238.) Alternatively, the parties may agree to the application of the FAA. (See Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 355 (“But the presence of interstate commerce is not the only manner under which the FAA may apply. As discussed above, the parties may also voluntarily elect to have the FAA govern enforcement of the Agreement, as they did here.”).)

Procedurally, a petition to compel arbitration or stay proceedings must state verbatim the provisions providing for arbitration, or must have a copy of them attached.  (Cal. R. Ct., rule 3.1330.) 

Arbitration Agreement at Issue

“With respect to the moving party’s burden to provide evidence of the existence of an agreement to arbitrate, it is generally sufficient for that party to present a copy of the contract to the court.” (Baker v. Italian Maple Holdings, LLC (2017) 13 Cal.App.5th 1152, 1160.)

Defendants provide a letter fee agreement between Devin Redmond and AltView Law Group, LLP dated November 20, 2019 that provides, in relevant part:

In the event of a dispute between Client and Attorney regarding costs, or any other matter related to or arising out of Client’s engagement of Attorney, or any performance of the Services hereunder, the dispute shall be determined, settled, and resolved by private, confidential arbitration in Los Angeles, California. Notwithstanding the foregoing, Attorney may apply to a court of competent jurisdiction for any provision remedy that may be appropriate (e.g. writ of attachment, preliminary injunction, etc.). Without limiting the generality of the foregoing, the parties expressly agree that any and all questions as to whether or not an issue constitutes a dispute or other matter arbitrable under this section shall themselves be settled by arbitration in accordance with this section. . . . By signing this agreement, the parties agree to binding arbitration of disputes, whether as to fees and/or costs, qualify of services rendered, the arbitrability of the dispute, or otherwise; the parties are giving up rights to a jury or court trial except as aforesaid . . .

(Begakis Decl. Ex. 1 ¶ 8.) While the line for Plaintiff’s initials next to the arbitration provision is blank, the bottom of the agreement provides “Client has read and understands the foregoing terms and agrees to them in all respects.” (Id. Ex. 1. at 4.) Accordingly, Defendants have met their initial burden.

Delegation Clause

“There are two prerequisites for a delegation clause to be effective. First, the language of the clause must be clear and unmistakable. [Citation]. Second, the delegation must not be revocable under state contract defenses such as fraud, duress, or unconscionability.” (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 242.) “We must examine the parties’ agreements to determine what they say concerning the ‘who decides’ question.” (Sandquist v. Lebo Automotive, Inc. (2016) 1 Cal.5th 233, 243.)

Defendants note the arbitration provision contains a delegation clause, and argue the Court must order the parties to arbitration to allow the arbitrator to determine whether Plaintiff’s claims are arbitrable. (Mot. at 9:3-11:13.) The delegation clause provides “the parties expressly agree that any and all questions as to whether or not an issue constitutes a dispute or other matter arbitrable under this section shall themselves be settled by arbitration in accordance with this section” and the arbitration further acknowledges the parties are giving up their right to have issues, including “the arbitrability of the dispute,” decided by the court. (Begakis Decl. Ex. 1 ¶ 8.)

In opposition, Plaintiff contends cited language “contains language providing for the arbitrator to decide whether a particular dispute is within the scope of the arbitration provision,” and argues “Defendant conflates the issue by ignoring the distinction between (1) disputes whether a particular issue is within the scope of the arbitration provision, and (2) disputes whether the agreement containing the arbitration provision is enforceable” (Opp. at 2:13-28.) Plaintiff does not cite any authority in support of his argument, but argues the cases cited by Defendant are distinguishable because the delegation clauses expressly included enforcement and voidability within the scope of the arbitration. (See e.g. Tiri, supra, 226 Cal.App.4th at 237 (“The Arbitrator, and not any federal, state, or local court or agency, shall have the exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability, or formation of this Agreement, including, but not limited to, any claim that all or any part of this Agreement is void or voidable.”); Rent-A-Center, West, Inc. v. Jackson (2010) 561 U.S. 63, 66 (same); Bruni v. Didion (2008) 160 Cal.App.4th 1272, 1281 (“Any disputes concerning the interpretation or the enforceability of this arbitration agreement, including[,] without limitation, its revocability or voidability for any cause, the scope of arbitrable issues, and any defense based upon waiver, estoppel or laches, shall be decided by the arbitrator.”).) However, the Court does not find this distinction material.

The parties agreed that the arbitrator would decide arbitrability as well as “any and all questions as to whether or not an issue constitutes a dispute or other matter arbitrable.” (Begakis Decl. Ex. 1 ¶ 8.)  Whether the fee agreement as a whole is enforceable or voidable is “an issue” or a “dispute” between the parties that Defendants claim is arbitrable. (Bruni, supra, 160 Cal.App.4th at 1286 (“Because the parties are the masters of their collective fate, they can agree to arbitrate almost any dispute—even a dispute over whether the underlying dispute is subject to arbitration.”).) Accordingly, the Court does not address the parties’ arguments addressed to the fee agreement as a whole. Under the express terms of the agreement, the parties would be required to submit their disputes to arbitration, unless the arbitration provision itself is unenforceable.

The Arbitration Provision is Unconscionable

Plaintiff also argues the arbitration provision is unconscionable. (Opp. at 11:1-12:17.) Where the parties have agreed the arbitrator shall decide arbitrability, the Court only determines whether the arbitration provision is unconscionable and does not address arguments related the fee agreement as a whole. (See e.g. Bruni, supra, 160 Cal.App.4th at 1290 (“provided the court concludes that the arbitration clause itself is not unconscionable, it must compel arbitration, leaving it up to the arbitrator to determine whether the contract as a whole is unconscionable.”).)

“Both procedural and substantive unconscionability must be present for a court to refuse to enforce a contract, although they need not be present in the same degree.” (Baxter v. Genworth N. Am. Corp., (2017) 16 Cal.App.5th 713, 721 citing Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1243.) Procedural unconscionability focuses on (1) “oppression” resulting from unequal bargaining power that adheres the weaker party to nonnegotiable terms and (2) “surprise” involving “the extent to which the supposedly agreed-upon terms are hidden in a prolix printed form drafted by the party seeking to enforce them.” (Flores v. Transamerica HomeFirst, Inc., (2001) 93 Cal.App.4th 846, 853.) Substantive unconscionability “focuses on overly harsh or one-sided results [that lack substantial justification].” (Baxter, supra, 16 Cal.App.5th at 724.)

Plaintiff contends the arbitration provision is procedurally unconscionable because it was adhesive and Defendant failed to disclose it. (Opp. at 11:14-12:10.)

In reply, “Defendants deny that the provision was presented on a ‘take it or leave it basis.’” (Reply  at 6:20-22.) However, Defendants conceded that the arbitration provision was so presented when Begakis averred that his “custom and practice [is] to require all clients to sign an engagement agreement that contains a binding arbitration provision” and he “would not have agreed to represent Plaintiff unless he signed the Engagement Agreement containing the arbitration provision.” (Begakis Decl. ¶¶ 5-6.) Accordingly, the arbitration provision is adhesive, which demonstrates procedural unconscionability. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 113 (“The term [contract of adhesion] signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.”); Bruni, supra, 160 Cal.App.4th at 1293 (“The arbitration provisions were . . . presented on a take-it-or-leave-it basis.”).) In reply, Defendants point to Plaintiff’s ability to negotiate other portions of the fee agreement. (Reply at 6:28-7:9.) However, Plaintiff’s negotiation of other terms is immaterial to the relevant inquiry here, which is the procedural unconscionability of the arbitration provisions alone.

Plaintiff’s other arguments for further procedural unconscionability are unpersuasive. Plaintiff admits he was sent a copy of the fee agreement, containing the arbitration provision, for review via email. (Redmond Decl. ¶ 3, Ex. 1.) Plaintiff contends “Defendant failed to disclose the arbitration provision,” (Opp. at 11:26), and he did not initial next to the arbitration provision, which he claims demonstrates Defendant’s failure to disclose the arbitration provision. (Opp. at 11:18-20.) The Court notes Plaintiff also did not initial paragraph 12 of the fee agreement, which is unrelated to arbitration. (Begakis Decl. Ex. 1 at 4.) “A party cannot avoid the terms of a contract on the ground that he or she failed to read it before signing.” (Marin Storage & Trucking, Inc. v. Benco Contracting and Engineering, Inc. (2001) 89 Cal.App.4th 1042, 1049.)

Defendants are not required to explain the existence of an arbitration provision. (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 914 (“Valencia was under no obligation to highlight the arbitration clause of its contract, nor was it required to specifically call that clause to Sanchez's attention.”).) Nothing in the agreement conditions enforcement upon Plaintiff’s initials. Moreover, the fact that the arbitration provision contained a highlighted section for Plaintiff’s initials, (Begakis Decl. Ex. 1 ¶ 8), would reduce any claim of surprise. (See e.g. Serafin v. Balco Properties Ltd., LLC (2015) 235 Cal.App.4th 165, 179 (“where the arbitration provisions presented in a contract of adhesion are highlighted . . . , any procedural unconscionability is ‘limited.’”).)

An adhesive arbitration provision demonstrates a minimal level of procedural unconscionability that must be met with a strong showing of substantive unconscionability. (Gatton, supra, 152 Cal.App.4th at 586 (“We conclude that plaintiffs showed a minimal degree of procedural unconscionability arising from the adhesive nature of the agreement. . . . Under the sliding scale approach, plaintiffs were obligated to make a strong showing of substantive unconscionability to render the arbitration provision unenforceable.”).)

Plaintiff argues the arbitration provision is substantively unconscionable because it only allows Defendants to pursue provisional remedies. (Opp. at 12:11-17.) As argued by Plaintiff, substantive unconscionability may be shown by one-sided terms that lack any justification. (Id. at 11:11-13.) “The party with the greater bargaining power is permitted to require contractual provisions that provide it with additional protections if there is a legitimate commercial need for those protections, but the stronger party may not require additional protections merely to maximize its advantage over the weaker party.” (Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 248.)

The arbitration provision provides, in relevant part, “[i]n the event of a dispute between Client and Attorney regarding costs, or any other matter related to or arising out of Client’s engagement of Attorney, or any performance of the Services hereunder, the dispute shall be determined, settled, and resolved by private, confidential arbitration in Los Angeles, California. Notwithstanding the foregoing, Attorney may apply to a court of competent jurisdiction for any provision remedy that may be appropriate (e.g. writ of attachment, preliminary injunction, etc.).” (Begakis Decl. Ex. 1 ¶ 8.)

The Court agrees this clause renders the arbitration provision substantively unconscionable. In their reply, Defendants acknowledge the one-sided nature of this provision, yet fail to provide any justification therefor. (Reply at 7:9-27.) Absent a legitimate commercial need for the provision, it is unfairly and impermissibly one-sided. (Carbajal, supra,  245 Cal.App.4th at 248 (“Unconscionability turns not only on a one-sided result, but also on an absence of justification for it.”) (quotations omitted).) Armendariz, supra, 24 Cal.4th at 118 (“Without reasonable justification for this lack of mutuality, arbitration appears less as a forum for neutral dispute resolution and more as a means of maximizing [Defendants’] advantage. Arbitration was not intended for this purpose. . . . the doctrine of unconscionability limits the extent to which a stronger party may, through a contract of adhesion, impose the arbitration forum on the weaker party without accepting that forum for itself.”).)

While not cited by the parties, the Court finds Ali v. Daylight Transport, LLC (2020) 59 Cal.App.5th 462 instructive. In Ali, the Court of Appeal addressed a similar provision to the one at issue here:

As to any dispute or controversy which under the terms of this Agreement is a proper subject of arbitration, no suit at law or in equity based on such dispute or controversy shall be instituted by either party other than a suit to conform, enforce, vacate, modify or correct the award of the arbitrator(s) as provided by law; provided, however, that this clause shall not limit Company's right to obtain any provisional remedy including, without limitation, injunctive relief, writ for recovery of possession or similar relief from any court of competent jurisdiction as may be necessary in Company's sole subjective judgment to protect its property rights.”

(Id. at 479.) The Court of Appeal found the clause “misleading in that it states that the exception to arbitrability for provisional remedies applies only to appellant.” (Id. at 480.) The same is true here as the arbitration provision in the fee agreement states “Attorney may apply to a court of competent jurisdiction for any provision remedy that may be appropriate.” (Begakis Decl. Ex. 1 ¶ 8.) Such a provision “reflects an attempt to improperly insert a unilateral carve out in the arbitration provision that favors [Defendants], which demonstrates substantive unconscionability.” (Ali, supra, 59 Cal.App.5th at 480.)

Furthermore, as noted by Plaintiff, “the question of who should decide arbitrability “is rather arcane. A party often might not focus upon that question or upon the significance of having arbitrators decide the scope of their own powers. Thus, this provision, too, was well beyond a layperson’s reasonable expectations.” (Bruni, supra, 160 Cal.App.4th at 1295.) This further supports a finding of substantive unconscionability. (Parada v. Superior Court (2009) 176 Cal.App.4th 1554, 1573 (“Substantive unconscionability may be shown if the disputed contract provision falls outside the nondrafting party’s reasonable expectations.”).)

The Court finds Plaintiff has demonstrated the arbitration provision within the parties’ fee agreement suffers from both procedural and substantive unconscionability to a sufficient degree to deny enforcement of the arbitration provision. Accordingly, Defendants’ motion is DENIED.