Judge: Stephen P. Pfahler, Case: 23STCV18206, Date: 2024-02-07 Tentative Ruling

Case Number: 23STCV18206    Hearing Date: April 11, 2024    Dept: 68

Dept. 68

Date: 4-11-24 c/f 2-8-24 c/f 11-15-24

Case #23STCV18206

Trial Date: Not Set

ARBITRATION

MOVING PARTY: Defendants, Sunlight Financial LLC, et al.

RESPONDING PARTY: Unopposed/Plaintiff, Rex Wise

RELIEF REQUESTED

Motion to Compel Arbitration

SUMMARY OF ACTION

Plaintiff Rex Wise alleges defendants Solgen Construction, LLC, Sunlight Financial, LLC and Cross River Bank, denies ever executing a 30-year loan agreement for the financing of solar panels to Plaintiff’s residence. Plaintiff sought to cancel the contracts, but defendants refused.

Plaintiff seeks a Public Injunction enjoining Solgen Construction, LLC from engaging in solar panel installations without adhering to certain standards, due to prior fraudulent activities.

On August 1 and 24, 2023, Plaintiff filed a complaint and first amended complaint for Fraudulent Concealment; Negligence; Violations of The Elder Abuse And Dependent Adult Civil Protection Act (Welfare & Institutions Code §15610.07, Et Seq.); Violations Of The Rosenthal Fair Debt Collection Practices Act (Civil Code §1788, Et Seq.); Violations Of The Home Solicitation Sales Act (Civil Code §1689.5, Et Seq.); Violations Of Business And Professions Code §7150, et seq.; Violations Of The Truth In Lending Act (15 U.S.C. § 1601, Et Seq.); Violations Of The Credit Services Act (Civil Code §1789.10, Et Seq.); and, Violations Of The Unfair Competition Law (Business & Professions Code §17200, et seq.)

On November 1, 2023, Sunlight Financial LLC filed a notice of stay of proceedings based on the filing of a Chapter 11 Bankruptcy petition on October 31, 2023. On November 2, 2023, the court stayed the entire case. On January 16, 2024, Sunlight Financial filed a notice of termination of stay.

RULING: Denied.

Evidentiary Objections: Overruled.

Defendants Sunlight Financial LLC and Cross River Bank move to compel arbitration. On February 8, 2024, the court heard the motion following a continuance from November 15, 2023, and ordered bankruptcy stay. The court raised concern with the January 16, 2024, filed notice of termination of stay filed by Sunlight Financial, LLC given the identification of Sunlight Financial LLC in the bankruptcy petition. [Notice of Stay of Proceedings.] The notice of termination of stay provides no indication of the bankruptcy status of Sunlight Financial, LLC notwithstanding the filed termination of the stay. Barring further evidence of the either dismissal from the bankruptcy or direction from the Bankruptcy Trustee, the court deferred consideration. (M & M Foods, Inc. v. Pacific American Fish Co., Inc. (2011) 196 Cal.App.4th 554, 560-561; Bostanian v. Liberty Savings Bank (1997) 52 Cal.App.4th 1075, 1083-1084.)

The court found no bar to proceeding with the request for Cross River Bank, but expressed concern over potential piecemeal adjudication, if all parties were not participating in arbitration, including non-joining party, Solgen Construction. (Code Civ. Proc., § 1281.2, subd. (c-d).) The court therefore elected to again continue the hearing with invited supplemental briefing for clarification.

Sunlight Financial LLC and Cross River Bank represent that the automatic bankruptcy stay was lifted as a result of the approved Chapter 11 plan for Sunlight Financial, LLC. Sunlight Financial, LLC also represents trustee approval is no longer required. As for Solgen Construction, moving parties maintain it is not a necessary party for arbitration. Moving parties instead request a stay of the action as to Solgen.

Plaintiff in supplemental opposition references the prior fraud and forgery arguments against formation of the contract, as well as new argument based on recently released case law. Plaintiff maintains the conduct of the parties remains “inextricably linked,” yet Solgen remains no part of the motion.

Sunlight Financial LLC and Cross River Bank in reply challenge the new arguments in the supplemental opposition and beyond the parameters of the order. Notwithstanding, Defendants challenge the case authority. Defendants deny any necessary interconnection with Solgen and reiterate the ability of Plaintiff to proceed against Solgen. Finally, Defendants maintain the formation of contract arguments are “irrelevant” to the present motion.

The supplemental brief provides no supporting documents regarding the represented approval of the plan or law regarding the release from the trustee upon the approval of the plan. Plaintiff provides no challenge to the argument. The court therefore elects to consider the arbitration motion.

Moving parties maintain the arbitration agreement was both executed and covers the subject dispute. Plaintiff in opposition denies any execution of the agreement, and contends the documents contain forged signatures. Moving parties in reply maintain Plaintiff accepted installation of the solar panels and understood the panels were not installed for free, but required compensation in the form of the executed loan.

“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.)

California 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. “‘Under “both federal and state law, the threshold question presented by a petition to compel arbitration is whether there is an agreement to arbitrate.”’” (Long v. Provide Commerce, Inc. (2016) 245 Cal.App.4th 855, 861.) “Private arbitration is a matter of agreement between the parties and is governed by contract law.” (Platt Pacific, Inc. v. Andelson (1993) 6 Cal.4th 307, 313.) 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; Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 164–165; 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 court accepts the existence of the loan agreement/finance contract with the incorporated Arbitration Provision. [Declaration of Justin Carpenter, Ex. A; Declaration of Adam McNeile.] The documents contain a “DocuSign” certificate of completion, whereby a signature of Rex Wise was adopted from a “pre-selected style” using a certain IP address and time stamp verified on August 7, 2022, between 11:41 a.m. and 11:45 a.m.

Plaintiff in opposition challenges the validity of the DocuSign executed document on grounds that Rex Wise suffers from hearing impairment, “difficulty comprehending written materials,” and lacks “technological” literacy. Plaintiff concedes Solgen salesperson Calaif Parks arranged the subject transaction, but denies ever receiving any emailed proposal (notwithstanding the technological illiteracy). Any alleged proposal was directed to an improper e-mail address, and Plaintiff never otherwise approved the subject transaction via (electronic) signature. Plaintiff lacks the ability to electronically sign documents, especially documents he denies ever receiving. [Declaration of Rex Wise.]

The court considers the submitted phone call transcripts for context. In conversations with a Sunlight Financial representative and Christine, daughter of Plaintiff, it was explained how the email was invalid and denial of any loan. The conversation was recorded with the transcripts provided. [Declaration of Alexandra Hider.] The December 6, 2022, conversation acknowledges Plaintiff “signed up for Solar,” but was lacking a copy of the contract. The representative confirmed the account was active and offered to send over the contract via email. Christine offered to provide an alternative email address, but the representative was only able to deliver documents to customer email. Plaintiff denied the existence of any email in the first place, which led to the parties discussing the terms over the phone call. The parties appear to acknowledge all terms of the agreement, 1.99% interest rate, $35,549.22 amount, and a 17 month duration for the first portion conditioned on a tax credit, with a potential increase in costs without a tax credit beginning on the 18^th payment. The representative lacked information on the installer. The paucity of information appears in part based on the sales representative actually arranging the contract of which neither Plaintiff nor Sunrise was aware of the exact installer at the time of the purported transaction. Plaintiff also authorized Christine to speak on behalf of him with the finance company. It was also agreed the agreement would be provided by mail.

On December 20, 2022, Sunlight was identified as the originator of the loan and Cross River as the servicer. Notwithstanding, Sunlight confirmed no loan existed due to the lack of any signature though withdrawals were occurring from an unspecified account of Plaintiff. The agent later confirmed a DocuSign agreement.

On March 15, 2023, Gloria Hardy called on behalf of Plaintiff whereby it was again it was questioned why payments were being deducted in service of the loan for an installed solar panel system without any city permit or public utility consent. The call appeared to focus on the lack of an operational system and the required payment (account deductions) before any solar power was provided to the home, rather than any denial of the agreement. The agent ultimately told Plaintiff and Gloria Hardy that responsibility for pulling the permit and having Southern California Edison utility company sign off on the panel installation falls onto the installer.

It remains undisputed that the relied upon email was not the correct email address for Rex Wise. It remains unclear how such an email was created and who exercises control over the account. [Declaration of Christine Lau.] The court also accepts the denial by Rex Wise as to ever engaging in any signature, albeit an admission to not necessarily understanding electronic signature programs like DocuSign. Nevertheless, it also remains effectively agreed upon that money was in fact deducted from a bank account under the control of Rex Wise. Nothing in the opposition in any way accounts for the ability of the loan originator or loan servicer to deduct the funds. The court also finds apparent acceptance of the installed solar panel system on the home, even without proper permits. A construction person or crew knowingly installed said panels and/or other system items, with the knowledge of Rex Wise, as opposed to committing of some form of trespass or property damage. Again, the motion otherwise lacks any denial of approval of the panels or some form of uninvited panel installation to the home.

The opposition also emphasizes the cancellation of the loan itself. The sought after cancellation of the loan constitutes an acknowledgment of the loan itself and therefore a valid argument as to enforcement of the arbitration agreement in that a dispute over terms of the loan agreement or the work performed by a contractor/subcontractor (e.g. a working solar panel system) constitutes an item within the purview of the arbitration clause. [Carpenter Decl., Ex. A.] Still, the court considers the defenses to enforcement, as required under the standard.

The first substantive challenge identifies fraud in the execution doctrine. Fraud in the execution occurs where “‘the fraud goes to the inception or execution of the agreement, so that the promisor is deceived as to the nature of his act, and actually does not know what he is signing, or does not intend to enter into a contract at all, mutual assent is lacking, and [the contract] is void. In such a case it may be disregarded without the necessity of rescission.’” (Citation.) (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th at p. 415 (internal quotation marks omitted).) Plaintiff relies on the lack of a valid email address and therefore purported forged signature, as the basis of support.

The argument appears to somewhat conflate the electronic signature requirement forgery argument with the fraud in the execution doctrine, given the articulated definition requires an actual, executed agreement. The court however appreciates that Plaintiff was potentially unaware of the nature of the purported agreement, again, notwithstanding the provision of banking information and the subsequent installation. In other words, while certain information was apparently provided by Plaintiff, such as bank account payment routing information, and the indisputable awareness of the solar panel installation to the home, the court accepts the argument of a misunderstanding of the terms of the agreement, and therefore an inability to assent to the apparently executed terms.

The alleged forgery of the electronic signature relies on argument based on the close proximity of the time signatures listed in the DocuSign verification. The court cannot determine the basis of a forgery simply founded on assumptions of the technological acumen of Rex Wise without context of whether the agreement was actually executed in person with the sales representative or purportedly via e-mail transaction, in which case Rex Wise never received any e-mail based on the agreed upon invalid email address. Under the latter scenario, the court could certainly find evidence of an invalid agreement in that the execution of the agreement constituted an invalid action under laws governing electronic signatures.

“If parties have agreed to conduct a transaction by electronic means and a law requires a person to provide, send, or deliver information in writing to another person, that requirement is satisfied if the information is provided, sent, or delivered, as the case may be, in an electronic record capable of retention by the recipient at the time of receipt. ...” (Civ. Code, § 1633.8, subd. (a).)

“[I]f a statute, regulation, or other rule of law requires that information relating to a transaction or transactions in or affecting interstate or foreign commerce be provided or made available to a consumer in writing, the use of an electronic record to provide or make available (whichever is required) such information satisfies the requirement that such information be in writing if--

(A) the consumer has affirmatively consented to such use and has not withdrawn such consent;

(B) the consumer, prior to consenting, is provided with a clear and conspicuous statement--

(i) informing the consumer of (I) any right or option of the consumer to have the record provided or made available on paper or in nonelectronic form, and (II) the right of the consumer to withdraw the consent to have the record provided or made available in an electronic form and of any conditions, consequences (which may include termination of the parties' relationship), or fees in the event of such withdrawal;

(ii) informing the consumer of whether the consent applies (I) only to the particular transaction which gave rise to the obligation to provide the record, or (II) to identified categories of records that may be provided or made available during the course of the parties' relationship;

(iii) describing the procedures the consumer must use to withdraw consent as provided in clause (i) and to update information needed to contact the consumer electronically; and

(iv) informing the consumer (I) how, after the consent, the consumer may, upon request, obtain a paper copy of an electronic record, and (II) whether any fee will be charged for such copy;

(C) the consumer--

(i) prior to consenting, is provided with a statement of the hardware and software requirements for access to and retention of the electronic records; and

(ii) consents electronically, or confirms his or her consent electronically, in a manner that reasonably demonstrates that the consumer can access information in the electronic form that will be used to provide the information that is the subject of the consent; and

(15 U.S.C.A. § 7001(c)(1).)

The motion lacks any indication of compliance with this requirement, and Plaintiff presents counter declarations establishing a lack of compliance. The court therefore finds the purported electronic signature of Rex Wise renders the agreement voidable under the doctrine of fraud in the execution based on lack of sufficient assent. (Jones v. Solgen Construction, LLC (2024) 99 Cal.App.5th 1178  [318 Cal.Rptr.3d 313, 330-332.] The court therefore declines to enforce the subject arbitration agreement, due to the failure to establish a valid, enforceable agreement for purposes of enforcing the contract. The court finds no necessity for a further continuance in order to conduct an evidentiary hearing, and makes it ruling from the submitted pleadings. [Id.] Nothing in the denial of this motion in any reflects on the merits of the contract itself given the performance of certain terms.

The court additionally returns to the piecemeal litigation concerns of the subject arbitration. The court, as a matter of policy, avoids potential piecemeal adjudication of cases, and maintains all parties either participate in arbitration or remain with the court. (Code Civ. Proc., § 1281.2, subd. (c-d).) The right of a trial court to refuse arbitration on the possibility of conflicting rulings remains an upheld statutory rule. (Whaley v. Sony Computer Entertainment America, Inc. (2004) 121 Cal.App.4th 479, 485-486; Henry v. Alcove Investment, Inc. (1991) 233 Cal.App.3d 94, 101-102.) “The third party litigation exception set forth in section 1281.2(c) only applies when the court determines that three conditions are satisfied. (Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal.App.4th 959, 967-968, 153 Cal.Rptr.3d 135 [exception applies when: (1) party to arbitration agreement also a party to a pending court action with a third party; (2) third party action arises out of the same transaction or series of transactions; and (3) there is a possibility of conflicting rulings on a common issue of law or fact].) Once all three conditions are satisfied, section 1281.2(c) identifies four options from which the trial court may choose, including denial or stay of arbitration proceedings, among other things. (Id. at p. 968, 153 Cal.Rptr.3d 135.) These options are entrusted to the trial court's discretion. (Avila, supra, 20 Cal.App.5th at p. 840, 230 Cal.Rptr.3d 42.)” (Williams v. Atria Las Posas (2018) 24 Cal.App.5th 1048, 1054.)

While moving parties dismissed the participation of Solgen Construction in the supplemental brief, the court declines to decouple the other parties’ involvement. The coverage language of the arbitration agreement itself requiring arbitration of installation issue. The claims present an intertwined challenge regarding the improper installation of the panels without a permit or approval from Southern California Edison, yet the continuing withdrawal of funds from Plaintiff’s bank account for a non-functioning system. The dismissal of another parties conduct insufficiently addresses the concerns raised by the court. The motion is therefore denied on this basis as well.

In summary, the motion to compel arbitration is denied due to the failure to establish an enforceable agreement, and failure to avoid the possibility of piecemeal arbitration given the entangled nature of the claims. Moving defendants are ordered to file a responsive pleading within 30 days from the date of this order.

This order is appealable. (Code Civ. Proc., § 1294, subd. (a).)

Moving Defendants to provide notice to all parties.