Judge: Richard Y. Lee, Case: 30-2022-01244889, Date: 2022-09-01 Tentative Ruling
Defendant AB Capital, LLC (“Defendant”) moves to compel Plaintiff FCI Lender Services, Inc. (“Plaintiff”) to submit this matter to judicial reference pursuant to the parties’ Master Loan Servicing Agreement (the “Agreement”).
Plaintiff’s Request for Judicial Notice is DENIED on the ground that the material is not relevant to the determination of the issues raised herein. (State Compensation Ins. Fund v. ReadyLink Healthcare, Inc. (2020) 50 Cal.App.5th 422, 442-443.)
The Court declines to consider the Declaration of Wolfe Adefeso, which was untimely served and filed.
Section 638 of the Code of Civil Procedure provides: “A referee may be appointed upon the agreement of the parties filed with the clerk, or judge, or entered in the minutes, or upon the motion of a party to a written contract or lease that provides that any controversy arising therefrom shall be heard by a referee if the court finds a reference agreement exists between the parties:
a) To hear and determine any or all of the issues in an action or proceeding, whether of fact or of law, and to report a statement of decision.
b) To ascertain a fact necessary to enable the court to determine an action or proceeding.
The statute authorizes courts to transfer a dispute to a referee pursuant to a written agreement between the parties. (Grafton Partners L.P. v. Superior Court (2005) 36 C4th 944, 960-961.) Where the parties’ agreement calls for all disputes to be resolved by a referee, a party may bring a motion to enforce the reference if one or more parties refuses to agree after a demand for a reference is made. The motion is handled much the same way as a motion to compel contractual arbitration, with the court deciding threshold issues of enforceability of the agreement and the scope of issues to be resolved by the reference. (Id.)
The Judicial Reference Provision
Section 34.0(a) of the Agreement, which is entitled “General Reference and Waiver of Jury Trial,” states, in pertinent part:
“If a dispute arises out of, or relates to this Agreement, the dispute shall be decided by general reference procedures pursuant to California Code of Civil Procedure Section 638. The general reference shall be commenced by a request or a motion filed with the clerk or presiding judge of the Superior Court of the County of Orange, with a copy served on the other party, pursuant to Code of Civil Procedure Section 638. Any such request or motion shall include a copy of this Agreement. Except to the extent modified herein, the reference shall be conducted in accordance with California law including, but not limited to, the California Code of Civil Procedure and California Evidence Code. Any general reference shall be commenced within the period specified by the applicable statute of limitation for the claim(s) made. All general reference proceedings hereunder shall, unless all parties thereto otherwise agree in writing, be conducted in a mutually agreeable location in the County of Orange, State of California.”
Section 34.0(e) states, in bold: “BY EXECUTING THIS AGREEMENT, YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THIS AGREEMENT DECIDED BY A GENERAL REFERENCE PROCEEDING, WITH A REFEREE AND NOT AN ACTIVE JUDGE, AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR BEFORE A JURY. IF YOU REFUSE TO SUBMIT TO A GENERAL REFERENCE PROCEEDING AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO PARTICIPATE IN THE GENERAL REFERENCE PROCEEDING UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE.”
Enforceability
To determine if a reference agreement exists, courts look to state law principles of contract formation. (See Sy First Family Ltd. Partnership v. Cheung (1999) 70 Cal.App.4th 1334, 1342.) The essential elements of a contract are 1) capacity to contract; 2) consent; 3) a lawful object; and 4) a sufficient cause or consideration. (Civ. Code, § 1550.)
Defendant submits evidence that Plaintiff acted as its loan servicer in connection with loans made to third parties pursuant to the Agreement, which is dated January 16, 2020. (Declaration of Joshua Pukini, ¶ 5.) The Agreement states it is entered into between Plaintiff as the “Servicer” and Defendant as the “Client.” (Id., Ex. 1 at p. 1.)
Plaintiff does not dispute signing the Agreement. However, Plaintiff contends the Agreement is unenforceable because its agreement was fraudulently induced by Defendant. In support, Plaintiff submits evidence that Defendant’s representative, Ryan Young, represented to Plaintiff that Defendant would honor the Agreement, abide by its terms, and perform under the terms of the loans to be serviced. (Declaration of Teri Snyder, ¶ 10.) By executing the Agreement, Plaintiff relied on Defendant’s representations. (Id., ¶ 11.) Plaintiff contends Defendant never intended to abide by the Agreement or to indemnify Plaintiff and made the mirepresentations to induce Plaintiff into entering the Agreement. (Id., ¶ 13.) Plaintiff asserts Defendant failed to abide by its representations and contractual obligations, harming Plaintiff in a sum no less than $30,380.00. (Id., ¶¶ 12, 14.) Plaintiff asserts Defendant failed to abide by the Agreement in two ways: (1) by refusing to indemnify Plaintiff in two separate lawsuits brought by Konstro Designs & Engineering, Inc. and 322 Broadway, LLC (id., ¶¶ 4-5, 12); and (2) on information and belief, failing to “disburse the amounts owed under the Subject Loans to Konstro or 322 Broadway.” (Id., ¶ 12.)
“ ‘ “Promissory fraud” ’ is a subspecies of fraud and deceit. A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud. [Citations.]” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 973-974.) “The elements of fraud that will give rise to a tort action for deceit are: ‘ “(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e. to induce reliance; (d) justifiable reliance; and (e) resulting damage.” ’ ” (Id., at p. 974.)
In Engalla, the court held there was evidence that the defendants had fraudulently induced a decedent into agreeing to the subject arbitration agreement. (Id., at p. 973.) There Court found evidence of misrepresentation because the agreement required that party arbitrators be chosen within 30 days and neutral arbitrators within 60 days, but the facts showed that in a survey of defendants’ prior arbitrations, neutral arbitrators were appointed within 60 days in only 1 percent of cases and on average a neutral arbitrator was appointed 674 days after the demand for arbitration. (Id., at pp. 974-975.) These facts supported the allegation that defendants knew they would not comply with the agreement’s timelines when entering into the arbitration agreement with the decedent. (Id., at p. 974.)
Here, Plaintiff provide no facts to support its assertion that Defendant never intended to abide by the Agreement other than Ms. Snyder’s self-serving declaration. Unlike in Engalla, there is no evidence from which it could be reasonably inferred that Defendant had no intention to abide by the parties’ Agreement, other than the bald assertion that Defendant ultimately breached the Agreement. Plaintiff has therefore failed to demonstrate facts showing there was any misrepresentation.
Moreover, Plaintiff’s assertion of misrepresentation is predicated in part on Defendant’s alleged breach of the Agreement by failing to indemnify Plaintiff with regard to the Konstro and 322 Broadway lawsuits. As the Court has already found in denying Plaintiff’s Motion for Writ of Attachment, Plaintiff has not demonstrated that those lawsuits fall within the indemnity provision in the Agreement. (See ROA 31.) The second basis of Plaintiff’s assertion is that Defendant failed to disburse the amounts owed under certain loans to Konstro and 322 Broadway. Ms. Snyder’s declaration on this point is made on information and belief, not personal knowledge, and there is no other evidence in support. (See Lopez v. University Partners (1997) 54 Cal.App.4th 1117, 1124 [declaration based on information and belief is insufficient to satisfy the burden of either the moving or opposing party on a motion for summary judgment or adjudication].) Thus, Plaintiff offers no sufficient evidence in support of this assertion.
The Court therefore finds that Plaintiff has failed to present any evidence showing it entered the Agreement by means of fraudulent inducement. The Court further finds that the Agreement is valid and enforceable.
Judicial Estoppel
Plaintiff contends Defendant should be judicially and equitably estopped from compelling a judicial reference because it has asserted that the Agreement is unenforceable in written discovery responses verified by its principal, Joshua Pukini. In response to Plaintiff’s Request for Admission No. 2, which asks Defendant to admit that the Agreement is an enforceable contract, Defendant responded, “Denied.” (Declaration of Logan W. Hensley, Ex. 4 at p. 3.) Plaintiff argues Defendant cannot simultaneously claim that the Agreement is unenforceable to avoid indemnity and at the same time attempt to enforce the judicial reference provision.
State law governs the issue of judicial estoppel in this case. (Prilliman v. United Air Lines, Inc. (1997) 53 Cal.App.4th 935, 960.) “The California courts which have addressed the doctrine of judicial estoppel observe that ‘This form of estoppel “has been said to be one of vague application, and in many cases it has been held inoperative, or has not been applied.’ [Citation.]” (Ibid.) The doctrine applies “when: (1) the same party has taken two positions; (2) the positions were taken in judicial or quasi-judicial administrative proceedings; (3) the party was successful in asserting the first position (i.e., the tribunal adopted the position or accepted it as true); (4) the two positions are totally inconsistent; and (5) the first position was not taken as a result of ignorance, fraud, or mistake.” (Jackson v. County of Los Angeles (1997) 60 Cal.App.4th 171, 183.)
Here, Defendant has taken two inconsistent positions: that the Agreement is enforceable and that it is not enforceable. However, Defendant has not been “successful” in asserting the first position because this Court has not adopted the position as true in these proceedings. The Court therefore finds the doctrine of judicial estoppel does not apply here.
Even if the Court finds judicial or equitable estoppel do not apply, Plaintiff further contends Defendant should not be allowed to compel judicial reference while at the same time contending the Agreement is not enforceable. It must either amend its prior admission to reflect that the Agreement is enforceable in its entirety or must stick to its denial that the Agreement is unenforceable and be precluded from compelling judicial reference. Plaintiff cites no legal authority in support of this argument. Therefore, the Court finds the argument has no merit.
Scope of Judicial Reference Provision
The scope of the judicial reference provision in the Agreement applies to any dispute if it arises out of or relates to the Agreement. The claims under Plaintiff’s Breach of Contract cause of action are based on the allegation that Defendant breached the Agreement by failing to indemnify Plaintiff in the 322 Broadway and Konstro actions. (Compl., ¶ 18.) Plaintiff’s second cause of action for Complete Indemnity is also based on the Agreement and seeks indemnity by Defendant under Section 11.0 thereof. (Compl., ¶ 24.) Plaintiff’s causes of action plainly arise out of and relate to the Agreement, and Plaintiff does not argue otherwise.
Defendant’s first cause of action for Breach of Contract is similarly based on the Agreement and alleges Plaintiff breached that Agreement by failing to follow instructions of Defendant and perform its contractual obligations with respect to the processing and administration of numerous loans, among other things. (Cross-Compl., ¶¶ 9, 13.) The Breach of Implied Covenant of Good Faith and Fair Dealing, Breach of Fiduciary Duty, Unfair Business Practices, Misappropriation of Trade Secrets, Interference with Contractual Relations, and Interferecne with Prospective Economic Relations causes of action also arise out of or relate to the Agreement as well. (See Cross-Compl., ¶¶ 17, 20-21, 25-26, 31, 38-39, 47.) The Court finds that the claims asserted by both Plaintiff and Defendant in this action fall within the scope of the judicial reference provision.
In light of the foregoing, the Court will grant Defendant’s Motion.
Before granting the Motion, the appointment of a referee must be addressed. Pursuant to Code of Civil Procedure section 640:
(a) The court shall appoint as referee or referees the person or persons, not exceeding three, agreed upon by the parties.
(b) If the parties do not agree on the selection of the referee or referees, each party shall submit to the court up to three nominees for appointment as referee and the court shall appoint one or more referees, not exceeding three, from among the nominees against whom there is no legal objection. If no nominations are received from any of the parties, the court shall appoint one or more referees, not exceeding three, against whom there is no legal objection, or the court may appoint a court commissioner of the county where the cause is pending as a referee.
The parties are ordered to confer, through counsel, in an attempt to agree upon a referee. A continued hearing is set for September 29, 2022 at 1:30 p.m. in Department W15. If a stipulation for appointment of a referee is filed at least 10 court days before the hearing, no appearances will be necessary. If the parties cannot agree on a referee, each side shall file and serve a statement identifying up to three nominees for appointment as referee at least 10 court days before the hearing. Any objections to the other side’s nominees shall be filed at least 7 court days prior to the hearing.
Defendant to give notice.