Case Number: 19TRCV00427 Hearing Date: March 03, 2020 Dept: SWB

Superior Court of California

County of Los Angeles

Southwest District

Torrance Dept. B

ELSIE F. ROMERO,

Plaintiff,

Case No.:

19TRCV00427

vs.

[Tentative] RULING

THE LAW OFFICES OF JOSEPH R. MANNING, JR.,

Defendants.

Hearing Date: March 3, 2020

Moving Parties: Defendants The Law Offices of Joseph R. Manning, Jr. and Joseph R. Manning, Jr.

Responding Party: Plaintiff Elsie F. Romero

Petition to Compel Binding Arbitration and Motion for Stay

The court considered the moving, opposition, and reply papers.

RULING

The petition is GRANTED.

BACKGROUND

On May 14, 2019, plaintiff Elsie F. Romero (self-represented) filed a complaint against The Law Offices of Joseph R. Manning, Jr. and Joseph R. Manning, Jr. for (1) legal malpractice and (2) breach of fiduciary duty. Plaintiff alleges that she owns and resides in the property located at 221 S. Irena Ave., #A, Redondo Beach. In 2011, she was laid off from her job and suffered a financial hardship as a result. Accordingly, plaintiff sought mortgage assistance from her lender, Wells Fargo. In May 2012, she was granted a forbearance by Wells Fargo while it considered her for a loan modification. In November 2014, Wells Fargo denied her application. Wells Fargo commended foreclosure proceedings on the property. A trustee’s sale was scheduled for May 2015. Prior to the sale date, plaintiff received a legal advertisement from defendants in the mail, which stated that they have “an answer to the stonewalling tactics of lenders and servicers such as Wells Fargo. . . . My office has more valuable experience litigating against banks and mortgage servicers for wrongful foreclosure and other abusive practices . . . . Homeowners have hired us to gather the critical information about foreclosure options, crediting of payments, forced placed insurance, and investor guidelines withheld until now by lenders and servicers like Wells Fargo . . . . If we don’t get the information our clients are entitled to we take AGGRESSIVE ACTION to hold the lender accountable.” In justifiable reliance on defendants’ representations in the advertisement and defendants’ statements that she had a solid ground for a loan modification as well as a strong legal case against Wells Fargo, plaintiff retained defendants to appeal Wells Fargo’s denial of plaintiff’s application for loan modification and to take actions necessary to stop the trustee’s sale of the property. Defendants charged plaintiff a flat monthly fee of $1,500.

Plaintiff further alleges that on May 20, 2015, defendants filed an action and an ex parte application for a TRO in Superior Court. The trustee’s sale did not go forward. Shortly thereafter, the matter was removed to federal court. In federal court, defendants were far from “aggressive” and pressured plaintiff to dismiss the case. On July 14, 2017, defendants filed a second Superior Court action on behalf of plaintiff in YC072191. The case was removed to federal court. Defendants advised, pressured, and convinced plaintiff to dismiss the case without getting anything in return. The matter was dismissed on April 4, 2018. In May 2018, plaintiff realized that defendants were not competent and/or capable of obtaining any relief for her. She retained an attorney to file a Ch. 13 bankruptcy. Plaintiff’s proposed Ch. 13 Plan of Reorganization Plan requires her to pay approximately $4,438 per month in addition to her regular monthly mortgage payment. Defendants sought the option that was most profitable for them, i.e., prolonged applications for a loan modification and litigation. Plaintiff paid defendants unconscionable fees in excess of $50,000.

Plaintiff alleges that defendants breached the standard of care by falsely representing their experience in the area and what they could do for plaintiff, taking an up front fee for loan modification work in violation of Civil Code §2944.7, entering into a contract with at least one term directly contrary to the Rules of Professional Conduct of the State Bar, and failing to advise plaintiff as to her legal options.

On October 9, 2019, plaintiff filed a substitution of attorney. She is now represented.

LEGAL AUTHORITY

Under CCP § 1281, a “written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and revocable, save upon such grounds as exist for the revocation of any contract.”

Under CCP § 1281.2, “On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that: . . . (c) 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 or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact. . . . (d) . . . . If the court determines that a party to the arbitration is also a party to litigation in a pending court action . . . with a third party as set forth under subdivision (c) herein, the court (1) may refuse to enforce the arbitration agreement . . . ; (2) may order intervention or joinder as to all or only certain issues; (3) may order arbitration among the parties who have agreed to arbitration and stay the pending court action . . . pending the outcome of arbitration proceeding; or (4) may stay arbitration pending the outcome of the court action or special proceeding.”

DISCUSSION

Defendants request an order compelling plaintiff to binding arbitration and to stay the proceeding.

Existence of an agreement to arbitrate

“As stated in Cione v. Foresters Equity Services, Inc. (1997) 58 Cal. App. 4th 625, 634 ‘The right to arbitration depends upon contract; a petition to compel arbitration is simply a suit in equity seeking specific performance of that contract. There is no public policy favoring arbitration of disputes that the parties have not agreed to arbitrate.’” Lopez v. Charles Schwab & Co., Inc. (2004) 118 Cal. App. 4th 1224, 1229.

Defendants contend that on May 8, 2015, respondent plaintiff first retained the services of defendant, and that plaintiff executed a written attorney-client retainer agreement, which contains an arbitration provision. Defendants also contend that plaintiff signed four additional attorney-client retainer agreements. Defendants explain that the reason for the multiple retainer agreements was that plaintiff retained defendants’ legal services for several different tasks and scopes of work, over a period of several years. In the reply, defendants contend that there are six retainers involved: two were for pre-litigation investigation services, two were for litigation “that was vigorously pursued for Romero,” and two were for separate loan modification efforts.

The arbitration provision in each one states: “AGREEMENT TO BINDING ARBITRATION OF ATTORNEY/CLIENT DISPUTES. Any dispute arising out of or in connection with the interpretation, performance, or breach of this Agreement, including claims of professional negligence, shall be resolved through final and binding arbitration and a judgment upon and an arbitration award may be entered in any court of competent jurisdiction. Arbitration proceedings shall be conducted in Orange County, California. Unless the parties subsequently agree, in writing, to resolve a dispute through a different arbitration form or service, the following shall apply: CLIENT is hereby informed that California law provides that a client is not required to arbitration a dispute over attorney’s fees and costs and has a right to have the dispute resolved in a court of law before a judge and/or jury. CLIENT understands that by entering into this Agreement, CLIENT is agreeing to resolve all disputes other than for fees and costs through binding arbitration and is waiving the right to a trial by a judge and/or jury. . . .”

In opposition, plaintiff argues that the retainer agreements are unenforceable because they violate the Rules of Professional Conduct or other public policy. See Sheppard, Mullin, Richter & Hampton, LLP v. J-M Mfg. Co., Inc. (2018) 6 Cal. 5th 59. Plaintiff contends that the retainer agreements violate Civil Code §2944.7, which states in part: “(a) Notwithstanding any other law, it shall be unlawful for any person who negotiates, attempts to negotiate, arranges, attempts to arrange, or otherwise offers to perform a mortgage loan modification or other form of mortgage loan forbearance for a fee or other compensation paid by the borrower, to do any of the following: (1) Claim, demand, charge, collect, or receive any compensation until after the person has fully performed each and every service the person contracted to perform or represented that he or she would perform.” Plaintiff asserts that at all times, she asked for and believed that the services provided by defendants were for the purpose of obtaining a loan modification but that defendants charged advanced fees for negotiating with lenders for loan modifications. Romero decl.

Plaintiff also argues that the retainer agreements violate Bus. and Prof. Code §6148, which states that “(a) In any case not coming within Section 6147 in which it is reasonably foreseeable that total expense to a client, including attorney fees, will exceed one thousand dollars, the contract for services in the case shall be in writing. At the time the contract is entered into, the attorney shall provide a duplicate copy of the contract signed by both the attorney and the client. . . . (c) Failure to comply with any provision of this section renders the agreement voidable at the option of the client, and the attorney . . . .” She contends that did not receive signed copies of any of the agreements at the time she executed them. As for the agreements she remembers signing (Agreements Nos. 2, 4, and 5), plaintiff attests that she did not receive a copy signed by defendant at the time of execution. See O&C Creditors Grp., LLC v. Stephens & Stephens XII, LLC (2019) 42 Cal. App. 5th 546, 575 (fact that client signed fee agreement is not “substantial compliance” with statute requiring signatures of attorney and client). Plaintiff asserts that she elected to void the agreements.

Plaintiff also asserts that the lien language in Agreements Nos. 2 and 5 violate (former) Rule 3-300 because it did not inform her in understandable terms the consequences of the lien and she was not given a reasonable opportunity to seek advice of independent counsel.

In reply, defendants deny collecting or charging for the loan modification efforts. Defendants also claim that plaintiff received signed copies of six retainer agreements at the time the agreements were entered into. Defendants also cite to Bus. and Prof. Code §6148(d), which states that “This section shall not apply to any of the following: (1) Services rendered in an emergency to avoid foreseeable prejudice to the rights or interests of the client or where a writing is otherwise impractical. (2) An arrangement as to the fee implied by the fact that the attorney’s services are of the same general kind as previously rendered to and paid for by the client.” Defendants assert that this exception applies to the original engagement on May 8, 2015 and for the agreements for litigation services. As to the lien language, defendants argue that the rule does not apply to a charging lien given to secure payment of a contingency fee.

Upon review of the retainer agreements attached to defendant’s declaration filed with the reply, the court finds that there exists an agreement to arbitrate. The retainer agreements are fully executed. The retainer agreements do not violate public policy or the Bus. and Professions Code. Exhibits A, B, D, and E state “This Retainer is not executed for the purpose of obtaining a loan modification or forbearance for Client or any borrower. . . . In the event that Client wishes to retain Attorneys for the purpose of obtaining a loan modification or forbearance, Client must execute a separate Retainer and Client will only be charged for this service, if at all, after Client has been offered a loan modification or forbearance and subject to the terms of such other Retainer.” Further, according to the declaration of Janet Harris, “[w]hen a prospective client has an in-office consultation, it is our custom and habit to provide the client with a copy of the retainer agreement signed by Mr. Manning that same day if we can take the case and if Mr. Manning is in the office. If he is not in the office, he will sign upon his return and the fully executed retainer is provided to the client.”

Enforceability

Unconscionable?

In opposition, plaintiff contends that the retainer agreements are unconscionable and are unenforceable.

“Courts analyze the unconscionability standard in Civil Code section 1670.5 as invoking elements of procedural and substantive unconscionability. The procedural element of unconscionability focuses on whether the contract is one of adhesion. Procedural unconscionability focuses on whether there is ‘oppression’ arising from an inequality of bargaining power or ‘surprise’ arising from buried terms in a complex printed form. The substantive element addresses the existence of overly harsh or one-sided terms. An agreement to arbitrate is unenforceable only if both the procedural and substantive elements are satisfied. However, Armendariz held, ‘[T]he 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.’ (Armendariz, at 114).” McManus v. CIBC World Markets Corp. (2003) 109 Cal. App. 4th 76, 87 (citations omitted).

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. The oppression component arises from an inequality of bargaining power of the parties to the contract and an absence of real negotiation or a meaningful choice on the part of the weaker party. The component of surprise arises when the challenged terms are ‘hidden in a prolix printed form drafted by the party seeking to enforce them.’ Where an adhesive contract is oppressive, surprise need not be shown.” Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal. App. 4th 1267, 1281. A preemployment arbitration agreement can be a contract that is procedurally unconscionable. Little v. Auto Stiegler, Inc. (2003) 29 Cal. 4th 1064, 1071; Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal. 4th 83, 113-127.

“When the weaker party is presented the clause and told to ‘take it or leave it’ without the opportunity for meaningful negotiation, oppression, and therefore procedural unconscionability, are present.” Szetela v. Discover Bank (2002) 97 Cal. App. 4th 1094, 1100; Mercuro v. Superior Court (2002) 96 Cal. App. 4th 167, 174.

Plaintiff asserts that as to Agreement No. 2, she was pressured to sign right away under the coercive effect of losing a significant “discount” in the amount of her attorney fees and being told she was in danger of losing her residence unless she signed right away.

In reply, defendants argue that any exigency was caused by Romero’s decision to wait until the last minute to seek counsel. She also could have sought the services of “thousands of attorneys who could have helped her.” According to Janet Harris’ declaration, she has worked for Mr. Manning since February 2012 and has never pressured anyone to retain their services and has never been aware of anyone in the office pressuring someone to retain them for litigation. She states that “If Ms. Romero felt pressured to retain, it was likely due to that limited timeframe prior to the May 21, 2015, sale date, which was caused by her delay in seeking assistance.”

The court finds that there was no procedural unconscionability.

Substantive unconscionability

“‘Substantive unconscionability’ focuses on the terms of the agreement and whether those terms are ‘so one-sided as to “shock the conscience.”’ A contractual provision that is substantively unconscionable may take various forms, but may generally be described as unfairly one-sided. The paramount consideration in assessing [substantive] conscionability is mutuality.” Nyulassy, supra, at 1281.

In her opposition, plaintiff asserts that the retainer agreements Nos. 3 and 5 are unconscionable and unenforceable because they contain a provision that states, “It is agreed that no dismissal or settlement will be made without ATTORNEY’s consent,” which plaintiff argues is an improper intrusion on her rights as a client to control the outcome of the case. Plaintiff reiterates that the agreements were calculated to avoid the prohibition against advance fees.

In reply, defendants assert that the clause regarding attorney approval is found in sample fee agreements provided by the State Bar.

The court finds that there was no substantive unconscionability.

The motion is therefore GRANTED.

Defendants are ordered to give notice of this ruling.