Case Number: BC497025    Hearing Date: October 31, 2014    Dept: 46

Case Number: BC497025
GLASER WEIL FINK JACOBS HOWARD VS KRISTEN B WHITNEY ET AL
Filing Date: 12/06/2012
Case Type: Collections Case-Seller Plaintiff (General Jurisdiction)

10/31/2014
Petition Confirm Arbitration Award/Compel Arbitration

¿ This tentative ruling is posted at 3:15 p.m. on 10/30/2014 and the matter is set for hearing on 10/31/2014 at 8:30 a.m. / If there are no parties other than Plaintiff/Petitioner, then Plaintiff/Petitioner may submit to the tentative without appearance by telephonic notification to the clerk of Dept. 46 between 8:00 a.m. and 4:30 p.m. on a date prior to the hearing or morning prior to the hearing by calling (213) 974-5665, and the court will issue the tentative ruling as the final ruling. If the other parties have appeared in the action, then the parties must first confer and all agree that the tentative ruling will be the final ruling on the matter. If the parties to the matter before the court all agree, a representative of the parties may call the clerk and submit without an appearance, and the court will issue the tentative ruling as the final ruling. If an order is required, it should be lodged directly in Dept. 46 with a copy to adverse/other parties, if any.

TENTATIVE RULING: Glaser Weil Fink Howard & Shapiro LLP [“P”]’S Petition to Confirm Arbitration is DENIED. The Request for Trial De Novo was timely. The argument that Defendant repudiated their request for trial de novo by seeking to nullify the MFAA process and dismiss this action while refusing to submit to required binding arbitration is without merit. However, the motion to compel binding arbitration of this matter is GRANTED pursuant to CCP §§1281.2, 1281.4. Plaintiff has met its burden of establishing the existence of a valid agreement to arbitrate and the Defendant has failed to meet its burden of proving, by a preponderance of the evidence, any fact necessary to its defense. Banner Entertainment, Inc. v. Superior Court (1998) 62 C.A.4th 348, 356-57. The parties executed a valid arbitration of disputes agreement; the MFAA does not preclude an order compelling contractual arbitration; defendants’ claim of unconscionability is without meri;, the Trust is a party to the arbitration agreement; and, the claimed defense of waiver is also without merit. See discussion below.

Discussion

On 12/6/12, Plaintiff [“P”] filed its complaint for (1) Breach of Contract; (2) Common Counts; (3) Account Stated and (4) Quantum Meruit against Ds Kristen B. Whitney (hereinafter, “Whitney”); The Watermill Flying Point Trust, By and Through Its Trustees, F. Matthew Adelman and Kristen B. Whitney (hereinafter, “Trust”) and DOES 1-20.

Plaintiff’s primary petition is for the court to issue an order pursuant to CCP §§1281, 1281.2, 1281.4, 1285, 1295.4 and 1292.4 confirming the Arbitrator Panel’s Statement of Decision and Award dated 7/29/14 (Exhibit “A.”) Secondarily, Plaintiff seeks to compel arbitration of the matter of the subject matter of the underlying dispute over attorneys’ fees (per Exhibit “B,” ¶12) and staying the entire action until binding arbitration is completed and an arbitration award has been issued and confirmed.

The facts shown by the motion and the pleadings and matters of which judicial notice is taken indicate the following:

• On 9/19/11, Whitney filed her Petition for MFA with the L.A. Bar Association; D Trust later successfully moved to add itself as a petitioner.
• On 3/28/14, the MFA was held.
• On 7/29/14, the MFA Panel issued the Award in favor of Plaintiff.
• On 8/27/14, Defendants filed a “Notice of Rejection of Arbitration Award and Demand for Trial De Novo,” but failed to attach the MFA Award, and failed to file the mandatory court forms.
• On 9/4/14, this court rejected Ds’ “Notice of Rejection of Arbitration Award and Demand for Trial De Novo” and ordered Defendants to re-file and serve Plaintiff using the mandatory court forms.
• On/about 9/10/14, Defendants filed a proper but untimely request for trial de novo, more than 30 days after service of the MFA Award
• Plaintiff contends that because the demand for trial de novo was not in proper form and the one in proper form was filed more than 30 days after the service of the MFA award that the MFA Award is final.

As a preliminary matter, the court reject’s P’s timeliness argument with respect to Ds’ “Notice of Rejection of Arbitration Award and Demand for Trial De Novo.” The Arbitration Award was served on 7/29/14. Defendants filed and served their initial “Notice of Rejection of Arbitration Award and Demand for Trial De Novo” on 8/27/14; said notice was not made on Judicial Council Form ADR 104. (Motion, Exhibit “J”). On 9/4/14, this court issued an order, which stated, in relevant part, as follows:

“The court has received a request for trial de novo (apparently after MFAA) dated 08/27/2014. Defendants did not file the request on the mandatory court forms. Plaintiff is ordered to re-file and serve ADR forms 104 and 105 on Plaintiff.” (Id., Exhibit “L”).

On 9/9/14, Defendants complied with this court’s order. However, while said order referred to the use of Form ADR 104 as “mandatory,” the form itself states, at the left lower corner, that its use is “optional.” (See Exhibit “M”). Defendant could not have anticipated that this court would require the use of this form. Business and Professions Code § 6204 states, in pertinent part, as follows:

“(a) The parties may agree in writing to be bound by the award of arbitrators appointed pursuant to this article at any time after the dispute over fees, costs, or both, has arisen. In the absence of such an agreement, either party shall be entitled to a trial after arbitration if sought within 30 days, pursuant to subdivisions (b) and (c)…
(b) If there is an action pending, the trial after arbitration shall be initiated by filing a rejection of arbitration award and request for trial after arbitration in that action within 30 days after service of notice of the award…”

Contrary to the court’s mistaken reference to the form as mandatory, it is actually voluntary. No specific format for the request for trial after arbitration is mentioned or required in the above provision. Defendants fully complied with the spirit and the letter of Section 6204 by serving their initial “Notice of Rejection of Arbitration Award and Demand for Trial De Novo” one day early.

Plaintiff was given timely notice of Defendants’ Rejection of Arbitration Award and Demand for Trial De Novo. Further Plaintiff does not articulate any prejudice it sustained from the Defendants’ subsequent use of Form ADR 104. Additionally, this court acknowledged in its 9/17/14 tentative ruling (subsequently adopted as final) that Defendants had filed the correct forms. (Declaration of Blaine Wanke [hereinafter, “Wanke,” Exhibit “1,” ¶ 3).

Regarding Plaintiff’s claim that Defendants have repudiated their request for trial de novo by seeking to nullify the MFAA process and dismiss this action while refusing to submit to required binding arbitration, this argument is without merit. On 8/27/14, Defendants filed a demurrer and MTS in this action. Defendants’ demurrer (Motion, Exhibit “K”) states, in relevant part, that: “[i]n this instance only Kristen Whitney in her individual capacity was given notice of the right to arbitrate. See Plaintiff’s Complaint (‘Complaint’), Exhibit ‘A’ filed on December 12, 2012. Neither the Watermill Trust nor its co-trustee, Mr. Adelman was given the mandatory and required notice of the right to arbitrate. Therefore, Business & Professions Code §6201 requires that this case be dismissed.” (Id., 3:8-12). This position, however, ignores the fact that, before the arbitration began, Defendants moved to amend D Whitney’s petition for MFAA to add Defendant Trust as a co-Petitioner, which motion was granted by the MFAA Panel. (See Declaration of David Myers [hereinafter, “Myers”], ¶ 3). The arbitration award, moreover, states, in relevant part, as follows:

“On 28 March 2014, arbitration hearing was held. As a threshold issue, parties had to first determine who the actual and proper petitioner was. The fee agreement had designated both Ms. Whitney individually and The Watermill Flying Point Trust (‘The Watermill Trust”) as the law firm’s clients, with Ms. Whitney signing the fee agreement in her individual capacity and as the trust’s trustee. However, Ms. Whitney, in her individual capacity, is the only person bringing a petition for arbitration of the incurred attorney’s fees before the Los Angeles County Bar Association.

The Petitioner moved to amend the petition to name The Watermill Trust as an additional petitioner. Respondents had no objection. The Panel granted Petitioner’s oral motion to amend the petition. Therefore, The Watermill Trust became a co-petitioner…” (Id. at Exhibit “A,” 3:28-4:9).

Plaintiff is correct in pointing out that Defendants cannot have their proverbial cake and eat it too; that is, they cannot request a trial de novo, but then contend that this case must be dismissed because Defendant Trust was not provided notice of the right to arbitrate, particularly since Defendant Trust voluntarily interjected itself into the MFAA proceedings.

Motion to Compel Arbitration of Dispute is GRANTED

However, the court finds it appropriate to order the matter submitted to private arbitration pursuant to the parties’ retainer agreement (hereinafter, the “Agreement”); on this basis the case is stayed pending resolution of the arbitration proceedings. CCP § 1281.2 states, in pertinent part, as follows:

“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:
(a) The right to compel arbitration has been waived by the petitioner; or
(b) Grounds exist for the revocation of the agreement.
(c) A party to the arbitration agreement is also a party to a pending court action or special proceeding 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…”

CCP § 1281.4, furthermore, states in part that:

“If a court of competent jurisdiction, whether in this State or not, has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies.”

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 C.A.4th 728, 741 (overruled on other grounds by Le Francois v. Goel (2005) 35 C.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 C.A.4th 348, 356-57.

The parties executed a valid arbitration of disputes agreement

On 7/15/10, Defendant Whitney executed the Agreement in her individual capacity AND as Trustee of The Watermill Flying Point Trust (Motion, Exhibit “B”); said Agreement states, in relevant part, as follows:

“12. Arbitration of Disputes. We appreciate the opportunity to serve you and anticipate a productive and harmonious relationship. If you should feel for any reason that there is a problem with the services we have performed or with our charges, we encourage you to bring it to our attention immediately. If we perceive a problem with this engagement, we likewise will endeavor to discuss it with you. Most problems should be rectified by communication and discussion.

However, a dispute might arise between us that cannot be resolved by negotiation. It is agreed that any and all such disputes, claims or controversies arising out of or relating to this agreement or to our performance of legal services hereunder, including but not limited to those relating to our fees and the quality or appropriateness of our services, shall be resolved at the request of any party hereto by final and binding arbitration before either the Judicial Arbitration and Mediation Service (‘JAMS’) or, alternatively, ADR Services, Inc. (‘ADR’). The arbitration will be conducted at a location determined by the arbitrator in Los Angeles, California, and shall be administered by and in accordance with either the then existing JAMS Streamlined Arbitration Rules and Procedures or, alternatively, ADR’s Arbitration Rules (a copy of such rules will be furnished to you upon request). In rendering the award, the arbitrator shall determine the rights and obligations of the parties according to the substantive and procedural laws of California. Neither you nor we, however, will be precluded from obtaining provisional relief, including but not limited to attachment, in any court of competent jurisdiction. YOU UNDERSTAND AND ACKNOWLEDGE THAT BY AGREEING TO ARBITRATION, YOU ARE GIVING UP THE RIGHT TO A JURY TRIAL. Judgment on any arbitration award may be entered by any court of competent jurisdiction.

Notwithstanding this overall agreement to arbitrate, fee disputes may first be submitted to the California State Bar’s program for arbitration of fee disputes pursuant to Business and Professions Code section 6200 et seq. If a fee dispute arises, we will provide you with information about the State Bar program. If the Bar panel declines to hear a fee dispute, or if either party rejects the Bar panel’s decision on any fee dispute, then instead of the right to trial mentioned in the statute, the fee dispute will be resolved exclusively by private arbitration as set forth above. Both you and we further understand and waive to the fullest legal extent any applicability of the holding in Alternative Systems, Inc. v. Carey, 67 C.A.4th 1034 (1998), to the effect that an attorney and a client cannot agree to arbitrate fee dispute under this agreement, you and we agree that the remainder of this arbitration agreement will remain in effect and must be enforced with respect to all other disputes or claims…”

The MFAA does not preclude an order compelling contractual arbitration

The use of MFAA does not preclude the parties from subsequently utilizing private binding arbitration. “[T]he statute [i.e., B&P Code § 6201(c)] makes clear that, once the MFAA arbitration process is validly completed or terminated, leaving one or both parties dissatisfied, ‘[t]he action or other proceeding may thereafter proceed subject [only] to the provisions of Section 6204.’…This ‘or other proceeding’ reference…is a strong indication that, unless section 6204 clearly provides otherwise, binding arbitration, pursuant to a preexisting agreement, may go forward once the MFAA arbitration process is over.” Schatz v. Allen Matkins Leck Gamble & Mallory LLP (2009) 45 C.4th 557, 571.

“[T]he focus of [Business & Professions Code] section 6204, subdivision (a) is how the parties may confer binding effect upon an MFAA arbitration, and may thus forestall any and all post-MFAA proceedings that one or the other of the parties might otherwise invoke. The subdivision does not purport to speak to whether the parties to a nonbinding MFAA arbitration may otherwise agree, or have agreed, on how to resolve the case if the MFAA arbitration leaves one or both parties dissatisfied. The subdivision does not foreclose the possibility that, under a general agreement between the parties, the nonbinding MFAA process should be followed by binding arbitration, rather than by a lawsuit.” Id. at 572 (emphasis theirs).

“As it has since its inception, subdivision (a) of section 6204 does state that ‘[i]n the absence of [a postdispute] agreement’ to make the MFAA arbitration binding, the dissatisfied party is entitled to a trial. But in context, this language appears to be simply designed to ensure that unless the parties agree to be bound by the MFAA arbitration, and thus to end the dispute then and there, the case may, following MFAA arbitration, proceed by normal means. As subdivisions (a) and (c) of section 6201 suggest, those normal means may include not only court litigation, but ‘other proceedings’ such as binding arbitration pursuant to a predispute agreement between the parties.” Id. “Furthermore, while the MFAA provides that ‘either party shall be entitled to a trial after [MFAA] arbitration’ (§ 6204, subd. (a)), the right granted is simply to a trial in accordance with applicable law. The MFAA confers no immunity from valid defenses, such as the existence of a contractual obligation to arbitrate.” Id.

Defense Claim of Unconscionability is without merit

Defendants’ argument, moreover, that the arbitration clause is unconscionable fails. “In determining whether an arbitration clause is unconscionable, courts generally apply a two-prong test. [Citations.] They determine whether the clause is procedurally unconscionable and whether it is substantively unconscionable.” Villa Milano Homeowners Assn. v. Il Davorge (2000) 84 C.A.4th 819, 828.

“’[U]nconscionability has both a “procedural” and a “substantive” element. [Citations.] The procedural element focuses on two factors: “oppression” and “surprise.” [Citations.] “Oppression” arises from an inequality of bargaining power which results in no real negotiation and “an absence of meaningful choice.” [Citations.] “Surprise” involves the extent to which the supposedly agreed-upon terms of the bargain are hidden in a prolix printed form drafted by the party seeking to enforce the disputed terms. [Citations.]’ The substantive prong of unconscionability encompasses ‘“overly harsh” or “one-sided” results.’ Stated another way, ‘[t]he substantive component of unconscionability looks to whether the contract allocates the risks of the bargain in an objectively unreasonable or unexpected manner.’ Both procedural and substantive unconscionability must be present to deny enforcement to the contract, but there may be an inverse relation between the two components, ‘such that the greater the unfair surprise or inequality of bargaining power, the less unreasonable the risk reallocation which will be tolerated.’” Fittante v. Palm Springs Motors, Inc. (2003) 105 C.A.4th 708, 722-723.

Defendants’ reliance on Suh v. Superior Court (2010) 181 C.A.4th 1504 for the proposition that procedural unconscionability is present where the same type face is used is misplaced, because, although said case does point out that the arbitration clause was written in the same typeface as the rest of the contract, procedural unconscionability was found primarily because “Ps declared that they were required to sign a printed form ‘Waiver and Agreement’ binding them to the 2006 Agreement without having the opportunity to see that agreement and as a condition of practicing anesthesiology at the Hospital. The offending rules were not provided to them.” Id. at 1516. Here, the fact that Defendants were not provided with the JAMS and/or ADR rules does indicate some procedural unconscionability, though Plaintiff agreed to furnish such rules to them “upon request.” Ds’ contention that the “arbitration provision is exceedingly long” is ludicrous, as it consisted of 2 paragraphs.

There is, however, simply no substantive unconscionability. Defendants’ contention that the Agreement is a “contract of adhesion” pertains to the issue of procedural unconscionability. Regardless, said contention fails, as Defendants were always free to engage the services of other attorneys.

The Trust is a Party to the Arbitration Agreement

Defendants cannot legitimately contend that the Trust is not a party to the Agreement, inasmuch as Defendant Whitney signed same in her individual capacity AND in her capacity as Trustee of The Watermill Flying Point Trust. Additionally, Defendant Trust is bound because it accepted the benefits of the Agreement, in the form of Plaintiff’s legal services.

Defense of waiver is also without merit

“The law on waiver of the right to arbitration is ‘well defined.’ (Keating[ v. Superior Court (1982)] 31 C.3d [584,] at p. 604). Because ‘[a]rbitration is strongly favored,’ courts must ‘closely scrutinize any claims of waiver.’ (Ibid.) A ‘party seeking to establish waiver’ bears a heavy burden of proof. (Id. at p. 605.) ‘[T]here is no “single test” in establishing waiver.’ (Ibid.) ‘[T]he relevant factors include whether the party seeking arbitration (1) has “previously taken steps inconsistent with an intent to invoke arbitration,” (2) “has unreasonably delayed” in seeking arbitration, (3) or has acted in “bad faith” or with “willful misconduct.”’ (Ibid.).” Adolph v. Coastal Auto Sales, Inc. (2010) 184 C.A.4th 1443, 1450.

“Our Supreme Court has more recently expanded its summary of the ‘factors [that] are relevant and properly considered in assessing waiver claims.’ (St. Agnes Medical Center v. PacifiCare of California (2003) 31 C.4th 1187, 1196). ‘”In determining waiver, a court can consider ‘(1) whether the party’s actions are inconsistent with the right to arbitrate; (2) whether “the litigation machinery has been substantially invoked” and the parties “were well into preparation of a lawsuit” before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) “whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place”; and (6) whether the delay “affected, misled, or prejudiced” the opposing party.’”’
(Ibid.).” Id.

“’Waiver does not occur by mere participation in litigation.’ (Keating, supra, 31 C.3d at p. 605.). ‘”[A]s an abstract exercise in logic it may appear that it is inconsistent for a party to participate in a lawsuit for breach of a contract, and later to ask the court to stay that litigation pending arbitration. Yet the law is clear that such participation, standing alone, does not constitute a waiver [citations], for there is an overriding federal policy favoring arbitration…. [M]ere delay in seeking a stay of the proceedings without some resultant prejudice to a party [citation], cannot carry the day.”’ (Id. at pp. 605–606.).” Id.

“’California’s arbitration statutes reflect “’a strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution.’”’ (St. Agnes, supra, 31 C.4th at p. 1204, italics added.) Accordingly, ‘[p]rejudice typically is found only where the petitioning party’s conduct has substantially undermined this important public policy or substantially impaired the other side’s ability to take advantage of the benefits and efficiencies of arbitration. [¶] For example, courts have found prejudice where the petitioning party used the judicial discovery processes to gain information about the other side’s case that could not have been gained in arbitration [citations]; where a party unduly delayed and waited until the eve of trial to seek arbitration [citation]; or where the lengthy nature of the delays associated with the petitioning party’s attempts to litigate resulted in lost evidence.’ (Ibid.).” Id. at 1451.

Plaintiff here only filed a complaint in this case. It did not file any subsequent pleadings, or engage in any discovery. It did not attempt to litigate the merits of the issues, or attempt to obtain evidence from Defendants that would reveal their legal theories relating to arbitration. This case has been stayed for nearly the entire time the action had been pending. The stay, in fact, was only lifted on 9/17/14.