Judge Ronald F. Frank, Case Number: 24TRCV00471, Date: 2024-05-02 Tentative Ruling

Judge: Ronald F. Frank, Case: 24TRCV00471, Date: 2024-05-02 Tentative Ruling

Case Number: 24TRCV00471 Hearing Date: May 2, 2024 Dept: 8

Tentative Ruling

HEARING DATE: May 2, 2024¿

CASE NUMBER: 24TRCV00471

CASE NAME: Sheena Newman v. Rombro & Manley, LLP, et al.

MOVING PARTY: Defendant, Rombro & Manley LLP

RESPONDING PARTY: Plaintiff, Sheena Newman

TRIAL DATE: Not Set.

MOTION:¿ (1) Motion to Compel Arbitration

Tentative Rulings: (1) ARGUE and/or CONTINUE. While Defendant has established a valdi arbitration agreement that covers the claims made in this suit, the Roldon and Aronow issues raised in the Opposition require a fuller development of the record bearing on Plaintiff’s ability to pay her half of the arbitrator’s fees

I. BACKGROUND¿

A. Factual¿

On February 9, 2024, Plaintiff, Sheena Newman (“Plaintiff”), filed a Complaint against Defendants, Rombro & Manley LLP and DOES 1through 20. The Complaint alleges causes of action for: (1) Legal Malpractice; and (2) Breach of Fiduciary Duty. Plaintiff asserts that her Complaint arises out of Defendants’ alleged abdication of their duties as counsel of record for Plaintiff in matters related to her divorce proceedings.

Defendant, Rombro & Manley LLP (“Defendant”) now wishes to enforce an arbitration clause in its contract with Plaintiff.

B. Procedural

On March 27, 2024, Defendant filed a Motion to Compel Arbitration and Stay Proceedings. On April 17, 2024, Plaintiff filed an opposition brief. On April 22, 2024, Defendant filed a reply brief.

II. ANALYSIS

A. Legal Standard

The Federal Arbitration Act (“FAA”) states that “[a] written provision in any . . . contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (9 U.S.C. § 2.) California law incorporates many of the basic policy objectives contained in the Federal Arbitration Act, including a presumption in favor of arbitrability. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971-72.)

The California Arbitration Act (Code Civ. Proc., § 1280 et seq.) compels the enforcement of valid arbitration agreements. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97.) California law states that “[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 to the agreement refuses to arbitrate that controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists….” (Code Civ. Proc, § 1281.2.) “The party seeking arbitration bears the burden of proving the existence of an arbitration agreement, and the party opposing arbitration bears the burden of proving any defense, such as unconscionability.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236.)

Pursuant to Code of Civil Procedure §1281.2, generally, on a petition to compel arbitration, the court must grant the petition unless it finds either (1) no written agreement to arbitrate exists; (2)¿the right to compel arbitration has been waived; (3) grounds exist for revocation of the agreement; or (4) litigation is pending that may render the arbitration unnecessary or create conflicting¿rulings on common issues.

When seeking to compel arbitration, the initial burden lies with the moving party to demonstrate the existence of a valid arbitration agreement by preponderance of evidence. (Ruiz v. Moss Bros. Auto Group (2014) 232 Cal.App.4th 836, 841-42; Gamboa v. Northeast Community Clinic (2021), 72 Cal.App.5th 158, 164-65.) It is sufficient for the moving party to produce a copy of the arbitration agreement or set forth the agreement’s provisions. (Gamboa, 72 Cal.App.5th at 165.) The burden then shifts to the opposing party to prove by a preponderance of evidence any defense to enforcement of the contract or the arbitration clause. (Ruiz, 232 Cal.App.4th at 842; Gamboa, 72 Cal.App.5th at 165.) Subsequently, the moving party must establish with the preponderance of admissible evidence a valid arbitration agreement between the parties. (Ibid.) The trial court then weighs all the evidence submitted and uses its discretion to make a final determination. (Ibid.) “California law, ‘like [federal law], reflects a strong policy favoring arbitration agreements and requires close judicial scrutiny of waiver claims.’” (Wagner Const. Co. v. Pacific Mechanical Corp. (2007) 41 Cal.4th 19, 31.)

If the court orders arbitration, then the court shall stay the action until arbitration is completed. (See Code Civ. Proc., § 1281.4.)

B. Analysis

Here, the parties do not disagree that they entered into an Attorney-Client Agreement that contained an arbitration agreement. Said agreement states as follows:

28. ARBITRATION OF ALL DISPUTES INCLUDING CLAIMS OF MALPRACTICE

"Any controversy which may occur between us regarding the construction, application or performance of any services under this agreement, and any claim which may arise out of or relate to this agreement, or to a breach by either of us regarding the discharge of our respective duties, responsibilities and obligations which arise from this agreement, including any claims for malpractice, shall be submitted to binding arbitration upon the written request of either of us. Should either of us choose to seek binding arbitration, we must immediately provide written notice to the other of that decision. Upon an election to proceed with arbitration, we shall appoint one person to hear and determine our dispute, or disputes. We agree that the arbitration provider will be the American Arbitration Association, which is sometimes referred to as the 'AAA;' that the arbitration will be conducted pursuant to the AAA's rules, and at the AAA's principal office in the City of Los Angeles. If for some reason the services of the AAA may not utilized, we agree that either ADR Services, Inc. (Alternative Dispute Resolution) or JAMS shall be used. Should it occur that neither AAA, ADR or JAMS may be utilized, then the Superior Court of California, County of Los Angeles shall choose an impartial arbitrator upon a petition by either or both of us, and such decision shall be final and conclusive on us. In the event that we proceed with arbitration, we shall each have the right to conduct discovery, and to issue subpoenas in connection with any arbitration proceeding in accordance with California Code of Civil Procedure sections 1282.6,1283, and 1283.05. We will each bear our own legal fees and costs in the arbitration and litigation of any and all claims or disputes that may arise between us, whether they are contract claims tort claims."

(Exhibit "A" to Rombro Dec., page 20.)

This Court notes that the agreement provides that all disputes, “including any claims for malpractice,” are to be submitted to binding arbitration. Here, Plaintiff’s Complaint clearly states two causes of action (legal malpractice and breach of fiduciary duty) which would fall under the type of issues agreed by the parties to be bound by arbitration. Arbitration provisions in legal services agreements and retainer contracts with lawyers are enforceable. (See, e.g., Mt. Holyoke Homes, L.P. v. Jeffer Mangels Butler & Mitchell, LLP (2013) 219 Cal.App.4th 1299, 1309; Desert Outdoor Advertising v. Superior Court (2011) 196 Cal.App.4th 866, 873-74.)

Based on this, the Court finds that Defendant has met its initial burden of showing that an arbitration agreement exists between the parties, and that Plaintiff’s claims are, on their face, bound by the arbitration agreement Plaintiff agreed to.

Unconscionability

Plaintiff’s opposition to this motion contends that the conceded arbitration provision is unconscionable. Unconscionability is a valid defense to a petition to compel arbitration. (Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1143.) State law governs the “unconscionability” defense. (Doctor’s Assocs., Inc. v. Casarotto (1996) 517 US 681, 687.) The core concern of the unconscionability doctrine is the “absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.” (Sonic-Calabasas, supra, 57 Cal.4th at 1145.) The unconscionability doctrine ensures that contracts—particularly contracts of adhesion—do not impose terms that have been variously described as overly harsh, unduly oppressive, so one-sided as to shock the conscience, or unfairly one-sided. (Id.)

“The procedural element of unconscionability focuses on whether the contract is one of adhesion. (Armendariz, supra, 24 Cal.4th at p. 113; Mercuro v. Superior Court, supra, 96 Cal.App.4th at p. 174.) Procedural unconscionability focuses on whether there is “oppression” arising from an inequality of bargaining power or “surprise” arising from buried terms in a complex printed form. (Armendariz, supra, 24 Cal.4th at p. 114; Mercuro v. Superior Court, supra, 96 Cal.App.4th at p. 174.) The substantive element addresses the existence of overly harsh or one-sided terms. (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071 [130 Cal.Rptr.2d 892, 63 P.3d 979]; Armendariz, supra, 24 Cal.4th at p. 114.) An agreement to arbitrate is unenforceable only if both the procedural and substantive elements are satisfied. (Armendariz, supra, 24 Cal.4th at p. 113; Mercuro v. Superior Court, supra, 96 Cal.App.4th at p. 174.) However, Armendariz held, “[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, at p. 114; see also Kinney v. United HealthCare Services, Inc., supra, 70 Cal.App.4th at p. 1329.).” McManus v. CIBC World Markets Corp. (2003) 109 Cal.App.4th 76, 87.)

Plaintiff asserts that because Defendant never disclosed the potential out-of-pocket cost of an arbitration form, nor that it would be significantly higher than the cost of paying filing fees in court is procedurally unconscionable, and that because she cannot afford hourly arbitration rates of up to $1,700 it is substantively unconscionable as well. Plaintiff contends that because she is not a lawyer and had no idea about the true costs of arbitration, there was unequal bargaining power and unequal knowledge between the parties. Plaintiff cites to Roldan v. Callahan & Blaine (2013) 219 Cal.App.4th 87, to argue that the Court of Appeal has found that an arbitration agreement is unenforceable when the attorney never disclosed the arbitration would be much more costly than court, and because the arbitration agreement drafted by the attorney reflected no effort to ensure that clients of limited means would have equal access to the alternative forum it mandated. However, Roldan is distinguishable from the case at bar.

In Roldan, the Plaintiffs informed the trial court that they were indigent and could not afford to share in the substantial expense of the arbitration forum, and they filed a motion in the trial court seeking an order compelling the Defendant to advance the entire upfront cost of the arbitration forum they have insisted upon utilizing. (Roldan, 219 Cal.App.4th at 89.) The trial court had denied the motion and the plaintiffs appealed. The Court of Appeals reversed and remanded to the trial court with directions to: (1) estimate the reasonable costs of arbitration previously ordered; (2) determine whether any of [the] plaintiffs are financially able to pay their anticipated share of the costs; and (3) if any of them are unable to do so, issue an order specifying that Defendant had the option of either paying that plaintiff’s share of the costs of arbitration or waiving its right to arbitration that plaintiff’s case and allowing the case to proceed in court. (Id. at 89-90.)

Here, there is nothing in the record to suggest that Plaintiff raised an issue of her claimed indigency until her opposition brief on this motion. For example, Plaintiff did not seek a fee waiver when filing this suit. Further, the record here shows Plaintiff is a single mother of a six-year-old daughter and is a full-time student. (Declaration of Sheena Newman (“Newman Decl.”), ¶ 4.) Plaintiff has conceded that while she earns income from her various rental properties (over $80,000 a year after property tax and insurance per Exhibit 1 to the Newman Declaration), the funds she earns have primarily gone toward the payment of her graduate school tuition, for private school and tutoring for her daughter, and considerable legal fees stemming from her pending divorce action (Newman Decl., ¶ 8.) Plaintiff includes her most recent bank statement, indicating she has about $5,000 in her checking accounts, combined. (Newman Decl., ¶ 9-10, Exhibit 2, 3.) Further, Plaintiff notes her March Credit Card Statement has a balance of $2,384.57. (Newman Decl., ¶ 11.) Plaintiff asserts that in order to make ends meet, Plaintiff’s family provides her with some financial support. (Newman Decl., ¶ 8.) However, Plaintiff contends that she is not in a position to incur significant arbitrator fees and costs, and argues that a Court order similar to the one in Roldan is required here.

The Court is also mindful of the California Supreme Court’s decision in Jameson v. Desta (2018) 5 Cal.5th 594, 622, which noted that when a litigant has qualified for in forma pauperis status, the court system “may not consign the indigent litigant to a costly private alternative procedure that the litigant cannot afford and that effectively negates the purpose and benefit of in forma pauperis status.” In Jameson, the impecunious and self-represented plaintiff could not afford a court reporter and had lost an appeal because he could not pay for the cost of presenting a proper appellate record, and relied on several prior decisions including Roldan that had addressed constraint on full access to the legal system because of indigency. In Roldan the plaintiff being ordered to arbitrate had in fact qualified for pro per status; here, the record shows Ms. Newman is not so destitute.

Roldan was recently analyzed by the First District in a recent precedent cited in Plaintiff’s Opposition papers, Aronow v. Superior Court (2022) 76 Cal.App.5th 865. The Aronow Court concluded that trial courts should decide the issue of arbitrator fee payment before commencement of the arbitration. While Aronow did not prescribe a singular procedure, it did suggest various alternatives, “recognizing that the circumstances of a case will inform the trial court's decision how to proceed.” (Id. at p. 884.) Aronow opened the door to delaying the decision on an arbitration motion pending limited discovery into the plaintiff’s finances without defendant fearing to waive its right to arbitrate. (Id. at p. 885.) Given this Court’s discretion to decide the plaintiff’s ability to pay arbitration fees, the Court invites comment by both counsel as to whether the Court should do so upon additional declarations with supporting exhibits or after conducting an evidentiary hearing. This is especially appropriate where Defendant’s reply brief did not substantively address Plaintiff’s claim of an inability to pay arbitration fees, perhaps for fear of revealing privileged communications with Defendant’s former client.

Because Defendant did not substantively address the Roldan and Aronow issues in its reply papers, and because on the record currently before it those two precedents appear to be factually distinguishable, the Court’s tentative ruling is to take oral argument and potentially continue the hearing if supplemental briefing is needed by the parties on those issues. Oral argument and potentially further evidence is requested on: (1) estimating the reasonable costs of arbitration as to this case; (2) determining whether plaintiff is financially able to pay her anticipated share of the costs, including potentially limited financial condition discovery of Plaintiff to explore her asserted inability to pay for arbitration or in camera review of privileged information bearing on possibly impeaching evidence gathered during the representation; (3) a projection of the completion of the underlying divorce case and its future costs; (4) a discussion of whether the parties would consider stipulating to a stay of the legal malpractice action / arbitration pending the outcome of the divorce matter; and (5) a forecast of whether Ms. Newman is seeking and would likely be awarded reimbursement for her share of the legal fees incurred in the divorce action.

The Court is concerned that if Roldon were followed in all arbitration cases, every plaintiff opposing a motion to compel arbitration could be entitled to an ability to pay hearing and ability to pay discovery, consuming considerable time and expense on both sides notwithstanding their contractual agreement to limit litigation costs and to remove the matter from the litigation arena. Oral argument on these points would be welcome to aid in the Court’s decision-making process.