Judge Thomas D. Long, Case Number: 24STCV11990, Date: 2024-08-01 Tentative Ruling

On May 13, 2024, Plaintiff demanded to withdraw her arbitration petition and receive a full refund of her fees. (Hartman Decl. ¶ 10.) The arbitrator closed the file the next day. (Hartman Decl. ¶ 14.)

Also on May 13, 2024, Plaintiff filed this action against Defendants for declaratory relief establishing how to allocate $1,324,000 held in an IOLTA attorney-client trust account.

On May 22, 2024, Daryoosh Khashayar and Khashayar Law Group filed a motion to compel arbitration. The next day, Steven A. Simons and Law Office of Steven A. Simons filed a notice of joinder.

On June 13, 2024, Plaintiff filed a first amended complaint (“FAC”) alleging (1) declaratory relief, (2) violation of the Los Angeles Civil and Human Rights Ordinance, (3) violation of Civil Code section 51.9 for sexual harassment, (4) violation of Civil Code section 52(a), and (5) breach of fiduciary duty.

Defendants’ requests for judicial notice are granted. Plaintiff’s evidentiary objections are overruled.

When seeking to compel arbitration of a plaintiff’s claims, the defendant must allege the existence of an agreement to arbitrate. (Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 219.) The burden then shifts to the plaintiff to prove the falsity of the agreement. (Ibid.) After the Court determines that an agreement to arbitrate exists, it then considers objections to its enforceability. (Ibid.)

The Court must grant a petition to compel arbitration unless the defendant has waived the right to compel arbitration or if there are grounds to revoke the arbitration agreement. (Ibid.; Code Civ. Proc., § 1281.2.) Under California law and the Federal Arbitration Act (“FAA”), an arbitration agreement may be invalid based upon grounds applicable to any contract, including unconscionability, fraud, duress, and public policy. (Sanchez v. Western Pizza Enterprises, Inc. (2009) 172 Cal.App.4th 154, 165-166.)

The parties entered into a contingency fee agreement on January 9, 2023. (Khashayar Decl. ¶¶ 6, 12.) This agreement contains a clause establishing binding arbitration for “[a]ny dispute or controversy arising from or in connection with this Agreement or in regard to the services rendered, including legal malpractice.” (Khashayar Decl. ¶ 7 & Ex. 1 [“Arbitration Agreement”].)

Defendants have satisfied their burden of showing the existence of an agreement to arbitrate.

Plaintiff argues that the federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (“EFAA”) invalidates the Arbitration Agreement. (Opposition at p. 2.) Under the EFAA, no predispute arbitration agreement is valid or enforceable with respect to a case that relates to a sexual assault dispute or a sexual harassment dispute. (9 U.S.C.A. § 402(a).) “The term ‘sexual harassment dispute’ means a dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law.” (9 U.S.C.A. § 401(4).)

Plaintiff argues that “Defendants’ motion did not take issue with the allegations in Plaintiff’s complaint or first amended complaint.” (Opposition at p. 8.) Therefore, “[i]f Defendants were to offer in their reply a colorable argument on whether Plaintiff’s factual allegations suffice to constitute a cause of action for sexual harassment, that issue is not properly before the court in this motion to compel arbitration.” (Ibid.)

Defendants’ motion could not address this issue in the first instance because when the motion was filed on May 22, 2024, the operative complaint was the initial complaint for declaratory relief only. The FAC containing the sexual harassment allegations was not filed until June 13, 2024. Defendants’ reply briefs were their first opportunity to address Plaintiff’s newly added causes of action and the EFAA.

According to Plaintiff, “The FAC’s allegations form a sexual harassment dispute, including FAC ¶¶ 18, 40, 47, and the Third Cause of Action regards a sexual harassment dispute. (FAC ¶¶ 25-34.)” (Opposition at p. 2.) Plaintiff contends that “each of Plaintiff’s causes of action are intertwined with a sexual harassment dispute and will require overlapping proof and factual presentations.” (Id. at p. 4.)

The first cause of action involves only a dispute over division of funds held in an IOLTA trust account. Plaintiff alleges that she is not liable for the contingency fee because Defendants refused to conform their acts with Plaintiff’s demands for her expressed goals, billed fewer than 39 hours, did not obtain a valid settlement, and abandoned Plaintiff so that she had to retain other counsel and incur additional attorney fees. (FAC ¶ 14.) Nothing in these allegations relate to sexual harassment.

The second cause of action alleges that Defendants violated section 51.03 of the City of Los Angeles Municipal Code (part of the “Los Angeles Civil and Human Rights Ordinance”) by discriminating against Plaintiff in commerce because of her sex, race, religion, ethnicity, gender, color, disability, or medical condition. (FAC ¶¶ 18, 20.) Plaintiff’s factually deficient allegations include denial of full and equal accommodations, advantages, facilities, privileges, or services; speaking/yelling at Plaintiff in an offensive, disparaging, and harmful manner; forcing Plaintiff into activities that created undue stress and harm to her; ignoring or disregarding Plaintiff’s emails; ceasing work on Plaintiff’s case; refusing Plaintiff’s requests seeking all the emails and text messages; refusing to comply with Plaintiff’s goal of a jury trial; and demanding that Plaintiff engage in lengthy and stressful activities without breaks. Nothing in these allegations relate to sexual harassment, aside from a conclusory allegation of discrimination “because of her sex.”

The third cause of action alleges that “Defendant Khashayar engaged in verbal and other conduct of a hostile nature based on Plaintiff’s gender (including, but not limited to, sexual harassment)” through the same conduct alleged in the second cause of action. Nothing in these allegations relate to sexual harassment, aside from a conclusory allegation of “sexual harassment.”

The fourth cause of action alleges violation of Civil Code section 52 “(including, but not limited to, sexual harassment)” through the same conduct alleged in the second and third causes of action. Nothing in these allegations relate to sexual harassment, aside from a conclusory allegation of “sexual harassment.”

The fifth cause of action alleges breach of fiduciary duty based on some of the same alleged conduct, as well as alleging that Defendants had a fiduciary duty to “protest[] against any other defendant who is sexual harassing the Plaintiff or lying or making false statements on the law.” (FAC ¶ 47.)

“The EFAA does not apply in the absence of a plausible sexual harassment claim.” (Johannessen v. JUUL Labs, Inc. (N.D. Cal., June 24, 2024, No. 3:23-CV-03681-JD) 2024 WL 3173286, at *4.) Accordingly, Plaintiff must plausibly allege sexual harassment as contemplated by the Fair Employment and Housing Act. (Ibid.) Plaintiff’s cursory references to “sexual harassment” do not include facts to plausibly plead any sexual harassment under FEHA, and the alleged conduct does not include any severe and pervasive conduct based on sex.

The Congressional Record also shows that the intent of the EFAA was not to exempt unrelated claims from arbitration: “If lawyers try to game the system, they are acting in bad faith. . . . What we are not going to do is take unrelated claims out of the arbitration contract. So, if you have got an hour and wage dispute with the employer, you make a sexual harassment, sexual assault claim, the hour and wage dispute stays under arbitration unless it is related. That is the goal.” (Khashayar RJN, Ex. C.) Plaintiff’s late-stage withdrawal from arbitration (arbitration that she initiated) and amendment to her complaint in this action suggest the kind of gamesmanship that the Senate intended to prohibit. Plaintiff amended her complaint to add factually devoid “sexual harassment” allegations to an otherwise straightforward fee dispute only after Defendants filed their motion to compel arbitration.

Plaintiff argues that the Mandatory Fee Arbitration Act (“MFAA”) prohibits binding and mandatory arbitration with the San Diego County Bar Association. (Opposition at pp. 5-6.)

The parties agreed to arbitrate “[a]ny dispute or controversy arising from or in connection with this [contingency fee] Agreement or in regard to the services rendered, including legal malpractice,” and fee disputes “shall be governed by California mandatory arbitration rules pursuant to Business and Professions Code section 6200, et seq.” (See Arbitration Agreement.) According to Plaintiff, arbitration under that section “shall be voluntary for a client and shall be mandatory for an attorney if commenced by a client,” so therefore “a client cannot be forced under the MFAA to arbitrate a dispute concerning legal fees.” (Opposition at p. 5.) Plaintiff omits crucial language from the statute. Arbitration is voluntary for a client “[u]nless the client has agreed in writing to arbitration under this article of all disputes concerning fees, costs, or both.” (Bus. & Prof. Code, § 6200, subd. (c).)

With respect to Plaintiff’s other causes of action, Plaintiff argues that “the MFAA does not permit a Bar Association to arbitrate any claims other than disputed legal fees and costs.” (Opposition at p. 6; see Bus. & Prof. Code, § 6200, subd. (b)(2).) Defendants contend that “the entire action is based on a dispute of fees, as can be seen from the original complaint and the arbitration action that were originally filed and failed to include Plaintiff’s additional meritless causes of action.” (Khashayar Reply at p. 5.)

Here, the parties have a written agreement to arbitrate under the Business and Professions Code’s mandatory arbitration rules. “A contractual right to binding arbitration survives if arbitration under the MFAA is waived or fails to resolve the dispute.” (Benjamin, Weill & Mazer v. Kors (2011) 195 Cal.App.4th 40, 53.) The parties have agreed in writing to arbitrate “[a]ny dispute or controversy arising from or in connection with this Agreement or in regard to the services rendered, including legal malpractice,” not just fee disputes.

Plaintiff argues that Simons had no arbitration agreement with her and is not mentioned in the Notice of Motion. (Opposition at pp. 6-7.) However, Simons filed a proper Notice of Joinder after the Khashayar Defendants filed their motion.

Plaintiff retained Simons in June 2018. (Simons Decl. ¶ 4.) In May 2022, Plaintiff emailed Simons about wanting to bring in Khashayar as counsel. (Simons Decl. ¶ 6.) The fee agreement containing the Arbitration Agreement was signed by Plaintiff and Khashayar on January 9, 2023.

Generally, only a party to an arbitration agreement may enforce the agreement, but the doctrine of equitable estoppel is an exception that allows a non-signatory to enforce an agreement. (Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495.) Under the doctrine of equitable estoppel, “a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are ‘intimately founded in and intertwined’ with the underlying contract obligations.” (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1237.) The doctrine applies in either of two circumstances: (1) when the signatory must rely on the terms of the written agreement containing the arbitration clause in asserting its claims against the nonsignatory; or (2) when the signatory alleges “substantially interdependent and concerted misconduct” by the nonsignatory and a signatory and the alleged misconduct is “founded in or intimately connected with the obligations of the underlying agreement.” (Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 218-219.)

Although Simons is a non-signatory, Plaintiff alleges all causes of action against all Defendants, arising from “substantially interdependent and concerted misconduct.” The fee dispute is founded in or intimately connected with the fee agreement that contains the Arbitration Agreement.

Accordingly, under the doctrine of equitable estoppel, Simons may enforce the Arbitration Agreement.

Finally, Plaintiff argues that she “timely rescinded and avoided the contingency fee agreement.” (Opposition at p. 9.)

Plaintiff relies on Business and Professions Code section 6147, which requires an attorney who contracts to represent a client on a contingency fee basis to provide the client with a signed duplicate of the contract at the time the contract is entered into, and the contract must include certain provisions. “Failure to comply with any provision of this section renders the agreement voidable at the option of the plaintiff, and the attorney shall thereupon be entitled to collect a reasonable fee.” (Bus. & Prof. Code, § 6147, subd. (b).)

It is undisputed that there was a written fee agreement that was signed by both the client and attorney, and there is no dispute about the terms. Instead, Plaintiff contends that she did not receive a fully executed copy of the fee agreement. (Stempler Decl. ¶¶ 4-5; DeSanto Decl. ¶¶ 4-5.) Khashayar declares that he handed Plaintiff signed and fully executed copies of both the Retainer and the Fee Sharing Disclosure in early February 2023. (Khashayar Decl. ¶ 17.) The fee agreement was entered into on January 9, 2023, and early February 2023 is not “at the time the contract is entered into.” However, Plaintiff declares only, “Pursuant to federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (‘EFAA’), I make the election to invalidate the arbitration agreement with Khashayar Law Group.” (DeSanto Decl. ¶ 6.)

Based on the record before the Court on this motion, the Count finds that the Arbitration Agreement has not been validly rescinded.

E. The Related Interpleader Action Does Not Prevent Arbitration of This Action.

Plaintiff argues that there may be conflicting rulings in this case and Case No. 24STCV13296. (Opposition at p. 7.)

A court must grant a motion to compel arbitration unless a party to the arbitration agreement is also a party to a pending court action with a third party arising out of the same transaction and there is a possibility of conflicting rulings on a common issue of law or fact. (Code Civ. Proc., § 1281.2, subd. (c).) If the court does determine that subdivision (c) applies, the court may order arbitration among the parties who have agreed to arbitration and stay the pending court action or special proceeding pending the outcome of the arbitration proceeding, or may stay arbitration pending the outcome of the court action. (Code Civ. Proc., § 1281.2.)

On May 28, 2024, the Law Offices of Bradley I. Kramer (“Kramer”) filed a Complaint in Interpleader in Case No. 24STCV13296. Kramer’s IOLTA attorney-client trust account holds the disputed $1,324,000, and Kramer claims no interest in the disputed funds. With the Complaint in Interpleader, Kramer deposited the disputed funds with the Clerk of the Court.

The Court will stay the interpleader action while the parties arbitrate the fee dispute for the funds at issue.

Defendants’ motion to compel arbitration is GRANTED. The entire action is STAYED pending the conclusion of the arbitration.

A Status Conference re: Arbitration is scheduled for August 1, 2025 at 8:30 a.m. in Department 48 at Stanley Mosk Courthouse. Five court days before, the parties are to file a joint report stating the name of their retained arbitrator and the status of arbitration.

Parties who intend to submit on this tentative must send an email to the Court at SMCDEPT48@lacourt.org indicating intention to submit. If all parties in the case submit on the tentative ruling, no appearances before the Court are required unless a companion hearing (for example, a Case Management Conference) is also on calendar.

Hon. Thomas D. Long

Judge of the Superior Court