Judge: Stephen P. Pfahler, Case: 22CHCV00646, Date: 2023-04-20 Tentative Ruling

Case Number: 22CHCV00646    Hearing Date: April 20, 2023    Dept: F49

Dept. F-49

Date: 4-20-23

Case #22CHCV00646

ARBITRATION

MOVING PARTY: Defendant, Onemain Financial Group, LLC

RESPONDING PARTY: Plaintiff, Frank Sotelo

RELIEF REQUESTED

Motion to Compel Arbitration and Stay

SUMMARY OF ACTION

On an unspecified date, plaintiff Frank Sotelo borrowed $9,000 from defendant Onemain Financial Group, LLC. Plaintiff subsequently defaulted on the payments, thereby leading to collection efforts. Plaintiff alleges improper conduct associated with said collection practices.

On August 16, 2022, Plaintiff filed a complaint for Violation of the Rosenthal Fair Debt Collection Practices Act, Intrusion in Private Affairs, and Surreptitious Eavesdropping and Audiotaping. Defendant answered the complaint on October 5, 2022.

RULING: Granted.

Defendant Onemain Financial Group, LLC moves to compel arbitration pursuant to the terms of the Loan Agreement and Disclosure Statement executed as part of the loan agreement. Defendant seeks arbitration on grounds that the case arises from the execution of the note and collection efforts.

Plaintiff in opposition challenges the existence of the arbitration agreement based on the alleged denial of any presentation of said agreement at the time of execution of the agreement, and lack of any counter-signature from Plaintiff. Even if the agreement exists, Plaintiff alternatively characterizes the agreement as unconscionable on grounds of lack of mutuality and imposition of substantial costs. Defendants in reply reiterate the right of the arbitrator to decide suitability for arbitration, and the acknowledged existence of the arbitration agreement within the note. Defendant denies any unconscionability.

“A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” (Code Civ. Proc., § 1281.) “On 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, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that: (a) The right to compel arbitration has been waived by the petitioner; or (b) Grounds exist for the revocation of the agreement.” (Code Civ. Proc., § 1281.2.)

The law creates a general presumption in favor of arbitration. In a motion to compel arbitration, the moving party must prove by a preponderance of evidence the existence of the arbitration agreement and that the dispute is covered by the agreement. The burden then shifts to the resisting party to prove by a preponderance of evidence a ground for denial (e.g., fraud, unconscionability, etc.). (Rosenthal v. Great Western Fin'l Securities Corp. (1996) 14 Cal.4th 394, 413-414; Hotels Nevada v. L.A. Pacific Ctr., Inc. (2006) 144 Cal.App.4th 754, 758.) Any challenges to the formation of the arbitration agreement should be considered before any order sending the parties to arbitration. The trier of fact weighs all evidence, including affidavits, declarations, documents, and, if applicable, oral testimony to determine whether the action goes to arbitration. (Hotels Nevada v. L.A. Pacific Ctr., Inc., supra, 144 Cal.App.4th at p. 758.)

The relevant sections of the arbitration clause are presented: “Except for those claims mentioned below under the heading ‘MATTERS NOT COVERED BY ARBITRATION,’ Lender and I agree that either party may elect to resolve all claims and disputes between us ("Covered Claims") by BINDING ARBITRATION. This includes, but is not limited to, all claims and disputes arising out of, in connection with, or relating to:

“This Agreement with Lender … all documents, promotions, advertising, actions, or omissions relating to this or any previous loan or Retail Contract made by … Lender … whether the claim or dispute must be arbitrated; the validity and enforceability of this Arbitration Agreement (except as expressly set forth in subsection G. below) and the Agreement, my understanding of them, or any defenses as to the validity and enforceability of this Arbitration Agreement and the Agreement; any negotiations between Lender and me; the closing, servicing, collecting, or enforcement of any transaction covered by this Arbitration Agreement; any allegation of fraud or misrepresentation; any claim based on or arising under any federal, state, or local law, statute, regulation, ordinance, or rule; any claim based on state or federal property laws; any claim based on the improper disclosure of any information protected under state or federal consumer privacy laws; any claim or dispute based on any alleged tort (wrong), including intentional torts; any claim for damages or attorneys fees; and any claim for injunctive, declaratory, or equitable relief.”

The court finds the existence of the loan agreement and incorporated arbitration clause valid. [Declaration of Joseph Orlando.] Plaintiff brings the action on the basis of the existence of the loan agreement, and therefore acknowledges the loan documents themselves, which included the represented arbitration agreement. The argument in opposition challenging the lack of the existence of the agreement lacks support, in that the declaration of Plaintiff only relies on a lack of recall as to ever being “informed” of the existence of the agreement, and maintains such a clause “would have stood out to me” due to its legal importance. Plaintiff further contextualizes the scenario arising from the electronic signature process, whereby Plaintiff emphasizes the lack of an opportunity to “review” the documents and potentially “opt out” of the arbitration agreement if more time was provided. [Declaration of Frank Sotelo.] Plaintiff otherwise submits no argument for fraud in the inducement or other legally supported argument, and the court declines to make the arguments for Plaintiff.

The language of the agreement clearly covers collection efforts on the loan. The court therefore finds the agreement addresses the subject matter of the action.

Plaintiff raises an unconscionability argument on grounds of the language regarding the right of Defendant to bring the arbitration action. The argument relies on a section of the agreement, which provides in relevant part:

Unconscionability claims have both a “‘procedural’” and “‘substantive’” element. (Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1531.) “‘Procedural unconscionability’” concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. (Kinney v. United HealthCare Services, Inc. (1999) 70 Cal.App.4th 1322, 1329.) “‘The procedural element focuses on two factors: “oppression” and “surprise.”  “Oppression” arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice. “Surprise” involves the extent to which the supposedly agreed-upon terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms.’” (Stirlen v. Supercuts, Inc., supra, 51 Cal.App.4th at p. 1532.) “Substantive unconscionability” involves contracts leading to “‘“overly harsh”’” or “‘“one-sided”’” results.’” … “[U]nconscionability turns … on an absence of ‘justification “for it…” [and therefore] must be evaluated as of the time the contract was made.’” (Id. at p. 1532.)

“MATTERS NOT COVERED BY ARBITRATION. I agree that Lender does not have to initiate arbitration before exercising lawful self-help remedies or judicial remedies of garnishment, repossession, replevin or foreclosure, but instead may proceed in court for those judicial remedies. I may assert in court any defenses I may have to Lender's claims in such a lawsuit, but any claim or counterclaim for rescission or damages I may have arising out of, relating to, or in connection with Lender's exercise of those remedies must be arbitrated. Instead of pursuing arbitration, either Lender or I also have the option to bring a lawsuit in court to seek to recover the monetary jurisdictional limit of a small claims or equivalent court in my state (including costs and attorneys fees), provided that no relief other than such recovery is requested in such lawsuit (an "Excluded Damages Lawsuit").”

The argument lacks application. Plaintiff initiated the subject action in unlimited jurisdiction court, not Defendant. The court notes that the language of the agreement seemingly actually limits Plaintiff’s right to bring the instant action in unlimited jurisdiction, in addition to potential jurisdictional challenges given the amount of the loan falls well below the $25,000 minimum for unlimited jurisdiction court.

The second argument challenges the cost sharing provision of the arbitration claim.

“COSTS OF ARBITRATION. The AAA (or JAMS) charges certain fees in connection with arbitration proceedings. Except in Texas, I may have to bear some of these fees; however, if I am not able to pay such fees or think they are too high, Lender will consider any reasonable request to bear the cost. Lender will also bear any costs Lender is required to bear by law or by the terms of any other agreement with me. To the extent permitted by law, each party will also pay for its own costs, including fees for attorneys, experts, and witnesses, unless otherwise provided by the terms of any other agreement between the parties.”

Plaintiff cites to the employment standard regarding the sharing and/or shifting of costs against the claimant. Plaintiff fails to establish applicability of the employment standard to the subject contract.

“In the area of consumer arbitration, the Legislature has addressed costs in a different way. In 2002, shortly after Armendariz was decided, the Legislature enacted Code of Civil Procedure section 1284.3 to address fees and costs in consumer arbitration. Subdivision (a) of section 1284.3 provides that ‘[n]o neutral arbitrator or private arbitration company shall administer a consumer arbitration under any agreement or rule requiring that a consumer who is a party to the arbitration pay the fees and costs incurred by an opposing party if the consumer does not prevail in the arbitration, including, but not limited to, the fees and costs of the arbitrator, provider organization, attorney, or witnesses.’ Most pertinently, section 1284.3, subdivision (b)(1) provides that ‘[a]ll fees and costs charged to or assessed upon a consumer party by a private arbitration company in a consumer arbitration, exclusive of arbitrator fees, shall be waived for an indigent consumer. For the purposes of this section, “indigent consumer” means a person having a gross monthly income that is less than 300 percent of the federal poverty guidelines. Nothing in this section shall affect the ability of a private arbitration company to shift fees that would otherwise be charged or assessed upon a consumer party to a nonconsumer party.’ Subdivision (b)(2) requires the arbitration provider to give notice of the fee waiver provision, and subdivision (b)(3) provides that “[a]ny consumer requesting a waiver of fees or costs may establish his or her eligibility by making a declaration under oath on a form provided to the consumer by the private arbitration company for signature stating his or her monthly income and the number of persons living in his or her household. No private arbitration company may require a consumer to provide any further statement or evidence of indigence.” (Code Civ. Proc., § 1284.3, subd. (b)(2) & (3).)”

(Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 918–919.)

The agreement provides for a split and even an indigent consumer exemption. The opposition and declaration lacks any address of this standard, and the court otherwise finds no violation of California law in the plain language of the agreement. The agreement is therefore not found unconscionable on any basis.

Plaintiff finally argues that the agreement lacks a basis for insuring the “arbitrator complies with the law.”

“CONDUCT OF PROCEEDINGS. The arbitrator shall be bound by the Federal Rules of Evidence; however, the federal or any state rules of procedure or discovery shall not bind the arbitrator. The arbitrator's findings, reasoning, decision and award shall be set forth in writing and shall be based upon and be consistent with the law of the jurisdiction that applies to the loan or other agreement between Lender and me. The arbitrator must abide by all applicable laws protecting the attorney-client privilege, the attorney work product doctrine, or any other applicable privileges.

“ENFORCEMENT AND APPEAL OF DECISION. The decision and judgment of the arbitrator shall be final, binding and enforceable in any court having jurisdiction over the parties and the dispute; however, for Covered Claims resulting in an award of $100,000 or more (including costs and attorneys fees), any party may appeal the award, at its own cost, except as provided by law, to a three-arbitrator panel appointed by the AAA (or JAMS). That panel will reconsider from the start any aspect of the initial award that either party asserts was incorrectly decided. The decision of the panel shall be by majority vote and shall be final and binding, except as provided below. The arbitrator's (or panel's) findings, decision and award shall be subject to judicial review on the grounds set forth in 9 U.S.C. 10, as well as on the grounds that the findings, decision and award are manifestly inconsistent with the terms of this Arbitration Agreement and any applicable laws or rules.”

The argument lacks any legal citation. The court declines to address an unmade argument regarding the rights of a party to challenge a decision of an arbitrator/arbitration panel.

The action is therefore ordered to arbitration in compliance with the terms of the agreement. The parties are governed by American Arbitration Association rules, and in case they are unable to agree upon an arbitrator, are directed to contact JAMS. Selection of the arbitrator shall proceed under the selected organization rules. If the parties cannot agree on an arbitrator, including one within JAMS, the parties may submit a list of one to two arbitrators from each party, where the court will select the arbitrator. The parties have 30 days from the date of this order to begin the selection process.

“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.” (Code Civ. Proc., § 1281.4.) The court orders the action stayed.

The court will set an OSC re: Status of Arbitration and Stay at the time of the hearing.

Defendant to provide notice.