Judge: Richard Y. Lee, Case: 30-2022-01257212, Date: 2022-10-13 Tentative Ruling

Defendant, 5 Star Housjng LLC moves for an order compelling arbitration of the claims alleged by Plaintiff Mai Tran Holl (“Plaintiff”), and for an order to dismiss, or alternatively, stay further proceedings in this action pending completion of final and binding arbitration.

As a threshold matter, the Court notes that the instant motion purports to be brought by Defendant “5 Star Housjng LLC.” However, the California Residential Purchase Agreement and Joint Escrow Instructions (the “Agreement”) which is submitted to the Court by the moving party as purporting to contain the arbitration provision upon which the moving party relies identifies the buyer as “5 Star Housing LLC.” In addition, the name of the defendant in the Verified Complaint is “5 Star Housing LLC.” As such, is it unclear if there is a typographical error in the motion or if the motion was actually intended to be brought by “5 Star Housjng LLC.”

The court presumes that there is a typographical errors and will address the merits.

5 Star brings the instant motion pursuant to Code of Civil Procedure section 1281.2 and provides that 5 Star is named in Plaintiff’s Third and Fourth causes of action. 5 Star contends that Plaintiff was the seller of a property located at 4508 Elder Ave., Seal Beach, CA 90740 (the “Subject Property”); that 5 Star was the purchaser of the Subject Property; that the parties executed the Agreement; that paragraph 17 of the Complaint specifically alleges that Plaintiff was presented with the Agreement for signature by her broker on October 23, 2021, and signed the Agreement; and that Section 22B of the Agreement requires contractual arbitration of “any dispute or claim arising between them out of this agreement or any resulting transaction” shall be decided by neutral, binding arbitration, including the claims and issues made subject to this lawsuit by Plaintiff’s Complaint. 5 Star argues that the filing of the lawsuit constitutes a refusal to arbitrate, and that the Broker has also been sued and also agreed to arbitrate any disputes or claims.

Plaintiff contends that the parties never entered into a valid, binding contract from the Agreement such that the arbitration provision is not enforceable because Plaintiff rejected the Agreement, which was $235,000 less than the $1,275,000 listed price, as her Agent served Defendant with Seller Counter-Offer No. 1; that on October 21, 2021, 5 Star rejected Plaintiff’s counter-offer by serving Buyer’s Counteroffer No. 1; and that Plaintiff never executed Defendant’s counter-offer. Plaintiff asserts that the Agreement purports to have Plaintiff’s signature, but that the signature is not genuine and is a forgery. Plaintiff also contends that she signed many documents without an opportunity to review them as Plaintiff’s Agent and Broker abused Plaintiff’s trust and misused her language barriers and elderly age to fraudulently sell the Subject Property for $1,040,000, and that Plaintiff’s native language is Vietnamese, that Plaintiff has limited ability to understand the English language, and Plaintiff does not have the ability to fully understand legal contracts, such as the purchase agreement and related documents at issue in this case. Plaintiff argues that it remains to be adjudicated if the document entitled “Residential Purchase Agreement” ever became an enforceable contract, that this is a question for the jury as the factfinder, and that the Court cannot enforce the Agreement and grant the motion until the jury finds the contract is valid and binding.

Under Code of Civil Procedure § 1281.2, the court may order a petitioner and respondent to arbitrate a controversy if the court determines that an agreement to arbitrate the controversy exists and “[o]n petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy.” (Code Civ. Proc. § 1281.2.)

“ ‘[W]hen a petition to compel arbitration is filed and accompanied by prima facie evidence of a written agreement to arbitrate the controversy, the court itself must determine whether the agreement exists and, if any defense to its enforcement is raised, whether it is enforceable.  Because the existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance of the evidence.  If the party opposing the petition raises a defense to enforcement--either fraud in the execution voiding the agreement, or a statutory defense of waiver or revocation (see § 1281.2, subds. (a), (b))--that party bears the burden of producing evidence of, and proving by a preponderance of the evidence, any fact necessary to the defense.’ ”  (Hotels Nevada v. L.A. Pacific Center, Inc. (2006) 144 Cal. App. 4th 754, 761, quoting Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal. 4th 394, 413.)

“The trial court sits as the trier of fact, weighing all the affidavits, declarations, and other documentary evidence, and any oral testimony the court may receive at its discretion, to reach a final determination. [Citation.]” (Ruiz v. Moss Bros. Auto Group, Inc. (2014) 232 Cal.App.4th 836, 842.)  General principles of contract law apply to determine whether the parties have entered into an agreement to arbitrate. (Ibid.) The Court may decide that some causes of action are subject to arbitration. (Lane v. Francis Capital Management, LLC (2014) 224 Cal.App.4th 676, 684.)

While there is a policy in favor of arbitration and doubts are to be resolved in favor of arbitration, there is no public policy in favor of compelling persons to accept arbitration of controversies they have not agreed to arbitrate. (Mitri v. Arnel Management Co. (2007) 157 Cal.App.4th at 1170; Greenspan v. LADT, LLC. (2010) 185 Cal. App. 4th 1413, 1437.)

Parties moving to compel arbitration “may meet their initial burden to show an agreement to arbitrate by attaching a copy of the arbitration agreement purportedly bearing the opposing party's signature.” (Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1060.) If the opposing party challenges the validity of that signature, however, the moving party must “establish by a preponderance of the evidence that the signature was authentic.” (Ibid.)

Existence of Agreement to Arbitrate

On April 29, 2022, Plaintiff filed the Complaint in this action. (Declaration of Paul K. Fine (“Fine Decl.”), ¶ 1.)

5 Star presents the Agreement which purports to be executed by Plaintiff on October 23, 2021, to sell the Subject Property to 5 Star. (Fine Decl., ¶ 2.) The Agreement is attached to the Fine Declaration.

The Agreement identifies the “Buyer” and “Seller” as the “Parties.” (Agreement, § 1(E) at p. 1.) The “Buyer” is identified as “5 Star Housing LLC.” (Agreement, § 1(A) at p. 1.) The “Seller” is identified as “MAI TRAN HOLL.” (Agreement, § 32 at p. 10.)

Section 22B of the Agreement states:

“B. ARBITRATION OF DISPUTES:

“The Parties [Plaintiff and 5 Star] agree that any dispute or claim in Law or equity arising between them out of this  Agreement or any resulting transaction, which is not settled through mediation, shall be decided by neutral, binding arbitration. The Parties also agree to arbitrate any disputes or claims with Broker(s), who, in writing, agree to such arbitration prior to, or within a reasonable time after, the dispute or claim is presented to the Broker. The arbitrator shall be a retired judge or justice, or an attorney with at least 5 years of residential real estate Law experience, unless the parties mutually agree to a different arbitrator. The Parties shall have the right to discovery in accordance with Code of Civil Procedure §1283.05. In all other respects, the arbitration shall be conducted shall be conducted in accordance with Title 9 of Part 3 of the Code of Civil Procedure. Judgment upon the award of the arbitrator(s) may be entered into any court having jurisdiction. Enforcement of this agreement to arbitrate shall be governed by the Federal Arbitration Act. Exclusions from this arbitration agreement are specified in paragraph 22C.

“NOTICE:  BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE ‘ARBITRATION OF DISPUTES’ PROVISION DECIDED BY NEUTRAL ARIBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL, BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE ‘ARBITRATION OF DISPUTES’ PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CLAIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.’

“‘WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE ‘ARBITRATION OF DISPUTES’ PROVISION TO NEUTRAL ARBITRATION.’”

(Agreement, § 22B at p. 8.)

Beneath Section 22B are the Buyer’s and Seller’s handwritten initials.

Thereafter, Section 22C states, in part:

“C.  ADDITIONAL MEDIATION AND ARBITRATION TERMS:

“(1) EXCLUSIONS:  The following matters are excluded from mediation and arbitration:  (i) a judicial or non-judicial foreclosure or other action or proceeding to enforce a deed of trust, mortgage or installment land sale contract as defined in  Civil Code §2985; (ii) an unlawful detainer action; and (iii) any matter that is within the jurisdiction of a probate, small claims or bankruptcy court.”

(Agreement, § 22C at p. 8.)

In addition, the bottom of page 8 has the handwritten initials of both the Buyer and Seller.

The instant Complaint asserts the Third Cause of Action for Fraud-Misrepresentation; Fourth Cause of Action for Financial Elder Abuse; Fifth Cause of Action for Cancellation of Written Instrument; and Sixth Cause of Action for Declaratory Relief against 5 Star. These causes of action are based on allegations that Plaintiff was presented with the Agreement, among other documents, by her agent, Defendant Ngoc Kim Tran late at night and was told she needed to sign them immediately, and that she had no time to review them and signed them because she trusted her agent and her agent’s misrepresentations that Plaintiff “got the deal she wanted.” (Verified Complaint, ¶¶ 16-19, 25, 29, 40-41, 46, 57.) Thus, these causes of action arise from the transfer of title of the Subject Property, and would be encompassed by the Agreement. In turn, 5 Star presents sufficient evidence of the existence of an agreement to arbitrate with 5 Star which concerns the claims in this action.

Validity of Agreement

Initially, in the Memorandum of Points and Authorities, Plaintiff appears to assert that the signature on the purported Agreement is a forgery.

In support thereof, Plaintiff submits her declaration which provides that she hired Defendant Ngoc Kim Tran (“Tran”) and ADK Bancorp, Inc. dba Advance Estate Realty to sell the Subject Property; that she agreed to list the Subject Property for $1,275,000; that she never agreed to sell the Subject Property to My Groups for $1,040,000; that she rejected the offer and told her agent to make a counter offer; that she did not sign Buyer’s Counteroffer No. 1 which is attached as Exhibit 1; and that the signature on Buyer’s Counteroffer No. 1 is not her signature and that she never subsequently ratified it. (Declaration of Mai Tran Holl, ¶ 4.) Plaintiff also generally states, “I never knowingly executed the purchase agreement for $1,040,000, or ratified it by signing subsequent real estate documents,” and that Tran told her sign a stack of documents without giving Plaintiff an opportunity to review them or have someone else review them, and that Plaintiff did not need to review them because Plaintiff was getting what she was asking for. (Id., ¶ 5.)

However, at issue is the Agreement between Plaintiff and 5 Star, not My Groups, that is submitted with the moving papers. The Court notes that Exhibit 1 attached to Plaintiff’s declaration which purports to be a true and correct copy of Buyer’s Counteroffer No. 1,  identifies the Buyer as 5 Star, not My Groups. In addition, Plaintiff does not dispute the genuineness of the signature of the Agreement upon which 5 Star relies. As such, Plaintiff fails to present evidence supporting that her signature on the Agreement at issue is a forgery.

Instead, as to the Agreement at issue, Plaintiff provides that she never knowingly executed the Agreement because she did not have an opportunity to review the terms as she relied on Defendant Tran’s representations. Though not expressly stated, it appears that Plaintiff is arguing that the entire Agreement is void for fraud in the execution.

“A trial court ruling on a petition to compel arbitration must resolve the factual issues raised by the petition, not simply determine whether factual disputes exist. [Citation.]” (Brown v. Wells Fargo Bank, N.A. (2008) 168 Cal.App.4th 938, 952-953.)

“[C]laims of fraud in the execution of the entire agreement are not arbitrable under either state or federal law. If the entire contract is void ab initio because of fraud, the parties have not agreed to arbitrate the controversy; and under that circumstance, Prima Paint does not require a court to order arbitration. [Citations.]” (Rosenthal, supra, 14 Cal.4th 394, 416.) The question of fraud in the execution is for the trial court to decide, and the court must make a finding on whether constructive fraud in the execution of an agreement exists. (Id. at p. 417; Brown, supra, 168 Cal.App.4th at p. 959.)

“When a plaintiff alleges fraud in the inducement, the plaintiff is asserting that it understood the contract it was signing, but that its consent to the contract was induced by fraud. In contrast, when a plaintiff alleges fraud in the execution, the plaintiff is asserting that it was deceived as to the very nature of the contract execution, and did not know what it was signing. A contract fraudulently induced is voidable; but a contract fraudulently executed is void, because there never was an agreement. [Citation.]” (Brown, supra, 168 Cal.App.4th at p. 958.)

“A necessary element of the defense of fraud in the execution is reasonable reliance. That is, when a plaintiff asserts that the defendant misrepresented the nature of the contract, the contract is not considered void due to the fraud if the plaintiff had a reasonable opportunity to discovery the true terms of the contract. The contract is only considered void when the plaintiff’s failure to discovery the true nature of the document executed was without negligence on the plaintiff’s part. [Citation.]” (Brown, supra, 168 Cal.App.4th at pp. 958-959.) “This issue usually arises when the plaintiff failed to read the terms of the contract, relying instead on the defendant’s representation as the effect of the contract. Generally, it is not reasonable to fail to read a contract; this is true even if the plaintiff relied on the defendant’s assertion that it was not necessary to reach the contract. [Citation.] Reasonable diligence requires a party to read a contract before signing it. [Citation.]” (Id. at p. 959.) However, “[w]hen the parties are in a fiduciary relationship, the same degree of diligence is not required of the non-fiduciary party. [Citation.] If the defendant is in a fiduciary relationship with the plaintiff which requires the defendant to explain the terms of a contract between them, the plaintiff’s failure to read the contract would be reasonable. [Citations.] In such a situation, a defendant fiduciary’s failure to perform its duty would constitute constructive fraud [citation], the plaintiff’s failure to read the contract would be justifiable [citation], and constructive fraud in the execution would be established.” (Ibid.)

Based on the foregoing, the Court must resolve factual issues raised by the instant motion to compel arbitration, i.e., as to whether there was constructive fraud in the execution of the Agreement.

In so doing, the Court must first determine whether there was a fiduciary relationship between Plaintiff and Defendant Tran.

“ ‘Fiduciary’ and ‘confidential’ relationships are relationships existing between parties to a transaction wherein on party is duty bound to act with the utmost good faith for the benefit of the other. Such a relationship ordinarily arises when one party reposes a confidence in the integrity of the other, and the other voluntarily accepts that confidence. [Citation.]” (Brown, supra, 168 Cal.App.4th at p. 959-960.) “An agent is a fiduciary as a matter of law. [Citation]” (Id. at p. 960.) “While it is impossible to identify a single set of factors giving rise to a fiduciary relationship [citation], some reasons generally used to demonstrate that a party to such a relationship is vulnerable include:  advanced age, youth, lack of education, ill health, and mental weakness. [Citation.]” (Ibid.)

There is a fiduciary relationship between a real estate broker or agent and his/her client. (Jorgensen v. Beach ‘N’ Bay Realty, Inc. (1981) 125 Cal.App.3d 155, 161.) “[I]t is settled law in California that a real estate agent’s fiduciary relationship to his client is the same as that of a trustee to a trustor, . . . .” (Id. at p. 161.) “The fiduciary duties of a real estate agent include the duties to obey the instructions of the client, and to provide diligent and faithful service. [Citation.]” (Thomson v. Canyon (2011) 198 Cal.App.4th 594, 607.) Real estate agents owe a fiduciary obligation to their client to disclose all material facts which might affect his/her decision with regard to the transaction. (Pepitone v. Russo (1976) 64 Cal.App.3d 685, 688.) “[A] broker’s fiduciary duty to his client requires the highest good faith and undivided service and loyalty. [Citations.]” (Field v. Century 21 Klowden-Forness Realty (1998) 63 Cal.App.4th 18, 25.)

Here, Plaintiff submits her declaration and states, “I hired Defendant Ngoc Kim Tran (‘Real Estate Agent’)/ADK Bancorp, Inc. dba Advance Estate Realty (‘Broker’) to sell the Property, and she and I agreed to list the Property for $1,275,000.” (Declaration of Mai Tran Holl, ¶ 3.) Plaintiff also provides, “that Kim Tran and her Broker took advantage of my elderly age and language barriers, and lack of sophistication of real estate documents, to sell my Property for $230,000 less than what I agreed to sell it. They did so by showing up at my house late at night, overwhelming me with a stack of complex documents to be signed. When I asked Kim Tran if I could have someone review the stack of real estate documents that would close the sale (which I thought was for $1,275,000), Kim said she was in a rush and needed to get home, and she said she needed the stack of documents signed immediately. This gave me no opportunity to review what I was signing, or have someone else review the documents before signing, so I just trusted her. This scheme resulted in Kim Tran hiding the fact that she was selling the Property for $230,000 less than what I agreed.” (Id., ¶ 6.) Plaintiff explains, “[Tran] said I did not need to review [the stack of documents, i.e., purchase agreement for $1,040,000] because I was getting what I asked for, which I believed to be the asking price of $1,275,000.” (Id., ¶ 5.) In sum, Plaintiff concludes, “[m]y deficiencies in the English language, my lack of opportunity to review the documents, my lack of sophistication of real estate documents, and the scheme, resulted in my not knowing what I was signing and under no circumstances did I knowingly ratify the forged purchase agreement that purported to sell my Property, worth $1,275,000, for $1,040,000.” (Id., ¶ 6.)

Plaintiff also attaches a true and correct copy of the Residential Listing Agreement as Exhibit 2 to her declaration which are signed by Plaintiff and Defendant Tran, on behalf of Advance Estate Realty, the real estate broker. (Declaration of Mai Tran Holl, ¶ 4; Ex. 2.)

Based on the foregoing evidence, including Plaintiff’s elderly age and “deficiencies in the English language,” Defendant Tran and ADK Bancorp, Inc. dba Advance Estate Realty had a fiduciary relationship with Plaintiff as a broker/agent concerning the sale of the Subject Property that would require them to explain the Agreement to Plaintiff, including terms such as the sale price, such that Plaintiff’s failure or inability to read the Agreement would be reasonable. Thus, Plaintiff provides sufficient evidence establishing constructive fraud in the execution of the Agreement.

As a result, the Court DENIES the motion to compel arbitration.

Plaintiff to give notice.