Judge: Wesley L. Hsu, Case: 22PSCV00975, Date: 2023-04-18 Tentative Ruling

Case Number: 22PSCV00975    Hearing Date: April 18, 2023    Dept: L

Defendants Opendoor Property Acquisition LLC’s, Opendoor Property Trust I’s,

Opendoor Brokerage Inc. and Ben Braksick’s Motion to Compel Arbitration is

GRANTED. The case is stayed, pending completion of the arbitration.

 

 

Background   

 

Plaintiff Michelle Lee Muncie Huo aka Michelle Huo (“Plaintiff”) alleges as follows:

Immediately prior to October 15, 2021, Plaintiff was the title owner of the property located at

222 N. Country Club Rd., Glendora, CA 91741 (“subject property”). On or about September 27,

2021, Plaintiff entered into a Residential Purchase Agreement and Joint Escrow Instructions

(“Sale Agreement”) with Defendant Opendoor Property Acquisition LLC (“OD-Acquisition”),

wherein Plaintiff agreed to sell the subject property to OD-Acquisition or its assignee for

$1,077,600.00. The Sale Agreement provided for a close of escrow on October 8, 2021. Plaintiff

and OD-Acquisition concurrently executed several other written contracts, including an

Opendoor Addendum dated September 23, 2021 (“OD-Addendum”), which allowed Plaintiff, in

Paragraph 4, to cancel the Sale Agreement at any time prior to close of escrow without penalty

by providing written notice of cancellation to OD-Acquisition. Escrow was opened on or about

October 5, 2021 with Chicago Title Company (“CTC”) and its agent, Amanda Sims (“Sims”);

that day, Plaintiff executed the grant deed intended for use at time of recording and closing of

escrow, with the understanding that it would be held in trust by CTC and Sims and recorded only

after Plaintiff first physically came to CTC’s office to sign off on additional paperwork

authorizing closing to occur. The close of escrow date was subsequently pushed to August 31,

2022; however, the grant deed had already been recorded on October 15, 2021. On August 26,

2022, Plaintiff exercised her right to cancel escrow and terminate the sale transaction.

 

On December 14, 2022, Plaintiff filed a First Amended Complaint, asserting causes of action against OD-Acquisition, Opendoor Property Trust I (“OD-Trust”), Opendoor Brokerage Inc. (“OD-Brokerage”), Ben Matthew Braksick (“Braksick”), Robert Camou (“Camou”) and Does 1-20 for:

 

1.      Breach of Written Contract

2.      Cancellation of Instrument

3.      Quiet Title

4.      Slander of Title

5.      Negligence

6.      Promissory Fraud

7.      Negligent Misrepresentation

 

On February 14, 2023, Camou was dismissed, without prejudice.

 

A Case Management Conference is set for April 18, 2023.

 

Legal Standard

 

Under California and federal law, public policy favors arbitration as an efficient and less expensive means of resolving private disputes. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 8-9; AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 339.) Accordingly, whether an agreement is governed by the California Arbitration Act (“CAA”) or the Federal Arbitration Act (“FAA”), courts resolve doubts about an arbitration agreement’s scope in favor of arbitration.  (Moncharsh, at 9; Comedy Club, Inc. v. Improv West Assocs. (9th Cir. 2009) 553 F.3d 1277, 1284; see also Engalla v. Permanente Med. Grp., Inc. (1997) 15 Cal.4th 951, 971-972 [“California law incorporates many of the basic policy objectives contained in the Federal Arbitration Act, including a presumption in favor of arbitrability and a requirement that an arbitration agreement must be enforced on the basis of state law standards that apply to contracts in general”].) “[U]nder both the FAA and 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.” (Higgins v. Sup. Ct. (2006) 140 Cal.App.4th 1238, 1247 [quotation marks and citation omitted].)

 

Generally, on a motion to compel arbitration, the court must grant the motion unless it finds either (1) no written agreement to arbitrate exists; (2) the right to compel arbitration has been waived; (3) grounds exist for revocation of the agreement; or (4) litigation is pending that may render the arbitration unnecessary or create conflicting rulings on common issues. (Code Civ. Proc., § 1281.2; Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218-219.)

 

The party seeking to compel arbitration bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence. (Hotels Nevada v. L.A. Pacific Center, Inc. (2006) 144 Cal.App.4th 754, 761.) The burden then shifts to the opposing party to prove by a preponderance of the evidence a defense to enforcement (e.g., fraud, unconscionability, etc.) (Id.) “In these summary proceedings, the trial court sits as a trier of fact, weighing all the affidavits, declarations, and other documentary evidence, as well as oral testimony received at the court’s discretion, to reach a final determination.” (Engalla, supra, 15 Cal.4th at 972.)

 

Discussion

 

OD-Acquisition, OD-Trust, OD-Brokerage and Braksick (collectively,  the “Opendoor Defendants”) move the court for an order compelling Huo to arbitrate her claims under the Federal Arbitration Act, 9 U.S.C. § 2.

 

Merits

 

1.      Defendant Has Proven the Existence of a Valid Arbitration Agreement

 

The Opendoor Defendants seek to compel arbitration of Plaintiff’s claims pursuant to an arbitration provision contained in a California Residential Purchase Agreement and Joint Escrow Instructions (“Purchase Agreement”) entered into between Plaintiff and OD-Acquisition “and/or nominee” on or about September 27, 2021. (Smith Decl., ¶ 2, Exh. A.) Paragraph 22(B) of the Purchase Agreement, which was separately initialed by Plaintiff and OD-Acquisition’s authorized signer Megan Meyer, provides as follows:

 

            “ARBITRATION OF DISPUTES:

            The Parties agree that any dispute or claim in Law or equity arising between

them out of this Agreement or any resulting transaction, which is not settled

through mediation, shall be decided by neutral binding, arbitration. The Parties

also agree to arbitrate any disputes or claims with Broker(s), who, in writing,

agree to such arbitration prior to, or within a reasonable time after, the dispute

or claim is presented to the Broker. The arbitrator shall be a retired judge or

justice, or an attorney with at least 5 years of residential real estate Law

experience, unless the parties mutually agree to a different arbitrator. The

Parties shall have the right to discovery in accordance with Code of Civil

Procedure § 1283.05. In all other respects, the arbitration shall be conducted in

accordance with Title 9 of Part 3 of the Code of Civil Procedure. Judgment upon

the award of the arbitrator(s) may be entered into any court having jurisdiction. Enforcement of this agreement to arbitrate shall be governed by the Federal

Arbitration Act. Exclusions from this arbitration agreement are specified in

paragraph 22C.

‘NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING

TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED

IN THE “ARBITRATION OF DISPUTES” PROVISION DECIDED BY

NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND

YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE

THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITALING

IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS

TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE

SPECIFICALLY INCLUDED IN THE “ARBITRATION OF DISPUTES”

PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO

ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE

OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.’

‘WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE

TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED

IN THE “ARBITRATION OF DISPUTES” PROVISION TO NEUTRAL ARBITRATION.’” (Id.)

 

The Opendoor Defendants further assert that, while OD-Trust, OD-Brokerage and Braksick are admittedly not signatories to the Purchase Agreement, they are nevertheless entitled to enforce the arbitration provision of the Purchase Agreement against Plaintiff because they are expressly incorporated into the Purchase Agreement.

 

The Purchase Agreement identifies “Opendoor Property Acquisition and/or nominee” as the buyer. (Id.). OD-Acquisition’s nominee under the Purchase Agreement to take legal title of the property was OD-Trust. (Id., ¶ 4.) Further, the arbitration provision itself expressly contemplates that potential disputes arising out of the Purchase Agreement may involve real estate brokers (i.e., “[t]he Parties also agree to arbitrate any disputes or claims with Broker(s), who, in writing,

agree to such arbitration prior to, or within a reasonable time after, the dispute or claim is presented to the Broker”); as such, OD-Brokerage and Braksick may elect to agree to arbitration. Plaintiff dismissed Camou without prejudice on February 14, 2023, after the instant motion was filed.

 

The Opendoor Defendants also demonstrate that the parties entered into an arbitration agreement that covers the claims in this case. All of Plaintiff’s claims against the Opendoor Defendants—for Breach of Written Contract, Cancellation of Instrument, Quiet Title, Slander of Title, Negligence, Promissory Fraud and Negligent Misrepresentation—relate to the purchase of Plaintiff’s property under the Purchase Agreement. Plaintiff does not dispute as much.

 

2.      Plaintiff Has Failed to Prove Defenses to Enforcement

 

Plaintiff, in opposition, asserts that the motion must be denied because the arbitration clause is unconscionable and because any agreement to arbitrate was obtained by promissory fraud. The court addresses Plaintiff’s arguments as follows:

 

a.      Unconscionability

 

Plaintiff first argues that the arbitration clause is unenforceable because it is procedurally and substantively unconscionable. The court disagrees.

 

Unconscionability is analyzed as having a procedural and a substantive element.” (Kinney v. United HealthCare Services, Inc. (1999) 70 Cal.App.4th 1322, 1329.) “Both procedural and substantive unconscionability must be present before a court can refuse to enforce an arbitration provision based on unconscionability. However, the two elements need not be present in the same degree.” (O’Hare v. Municipal Resource Consultants (2003) 107 Cal.App.4th 267, 273.) “Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves. In other words, the more substantively unconscionable the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114 [quotation marks and citation omitted].) “The burden of proving unconscionability rests upon the party asserting it.” (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 126.)

 

1.      Procedural Unconscionability

 

Procedural unconscionability “concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. It focuses on factors of oppression and surprise.” (Kinney, supra, 70 Cal.App.4th at 1329 [citation omitted].) “Oppression arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice. Surprise involves the extent to which the terms of the bargain are hidden in a prolix printed form drafted by the party in a superior bargaining position.” (Olsen v. Breeze, Inc. (1996) 48 Cal.App.4th 608, 621 [quotation marks and citation omitted].)

 

The term “contract of adhesion” “refers to a standardized contract prepared entirely by one party to the transaction for the acceptance of the other; such a contract, due to the disparity in bargaining power between the draftsman and the second party, must be accepted or rejected by the second party on a ‘take it or leave it’ basis, without opportunity for bargaining and under such conditions that the ‘adherer’ cannot obtain the desired product or service save by acquiescing in the form agreement.” (Steven v. Fidelity & Cas. Co. of New York (1962) 58 Cal.2d 862, 882.) “[A]n arbitration agreement is not adhesive if there is an opportunity to opt out of it.” (Mohamed v. Uber Technologies, Inc. (9th Cir. 2016) 848 F.3d 1201, 1211.)

 

Here, there was no requirement that Plaintiff agree to arbitration to effectuate the sale of her property. There is a separate signature line set forth directly underneath the arbitration provision in the Purchase Agreement. Plaintiff initialed under the arbitration provision. Plaintiff presents no evidence that the Purchase Agreement would not have been effective absent her signature on the arbitration provision. The arbitration clause, in fact, expressly contemplates that signers may proceed with the sale irrespective of whether they opted to submit to arbitration or not. Paragraph 22.A., for instance, provides that the mediation provision “APPLIES WHETHER OR NOT THE ARBITRATION PROVISION IS INITIALED.” The arbitration clause itself provides that “YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY” and that “BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE ‘ARBITRATION OF DISPUTES’ PROVISION DECIDED BY NEUTRAL ARBITRATION . . .” (Smith Decl., ¶ 2, Exh. A.)

 

The court also notes that Plaintiff had the right to obtain representation, but chose not to be represented by a real estate agent in the transaction. (Id.)

 

 

Further, “the fact that the arbitration agreement is an adhesion contract does not render it automatically unenforceable as unconscionable.” (Serafin v. Balco Properties Ltd., LLC (2015) 235 Cal.App.4th 165, 179.) “[W]here the arbitration provisions presented in a contract of adhesion are highlighted for the employee, any procedural unconscionability is ‘limited.”’ (Id.) Here, the arbitration clause is set forth in bold and introduced in capital letters. Plaintiff instead merely alleges that she “did not take the time to read the presented documents in full,” despite the fact that she signed the Purchase Agreement on September 27, 2021, which was three days before the offer expired. (Plaintiff’s Decl., ¶ 4; Smith Decl., ¶ 2, Exh. A(31).).

 

The court determines that Plaintiff has failed to show procedural unconscionability.

 

2.      Substantive Unconscionability

 

The lack of procedural unconscionability, by itself, is sufficient to end the unconscionability analysis as both procedural and substantive unconscionability must be present to render an arbitration agreement unconscionable.

 

Regardless, “[s]ubstantive unconscionability pertains to the fairness of an agreement’s actual terms and to assessments of whether they are overly harsh or one-sided. 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.’” (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 85 [quotation marks and citations omitted].)

 

Plaintiff asserts that the arbitration clause is substantively unconscionable because she must pay costs of arbitration. The arbitration clause, however, is silent as to how the costs of arbitration will be borne. In Parada v. Superior Court (2009) 176 Cal.App.4th 1554, cited by Plaintiff, the Court of Appeal found that an arbitration provision requiring a three-arbitrator panel from JAMS, which would cost each petitioner $20,800, to be substantively unconscionable to the petitioners due to their inability to pay. The Court based its holding on detailed declarations from petitioners setting forth their income, expenses, debt and assets. Here, Plaintiff has not demonstrated that the arbitration clause imposes fees that are “prohibitively high” for her to pay. (Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77, 90.)

 

The court finds that Plaintiff has failed to show substantive unconscionability.

 

b.      Fraud

 

Plaintiff next argues that the arbitration provision in the Purchase Agreement was obtained through fraud in the execution.

 

“California law distinguishes between fraud in the “execution” or “inception” of a contract and fraud in the “inducement” of a contract. . . in the former case ‘”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. . .”’ (Ford v. Shearson Lehman American Express, Inc. (1986) 180 Cal.App.3d 1011, 1028). Fraud in the inducement, by contrast, occurs when ‘”the promisor knows what he is signing but his consent is induced by fraud, mutual assent is present and a contract is formed, which, by reason of the fraud, is voidable. . .”’ (Id.)” (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 415; see also Bruni v. Didion (2008) 160 Cal.App.4th 1272, 1287 [“[A] court must look to the precise nature of the claim that the party resisting arbitration is making. If it is claiming that it never agreed to the arbitration clause at all—e.g., if it is claiming forgery or fraud in the factum—then the court must consider that claim. On the other hand, if it is not denying that it agreed to the arbitration clause, but instead it is claiming some other defense to enforcement of the arbitration clause—e.g., illegality or fraud in the inducement—then the court must enforce the ‘arbitrability’ portion of the arbitration clause by compelling the parties to submit that defense to arbitration”).

 

In her FAC, Plaintiff seeks cancellation of the Purchase Agreement on the basis that she was fraudulently induced into entering into the contract as a whole. (FAC, ¶¶ 72-73.) “[C]laims of fraud in the inducement of the contract generally,” as opposed to the arbitration clause itself, are to be decided by the arbitrator rather than the court. (Prima Paint Corp. v. Flood & Conklin Mfg. Co. (1967) 388 U.S. 395, 404.)

 

Plaintiff, however, now appears to assert fraud in the execution of the arbitration clause. Fraud in the execution, though, does not apply where the party had a reasonable opportunity to discover the terms of the contract and failed to do so: “The rule in California. . . is that fraud in the execution does not render a written contract void where the defrauded party has a reasonable opportunity to discover the real terms of the contract before signing it.” (Jones v. Adams Financial Services (1999) 71 Cal.App.4th 831, 836; Rosenthal, supra, 14 Cal.4th at 423 [“If a party, with such reasonable opportunity, fails to learn the nature of the document he or she signs, such “negligence” precludes a finding the contract is void for fraud in the execution”].)

 

Admittedly, “[a] party does not have ‘a reasonable opportunity’ to discover the true nature of the writing if the party is prevented from doing so by some physical or other impairment.” (Jones, supra, 71 Cal.App.4th at 837.) Plaintiff has not identified any such limitation. Again, Plaintiff admits that she merely “did not take the time to read the presented documents in full” (Plaintiff’s Decl.)  Plaintiff’s assertions that she “felt pressured to sign” and “had no ability to negotiate terms” do not establish that she did not have a reasonable opportunity. (Id., ¶¶ 3-4). As previously mentioned, Plaintiff signed the Purchase Agreement on September 27, 2021, which was three days before the offer expired. (Smith Decl., ¶ 2, Exh. A(31).). Further, while the Purchase Agreement was signed on September 27, 2021, Plaintiff was entitled, under the Opendoor Addendum, to cancel the Purchase Agreement “at any time prior to close of escrow without penalty for any reason by providing written notice of cancellation to Buyer.” (Id., p. 24.) The Purchase Agreement set forth an October 8, 2021 close of escrow date. (Id., ¶ 1(D).)

 

Plaintiff also asserts that “at no time did OPENDOOR disclose to [her] that there was an arbitration provision in any document presented for [her] signature and told her that “it was in [her] best interests to sign the presented documents.” (Plaintiff’s Decl., ¶¶ 4-5). However, OD-Acquisition, as the buyer, was under no obligation to make any such disclosure and was unreasonable of Plaintiff to rely on any such representation. Plaintiff’s contention that OD-Acquisition was somehow acting as her fiduciary in connection with the sale lacks merit: “No law requires that parties dealing at arm's length have a duty to explain to each other the terms of a written contract, particularly where. . . the language of the contract expressly and plainly provides for the arbitration of disputes arising out of the contractual relationship.” (Brookwood v. Bank of America (1996) 45 Cal.App.4th 1667, 1674 [quotations and citation omitted].) The Purchase Agreement confirms that Plaintiff had no agency relationship with OD-Acquisition. (Smith Decl., ¶ 2, Exh. A(2)). The Purchase Agreement itself, moreover, is replete with warnings that Plaintiff could and should seek appropriate advice from a real estate licensee. (Id.).

 

Finally, Plaintiff’s reference to a “service charge” (which Defendants explain covers holding costs, such as taxes, utilities, and maintenance [Reply, 11:9-12 and fn. 1]) does not indicate that a fiduciary relationship was made.

 

3. Conclusion

 

The motion is granted. The court orders the case stayed, pending completion of the arbitration.