Judge Theresa M. Traber, Case 22STCV12415 2022-08-30 Tentative Ruling

Judge: Theresa M. Traber, Case: 22STCV12415, Date: 2022-08-30 Tentative Ruling

Case Number: 22STCV12415 Hearing Date: August 30, 2022 Dept: 47

Tentative Ruling

Judge Theresa M. Traber, Department 47

HEARING DATE: August 30, 2022 TRIAL DATE: NOT SET

CASE: Bank of the West v. Ridgewood International, Inc. et al

CASE NO.: 22STCV12415

MOTION FOR JUDICIAL REFERENCE PURSUANT TO

CODE OF CIVIL PROCEDURE SECTION 638

MOVING PARTY: Plaintiff Bank of the West

RESPONDING PARTY(S): Defendants Ridgewood International, Inc. and Debra F. Wu

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

This is a breach of contract action filed on April 13, 2022. Plaintiff seeks to recover a principal of $749,499.42 for a loan on which Plaintiff alleges Defendants defaulted.

Plaintiff moves for judicial reference pursuant to Code of Civil Procedure §638.

TENTATIVE RULING:

Plaintiff’s motion for an order appointing the Hon. Victor B. Kenton (Ret.), whose business address is Judicate West, 11601 Wilshire Blvd., Suite 2040, Los Angeles, CA 90025-1756, tel. (310) 442-2100, fax (310) 442-2125, as judicial referee for all purposes in this case is GRANTED, on the condition that Plaintiff agrees to bear all referee’s fees.

DISCUSSION:

Plaintiff moves for an order appointing the Hon. Victor B. Kenton (Ret.) as judicial referee and staying this action pursuant to Code of Civil Procedure section 638.

Existence of Reference Agreement

Defendant moves to compel judicial reference based on a series of agreements executed between the parties to facilitate a set of commercial loans from Plaintiff to Defendant Richwood. The parties executed a Business Loan agreement on July 14, 2014. (Declaration of Pricilla Collier ¶ 7, Exh. 1.) The parties subsequently executed a Promissory Note pursuant to the Loan Agreement on December 30, 2016. (Id. ¶ 8, Exh 2.) The parties also signed a Commercial Security Agreement that same date. (Id. ¶ 9, Exh. 3.) At the time of the execution of the original Business Loan Agreement, Defendant Debra Wu, the President of Richwood International, executed a Commercial Guaranty with Plaintiff guaranteeing Richwood’s payment and performance of all of Richwood’s obligations under the agreement. (Id. ¶ 10, Exh. 4.)

Each of the Loan Documents bears Defendant Wu’s signature, either individually or as President of Richwood International. (See Collier Decl. Exhs. 1-4.) In addition, each of the Loan Documents contains the following identical Judicial Reference Provision:

JUDICIAL REFERENCE PROVISION. In the event the above Jury Waiver in unenforceable, the parties elect to proceed under this Judicial Reference Provision. With the exception of the Items specified below, any controversy, dispute or claim between the parties relating to (1) the instrument, document or other agreement in which this Judicial Reference Provision appears or (2) any related documents, instruments or transactions between the parties (each, a "Claim"), will be resolved by a reference proceeding in California pursuant to Sections 638 et seq. of the California Code of Civil Procedure, or their successor sections, which shall constitute the exclusive remedy for the resolution of any Claim, including whether the Claim is subject to reference. Venue for the reference will be the Superior Court in the County where real property involved in the action, if any, is located, or in a County where venue is otherwise appropriate under law (the "Court"). The following matters shall not be subject to reference: (1) nonjudicial foreclosure of any security interests in real or personal property, (2) exercise of self-help remedies (including without limitation set-off), (3) appointment of a receiver, and (4) temporary, provisional or ancillary remedies (including without limitation writs of attachment, writs of possession, temporary restraining orders or preliminary injunctions). The exercise of, or opposition to, any of the above does not waive the right to a reference hereunder.

The referee shall be selected by agreement of the parties. If the parties do not agree, upon request of any party a referee shall be selected by the Presiding Judge of the Court. The referee shall determine all issues in accordance with existing case law and statutory law of the State of California, Including without limitation the rules of evidence applicable to proceedings at law. The referee is empowered to enter equitable and legal relief, and rule on any motion which would be authorized in a court proceeding, including without limitation motions for summary judgment or summary adjudication. The referee shall issue a decision, and pursuant to CCP §644 the referee's decision shall be entered by the Court as a judgment or order in the same manner as if tried by the Court. The final judgment or order from any decision or order entered by the referee shall be fully appealable as provided by law. The parties reserve the right to findings of fact, conclusions of law, a written statement of decision, and the right to move for a new trial or a different judgment, which new trial if granted will be a reference hereunder. AFTER CONSULTING (OR HAVING THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS CHOICE, EACH PARTY AGREES THAT ALL CLAIMS RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT A JURY.

(Collier Decl. ¶¶ 14-17, Exh.1 pp. 5-6; Exh 2. pp 1-2; Exh. 3 p.5; Exh. 4 pp.3-4.) Defendants do not dispute the existence of these agreements. The Court therefore finds that there is an enforceable agreement between the parties for judicial reference. The Court now turns to the determination of whether the scope of the operative agreements encompass 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 Judicial Reference Provision specifically refers to section 638, and states that the referee “shall determine all issues in accordance with existing case law and statutory law of the State of California, including without limitation the rules of evidence applicable to proceedings at law.” (See, e.g. Collier Decl. Exh. 1.) According to the agreement, “[t]he referee is empowered to enter equitable and legal relief, and rule on any motion which would be authorized in a court proceeding,” and “shall issue a decision, and pursuant to CCP §644 the referee's decision shall be entered by the Court as a judgment or order in the same manner as if tried by the Court.” (Id.) Under the agreement, section 638 applies to “any controversy, dispute or claim between the parties relating to (1) the instrument, document or other agreement in which this Judicial Reference Provision appears or (2) any related documents, instruments or transactions between the parties.” (Id.) Defendants do not contest that the scope of the Judicial Reference Provision extends to the disputes in this case. The Court therefore finds that Plaintiff’s claims are within the scope of the reference clause.

Unconscionability

Defendants’ sole defense is 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 Museum Tower Ass’n v. Pinnacle Market Dev. (US), LLC (2012) 55 Cal.4th 223, 246.)

1. Procedural Unconscionability

Defendants contend that the loan agreements are procedurally unconscionable because they represent a contract of adhesion.

“The procedural element of the unconscionability analysis concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. [Citation.] The element focuses on oppression or surprise. [Citation.] ‘Oppression arises from an inequality of bargaining power that results in no real negotiation and an absence of meaningful choice.’ [Citation.] Surprise is defined as ‘“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.”’ [Citation.]” (Citation omitted.)

Plaintiffs claim the Agreement is procedurally unconscionable because it is an adhesion contract. An adhesion contract is “a standardized contract … imposed upon the subscribing party without an opportunity to negotiate the terms.” (Citation omitted.) “The term signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it. [Citation.]” (Citation omitted.)

The California Supreme Court has consistently stated that “‘[t]he procedural element of an unconscionable contract generally takes the form of a contract of adhesion … .’ ” (Citations omitted.)

“Whether the challenged provision is within a contract of adhesion pertains to the oppression aspect of procedural unconscionability. A contract of adhesion is “imposed and drafted by the party of superior bargaining strength” and “relegates to the subscribing party only the opportunity to adhere to the contract or reject it.” (Citations omitted.) “[A]bsent unusual circumstances, use of a contract of adhesion establishes a minimal degree of procedural unconscionability notwithstanding the availability of market alternatives.” (Citation omitted.)

(Walnut Producers of California v. Diamond Foods, Inc. (2010) 187 Cal.App.4th 634, 645-46 [bold emphasis added].)

Defendants contend that the Loan Agreement is a contract of adhesion and is therefore procedurally unconscionable. However, even if this is the case, this argument would only establish a minimal degree of procedural unconscionability.

Defendants also contend that the agreement is procedurally unconscionable because Defendant Wu could not understand the agreement because it was presented to her in English and she does not speak English with fluency. However, Defendant Wu’s evidence that she could not understand the contract because she does not speak English is solely in the form of a declaration by Defendant Wu, under penalty of perjury, in English. (Declaration of Debra Wu ¶ 4.) There is no evidence that the declaration was translated for Defendant Wu’s benefit, nor is there a statement from any interpreter. Defendant Wu has therefore undercut her own argument. Furthermore, Plaintiff offers, as rebuttal evidence, a supplemental declaration of Pricilla Collier in which she states that she has spoken with Defendant Wu telephonically in English multiple times, without any apparent language barrier. (Supplemental Declaration of Pricilla Collier ¶ 11.) Based on this evidence, and Defendants’ lack of supporting evidence, the Court finds that Defendants have not shown that the Loan Agreement is procedurally unconscionable on this basis.

Defendants also argue that the parties “clearly” had unequal bargaining power because Plaintiff is a national bank and Defendant is a “small minority owned business.” (Opposition p.4:2-3.) Defendants cite no law in support of this contention that the relative size of the corporate parties is sufficient, without more, to establish procedural unconscionability.

Finally, Defendants contend that the agreement is procedurally unconscionable because it is oppressive and fraudulent. Specifically, Defendants contend that the agreement is fraudulent in that Defendant Wu never had the opportunity to consult an attorney, despite the language in the reference provision. Once again, Defendants only offer the Declaration of Defendant Wu in support of this contention. In that Declaration, Defendant Wu makes the conclusory assertion that there was never an opportunity for the staff to explain the content of the documents and there was no opportunity to take the documents to a lawyer for review. (Wu Decl. ¶¶ 8-9.) The Court is not persuaded by this evidence. Mere conclusory assertions without additional supporting facts are not sufficient to establish that Defendants were deprived of the opportunity to review the agreement and consult with legal counsel before signing. The Court therefore finds that Defendants have not shown that the Loan Agreement is procedurally unconscionable on this basis. The Court therefore concludes that the Loan Agreement was only minimally procedurally unconscionable, at most.

2. Substantive Unconscionability

As Defendants have only shown a minimal amount of procedural unconscion-ability, Defendants must correspondingly show significant substantive unconscionability to prevail on this defense.

“A provision is substantively unconscionable if it ‘involves contract terms that are so one-sided as to “shock the conscience,” or that impose harsh or oppressive terms.’ [Citation.] The phrases ‘harsh,’ ‘oppressive,’ and ‘shock the conscience’ are not synonymous with ‘unreasonable.’ Basing an unconscionability determination on the reasonableness of a contract provision would inject an inappropriate level of judicial subjectivity into the analysis. ¿‘With a concept as nebulous as “unconscionability” it is important that courts not be thrust in the paternalistic role of intervening to change contractual terms that the parties have agreed to merely because the court believes the terms are unreasonable. The terms must shock the conscience.’ [Citations.]”

(Walnut Producers of California. supra, 187 Cal.App.4th at 647-48.)

Defendants contend that the agreement is substantively unconscionable because the terms of the agreement require that Defendants pay all of Plaintiff’s costs incurred in enforcing its rights, and that, even under Plaintiff’s proposal that the Court order the parties to split the referee’s fees equally at the outset with the prevailing party to be awarded the balance, this term remains unconscionable. (See, e.g, Collier Decl. Exh. 1 pp.4-5.) Defendant Wu states that “Due to COVID 19 and my own poor health, I have very little resources. I do not believe I can pay this referee.” (Wu Decl. ¶ 12.)

Neither party offers any evidence of the actual cost associated with judicial reference. Although Defendants state that the fees can range between $500 to $1,000 per hour at the outset, Defendants offer no evidence of this contention. The Court agrees with Defendants that the fee shifting provision in the contract presents some substantive unconscionability, insofar as the fee shifting provision imposes a burden on Defendants to pay Plaintiff’s fees and costs associated with enforcement of the contract but contains no reciprocal language allowing for Defendants to recover attorney’s fees and costs on an enforcement action. (See, e.g., Collier Decl. Exh. 1.) Furthermore, the language, as drafted, does not limit the requirement to pay Plaintiff’s attorney’s fees and costs to successful enforcement actions; thus, Defendants could arguably be liable for Plaintiff’s attorney’s fees and costs even in the event that Plaintiff was not the prevailing party. (Id.) As drafted, these terms may rise to the level of oppression.

Plaintiff has requested that the Court override the terms of the agreement to order the parties to split the referee’s fees equally at the outset, with the prevailing party to be awarded the balance. (See Motion p.7:17-19.) The Court cannot conclude that this proposed modification is so oppressive as to shock the conscience, even considering Defendants’ averred inability to pay. The Court therefore finds that Defendants have not shown that the agreement, under the proposed modifications by Plaintiff, is so substantively unconscionable as to render the entire agreement unenforceable.

The Court therefore concludes that the agreement is not unconscionable as a matter of law.

Ability to Pay Fees

Defendants have asserted that they are unable to pay a pro-rata share of the referee’s fee.

Code of Civil Procedure section 639 subdivision (d)(6)(A) provides that the Court may not appoint a referee at cost to the parties without “[e]ither a finding that no party has established an economic inability to pay a pro rata share of the referee’s fee or a finding that one or more parties has established an economic inability to pay a pro rata share of the referee’s fees and that another party has agreed voluntarily to pay that additional share of the referee’s fee.” For parties who are not proceeding in forma pauperis, the Court must consider, in determining whether a party has established an inability to pay its share, “the estimated cost of the referral and the impact of the proposed fees on the party’s ability to proceed with the litigation,” among other things (Code Civ. Proc. § 639(d)(6)(B).

Here, neither party has provided evidence of the estimated cost of the referral. However, Defendants have offered some evidence of the impact of referral on Defendants’ ability to proceed with the litigation. Notably, Plaintiff, in its reply brief, does not dispute Defendants’ contentions regarding the fees associated with referral to a judicial referee. Plaintiff instead merely argues that the cost of judicial reference would be significantly lower than the cost of trial. Although Plaintiff may be correct in this respect, the cost of judicial reference relative to the cost of trial is not the issue here. Considering the arguments and the evidence presented, the Court finds that Defendants have established an inability to pay the pro-rata share of the referee’s fee. As Plaintiff is a large and sophisticated banking institution, the Court will therefore exercise its discretion to present Plaintiff with a choice: Plaintiff may either consent to pay Defendants’ share of the referee’s fees pursuant to Code of Civil Procedure section 639(d)(6)(B) or waive the right to judicial reference and proceed with litigation in this Court.

CONCLUSION:

Accordingly, Plaintiff’s motion for an order appointing the Hon. Victor B. Kenton (Ret.), whose business address is Judicate West, 11601 Wilshire Blvd., Suite 2040, Los Angeles, CA 90025-1756, tel. (310) 442-2100, fax (310) 442-2125, as judicial referee for all purposes in this case is GRANTED, on the condition that Plaintiff agrees to bear all referee’s fees.

Moving Party to give notice.

IT IS SO ORDERED.

Dated: August 30, 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.