Judge: Theresa M. Traber, Case: 23STCV02047, Date: 2023-11-15 Tentative Ruling
Case Number: 23STCV02047 Hearing Date: November 15, 2023 Dept: 47
Tentative Ruling
Judge Theresa M. Traber, Department 47
HEARING DATE: November 15, 2023 TRIAL DATE: NOT
SET
CASE: Programize, LLC, v. Mastercard
International, Inc., et al.
CASE NO.: 23STCV02047 
MOTION
TO COMPEL ARBITRATION
MOVING PARTY: Defendants Mastercard international, Inc.; Bluevine,
Inc.; Coastal Community Bank.
RESPONDING PARTY(S): Plaintiff
Programize, LLC
CASE
HISTORY:
·
01/31/23: Complaint filed.
·
07/20/23: First Amended Complaint filed.
STATEMENT
OF MATERIAL FACTS AND/OR PROCEEDINGS:
This is an action for breach of contract, negligence, and fraud.
Plaintiff alleges that Defendants permitted an unknown individual to make unauthorized
withdrawals from Plaintiff’s bank account using a stolen debit card.
Defendants move to compel
arbitration based on the operative account agreement between Plaintiff and Defendants
Bluevine and Coastal Community Bank.
TENTATIVE RULING:
Defendants’ Motion to Compel
Arbitration is DENIED.
DISCUSSION:
Defendants move to compel
arbitration based on the operative account agreement between Plaintiff and
Defendants Bluevine and Coastal Community Bank.
//
//
Request for Judicial Notice
Plaintiff
requests that the Court take judicial notice of (1) Mastercard International
Incorporated’s Statement of Information filed with the California Secretary of
State on May 11, 2023; (2) Bluevine, Inc.’s Statement of Information filed with
the California Secretary of State on July 19, 2023; (3) Coastal Community
Bank’s Statement of Information filed with the California Secretary of State on
May 22, 2023; and (4) Plaintiff’s October 21, 2017 Statement of Information and
August 26, 2021 Statement of No Change filed with the California Secretary of
State. Plaintiff’s requests are GRANTED pursuant to Evidence Code section
452(c) (official acts).
Choice of Governing Law
Defendants’
Amended Petition states that they seek to compel arbitration pursuant to the
Federal Arbitration Act. (Amended Petition p.2:12-13.)
Existence of Arbitration Agreement
Defendants
move to compel this matter to arbitration based on the operative Account
Agreement between Plaintiff and Defendants Bluevine and Coastal Community Bank.
Under California law, arbitration
agreements are valid, irrevocable, and enforceable, save upon such grounds as
exist at law or in equity for the revocation of any contract. (Blake v. Ecker (2001) 93 Cal.App.4th
728, 741 (overruled on other grounds by
Le Francois v. Goel (2005) 35 Cal.4th 1094).) A party petitioning to compel
arbitration has the burden of establishing the existence of a valid agreement
to arbitrate, and the party opposing the petition has the burden of proving, by
a preponderance of the evidence, any fact necessary to its defense. (Banner Entertainment, Inc. v. Superior Court
(1998) 62 Cal.App.4th 348, 356-57.)
However, as to the burden of production,
rather than persuasion, courts have articulated a three-step burden shifting
process:
First, the moving party bears the
burden of producing “prima facie evidence of a written agreement to arbitrate
the controversy.” [citation] The moving party “can meet its initial burden by
attaching to the [motion or] petition a copy of the arbitration agreement
purporting to bear the [opposing party’s] signature.” [citation] Alternatively,
the moving party can meet its burden by setting forth the agreement’s
provisions in the motion. [citations] For this step, “it is not necessary to
follow the normal procedures of document authentication.” [citation] If the
moving party meets its initial prima facie burden and the opposing party does
not dispute the existence of the arbitration agreement, then nothing more is
required for the moving party to meet its burden of persuasion.
If the moving party meets its initial
prima facie burden and the opposing party disputes the agreement, then in the
second step, the opposing party bears the burden of producing evidence to
challenge the authenticity of the agreement. [citation] The opposing party can
do this in several ways. For example, the opposing party may testify under oath
or declare under penalty of perjury that the party never saw or does not
remember seeing the agreement, or that the party never signed or does not
remember signing the agreement. [citations]
If the opposing party meets its burden
of producing evidence, then in the third step, the moving party must establish
with admissible evidence a valid arbitration agreement between the parties. The
burden of proving the agreement by a preponderance of the evidence remains with
the moving party. [citation].
(Gamboa v. Northeast Community Clinic (2021) 72
Cal.App.5th 158, 165-66.)
Defendants
offer several versions of the arbitration agreement which they contend are
operative between the parties. Defendants first claim that Plaintiff entered
into an Account Agreement with Defendant Bluevine and its then-partner,
Bancorp, on October 28, 2020. (Declaration of Nicholas Chapin ISO Amended
Petition ¶ 4.) The Agreement contained a petition entitled “Arbitration and
Waiver of Jury Trial” which stated, in relevant part:
Customer and Bank agree that the
transactions contemplated in the Account Agreement involve “commerce” under the
Federal Arbitration Act (“FAA”). EVERY CONTROVERSY OR CLAIM BETWEEN CUSTOMER
AND ANY INDEMNIFIED PARTY ARISING OUT OF, OR IS IN ANY WAY RELATED TO OR
RESULTING FROM THE ACCOUNT AGREEMENT, THE ACCOUNT, OR ANY OTHER SERVICES
PROVIDED BY BLUEVINE OR THE BANK, WHETHER BASED IN CONTRACT, TORT OR ANY OTHER
LEGAL THEORY, INCLUDING CLAIMS OF FRAUD, SUPPRESSION, MISREPRESENTATION AND
FRAUD IN THE INDUCEMENT, WILL BE RESOLVED BY BINDING ARBITRATION UNDER THE FAA
. . . .
IF CUSTOMER DOES NOT AGREE TO THE
TERMS OF THIS ARBITRATION PROVISION, DO NOT ACTIVATE OR USE ACCOUNT OR ANY
CARD. CALL 1-855-733-3683 TO CLOSE ACCOUNT AND REQUEST A REFUND, IF APPLICABLE.
(Chapin Decl. Exh. A. § I.) The agreement provided that it
could be periodically amended by Bluevine:
We may amend the Account Agreement at
any time by posting the amended documents (including the Account Agreement) at
the [Bluevine] Website, and any such amendment shall be effective upon its
posting to the Website. We will provide reasonable notice of an adverse change
tot eh Account Agreement in writing or by any method permitted by law. However,
if a change is made for security purposes, it can be implemented without prior
notice. When we amend the Account Agreement, the updated version supersedes all
prior versions and shall govern Account. Customer’s continued maintenance or
use of Account after the amendment, will be deemed acceptance of it and
Customer will be bound by it. If Customer does not agree with an amendment,
Customer may close Account as provided in the Account Agreement.
(Chapin Decl. Exh. A § A(2).) Defendants offer the testimony of its Group
Product Manager, Nicholas Chapin, to argue that Plaintiff accepted the terms of
this agreement electronically on October 28, 2020. (Chapin Decl. ¶ 4.) No
record of this acceptance is provided, but Plaintiff does not dispute that it
accepted the October 2020 Agreement.
Defendants
next state that Plaintiff accepted another business checking account agreement
on July 1, 2021 between Defendants Bluevine and Coastal. (See Chapin Decl. ¶
7.) Defendants do not provide a copy of this agreement, nor do they recite the
relevant terms. Plaintiff, instead, provides the July 2021 Agreement in its
opposition, which, with respect to arbitration, states only the following:
1. YOU AND WE WILL BE BOUND BY THIS
CLAUSE TO ARBITRATE ANY CLAIM IF YOU OR WE ELECT ARBITRATION, UNLESS THE CLAIM
IS BROUGHT IN OR REMOVED TO SMALL-CLAIMS COURT PURSUANT TO THIS ARBITRATION
CLAUSE;
2. NEITHER PARTY WILL HAVE THE RIGHT TO
A JURY TRIAL OR TO ENGAGE IN DISCOVERY, EXCEPT AS PROVIDED FOR IN THE AAA CODE
OF PROCEDURE; AND
3. YOU AND WE WILL NOT BE ABLE TO BRING
OR BE A CLASS MEMBER IN A CLASS ACTION, PRIVATE ATTORNEY GENERAL ACTION OR
OTHER REPRESENTATIVE ACTION IN COURT OR IN ARBITRATION ("Class Action
Waiver").
(Declaration of Harold Light ISO Opp. Exh. 1. p. 30.) Plaintiff
does not contest the validity of this amendment and contends it was the
operative version at the time of the alleged misconduct.
Defendants argue that subsequent amendments
were made on November 1, 2022 and again on August 1, 2023. (Chapin Decl. ¶¶
9-10.) The 2022 and 2023 amendments contain essentially identical arbitration
provisions:
This Arbitration Clause sets forth the
procedures for resolving a Claim under or relating to this Agreement. As used
in this Arbitration Clause, a “Claim” is any preexisting, present or future
claim, dispute, or controversy between you and us or you and Bluevine arising
out of or relating directly or indirectly in any way to this Agreement. The
term “Claim” has a very broad meaning and includes, by way of example and not
limitation, disputes concerning: (i) the acquisition, use, or balance of your
Account or Sub-account(s); (ii) advertisements, promotions or oral or written
statements related to the Account or Subaccount . . . ; and (v) the
relationships between you and us arising from this Agreement or any of the
foregoing . . . .
This Arbitration Clause provides that
all Claims shall be FINALLY and EXCLUSIVELY resolved by binding individual
arbitration, unless excepted or opted out in accordance with the terms below. .
. [.]
(Chapin Decl. Exh. C § I.) Defendants contend that Plaintiff
never opted out of the arbitration provision. (Chapin Decl. ¶ 11.) However,
Defendants offer no evidence that notice of the 2022 or 2023 amendments was
given pursuant to the terms of the original Account Agreement, nor that the
amendments were for security purposes such that notice was not required.
Defendants
first argue in their moving papers that the 2022 Amendment governs this action
because it was the operative form of the Account Agreement at the time
Plaintiff’s Complaint was filed. In opposition, Plaintiff claims that the July
2021 amendments is the operative version because that was the amendment in
effect at the time of the unauthorized transactions that gave rise to this
dispute, which are alleged to have occurred between October 23, 2021 and
November 15, 2021. (See FAC ¶ 18.) Plaintiff also argues that Defendants should
not be permitted to enforce any of the amendments after July 2021 because
Defendants have provided no evidence that any of the amendments were ever made
available to Plaintiff. Defendants state in reply that there was an October 19,
2021 amendment to the Agreement which was substantively identical to the 2022
and 2023 amendments set forth above. (Declaration of Nicholas Chapin ISO Reply
¶ 5 Exh. 1.) Defendants accuse Plaintiff of dishonesty by failing to mention
the October 19, 2021 amendment. (See Opp. p.5:8-12.) Defendants’ contention is specious,
as Plaintiff was under no obligation to discuss an arbitration agreement whose
existence was not set forth in the moving papers. More to the point, despite
Plaintiff raising the issue of defective notice of the amended arbitration
provisions in its opposition, Defendants, without explanation, fail to address Plaintiff’s
challenge to the effectiveness of the amendments after July 2021, including
the October 19, 2021 amendment. Defendants have therefore failed to carry their
burden of production with respect to any version of the arbitration agreement
after July of 2021.
//
Choice of Law
In their notice, Defendants state that
they bring this petition pursuant to the Federal Arbitration Act (Amended Notice,
at p. 2:12-13.) In the petition itself, Defendants argue that the FAA governs
the agreements at issue here, but they also argue that Delaware law and
California law compel the same conclusion. Plaintiff primarily relies on
California law but also cites federal authorities and argues that Delaware law
supports the same arguments.
While hedging
their bets by relying partially on California law, including California
statutes governing arbitration, Defendants argue that Delaware law applies here
because the agreements containing arbitration provisions are subject to
Delaware choice-of-law provisions. Where the agreements do not specify that
a given state’s arbitration rules and procedures apply, a choice of law
provision only applies to substantive law and not procedural rules such as
those related to arbitration. (Mastrobuono v. Shearson Lehman Hutton, Inc.
(1995) 514 U.S. 52, 63-64 [“Thus, the choice-of-law
provision covers the rights and duties of the parties, while the arbitration
clause covers arbitration; neither sentence intrudes upon the other.”].) As a
result, Delaware law does not govern the questions raised in this motion. Even if Delaware
law may play a role in determining the merits of this action, the agreements
are to be interpreted according to California law. “A contract is to be
interpreted according to the law and usage of the place where it is to be
performed; or, if it does not indicate a place of performance, according to the
law and usage of the place where it is made.” (Civ. Code § 1646.) Defendants
have not made any argument here that the place of performance or place where
these agreements were made was anywhere other than California.
An arbitration clause is governed by the
FAA if the agreement is a contract “evidencing a transaction involving
commerce.” (9 U.S.C. § 2.) Courts “broadly construe” this phrase, because the
FAA “embodies Congress’ intent to provide for the enforcement of arbitration
agreements within the full reach of the Commerce Clause.” (Giuliano v.
Inland Empire Pers., Inc. (2007) 149 Cal.App.4th 1276, 1286.)
Here, the July 2021 agreement does not expressly
state that it is intended to be governed by the Federal Arbitration Act.
However, a cardholder account agreement between a corporation based in
California and a corporation based in Delaware appears on its face to
constitute a transaction involving commerce. The Court therefore finds that the
Federal Arbitration Act governs this agreement.
Unconscionability
Plaintiff argues in opposition that
the July 2021 Arbitration Agreement is unconscionable and should not be
enforced.
//
1. Procedural Unconscionability
“‘To
briefly recapitulate the principles of unconscionability, the doctrine 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.” [Citation.] The procedural element of an unconscionable contract
generally takes the form of a contract of adhesion, “‘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.’” … [¶] Substantively unconscionable terms may take various forms, but may generally be described as unfairly one-sided.’
[Citation.]” (Citation omitted.)
“Under this approach, both the procedural
and substantive elements must be met before a contract or term will be deemed
unconscionable. Both, however, need not be present to the same degree. A
sliding scale is applied so that ‘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.’
(Citations omitted.)
(Walnut Producers of California v. Diamond Foods, Inc. (2010) 187 Cal.App.4th 634, 645
(bold emphasis added).)
Plaintiff
argues that the Arbitration Agreement is procedurally unconscionable because it
is a contract of adhesion. Contracts of adhesion only demonstrate a minimum
amount of procedural unconscionability.
“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,
supra, 187 Cal.App.4th at 645-46 [bold emphasis added].) The Court also
observes that the July 2021 Arbitration Agreement makes a nonspecific reference
to the AAA rules. Nothing in the
Agreement itself indicates where those rules might be found, and Defendant does
not endeavor to show that these rules were provided to Plaintiff. Failure
to provide arbitration rules is evidence of procedural unconscionability. (See,
e.g., Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 244-46.) Thus,
construed in the harshest light, the Court could find that the Agreement on its
face demonstrates some amount of procedural unconscionability. At minimum,
Plaintiff has manifestly shown that the agreement is a contract of adhesion.
2.
Substantive Unconscionability
Plaintiff argues that the agreement is
substantively unconscionable. Even if the Court only found procedural
unconscionability on the basis that the agreement is a contract of adhesion,
the agreement on its face is rife with substantive unconscionability.
“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 v. Diamond Foods, Inc.
supra, 187 Cal.App.4th at 647-48.) Where
procedural unconscionability is shown, the Court must “closely scrutinize the
substantive terms to ensure they are not manifestly unfair or one-sided.” (OTO,
L.L.C. v. Ken Kho (2019) 8 Cal.5th 111, 130.)
Here, even
if the Court declines to closely scrutinize the July 2021 agreement, the terms
of the arbitration provision are shockingly deficient on their face. The July
2021 Arbitration clause consists of two substantive paragraphs, plus a third
pertaining only to class actions, that are entirely devoid of clarity.
Paragraph 1 states that any claims may be arbitrated at the election of either
party to the agreement. (Light Decl. Exh. 1. p.30.) The term “claim” is not
defined, nor does the agreement specify how arbitration may be elected or
commenced. Further, the agreement is utterly silent as to the apportionment of
fees or expenses, the availability of a neutral arbitrator, the requirement of
a neutral award, or the types of relief that may be awarded. All that the
arbitration clause states is that neither party will have a right to a jury
trial or discovery, except as provided for “in the AAA rules of procedure.” (Id.)
Such meager provisions are not merely inadequate; they are uncertain and
shocking on their face. The Court therefore finds that the July 2021
arbitration provision is substantively unconscionable.
As the
Court has found both procedural and substantive unconscionability, the Court
concludes that the July 2021 arbitration agreement which has been established
as operative is unconscionable and should not be enforced. The Court therefore
declines to address the remainder of Plaintiff’s arguments challenging
enforcement of the agreement.
Accordingly, Defendants’ Motion to Compel
Arbitration is DENIED.
Moving Parties to give notice.
IT IS SO ORDERED.
Dated: November 15, 2023 ___________________________________
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.