Judge Randolph M. Hammock, Case Number: 23STCV28326, Date: 2024-09-13 Tentative Ruling

Plaintiff Farzad Rad, an individual, and Plaintiff Farideh Rad, individually and as trustee of The Rad Family Trust dated September 8, 2003, bring this action for elder financial abuse and other claims. Plaintiffs allege that Defendants induced Farideh Rad—who was behind on her conventional mortgage—to enter into a predatory hard money loan. The loan devoured Plaintiff Farideh Rad’s life savings in home equity, resulting in the foreclosure of her family home and the eviction of her family. Plaintiffs now assert causes of action for (1) Elder Financial Abuse, (2) Wrongful Foreclosure, (3) Attorneys’ Fees Under Contract, (4) Breach of Fiduciary Duty, and (5) Quiet Title.

“[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.)

In 2021, Farideh F. Rad, as trustee of The Rad Family Trust Dated 9/8/03, entered into an agreement with Defendant Coastal to borrow $1,400,000 to fully pay off and retire a loan obligation secured by the Property at 5832 Scotwood Drive, Ranchos Palos Verdes, CA. (Tomaszewski Decl. ¶ 5, Exh. A.) As part of the loan agreement, Farideh executed a document titled “Arbitration Agreement.” (Id. ¶ 6, Ehx. B.)

The Arbitration Agreement provides that Farideh and Coastal agree to arbitrate “any claim or controversy of any nature whatsoever arising out of or in any way related to the loan; the arranging of the loan; any application, inquiry or attempt to obtain the loan; any loan documents; the servicing of the loan; or any other aspect of the loan transaction. It includes, but is not limited to, federal or state contract, tort, statutory, regulatory, common law and equitable claims. (Id. ¶ 9, Exh. B.) The agreement also expressly excludes certain disputes from arbitration, none of which are applicable here. (Id.)

Plaintiffs do not dispute that Farideh Rad signed the arbitration agreement. Plaintiffs likewise do not dispute that the broad provision covers the 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”].) Instead, they argue various defenses to enforcement of the agreement(s).

Plaintiffs argue that the federal Truth in Lending Act (“TILA”) prohibits mandatory arbitration in this case because the loan was made for personal use on Plaintiff’s dwelling. Under CFR section 1026.36(h), “[a] contract or other agreement for a consumer credit transaction secured by a dwelling (including a home equity line of credit secured by the consumer's principal dwelling) may not include terms that require arbitration or any other non-judicial procedure to resolve any controversy or settle any claims arising out of the transaction.”

Defendants counter that TILA is inapplicable under the facts here because the loan was a business or commercial loan, and not a consumer loan. A loan qualifies as a consumer credit transaction under TILA if the loan was issued (1) to a natural person and (2) “primarily for personal, family, or household purposes.” (Gilliam v. Levine (9th Cir. 2020) 955 F.3d 1117, 1120 [quoting 15 U.S.C. 1602(i)].) Loans obtained for business purposes are not covered by TILA. (Id.)

The question is therefore whether the loan was made for business or personal (dwelling) reasons. Courts use a five-factor test to determine whether a loan was obtained primarily for business or personal purposes: (1) “[t]he relationship of the borrower's primary occupation to the acquisition”; (2) “[t]he degree to which the borrower will personally manage the acquisition”; (3) “[t]he ratio of income from the acquisition to the total income of the borrower”; (4) “[t]he size of the transaction”; and (5) “[t]he borrower's statement of purpose for the loan.” (Thorns v. Sundance Properties (9th Cir. 1984)726 F.2d 1417, 1419.)

Indeed, the Uniform Residential Loan Application signed by Farideh states the property would be used as an “investment.” (Tomaszewski Decl. 11, Exh. C, ¶¶ 3a, 4a.) Farideh also submitted a commercial lease showing that Farideh had purportedly agreed to lease the Property to an unknown third party for $7,500 per month. (Tomaszewski Decl. ¶ 11, Exh. D.)

But upon closer look, there are clear gaps in the evidence that call the true purpose of the loan into question. Coastal maintains that it “requires certain documents to be provided and signed to show that the borrower was seeking a commercial, as opposed to a consumer loan.” (Reply Tomaszewski Decl. ¶ 14.) However, the Certificate of Business Purpose document does not list any business “purpose” whatsoever. (Reply Tomaszewski Decl., Exh. U.) Farideh may have signed the document, but the lines are left blank. (Id.)

Farideh also may have signed a Certificate of Non-Owner Occupancy reflecting that she was “not occupying the subject property [she was] acquiring the loan on.” (Id. Exh. V.) But the document contains a blank line where she was to list her “primary residence.” (Id.) Similarly, aside from the property at issue, the Loan Application does not list any other properties owned by Farideh, including any personal residence. (Tomaszewski Decl. ¶ 11, Exh. C.) Moreover, Farideh might have signed the Business Loan Letter, in which she agreed the loan was “for business purposes.” (Id. Exh. W.) But the lines where Farideh was to right the “purpose of loan” were left blank. (Id.)

Plaintiff Farideh states in her declaration that the “Property was exclusively occupied by [her], [her] sons, Farshad’s partner Marcella, and [her] grandchildren.” (Farideh Decl. ¶ 49.) Plaintiff attests that she “do[es] not own or manage any corporations,” “do[es] not know what Rad LLC is,” “h[as] never received any money from Rad LLC,” “do[es] not have any job or business interests,” “ha[s] never had a tenant in the Property,” and “ha[s] never received rental income from the Property.” (Farideh Decl. ¶¶ 41-46.) Farzad attests in his declaration that the Lease purporting to show a rental tenant was forged, and states that his “mother has never had any tenants in the Property and has never generated rental income from it.” (Farzad Decl. ¶ 54.) Defendants provide no evidence refuting these points.

Indeed, consistent with this implication that Farideh was actually using the property at all times as her personal residence, in 2023, Coastal brought an unlawful detainer action at the property against her. (LASC Case No. 23IWUD02558.)

It is also worth noting that that the principal amount of the loan, $1,400,000, is consistent with a home mortgage in Rancho Palos Verdes. (Compl. ¶ 10.) Thus, there is nothing to suggest that it must have been for some other, business-type purpose.

Finally, the court must also consider the dispute as to Plaintiff Farideh’s competence and English language abilities. Plaintiff Farideh’s sons, Farzad and Farshad, state in their declarations that Farideh’s primary language is Farsi, and that she “does not comprehend spoken or written English.” (Farzad Decl. ¶ 3; Farshad Decl. ¶ 3.) Farzad also states that “[s]ince 2020 she has required more consistent care, because she is experiencing cognitive decline.” (Id. ¶ 5.)

Under the totality of the circumstances, the court concludes the loan was—in substance and for all practical purposes—a consumer loan made for a personal use. The lender Defendants knew this or reasonably should have. Under the TILA, mandatory arbitration is therefore barred.