Judge William A. Crowfoot, Case Number: 24AHCV00311, Date: 2024-09-17 Tentative Ruling

Judge: William A. Crowfoot, Case: 24AHCV00311, Date: 2024-09-17 Tentative Ruling

On February 13, 2024, plaintiffs Yaping Dang, Austin Yuen, Sheng-Ching Tsao Chen, and Xin Zheng (collectively, “Plaintiffs”) filed this action against WFG National Title Insurance Company (“WFG”), Dawn Weller (“Weller”), and Jeff Leung (“Leung”) (collectively, “Defendants”). The Complaint contains causes of action for: (1) bad faith, (2) unfair claim practice, (3) breach of contract, (4) breach of the contractual duty to pay a covered insurance claim, (5) breach of the implied covenant of good faith and fair dealing, (6) intentional misrepresentation, (7) negligent misrepresentation, and (8) unfair business practice.

Plaintiffs allege that they are insureds of WFG under a title policy and that Defendants failed to act on a claim regarding a covered loss under the title policy. (Compl. ¶¶ 14, 23, 32, 36.)

On April 25, 2024, Defendant filed this petition to compel arbitration and stay action.

In deciding a motion to compel arbitration, trial courts must decide first whether an enforceable arbitration agreement exists between the parties, and then determine the second gateway issue whether the claims are covered within the scope of the agreement. (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.) The party seeking arbitration has the “burden of proving the existence of a valid arbitration agreement by a preponderance of the evidence, while a party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense.” (Ruiz v. Moss Bros. Auto Group, Inc. (2014) 232 Cal.App.4th 836, 842.) The trial court “sits as the trier of fact, weighing all the affidavits, declarations, and other documentary evidence, and any oral testimony the court may receive at its discretion, to reach a final determination.” (Id.) General principles of contract law govern whether parties have entered a binding agreement to arbitrate. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236; see also Winter v. Window Fashions Professions, Inc. (2008) 166 Cal.App.4th 943, 947.)¿

“The party seeking to compel arbitration bears the burden of proving the existence of a valid arbitration agreement.” (Flores v. Evergreen at San Diego, LLC (2007) 148 Cal.App.4th 581, 586.) “For purposes of a petition to compel arbitration, it is not necessary to follow the normal procedures of document authentication.” (Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218. “A plain reading of the statute indicates that as a preliminary matter the court is only required to make a finding of the agreement's existence, not an evidentiary determination of its validity.” (Id. at p. 219.) “Once the petitioners had alleged that the agreement exists, the burden shifted to respondents to prove the falsity of the purported agreement.” (Ibid.)

In the context of title insurance policies, “[an] insured's approval and acceptance of the conditions set forth in the preliminary report create a binding contract based on the terms set forth in the report and any materials that are incorporated therein by reference. [Citation.] Therefore, whether [the insured is] bound by an arbitration clause depends directly on whether that term was set forth in the preliminary report or incorporated therein by reference.” (Kleveland v. Chicago Title Ins. Co. (2006) 141 Cal.App.4th 761, 764.)

Defendants claim that the ALTA Loan Policy of Title Insurance issued July 20, 2023 (“Policy”), contains a binding arbitration clause and submits the Declaration of Dawn Weller, in which Weller states that the Policy contained a arbitration clause in Paragraph 13 of the Policy’s Conditions. The arbitration clause states:

Either [WFG] or the Insured may demand that the claim or controversy shall be submitted to arbitration pursuant to the Title Insurance Arbitration Rules of the American Land Title Association (“Rules”). Except as provided in the Rules, there shall be no joinder or consolidation with claims or controversies of other persons. Arbitrable matters may include, but are not limited to, any controversy or claim between [WFG] and the Insured arising out of or relating to this policy, any service in connection with its issuance or the breach of a policy provision, or to any other controversy or claim arising out of the transaction giving rise to this policy. All arbitrable matters when the Amount of Insurance is $2,000,000 or less shall be arbitrated at the option of either [WFG] or the Insured. All arbitrable matters when the Amount of Insurance is in excess of $2,000,000 shall be arbitrated only when agreed to by both [WFG] and the Insured. Arbitration pursuant to this policy and under the Rules shall be binding upon the parties. Judgment upon the award rendered by the Arbitrator(s) may be entered in any court of competent jurisdiction.

Plaintiffs argue in their opposition brief that Defendants fail to meet their moving burden to allege the existence of the arbitration agreement because the preliminary title report was not attached. However, Defendants attached the preliminary title report in their reply and Plaintiffs do not appear to have been prejudiced by Defendant’s failure to do so, as Plaintiffs equally have access to the report and made arguments regarding the arbitration clause’s unconscionability in their opposition brief. The preliminary title report states, in relevant part:

The printed Exceptions and Exclusions from the coverage and Limitation on Covered Risks of said policy or policies are set forth in Exhibit One attached. The policy to be issued may contain an arbitration clause. When the Amount of Insurance is less than that set forth in the arbitration clause, all arbitrable matters shall be arbitrated at the option of either the Company or the Insured as the exclusive remedy of the parties. . . Copies of the policy forms should be read. They are available from the office which issued this report.”

Defendants sufficiently show that an arbitration agreement exists because the preliminary report refers to the document containing the arbitration clause: the Policy. (Wolschlager v. Fidelity National Title Ins. Co. (2003) 111 Cal.App.4th 784, 790-791.) The report also informs the insured how to obtain a copy of the Policy and advises that it should be read and that it may contain an arbitration clause. (Id., p. 791.) In addition, the arbitration clause covers the causes of action asserted in this action because arbitrable matters include “any controversy or claim between [WFG] and the Insured arising out of or relating to this [Policy], any service in connection with its issuance or the breach of a policy provision, or to any other controversy or claim arising out of the transaction giving rise to this [P]olicy.”

B. Whether There Are Any Valid Objections to the Arbitration Agreement’s Enforceability

Plaintiffs argue that the arbitration clause is unenforceable because it is unconscionable. Unconscionability has two components: procedural unconscionability and substantive unconscionability, both of which must be present in some degree to render a contract unenforceable, “[b]ut they need not be present in the same degree.” (Armendariz v. Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th 83, 114.) Instead, California courts use a “sliding scale” approach. (Id.) “In other words, 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.” (Id.)

Here, the Policy and arbitration clause evidence a slight degree of procedural unconscionability because they are standardized forms and presented on a “take it or leave it” basis. (Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 796 [adhesion contract based on a standardized form, drafted and imposed by a party of superior bargaining strength displayed low level of procedural unconscionability].) However, there is no showing of a high degree of substantive unconscionability. Plaintiffs claim that the arbitration clause lacks mutuality because it only allows WFG to “unilaterally” compel arbitration for disputes involving less than $2,000,000. (Opp., p. 8.) But this is not true. The arbitration clause allows either party to demand arbitration if the amount in controversy is less than $2,000,000. Therefore, the arbitration clause does not lack mutuality.

William A. Crowfoot

Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the Court at ALHDEPT3@lacourt.org indicating intention to submit on the tentative as directed by the instructions provided on the court website at www.lacourt.org. Please be advised that if you submit on the tentative and elect not to appear at the hearing, the opposing party may nevertheless appear at the hearing and argue the matter. Unless you receive a submission from all other parties in the matter, you should assume that others might appear at the hearing to argue. If the Court does not receive emails from the parties indicating submission on this tentative ruling and there are no appearances at the hearing, the Court may, at its discretion, adopt the tentative as the final order or place the motion off calendar.