Judge: Peter Wilson, Case: 2021-01191735, Date: 2022-08-11 Tentative Ruling
MOTION TO DISMISS OR STAY, OR ALTERNATIVELY, TO STRIKE THE CROSS-COMPLAINT
Cross-Defendants Windsail Capital Group, LLC, Windsail Capital Fund, L.P., and Crate Modular, Inc. (collectively, WindSail Cross-Defendants) seek to dismiss or stay this action based on forum non conveniens. Alternatively, the WindSail Cross-Defendants argue the Cross-Complaint should be stricken because Cross-Complainant Arthur C. Cohen, individually and as trustee of the Cohen Family Trust dated April 6, 1998 (Cohen) failed to obtain leave of court before filing it in violation of CCP § 428.50 and failed to serve his Cross-Complaint on the WindSail Cross-Defendants for 10 months in violation of CRC 3.110(c).
The WindSail Cross-Defendants’ Request for Judicial Notice is GRANTED.
Cohen’s Request for Judicial Notice (ROA 790) is GRANTED.
Forum Non Conveniens. CCP § 410.30(a) codifies the common law doctrine of forum non conveniens, which is “an equitable doctrine invoking the discretionary power of a court to decline to exercise the jurisdiction [to stay or dismiss] it has over a transitory cause of action when it believes that the action may be more appropriately and justly tried elsewhere.” (Stangvik v. Shiley Inc. (1991) 54 Cal.3d 744, 751.)
Typically, the moving party bears the burden of proof and the Court weighs various convenience factors but the rules are different when a forum selection clause applies. When there is a mandatory forum selection clause, “the test is simply whether application of the clause is unfair or unreasonable, and the clause is usually given effect. Claims that the previously chosen forum is unfair or inconvenient are generally rejected. A court will usually honor a mandatory forum selection clause without extensive analysis of factors relating to convenience. ‘Mere inconvenience or additional expense is not the test of unreasonableness ...’ of a mandatory forum selection clause.” (Berg v. MTC Elecs. Techs. (1998) 61 Cal. App. 4th 349, 358–59, citations omitted; Richtek USA, Inc. v. uPI Semiconductor Corp. (2015) 242 Cal.App.4th 651, 661.
The Forum Selection Clause
The Participation Agreement contains two forum selection clauses. ROA 216, Cross-Complaint, Ex. A, Participation Agreement, ¶13(c) and (d). Paragraph 13.c is permissive since it contains the work “may” while paragraph 13.d is mandatory since it contains the word “may” while subparagraph d is mandatory since it contains “shall” and “exclusive jurisdiction”. (See Animal Film, Inc. v. D.E.J. Productions, Inc. (2011) 193 Cal.App.4th 466, 471-472 [contrasting language used for permissive and mandatory clauses and explaining language indicating a mandatory clause are “exclusively”, “exclusive jurisdiction” and “any claims … shall be litigated in [designated forum].”.)
The Court concludes the mandatory forum selection clause in paragraph 13.d rather than the permissive forum selection clause in paragraph 13.c applies. Subparagraph d applies to claims brought by Participant while subparagraph c applies to claims brought against Participant. It is indisputable that the Cross-Complaint “arises under or in connection with” the Participation Agreement. The Cross-Complaint alleges a cause of action for breach of contract against WindSail Capital Fund, L.P. based on alleged violations of the Participation Agreement, and elder abuse and fraud relating to obtaining an additional $2 million from Cohen through the Participation Agreement and in order to take over GrowthPoint Global Inc. ROA 216, Cross-Complaint, ¶¶31-45, 61-62, 67-72.
A court may decline to enforce a mandatory forum-selection clause if the clause is unreasonable, violates California public policy or where defendant unreasonably delays seeking to enforce the forum-selection clause. (Weil, et al. (The Rutter Group 2021) Cal. Prac. Guide Civ. Pro. Before Trial Ch. 3-C, ¶¶3:177, 3:184, 3:185, 3:445-3:447; CQL Original Products, Inc. v. National Hockey League Players Ass'n (1995) 39 Cal.App.4th 1347, 1354 [plaintiff must show the forum selected “would be unavailable or unable to accomplish substantial justice”]; (Hall v. Sup.Ct. (Imperial Petroleum, Inc.) (1983) 150 Cal.App.3d 411, 416-418.)
California’s Rights and Remedies Under the Elder Abuse Act
California’s Elder Abuse laws authorize civil actions for elder abuse, including specifically for financial abuse, and permit enhanced remedies. (Cal. Wel. & Inst. Code § 15657.5 [permitting recovery of compensatory damages, attorneys’ fees and costs, and punitive damages based on a finding of recklessness, oppression, fraud or malice]. These enhanced remedies incentivize private enforcement of the Elder Abuse statutes and demonstrate the importance the California Legislature placed on protecting this vulnerable population.
In Bickel v. Sunrise Assisted Living (2012) 206 Cal.App.4th 1, 10-13, the Appellate Court explained that the attorney fees clause in Cal. Wel. & Inst. Code § 15657 used to incentivize private enforcement of Elder Abuse statutes is unwaivable for public policy reasons. The Bickel court explained that the Legislature recognized elders were particularly vulnerable to abuse and neglect and enacted Article 8.5, which includes the statutory provision at issue here, Cal. Wel. & Inst. Code § 15657.5, in order to rectify the problem of a lack of incentive to prosecute civil suits. (Id. at 593 [citing Cal. Wel. & Inst. Code §15600(j)].)
WindSail Cross-Defendants argue that Bickel is not applicable because (1) there is no express language in the Elder Abuse Act declaring that its protections cannot be waived or altered and (2) the Bickel court limited its holding to Cal. Welf. & Inst. Code § 15657, which applies only to physical elder abuse, not financial elder abuse. ROA 778, 2nd Supp. Brief, pp. 6-8.
First, the Bickel court explained that “whether a statutory right can be waived may be implied from the context and purpose of the statute”. (206 Cal.App.4th at 9.) The Bickel court cited Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 as an example, explaining that Armendariz “involved a statutory scheme (FEHA) that did not have an express nonwaiver provision; thus, contrary to defendant's argument, the absence of an express nonwaiver provision is not dispositive.” (206 Cal.App.4th at 9 fn 6.)
Next, while the Bickel court did state its “decision is limited to the particular statute and waiver before us”, it emphasized the question of whether a statutory right is unwaivable must be determined based on the context and purpose of the specific statute under consideration. (206 Cal.App.4th at 13.) Although the Bickel court limited its decision, its rationale applies with respect to the financial elder abuse statues.
“The Legislature recognizes that elders are a class of persons who are particularly vulnerable to abuse and that ‘this state has a responsibility to protect’ them. (§15600, subd. (a); see Bookout v. Neilsen (2007) 155 Cal.App.4th 1131, 1139-1140, 67 Cal.Rptr.3d 2.)” (Mahan v. Charles W. Chan Ins. Agency, Inc. (2017) 14 Cal.App.5th 841, 858. See also, Bickel, supra, 206 Cal.App.4th at 10 [explaining purpose of the act and citing Welf. & Inst. Code § 15600(a)].) The Elder Abuse Act is a remedial scheme created by the Legislature to promote private enforcement of cases involving physical abuse, neglect and financial abuse of elders. (Royals v. Lu (2022) 81 Cal.App.5th 328, ___ Cal.Rptr.3d ___, 2022 WL 2800956, *1, 8 [citing Cal. Welf. & Inst. Code §§15647 (physical abuse, neglect, abandonment] and 15657.5 (financial elder abuse)].) A key objective of 1991 Amendments to the Elder Abuse Act was to remedy the few civil cases brought in connection with elder abuse due to problems with proof, court delays and the lack of incentives to prosecute these suits. (Mahan, supra, 14 Cal.App.5th at 858.) Cal. Welf. & Inst. Code § 15657 is the template for private enforcement of physical abuse or neglect and provides heightened remedies to incentivize interested person to engage attorneys to take up the cause of abused elderly persons. (Royals, supra, 2022 WL 2800956 at 8; Bickel, supra, 206 Cal.App.4th at 13.)
In the late 1990s, financial elder abuse began to garner concentrated legislative attention, and in 1997, “the Legislature took a series of steps to strengthen the remedies available for financial injury inflicted on elders by those who misuse positions of trust and confidence.” (Mahan, supra, 14 Cal.App.5th at 859.) In 2004, the Legislature expanded protections for the elderly by creating a new class of claims for elder abuse, Cal. Welf. & Inst. Code § 15657.5, that set forth a scheme of heightened remedies “closely paralleling” those available under Cal. Welf. & Inst. Code § 15657 to incentivize private actions. (Royals, supra, 2022 WL 2800956 at *9; Mahan, supra, 14 Cal.App.5th at 859.) In 2007, the remedies available for financial elder abuse were expanded again by making the remedy of prejudgment attachment available after the Legislature received reports that the “intent to encourage private claims by ‘providing for enhanced remedies … “has largely been unrealized…,” ’ ” (Royals, supra, 2022 WL 2800956 at *9; Mahan, supra, 14 Cal.App.5th at 860.) Cal. Welf. & Inst. Code § 15657.01 specifically authorizes attachment in financial elder abuse actions and is an exception to the limitation of CCP §483.010 to contract claims for damages. (Royals, supra, 2022 WL 2800956 *9.)
In 2008, the Legislature broadened the defined term “financial abuse” and made other procedural changes “designed to facilitate the bringing of ‘financial abuse’ claims” to Cal. Welf. & Inst. Code § 15610.30. (Mahan, supra, 14 Cal.App.5th at 860.)
In an extensive set of amendments, the Legislature, among other things, (1) redefined what it means to take property for a “wrongful use,” replacing the prior requirement that “bad faith” be shown with a standard based on the whether the defendant “knew or should have known” of “likely” harm to the elder (§ 15610.30, subd. (b)); (2) redefined the phrase “takes, secretes, appropriates, obtains, or retains” so that any “depriv[ation]” of property was subject to liability, including “by means of agreement, donative transfer, or testamentary bequest, regardless of whether the property is held directly” by the elder or on his behalf by a third-party (§ 15610.30, subd. (c)); and (3) created a new basis for liability, adding “depriv[ation]” of property by “undue influence” (§ 15610.30, subd. (a)(3)) as a ground for suit separate from “depriv[ation]” “for wrongful use or with intent to defraud” (§ 15610.30, subd. (b)).
(Mahan, supra, 14 Cal. App. 5th at 860.) These new definitions were intended to make it easier for an elderly individual to prove elder abuse. For example, the Legislature explained that the new definition of “wrongful use” shifts the proof required from defendant’s knowledge or presumed knowledge of the elder’s right to the property taken to the defendant’s knowledge or presumed knowledge of the effect of the taking on the elder to which a reasonable person standard may be applied. (Id. at 860 fn. 18, citing Senate Committee on Judiciary, Analysis of Senate Bill No. 1140 (2007-2008 Reg. Sess.) as amended March 10, 2008, page 9.)
Like Cal. Welf. & Inst. Code § 15657, Cal. Welf. & Inst. Code §§ 15657.5, 15657.01 and 15610.30 were enacted in order to fulfill the specific Legislative goal of providing greater protection to elders from financial elder abuse and incentivize interested parties, including attorneys, to bring these cases. (Bickel, supra, 206 Cal.App.4th at 11-12.) Accordingly, the Court concludes that contrary to WindSail Cross-Defendants’ arguments, the rationale in Bickel is applicable to financial elder abuse. Cal. Welf. & Inst. Code §§ 15657.5, 15657.01 and 15610.30 were enacted to carry out an important public purpose and the rights establish by these statues are unwaivable.
WindSail Cross-Defendants argues the Court should follow Scott v. Lopez (N.D. Cal. 2013) 2013 WL 1182957 *5, which found that the financial elder abuse statutes did not render a forum selection clause unenforceable. Scott is not binding on this Court, and the Scott court only considered whether the public policy underlying California’s Elder Abuse Act related to venue (Id. at *4-5.), not whether the Elder Abuse Act was designed to accomplish an important public purpose more generally like the Bickel court did. (206 Cal.App.4th at 12.)
Enforcement of the Forum Selection Clause Will Diminish Rights and Remedies Under the California Elder Abuse Act
WindSail Cross-Defendants bear the burden of demonstrating the forum selection clause “will not diminish in any way” Cohen’s substantive rights to bring his claims for elder abuse. (Verdugo, supra, 237 Cal. App. 4th at 157.)
A defendant seeking to enforce a mandatory forum selection clause bears the burden to show enforcement will not in any way diminish the plaintiff's unwaivable statutory rights. By definition, this showing requires the defendant to compare the plaintiff's rights if the clause is not enforced and the plaintiff's rights if the clause is enforced. Indeed, a defendant can meet its burden only by showing the foreign forum provides the same or greater rights than California, or the foreign forum will apply California law on the claims at issue.
(Verdugo, supra, 237 Cal. App. 4th at 157.)
The choice of law and forum selection clauses should be considered together. (Hall v. Superior Court, supra, 150 Cal.App.3d at 416 [where choice of law affects policy issues, it must be considered with enforceability of forum selection clause].) As with the forum selection clause, a California court will apply the law designated in a choice of law clause if it is not unreasonable or impacts an important public policy. (Hall v. Superior Court, supra, 150 Cal.App.3d at 416-417 [choice of law provision usually respected by California courts but an agreement designating foreign law will not be given effect if it would violate a strong California public policy or result in an evasion of a California statute that protects its citizens].)
The WindSail Cross-Defendants argue that under New York and Massachusetts law, there are comparable remedies to California’s Elder Abuse Act though they do not have their own civil elder abuse statutes. The WindSail Cross-Defendants cite to NY Cons. Laws, Soc. Serv. Laws § 473 and NY Cons. Laws, Exec. Law § 837-f-1. ROA 752, Supp. Reply, p. 5; ROA 778, Supp. Brief, at p. 10. But neither of these statutes provide for an independent cause of action for elder abuse. Neither permit an individual plaintiff to recover damages or any enhanced remedies for violations of these statutes. (See Huggins v. Randolph (2014) 45 Misc.3d 521, 526 [“New York State does not have a statute recognizing an independent civil cause of action predicated upon an allegation of elder abuse.”].)
The WindSail Defendants also contend that NY Cons. Laws, Soc. Serv. Laws § 473 and NY Cons. Laws, Exec. Law § 837-f-1 can serve as a basis for a cause of action under NY Gen. Bus. Law § 349. “General Business Law § 349 (a) declares unlawful all ‘[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state [New York].’ ” (Himmelstein, McConnell, Gribben, Donoghue & Joseph, LLP v. Matthew Bender & Co., Inc. (2021) 37 N.Y.3d 169, 176, 171 N.E.3d 1192, reargument denied, 37 N.Y.3d 1020, 175 N.E.3d 909.) “To successfully assert a section 349(h) claim, a plaintiff must allege that a defendant has engaged in (1) consumer-oriented conduct that is (2) materially misleading and that (3) plaintiff suffered injury as a result of the allegedly deceptive act or practice.” (City of New York v. Smokes-Spirits.Com, Inc. (2009) 12 N.Y.3d 616, 621, 911 N.E.2d 834, 838.) An act or practice is consumer-oriented when it has “a broader impact on consumers at large”, which precludes a General Business Law § 349 claim based on “[p]rivate contract disputes, unique to the parties”. (Himmelstein, McConnell, Gribben, Donoghue & Joseph, LLP, supra, 37 N.Y.3d at 177.) Moreover, treble damage are capped at $1,000 and require showing a willful or knowing violation of the statute. (N.Y. Gen. Bus. Law § 349(h).) Consequently, the WindSail Cross-Defendants have not shown that New York has comparable rights or remedies to California’s Elder Abuse Act.
The WindSail Cross-Defendants also argue comparable remedies are available under Massachusetts law and point to Massachusetts General Law, chapter 93A, § 11, which prohibits unfair competition and unfair or deceptive trade practices. The WindSail Cross-Defendants contend attorney fees and double or treble damages are available under Massachusetts General Law, chapter 93A §11. However, this statute applies only if “the alleged unfair method of competition or the unfair or deceptive act or practice occurred primarily and substantially within the commonwealth.” (Mass. Gen. Laws Ann. ch. 93A, § 11 (West).) Since the negotiations and signing of the Participation Agreement occurred in California, it is unlikely that Cohen could avail himself of this statute. Again, the WindSail Cross-Defendants have not shown that Massachusetts have comparable rights and remedies to California’s Elder Abuse Act.
The WindSail Cross-Defendants argue that the Court may sever the choice of law clause and that Cohen cannot show that a Massachusetts court would not apply California law, and that they agree to waive enforcement of the Participation Agreement’s choice of law clause. ROA 778, Supp. Brief, p. 12. But the WindSail Cross-Defendants, not Cohen, have the burden of proof on this issue, and they have not shown a Massachusetts court would apply California law.
As explained in Hodas v. Morin (2004) 442 Mass. 544, 814 N.E.2d 320, Massachusetts’ choice of law rules provides:
As a rule, “[w]here the parties have expressed a specific intent as to the governing law, Massachusetts courts will uphold the parties' choice as long as the result is not contrary to public policy.” Steranko v. Inforex, Inc., 5 Mass.App.Ct. 253, 260, 362 N.E.2d 222 (1977), citing Restatement (Second) of Conflict of Laws § 187 (1971). See Morris v. Watsco, Inc., 385 Mass. 672, 674, 433 N.E.2d 886 (1982) (“Massachusetts law has recognized, within reason, the right of the parties to a transaction to select the law governing their relationship”). The Restatement similarly presumes that the law the parties have chosen applies, unless “(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state” and is the State whose law would apply under § 188 of the Restatement “in the absence of an effective choice of law by the parties.” Restatement (Second) of Conflict of Laws, supra at § 187(2). See note 14, infra.
(814 N.E.2d at 324–25.)
California, New York, and Massachusetts law could all potentially be applied in this case. California has an interest because Cohen is a citizen of California, California’s Elder Abuse Act and the public policies to protect the elderly and incentivize private enforcement are implicated, and the negotiations, representations regarding the Participation Agreement, and the signing of the Participation Agreement took place in California. New York has an interest as the jurisdiction chosen in the choice of law provision, and “because New York law governs the underlying Credit and Security Agreement, which established the loan to GrowthPoint in which Cohen purchased a participation interest.” ROA 752, Supp. Brief, pp. 4-5 fn. 1, citing ROA 503, Ex. N at § 15.2. And Massachusetts has an interest in protecting a citizen of its state. (ROA 752, Supp. Brief, p. 2:7-8 [“Massachusetts is the headquarters of the entity that signed the Participation Agreement with Cohen, as well as the home of the WindSail Group, which he also sued in the cross-complaint.”]. As WindSail Cross-Defendants admit “[t]heir residence in Massachusetts alone is enough to show a substantial relationship. (Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459, 467.)
Thus, even if the WindSail Cross-Defendants waive enforcement of the choice of law clause, the Massachusetts court would still have to weigh the various interests of the states and it is unclear that California law would apply.
Based on the above, the WindSail Defendants have not met their burden of showing the forum selection clause will not diminish rights and remedies available to Cohen under the Elder Abuse Act. For these same reasons, the Court declines to sever the choice of law clause.
The Motion to Dismiss or Stay based on forum non conveniens is DENIED.
Motion to Strike. The Motion to Strike is DENIED.
Cohen filed his answer and cross-complaint at the same time in accordance with CCP § 428.50(a). Additionally, leave to file the Cross-Complaint would have been granted because the claims arise from the same transactions and occurrences as the operative complaint and the Court has discretion to grant leave “in the interest of justice at any time” under CCP § 428.50(c). Further, the remedy for failing to serve the Cross-Complaint is an Order to Show Cause why sanctions should not be imposed. (Cal.R.Ct. 3.110(f), (i).) Moreover, WindSail Cross-Defendants have shown any prejudice in permitting the Cross-Complaint.
Moving parties are ordered to give notice for their respective motions.
DEMURRER AND MOTION TO STRIKE PORTIONS OF THE CROSS-COMPLAINT
Demurrer
Cross-Defendant James Pickell and Intervenor Nationwide Mutual Insurance Company (collectively, Pickell / Nationwide) demur to Cohen’s Cross-Complaint.
First, Pickell / Nationwide argue the cross-complaint fails to state facts sufficient to constitute a cause of action as to the first cause of action for financial elder abuse against them (CCP § 430.10(e)), as the agreement (XC Ex. A [ROA 216]) from which Cohen’s claims arise is governed by the law of New York, which has no civil cause of action for financial elder abuse. (Dem. at 9 [citing Huggins v. Randolph (N.Y. Civ. Ct. 2014) 45 Misc.3d 521, 526 (“New York State does not have a statute recognizing an independent civil cause of action predicated upon an allegation of elder abuse.”)].)
Cohen argues that the choice of law provision is not enforceable under California’s governmental interest test and thus California law applies and the demurrer must be overruled. Specifically, enforcement of the choice of law provision would violate California’ public policy regarding prevention of elder abuse as reflected in statute.
Choice of Law. When an agreement contains a choice of law provision, California courts typically honor the parties’ choice unless the analytical approach articulated in section 187(2) of the Restatement (Second) Conflict of Laws dictates a different result. (See Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 173–74.) Under the California choice of law framework, a court “must first determine: (1) whether the chosen state has a substantial relationship to the parties or their transaction, or (2) whether there is any other reasonable basis for the parties’ choice of law,” and “if either test is met, the court must next determine whether the chosen state’s law is contrary to a fundamental policy of California.” (Id.) If there is a fundamental conflict with California law, the court must then determine whether California has a “materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of [Restatement section] 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.” (Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459, 467.)
As discussed above, the Court concludes that California’s elder abuse statutes evince a fundamental policy of the state with which New York’s lack of such protection conflicts, and California’s interest in protecting its vulnerable citizens is materially greater than New York’s interest in seeing a choice of law provision enforced by and against non-residents. (See Bickel v. Sunrise Assisted Living (2012) 206 Cal. App. 4th 1, 12 [finding arbitration clause's waiver of rights under Elder Abuse Act unenforceable as against public policy].) Cross-Defendants provide no argument or authority that alters this conclusion.
Accordingly, the demurrer to the First Cause of Action for Financial Elder Abuse is OVERRULED.
Second, Pickell / Nationwide demur to the Cross-Complaint based on CCP § 430.50(a), on the ground that the Participation Agreement bars an “action to recover monies from Pickell / Nationwide in connection with the loans extended thereunder.” However, this assertion is unsupported by argument or authority as to what, for example, constitutes an “independent claim” or why, for example, this contractual provision bars the claim against Pickell.
Accordingly, the demurrer to the Cross-Complaint is OVERRULED.
Motion to Strike
Pickell / Nationwide also move to strike the request for punitive damages in the Second Cause of Action for Fraud in Cohen’s Cross-Complaint (Mot. at 2 [“line 13, item 6”]), on the ground that the claim is governed by New York law pursuant to the parties’ agreement (ROA 216, Ex. A [ROA 216]) and New York law requires claimant plead evil and reprehensible motive, which Cohen has failed to do. (Mot. at 9–11.) Despite their stated “disagreement” (Reply at 4), Pickell / Nationwide do not argue Cohen’s allegations are insufficient under California’s pleading requirements for punitive damages.
Accordingly, based on the Court’s ruling on Pickell / Nationwide’s demurrer and finding that the allegations for punitive damages are sufficient under California law, the Motion to Strike is DENIED.
The Court declines to rule on Cohen’s requests for judicial notice (ROA 390, 392) as they were not material to the Court’s rulings.
Pickell / Nationwide are ordered to give notice.