Judge Theresa M. Traber, Case 22STCV04378 2022-08-05 Tentative Ruling

Judge: Theresa M. Traber, Case: 22STCV04378, Date: 2022-08-05 Tentative Ruling

Case Number: 22STCV04378 Hearing Date: August 5, 2022 Dept: 47

Tentative Ruling

Judge Theresa M. Traber, Department 47

HEARING DATE: August 5, 2022 TRIAL DATE: NOT SET

CASE: G&P Group Inc., v. City National Bank

CASE NO.: 22STCV04378

MOTION FOR ORDER APPOINTING JUDICIAL REFEREE, SELECTING A REFEREE, STAYING THE ACTION, AND FOR ATTORNEY’S FEES AND COSTS

MOVING PARTY: Defendant City National Bank

RESPONDING PARTY(S): Plaintiff G&P Group Inc.

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

This is an action, filed on February 3, 2022, for breach of contract stemming from a commercial banking agreement.

Defendant moves for an order appointing and selecting a judicial referee, staying the action, and for attorney’s fees and costs.

TENTATIVE RULING:

Defendant’s Motion for Judicial Reference is GRANTED. The Court appoints Hon. George H. King (Ret.) as the judicial referee to preside over all issues in this matter.

The Court orders this matter stayed pending resolution by the judicial referee. Any and all future dates are advanced and vacated. A Status Conference/OSC re: Dismissal is set for August 7, 2023, at 8:30 a.m.

Defendant’s request for attorney’s fees is DENIED.

DISCUSSION:

Defendant moves for an order appointing and selecting a judicial referee, staying the action, and for attorney’s fees and costs.

Plaintiff’s Evidentiary Objections

Plaintiff objects to the Declarations of Robert Wartburg and Lance Jurich on numerous grounds. Plaintiff cites no statute or precedent requiring the Court to rule on evidentiary objections on a motion to compel judicial reference as opposed to an Anti-SLAPP motion to strike or a motion for summary judgment. (See Code Civ. Proc. §§ 425.16; 437c.) The Court therefore declines to do so. To the extent that Plaintiff’s objections are relevant to the Court’s ruling, those objections go to the weight of Defendant’s evidence.

Motion to Appoint Referee

Code of Civil Procedure section 638 states that a referee may be appointed “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.” (Code Civ. Proc. § 638.)¿A motion to compel judicial reference is essentially¿analogous to a motion to compel arbitration, and similar authorities and principles may be relied upon in arguing or opposing the motion. (See¿O’Donoghue¿v. Superior Court¿(2013) 219 Cal.App.4th 245.) However, unlike with arbitration, the statutory language and legislative history of section 638 provides a trial court with discretion to deny a request for judicial reference even where there is a valid reference agreement. (See¿Tarrant Bell Property, LLC v. Superior Court¿(2011) 51 Cal.4th 538, 542–546.)¿

Existence of Reference Agreement

Defendant moves to compel judicial reference based on a Business Account Agreement executed between the parties in June of 2015 as part of Plaintiff’s opening of a business Deposit Account with Defendant. (Declaration of Robert Wartburg ISO Mot. ¶ 4, Exh. A.) The Business Account Agreement states that, by signing, the client’s representative would “acknowledge receipt of the Account Agreement and Disclosures and applicable disclosures and fee schedule(s) containing the terms, conditions, and fees governing the account(s)” and that the clients “agree that these terms . . . govern each account established with City National Bank . . . or City National Securities, Inc. . . . and each service now or later contracted for, as amended by later disclosures. (Wartburg Decl. Exh. A. p. 2.) Defendant contends that, provided with the Business Account Agreement was a copy of the Account Agreement and Disclosures, which contains an Alternative Dispute Resolution Clause. (Id. Exh. B.) In 2019, Plaintiff executed a Supersedure Agreement and an updated Business Account Agreement making the same acknowledgement as to receipt of an updated Account Agreement and Disclosures containing the same ADR provision. (Id. Exh. C. (Supersedure Agreement); Exh. D. (2016 Business Account Agreement and Disclosures); Exh. E (2020 Account Agreement and Disclosures).)

All of the Account Agreements and Disclosures contain essentially the same provision:

ALTERNATIVE DISPUTE RESOLUTION For California Only: If your account is maintained at a branch in California and a dispute that involves the combined claims of all parties totaling $250,000 or more arises between us with respect to the deposit account or safe deposit box, this Agreement, its enforcement or our deposit account services, either of us may require that it be resolved by judicial reference in accordance with California Code of Civil Procedure, Sections 638, et seq. The referee shall be a retired judge, agreed upon by the parties or appointed by the court. The costs of the reference procedure, including the fee for the court reporter, shall be paid equally by all parties as the costs are incurred. The referee shall hear all pretrial and post-trial matters, including requests for equitable relief, prepare an award with written findings of fact and conclusions of law, and apportion costs as appropriate. Judgment upon the award shall be entered in the court in which such proceeding was commenced and all parties shall have full rights of appeal.

(Wartburg Decl. Exhs. B. p.45 [monetary threshold of $50,000 instead of $250,000], D pp. 44-45, E p.23.)

Defendant does not show that Plaintiff was ever provided or in any way acknowledged the 2020 Agreement and Disclosures, instead stating in a conclusory manner that this is the currently operative agreement. (Wartburg Declaration ¶ 8, Exh. E.) However, the evidence offered shows that Plaintiff signed two documents acknowledging receipt of and agreement to the Account Agreements and Disclosures containing the ADR provision for judicial reference quoted above.

In opposition, Plaintiff contends that Defendant has failed to show that Plaintiff received the Account Agreement and Disclosures, and that Plaintiff has not shown actual notice and an opportunity for meaningful reflection before agreement. With respect to Plaintiff’s first argument, the Court agrees as to the 2020 agreement that Defendant has not shown that Plaintiff received that version of the agreement. However, Defendant has shown that Plaintiff received the 2016 agreement, which contained the same terms, and so Plaintiff’s argument is ultimately immaterial. As to Plaintiff’s second argument, Defendant correctly observes in reply that the California Supreme Court expressly rejected an argument that a requirement of actual notice and meaningful reflection should be read into arbitration statutes. (Pinnacle Museum Tower Ass’n v. Pinnacle Market Dev. (US), LLC (2012) 55 Cal.4th 223, 245.) The Court of Appeal applied Pinnacle’s reasoning to section 638 to reach the same conclusion in 2013. (O’Donoghue, supra, 219 Cal.App.4th at 257.)

Plaintiff also contends that the reference provision is unenforceable because the Account Agreement was an online form, which does not comply with the requirement for a “written contract” in section 638. As Defendant states in reply, Plaintiff cites no law standing for the proposition that a signed bank signature card does not form a contract. In fact, the California Supreme Court reached precisely the opposite holding, finding that a bank signature card does form an enforceable contract. (Perdue v. Crocker Nat’l Bank (1985) 38 Cal.3d 913, 923.)

The Court finds that Defendant has established that there existed an agreement for judicial reference between the parties to which Plaintiff assented. The Court now turns to the determination of whether the scope of the operative agreement encompasses this dispute.

Scope of Reference Agreement

“There are two kinds of references authorized by statute: general and special.” (De Guere v. Universal City Studios (1997) 56 Cal.App.4th 482, 496.) A “general” reference is conducted in accordance with section 638(a) and allows for the appointment of a referee to hear and determine all issues in the case. (Ruisi v. Thieriot (1997) 53 Cal.App.4th 1197, 1208; see also Dynair Elecs., Inc. v. Video Cable, Inc. (1976) 55 Cal. App.3d 11, 20 [a general reference pursuant to section 638 “essentially delegates to the referee the power to make findings of fact and conclusions of law”].) “[A] general reference has binding effect, but must be consensual, whereas a special reference may be ordered without consent but is merely advisory, not binding on the superior court.” (Aetna Life Ins. Co. v. Superior Court (1986) 182 Cal.App.3d 431, 436; Jovine v. FHP, Inc., (1998) 64 Cal.App.4th 1506, 1523.) A “special” reference is conducted under sections 639 and 638(2) and involves a referee making findings of fact “to enable the court to determine an action or proceeding.” (Id.) If a special referee’s findings are accepted by the trial court, they are treated as a special verdict. (Code Civ. Proc. § 645.)

Here, the ADR provision refers specifically to section 638, and states that the referee “shall hear all pre-trial and post-trial matters, including requests for equitable relief, prepare an award with written findings of fact and conclusions of law, and apportion costs as appropriate. (Wartburg Decl. Exh. D. p. 45.) According to the provision, “Judgment upon the award shall be entered in the court.” (Id.) Under the 2016 Agreement, section 638 applies to disputes involving an account in California for claims above $250,000 arising “with respect to the deposit account or safe deposit box, this Agreement, its enforcement or our deposit account services.” (Id.) Defendant contends that all of Plaintiff’s claims relate to and arise out of the Account Agreement, the Deposit Account, and CNB’s services. Furthermore, it is undisputed that Plaintiff is claiming damages of $20 million, well in excess of the requirement to trigger the ADR provision. According to Defendant, the gravamen of Plaintiff’s claims is that Defendant destroyed Plaintiff’s business by refusing to honor additional overdrafts on Plaintiff’s Deposit Account beyond those already honored. Defendant therefore contends that this is a general reference agreement and that the dispute at issue is covered under its terms.

In opposition, Plaintiff contends that the reference clause exceeds the permissible scope of section 638 by applying to matters outside of the contract, and that Defendant has provided multiple conflicting agreements such that enforcing the reference provision would violate other contracts.

With respect to Plaintiff’s contention that the reference clause exceeds the scope of section 638, this argument is not well taken. The entire basis for this action is Defendant’s conduct in regards to the Deposit Account for which Plaintiff contracted with Defendant in the first place. Each of Plaintiff’s other contentions regarding the line of credit, placement in the SAD program, and the Forbearance Agreement stem from the Deposit Account. Plaintiff’s contention that none of the claims arise from the Account Agreement is contradicted by the Complaint on its face. The claims arise from the Deposit Account, and therefore they must necessarily arise from the Agreement creating the account.

As to Plaintiff’s contention of conflicting agreements, Plaintiff’s argument is invalid on its face. Plaintiff cites to the original Business Account Agreement and Supersedure Agreement to contend that those agreements contemplate binding arbitration rather than judicial reference. However, the plain language of those agreements shows that the language regarding binding arbitration is in reference to a separate Treasury Management Services Disclosure and Agreement, not at issue in this case. (Wartburg Decl. Exhs. A p.2, C p.2.) Plaintiff also contends that the Account Agreement conflicts with a separate Business Line Overdraft Agreement, which entitles Defendant to sue in the event of default in court. (Declaration of Jorge Barraza Exh. 6 p. 5.) This document is not referenced in Plaintiff’s claims in the Complaint regarding Plaintiff’s overdraft of its account, and, furthermore, the language referenced explicitly addresses only venue and jurisdiction. The Overdraft Agreement is silent as to judicial reference, which must be overseen by a court of competent jurisdiction. The Court therefore concludes that there is no conflict between the agreements of the parties.

The Court therefore finds for the foregoing reasons that Plaintiff’s claims are within the scope of the reference clause.

Waiver of Jury Trial

Plaintiff next contends that the reference clause does not properly waive a right to a jury trial.

A waiver of the right to a jury trial must be “clear and unmistakable.” (Titan Group, Inc. v. Sonoma Valley Cnty. Sanitation Dist. (1985) 164 Cal.App.3d 1122, 1129.) However, there is no requirement for explicit language in a reference agreement waiving a right to a jury trial. (O’Donoghue, supra, 219 Cal.App.4th at 256.)

Plaintiff contends that the agreement does not contain an explicit statement that it is a general reference, nor does it state that the referee will decide all matters of fact and law. Plaintiff is incorrect. The agreement expressly states that the referee will “prepare an award with written findings of fact and conclusions of law.” (See Wartburg Decl. Exh. D. p. 45.) Plaintiff correctly observes that the next section, applicable to accounts not in California, contains an explicit statement that the parties waive their right to trial before a jury. Ordinarily, this would be evidence that the parties did not intend to waive their right to a jury trial in California. However, the California provision contains an explicit citation to section 638 of the Code of Civil Procedure, which is a statutory waiver of a jury trial. (See Woodside Homes v. Superior Court (2006) 142 Cal.App.4th 99, 104 [“A statute permitting agreement for a reference unambiguously results in a waiver of "jury trial" without the need to use those words. Such a reference (like arbitration) entails dispensing with trial in the judicial forum, including jury trial.”]) In the Court’s view, an explicit invocation of a statute that necessarily involves waiving a right to jury trial and an explicit statement that the referee will prepare an award with written findings of fact and conclusions of law is sufficient to constitute a waiver of the right to a jury trial without using those exact words.

Plaintiff also contends that that the reference clause must be construed narrowly and ambiguity should be resolved against a waiver of a jury trial. However, Plaintiff’s principal case in support, Treo@Kettner’s Homeowner’s Association v. Superior Court, (2008) 166 Cal.App.4th 1055, is inapplicable. That case concerned the application of section 638 to covenants, conditions, and restrictions on real property, and whether reference clauses could be enforced against subsequent purchasers of real property. (Treo, supra, 166 Cal.App.4th at 1066.) Judicial reference clauses are subject to the same weight and favor as arbitration clauses. (O’Donoghue, supra, 219 Cal.App.4th at 256.) The Court concludes that the reference clause is not ambiguous and constitutes a valid waiver of the right to a jury trial.

Unconscionability

Finally, Plaintiff contends that the reference provision is unenforceable because it is unconscionable. The California Supreme Court addressed unconscionability thus:

One common formulation of unconscionability is that it refers to “an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.” [Citation.] As that formulation implicitly recognizes, the doctrine of unconscionability has both a procedural and a substantive element, the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results.

The prevailing view is that [procedural and substantive unconscionability] must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.’ [Citation.] But they need not be present in the same degree . . . the 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.” Courts may find a contract as a whole “or any clause of the contract” to be unconscionable. (Civ. Code, § 1670.5, subd. (a).)

(Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal. 4th 899, 910 [citations omitted, emphasis in original].)

“ Unconscionability consists of both procedural and substantive elements. The procedural element addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power. [Citations.] Substantive unconscionability pertains to the fairness of an agreement's actual terms and to assessments of whether they are overly harsh or one-sided. [Citations.] A contract term is not substantively unconscionable when it merely gives one side a greater benefit; rather, the term must be ‘so one-sided as to “shock the conscience.”

(Pinnacle, supra, 5 Cal.4th at 246.)

1. Procedural Unconscionability

Plaintiff contends that the reference clause is procedurally unconscionable because it is unfairly surprising. Procedural unconscionability requires a showing of oppression or surprise due to unequal bargaining power. (Pinnacle, supra, 55 Cal.4th at 246.) The burden for surprise is much higher for sophisticated parties, who are generally expected to have read all terms of an agreement and must show absence of a meaningful choice by way of reasonable market alternatives. (See Morris v. Redwood Empire Bancorp (2005) 128 Cal.App.4th 1305, 1322.)

Plaintiff reasserts that it did not agree to the reference provision, but merely acknowledged receipt. As stated above, this is not so: the agreements which Plaintiff signed stated that Plaintiff agreed to the terms of the Agreements and Disclosures. (Wartburg Decl. Exh. C. p. 2.) Plaintiff contends that there is no evidence that Defendant ever provided the agreement to Plaintiff, despite the fact that Plaintiff signed the agreement stating that was the case. Plaintiff does correctly observe that the acknowledgements do not explicitly call out the reference clause, and the reference clause is buried within boilerplate and not highlighted. (See, generally, Wartburg Decl. Exh. D.) However, that is not sufficient to carry Plaintiff’s burden. Plaintiff is not a financially unsophisticated individual opening a bank account for the first time. Plaintiff, by its own allegations, was a business that had been operating in Southern California for 40 years, and was an extremely successful, multi-million-dollar business. (Complaint ¶¶ 1, 3.) Plaintiff is a sophisticated party, and a contention that Plaintiff did not read the terms of the agreement because it was not highlighted is not sufficient to satisfy Plaintiff’s evidentiary burden to show procedural unconscionability. Further, Plaintiff has offered no evidence of the absence of any market alternatives. The Court therefore finds that Plaintiff has not shown that the agreement was procedurally unconscionable.

2. Substantive Unconscionability

As Plaintiff has not shown that the agreement is procedurally unconscionable, the Court need not address the question of substantive unconscionability. Nevertheless, the court will evaluate the merits of this contention.

Plaintiff contends that the agreement is substantively unconscionable because it is not a bilateral agreement and because it improperly curtails the Court’s ability to hear post-trial motions. Plaintiff relies extensively on citations involving employment arbitration provisions, which are not directly on point for a dispute over a judicial reference provision in a commercial deposit account agreement. (See, e.g, Amendariz v. Foundation Health Psychcare Servs., Inc. (2000) 24 Cal.4th 83 at 122.) Plaintiff identifies several provisions in the agreement that appear to be unfairly one-sided, including preservation of the right of Defendant to sue for default, while requiring judicial reference for most matters for which Plaintiff would likely want to sue, (Wartburg Decl. Exh. E. p. 45), class and representative waivers (Id. p. 23), a one-year limitations period governing most claims and a requirement for customers to report claims to the bank within 60 days (Id. at pp. 20-21), and waivers by customers only of incidental, consequential, special, punitive, or exemplary damages (Id at 21.) Multiple heavily one-sided provisions in an ADR agreement supports a finding of substantive unconscionability. (See, e.g, Samaniengo v. Empire Today LLC (2012), 205 Cal.App.4th 1138, 1148.) However, the burden is also on Plaintiff, as the party asserting the defense, to show that these terms are outside the norm for the commercial banking sector. (See Civ. Code § 1670.5; O’Donoghue, supra, at 256 [party seeking waiver bears burden of proof]; Sanchez, supra, 61 Cal.4th at 912 [“An evaluation of unconscionability is highly dependent on context.”] Plaintiff has not done so, as Plaintiff offers no statements nor evidence as to the norm for this industry. The Court therefore cannot find that Plaintiff has met the heavy burden to show substantive unconscionability so as to invalidate the reference clause.

As to the issue of post-trial motions, Defendant states in reply that it is willing to excise this portion of the agreement. Thus, there is apparently no dispute on this point. That said, the Court concludes that there is no basis for a prohibition against delegating authority to the referee for post-trial motions, nor any authority establishing the unconscionability of such a reference. Because it will streamline resolution of the parties’ dispute and create unnecessary duplication of effort by the Court and the referee, the Court holds that post-trial motions should be heard by the referee rather than the Court.

Request for Attorneys’ Fees

Defendant seeks attorney’s fees in connection with this motion in excess of $28,000 pursuant to the Account Agreement’s fee-shifting provision. Defendant did not specify the amount of fees in its Notice of Motion, nor do the accompanying declarations state how Defendant arrived at this requested number. (See Declaration of Lance N. Jurich ¶ 4.) The Court therefore declines to award attorney’s fees.

CONCLUSION:

Accordingly, Defendant’s Motion for Judicial Reference is GRANTED. The Court appoints Hon. George H. King (Ret.) as the judicial referee to preside over all issues in this matter.

Defendant’s request for attorney’s fees is DENIED.

Moving Party to give notice.

IT IS SO ORDERED.

Dated: August 5, 2022 ___________________________________

Theresa M. Traber

Judge of the Superior Court

Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept47@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.