Judge: Monica Bachner, Case: 22STCV11533, Date: 2022-10-06 Tentative Ruling

Department 71: Attorneys who elect to submit on these published tentative rulings, without making an appearance at the hearing, may so notify the Court by communicating this to the Department's staff at (213) 830-0771 before the set hearing time.  See, e.g., CRC Rule 324(b).   All parties are otherwise encouraged to appear by Court Call for all matters.

Case Number: 22STCV11533    Hearing Date: October 6, 2022    Dept: 71

Superior Court of California

County of Los Angeles

DEPARTMENT 71

TENTATIVE RULING

Defendant 1501, LLC’s motion to compel arbitration of Plaintiff The Ruttenberg Law Firm, P.C.’s claims in this action is granted.  The case is stayed pending arbitration.  The matter is set for a status conference regarding arbitration on October 4, 2023 at 8:30 a.m.  The parties are ordered to file a joint status report five calendar days in advance of the hearing.

Defendant 1501, LLC (“1501”) (“Defendant”) moves for an order compelling arbitration of all claims asserted by Plaintiff The Ruttenberg Law Firm, P.C. (“Ruttenberg”) (“Plaintiff”) in this action and staying the action pending completion of arbitration.  (Notice of Motion, pg. 1; C.C.P. §§1281.2, 1281.4.)

By way of background, on February 22, 2019, Defendant entered into a written fee agreement for Plaintiff to provide legal services in connection with Defendant’s ongoing construction defect arbitration. (FAC ¶6, Exh. A.) 

Plaintiff filed its complaint for breach of fee agreement on April 5, 2022, and the operative first amended complaint (“FAC”) on June 7, 2022, seeking damages exceeding $77,000.00.  (FAC ¶17.)  Defendant filed the instant motion to compel arbitration on August 1, 2022.  Plaintiff filed its opposition on September 22, 2022.  Defendant filed its reply on September 29, 2022.

In deciding a motion to compel arbitration, trial courts must first decide whether an enforceable arbitration agreement exists between the parties, and then determine the second gateway issue of whether the claims are covered within the scope of the agreement. (See Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.)  “The petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence, and a party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense.  [Citation] 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.  [Citation] No jury trial is available for a petition to compel arbitration. [Citation]” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972.) The party opposing the petition to compel arbitration bears the burden of proving by a preponderance of the evidence any fact necessary to its defense.  (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284.) 

A.  Arbitration Agreement

Defendant asserts Plaintiff’s sole cause of action is subject to arbitration under the engagement agreement (“Agreement”), which includes a valid and enforceable arbitration clause.  (FAC ¶14, Exh. A; Motion pgs. 1-2.)  Section 11 of the Agreement requires arbitration of the following:

[A]ny and all disputes that arise out of, or relate to this Agreement, including but not limited to claims of negligence or malpractice arising out of or relating to the legal services provided by ATTORNEYS to Client, decided only by binding arbitration in accordance with the rules of the Los Angeles County Bar association and not by court action, except as provided by California law for judicial review of arbitration proceedings. Client and ATTORNEYS agree to arbitration any dispute with a mutually-agreed upon retired judge in Los Angeles County. If Client and ATTORNEYS cannot agree upon an arbitrator, the Los Angeles Superior Court is hereby empowered to choose the arbitrator.

(FAC, Exh. A §11.)  Plaintiff argues in opposition that it is not subject to arbitration because on January 10, 2022, Plaintiff sent Defendant a Notice of Client’s right to Fee Arbitration, under the Los Angeles County Bar’s rules, which Defendant ignored, and thereby waived contractual arbitration under the engagement agreement.  (Decl. of Ruttenberg ¶2, Exh. A.) 

Plaintiff concedes the engagement agreement requires arbitration of any disputes that “arise out of or relate to the agreement” and conflates statutorily mandated notice of a client’s right to arbitrate under the Mandatory Fee Arbitration Act (“MFAA”) with applicable law under the California Arbitration Act (“CAA”).  “Whereas arbitration under the CAA is based on the parties’ agreement to arbitrate, arbitration under the MFAA is based on a statutory directive.” (Benjamin, Weill & Mazer v. Kors (2011) 195 Cal.App.4th 40, 52-53.)  The MFAA “constitutes a separate and distinct arbitration scheme” from contractual arbitration under the CAA. (Id. at pg. 52.)  Accordingly, “[a] contractual right to binding arbitration survives if arbitration under the MFAA is waived or fails to resolve the dispute.” (Id. at pg. 53 [citing Schatz v. Allen Matkins Leck Gamble & Mallory LLP (2009) 45 Cal.4th 557, 574-575; Ervin, Cohen & Jessup, LLP v. Kassell (2007) 147 Cal.App.4th 821, 828-829].) Whereas “a client cannot be forced under the MFAA to arbitrate a dispute concerning legal fees, at the client's election an unwilling attorney can be forced to do so.”  (Schatz v. Allen Matkins Leck Gamble & Mallory LLP, 45 Cal. 4^th at 565.) So here whereas Plaintiff could be forced to arbitratre the dispute under the MFAA, Defendant, the client could not.

Plaintiff also argues Defendant waived its right to arbitrate when it demurred to the merits of Plaintiff’s complaint, thereby invoking this Court’s powers.  (Decl. of Ruttenberg ¶4.)  In St. Agnes Medical Center v. PacificCare of California (2003) 31 Cal.4^th 1187, cited by Plaintiff, the California Supreme Court held although “no single test delineates the nature of the conduct that will constitute a waiver of arbitration, the court should consider the following factors:  “ ‘ “(1) whether the party’s actions are inconsistent with the right to arbitrate; (2) whether ‘the litigation machinery has been substantially invoked’ and the parties ‘were well into preparation of a lawsuit’ before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) ‘whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place’; and (6) whether the delay 'affected, misled, or prejudiced’ the opposing party.”’” (Id. at pgs. 1195-96.)

“Although a court may deny a petition to compel arbitration on the ground of waiver . . ., waivers are not to be lightly inferred and the party seeking to establish a waiver bears a heavy burden of proof.” (Id. at pg. 1195.)  The only litigation activity to which Plaintiff points for his waiver argument is Defendant’s filing of a demurrer to the initial complaint.  (Decl. of Ruttenberg ¶4.)  The mere act of filing a demurrer does not, in and of itself, waive the right to arbitrate. (See, e.g., Groom v. Health Net (2000) 82 Cal.App.4th 1189, 1198.) The rule that filing a demurrer alone does not constitute waiver is consistent with the general rule articulated by the California Supreme Court that waiver of the right to arbitrate “does not occur by mere participation in litigation.” (Keating v. Superior Court (1982) 31 Cal.3d 584, 605, disapproved on other grounds, Southland Corp. v. Keating (1984) 465 U.S. 1.)  Rather, “there must be ‘judicial resolution of the merits of the arbitrable issues’” or, if there has been no resolution on the merits, the opposing party must demonstrate prejudice. (Id.)  Defendant’s demurrer did not result in a resolution on the merits, and Plaintiff has not met his burden to establish any prejudice from Defendant’s participation in litigation.  (St. Agnes, 31 Cal.4th at pg. 1203 [“[C]ourts will not find prejudice where the party opposing arbitration shows only that it incurred court costs and legal expenses.”].) 

The record in this case does not reflect that the parties have litigated the merits or the substance of Plaintiff’s arbitrable claims, that any discovery of those claims has occurred, or that Defendant’s actions have impaired Plaintiff’s ability to have the arbitrable disputes in this action resolved fairly through arbitration. (Id. at pg. 1204.) Here, Defendant did not waive its right to compel arbitration by invoking “litigation machinery” and taking actions inconsistent with the right to arbitrate. (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196.) 

Based on the foregoing, Defendant proved the existence of a valid arbitration agreement between the parties that is enforceable by the parties. 

B. Covered Claims

Plaintiff does not dispute that its claims against Defendant would be covered by the Arbitration Agreement.  (See Opposition.)  In fact, the Agreement expressly states that covered claims include “claims of negligence or malpractice arising out of or relating to the legal services provided by ATTORNEYS to Client.” (FAC, Exh. A §11.)  Based on the foregoing, Defendant met its burden of establishing the Agreement covers the causes of action asserted in Plaintiff’s complaint.