Judge Randolph M. Hammock, Case 20STCV43648 2023-03-23 Tentative Ruling

Plaintiff Shahnaz Mokhtari brings this action against her former attorney, Defendant Shahin Motallebi, for legal malpractice and related causes of action. Plaintiff alleges she retained Defendant to defend her in the real property dispute entitled Yazdanpanah v. Mokhtari, Los Angeles Superior Court Case No. EC066532. Following a court-approved sale of the property, the proceeds were placed in Defendant’s Client/Attorney Trust account. Plaintiff alleges that Defendant exhausted the money in the Trust account to satisfy his own personal debts, and concealed this information from Plaintiff. Plaintiff now brings this action for (1) breach of fiduciary duty, (2) conversion, (3) legal malpractice, (4) false promises, intentional misrepresentation of important facts, and/or concealment, (5) breach of written contract, and (6) constructive trust.

As discussed herein, whether Defendant’s motion to compel arbitration is GRANTED ON THE CONDITION that Defendant agree to front and pay the entire reasonable costs of arbitration, subject to re-allocation after a decision is made in said arbitration. If Defendant does not agree to this condition the motion shall be DENIED.

“[T]he petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence . . . .” (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284). “In determining whether an arbitration agreement applies to a specific dispute, the court may examine only the agreement itself and the complaint filed by the party refusing arbitration [citation]. The court should attempt to give effect to the parties' intentions, in light of the usual and ordinary meaning of the contractual language and the circumstances under which the agreement was made.” (Weeks v. Crow (1980) 113 Cal.App.3d 350, 353). “Doubts as to whether an arbitration clause applies to a particular dispute are to be resolved in favor of sending the parties to arbitration. The court should order them to arbitrate unless it is clear that the arbitration clause cannot be interpreted to cover the dispute.” (California Correctional Peace Officers Ass'n v. State (2006) 142 Cal.App.4th 198, 205).

“[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.” (Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284).

“If a court of competent jurisdiction, whether in this State or not, has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies. . . .” (CCP § 1281.4.)

California has a strong public policy in favor of arbitration as an expeditious and cost-effective way of resolving disputes. “Even so, parties can only be compelled to arbitrate when they have agreed to do so.” (Avila v. S. California Specialty Care, Inc. (2018) 20 Cal. App. 5th 835, 843.) “The party seeking to compel arbitration bears the burden of proving the existence of a valid arbitration agreement.” (Id.)

An arbitration agreement is a contractual agreement. “General contract law principles include that ‘[t]he basic goal of contract interpretation is to give effect to the parties’ mutual intent at the time of contracting. [Citations.] ... The words of a contract are to be understood in their ordinary and popular sense.” [Citations.] (Garcia v. Expert Staffing W., 73 Cal. App. 5th 408, 412–13.)

If a dispute arises between Attorney and Client regarding a claim of attorney malpractice under this agreement, that is, regarding whether any legal services rendered under this agreement were improperly, negligently, or incompetently rendered, the dispute will be submitted for arbitration by, and in accordance with the rules of, the American Arbitration Association in Los Angeles, California, and Attorney and Client will be bound by the result. Client understands and acknowledges that, by agreeing to binding arbitration, she waives the right to submit the dispute for determination by a court and thereby also waives the right to a jury or court trial.

By initializing below, Client and the Firm confirm that they have read and understood Paragraph l6, above, and voluntarily agree to binding arbitration. In doing so, Client and the Firm virtually give up important constitutional rights to trial by judge or jury, as well as rights to appeal. Client is advised that Client has the right to have an independent lawyer of Client’s choice review these arbitration provisions, and this Retainer Agreement, prior to initializing this provision or signing the Retainer Agreement.

By its terms, the agreement applies only to those disputes “regarding whether any legal services rendered under this agreement were improperly, negligently, or incompetently rendered.” (Id.) Although Plaintiff’s claims go further than just legal malpractice, the facts underlying the Complaint are rooted in malpractice. That is, Plaintiff alleges that Defendant, as her attorney, failed to safe keep her funds in a client trust account. Although a fair argument can be made, Plaintiff does not contend that the agreement cannot extend to her claims here. (See Vianna v. Doctors’ Management Co. (1994) 27 Cal.App.4th 1186, 1189 [noting that “arbitration agreements should be liberally interpreted, and arbitration should be ordered unless the agreement clearly does not apply to the dispute in question”].) The court therefore concludes all claims here fall within the ambit of the arbitration provision, and that a valid agreement to arbitrate exists by a preponderance of the evidence.

In opposition, Plaintiff argues the agreement should be disregarded based on principles of unconscionability. Unconscionability has “both a procedural and a substantive element, the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results. (Sanchez v. Valencia Holding Company, LLC (2015) 61 Cal.4th 899, 910.) Under California law, an arbitration agreement must be in some measure both procedurally and substantively unconscionable in order for the agreement to be unenforceable. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114; De La Torre v. CashCall, Inc. (2018) 5 Cal.5th 966, 982.) “But they need not be present in the same degree. . . . [T]he 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.)

Plaintiff argues the agreement is procedurally unconscionable because it was a contract of adhesion. “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.” [Citation]. (Armendariz, supra, 24 Cal.4th. at 113).

Plaintiff does not deny signing the retainer agreement. However, Plaintiff attests by declaration that she “ha[s] no legal training” and had never signed a legal retainer agreement before the one in this case. (Mokhtari Decl., ¶¶ 5, 6.) She further states that Defendant “did not explain to [her] the arbitration clause in his retainer agreement,” nor did he discuss the “terms of his retainer agreement with” her more generally. (Id. ¶¶ 7, 10.) Rather, she contends Defendant “handed [her] his agreement, told [her] that [she] needed to sign it, and told [her] that [she] needed to pay him.” (Id. ¶ 11.) Because Plaintiff “trusted” Defendant, she “signed his retainer agreement and paid by check.” (Id. ¶ 11.) But Plaintiff contends that had Defendant “explained the terms of his retainer,” including that she was giving up her right to jury trial, then she “would not have signed his retainer agreement.” (Id. ¶ 12.)

Plaintiff’s after-the-fact contention that she would not have signed the agreement had defendant explained that she was waiving her right to a jury trial is given minimal weight. A person so strongly against arbitration—such that the person would deem inclusion of arbitration a “dealbreaker” and refuse to sign an agreement containing such a provision—at minimum, would be expected to read the agreement and not rely solely on the attorney explaining the contents to her. A signor will be “bound by the provisions of the arbitration agreement regardless of whether she read it or was aware of the arbitration clause when she signed the document.” (Brookwood v. Bank of America (1996) 45 Cal.App.4th 1667, 1673.)

Be that as it may, this court recognizes and appreciates that such a fact also suggests an unequal bargaining relationship between the parties. It is unclear whether the retainer agreement was an individualized agreement, or whether Plaintiff had any opportunity to negotiate its terms. Absent from Defendant’s bare-bones declaration is any explanation of the process by which the parties agreed to the retainer agreement. (See Motallebi Decl., generally.) This fact, considered against Plaintiff’s attestation that Defendant simply “handed [her] his agreement, told [her] that [she] needed to sign it, and told [her] that [she] needed to pay him,” suggests that the contract was one of adhesion. (Id. 11.)

Thus, Plaintiff has met her burden to demonstrate that the “take it or leave it” nature of the agreement establishes “some degree of procedural unconscionability.” (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 915). This means the substantive terms of the agreement must be scrutinized to ensure they are not manifestly unfair or one-sided. (Id.)

Plaintiff also argues the agreement is substantively unconscionable. In particular, Plaintiff contends unconscionability exists because she cannot afford the costs of arbitration. Plaintiff states in her declaration that she is unable to work “[d]ue to failing health and medical problems.” (Mokhtari Decl. ¶ 3.) Her monthly income, consisting of renewed commissions from her previous work as an insurance policy salesperson, “is approximately $1500” per month. (Id. ¶ 3.) Plaintiff lives with her daughter in Alpharetta, Georgia, because “the monthly cost to rent an apartment in Southern California exceeds [her] monthly income.” (Id. ¶ 4.) She has not paid her current attorney since October 31, 2020. (Id.) Plaintiff’s attorney, Robert Scott Shtofman, attests that based on his research and knowledge of the going rate of arbitration services in Los Angeles, he “firmly believe[s] that Defendant's Petition for Arbitration will prevent Plaintiff Shahnaz Mokhtari from proceeding with this case.” (Shtofman Decl., ¶¶ 3-7.)

California courts have recognized a party’s inability to pay the costs of arbitration is a factor in the unconscionability analysis. “To state it simply: it is substantively unconscionable to require a consumer to give up the right to utilize the judicial system, while imposing arbitral forum fees that are prohibitively high. Whatever preference for arbitration might exist, it is not served by an adhesive agreement that effectively blocks every forum for the redress of disputes, including arbitration itself.” (Gutierrez v. Autowest, Inc. (2003) 114 Cal. App. 4th 77, 90.) In Gutierrez, the court found unconscionability where the plaintiffs presented “substantial evidence in the trial court that the [arbitration’s] administrative fees exceeded their ability to pay,” and where the arbitration agreement and arbitral forum rules lacked an “effective procedure for a consumer to obtain a fee waiver or reduction.” (Id. at 91.)

In such a case, courts have given the moving party a choice: “[I]f the trial court determines [a plaintiff] is unable to share in the cost of the arbitration, [the party proposing arbitration] can elect to either pay that plaintiff's share of the arbitration cost and remain in arbitration or waive its right to arbitrate that plaintiff's claim.” (Roldan v. Callahan & Blaine (2013) 219 Cal. App. 4th 87, 96.)

The agreement here is silent as to how the costs of arbitration will be apportioned, but states that American Arbitration Association (“AAA”) Rules will govern. Defendant readily fails to rebut Plaintiff’s financial condition or the repercussions of that condition. In fact, Defendant appears to confirm Plaintiff’s financial status, stating that Plaintiff struggled to pay his fees during the underlying representation and “pleaded” with Defendant “to continue without payment” until she could get her finances in order. (Reply 6: 8-9.)

It should be noted that “[w]here a party to a contract with an arbitration provision opposes a motion to compel arbitration on the ground of inability to pay the costs, the moving party can ask leave to conduct limited discovery directed only to the opponent's financial circumstances.” (Aronow, supra, 76 Cal. App. 5th at 884.) “[I]n forma pauperis status is not a prerequisite” to find an inability to pay the costs of arbitration, although the procedures for assessing that status “provide a ready template.” (Aronow v. Superior Ct. (2022) 76 Cal. App. 5th 865, 884.) Defendant has not made that request here.

Accordingly, the court recognizes that Defendant had limited time to file a reply due to Plaintiff recent ex parte and being granted leave to file a late opposition. (See 3/20/2023 Minute Order.) It appears Defendant filed his reply approximately 6 hours after Plaintiff filed her opposition. If Defendant seeks a continuance to supplement this reply, he may do so at the hearing.

Finally, Plaintiff also contends the agreement containing the arbitration provision is voidable at her option because the agreement purports to provide that the legal fee she paid to Defendant is nonrefundable. In support, she cites to California Rules of Professional Conduct, which generally disallows non-refundable legal fees except in the limited case of “true retainers.” (See RPC Rule 1.5(d).) Going further, she contends that because the agreement purports to be nonrefundable, it is voidable at her election under Business and Professions Code section 6148(c). This section—which is separate from the Rules of Professional Conduct and does not mention refundability—lists the information that must be included in a written contract for legal services. (BPC 61489(a).) “Failure to comply with any provision of this section renders the agreement voidable at the option of the client.” (BPC 6148(c).)

Despite Plaintiff’s attempt to conflate the two, it is unclear how the voidability option expressed in Business and Professions Code section 6148 has any bearing or relation to the bar against nonrefundable fees contained in the Rules of Professional Conduct Rule 1.5(d). Put differently, Defendant presents no authority that an entire written fee agreement which purports to be nonrefundable is voidable at the client’s option. In such a case, it would instead appear that the provision claiming to make the fee nonrefundable is just disregarded.

In addition, the agreement here has severability provision. It provides that “[i]f any provision of this agreement is held or whole or in part to be unenforceable for any reason, the remainder of that provision and of the entire agreement will be severable and remain in effect.” (Motallebi Decl, Exh. A, 14.)

“Civil Code section 1670.5, subdivision (a) states that ‘[i]f the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.’ The Supreme Court has interpreted this provision to mean that if a trial court concludes that an arbitration agreement contains unconscionable terms, it then “must determine whether these terms should be severed, or whether instead the arbitration agreement as a whole should be invalidated.” (Lange v. Monster Energy Co. (2020) 46 Cal. App. 5th 436, 452–53.) “[T]he presence of multiple unconscionable clauses is merely one factor in the trial court's inquiry; it is not dispositive. [Citation.] That an agreement can be considered permeated by unconscionability if it contains more than one unlawful provision does not compel the conclusion that it must be so.” (Lange v. Monster Energy Co. (2020) 46 Cal. App. 5th 436, 454.)

Thus, that part of the agreement purporting to make the fee paid nonrefundable—to the extent such a fact has any bearing on the instant motion to compel arbitration—can be severed. That conclusion is consistent with the parties’ bargained expectations and the strong policy favoring arbitration to resolve disputes. For these reasons, these arguments against arbitration fail. All doubts should be resolved in favor of arbitration. (California Correctional Peace Officers Ass'n v. State (2006) 142 Cal.App.4th 198, 205).

Plaintiff, however, has presented a genuine question as to her financial ability to cover her costs in arbitration. Defendant has not rebutted her contention. If credited and on a proper showing, Plaintiff’s inability to pay could support a finding of unconscionability necessary to defeat the motion to compel. In that scenario, Defendant will be presented with the choice: he can elect to either pay Plaintiff’s share of the arbitration cost and remain in arbitration, or, waive his right to arbitrate. (See Roldan, supra, 219 Cal. App. 4th at 96.)

This court otherwise rejects Plaintiff’s defenses to arbitration. Accordingly, Defendant’s motion to compel arbitration is GRANTED ON THE CONDITION that Defendant agree to front and pay the entire reasonable costs of arbitration, subject to re-allocation after a decision is made in said arbitration. If Defendant does not agree to this condition the motion shall be DENIED.

Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept49@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.