Case Name: Juan Lucena v. Alan Martini, et al
Case Number: 1-13-CV-251833

Defendants Alan Martini and Sheurman, Martini, Tabari, Zenere & Garvin, P.C. (collectively, “Defendants”) bring a motion to compel arbitration (“Defendants’ Motion to Compel”), a demurrer to Plaintiff Juan Lucena’s (“Plaintiff”) Complaint, and a motion to strike portions of Plaintiff’s Complaint.

Defendants’ demurrer to Plaintiff’s Complaint and motion to strike portions of Plaintiff’s Complaint are MOOT. Plaintiff filed a First Amended Complaint on June 18, 2014.

Defendants move to compel arbitration of Plaintiff’s claims of professional negligence, breach of contract, and breach of fiduciary duty herein. Plaintiffs claims arise out Defendants’ representation of Plaintiff under several agreements for attorney services in what are described in the moving papers as the “Rose Case” and the “Fire Insurance Exchange Case (“FIE Case”)” (the “FIE Case”).

In June 2008, Plaintiff and Defendants entered into an agreement for attorney services on a contingency basis to bring claims against “the Roses” regarding alleged damages Plaintiff sustained as the result of a “Ponzi” scheme involving a trust deed brokerage house called California Plan (“CP”) and its principal and sold shareholder, Michael J. Schneider (“Schneider”) (the “Rose Contingency Fee Agreement”).

Norman R. Rose (“Rose”), a developer and construction consultant with whom Plaintiff maintained ongoing, casual contact following his purchase of a home in San Jose in the 1980s, had allegedly told Plaintiff about CP sometime in “the late 1980s” (see Pl.’s Opp. to Deft.’s Motion to Compel, p. 1: 21-26). “In or about 1991, [Plaintiff] purchased his first trust deed promissory note through CP.” (Ibid.; see also Lucena Decl., ¶ 2.) In March 2006, involuntary bankruptcy petitions were filed against CP and Schneider in connection with a Ponzi scheme whereby CP/Schneider defrauded multiple investors, including Plaintiff. Schneider was ultimately convicted on numerous felonies as a result of his participation in the Ponzi scheme.

The Rose Contingency Fee Agreement contained an arbitration provision requiring that the parties engage in binding arbitration for any/all claims “regarding fees, costs or the quality of services provided by [Defendants].” On October 3, 2008, “before [Defendants] could file the anticipated complaint the Roses,” they filed a Complaint against Plaintiff alleging claims for intentional infliction of emotional distress, libel, economic duress, elder abuse, and injunctive relief. (See Pl.’s Opp. to Deft.’s Motion to Compel, p. 3:14-18.) On October 9, 2008, Defendants filed a Cross-Complaint on behalf of Plaintiff alleging claims for conversion, unjust enrichment, constructive trust, fraud, and RICO violations.

In December 2009, Plaintiff and Defendants entered into a new fee agreement in the Rose Case, for which payment for attorney services would be made on an hourly basis (the “Rose Hourly Rate Fee Agreement”) for Defendants to handle Plaintiff’s defense of the Rose Case and pursue possible liability insurance coverage for Plaintiff in that action.

In December 2010, Plaintiff and Defendants entered into a third fee agreement for Defendants to file suit against Plaintiff’s insurance carriers, FIC and Truck Insurance Exchange, for their refusal to defend him in the Rose Case (the “Insurance Carrier Fee Agreement”). The Insurance Carrier Fee Agreement contained an arbitration provision requiring that the parties engage in binding arbitration for any/all claims “regarding fees, costs or the quality of services provided by [Defendants].”

On August 23, 2013, Plaintiff filed this legal malpractice action against Defendants, who now seek to compel binding arbitration under the provisions of the Rose Contingency Fee Agreement and the Insurance Carrier Fee Agreement (collectively, the “Arbitration Agreements”). Plaintiffs Complaint involves allegations that Defendants negligently failed to provide Plaintiff with a clear advice concerning his legal options and risks (see Complaint, ¶ 11 [1st Cause of Action: “Professional Negligence]), that Defendants breached their agreement with Plaintiff by failing to provide him with “competent, correct and reasonable advice concerning his legal rights and remedies . . . ” (see Complaint, ¶ 15 [2d Cause of Action: “Breach of Contract]), and that Defendants breached their fiduciary duty to comply with professional rules of conduct, including “the duty to competently advise Plaintiff of all the potential risks involved in any tactical decision” (see Complaint, ¶ 18 [3rd Cause of Action: “Breach of Fiduciary Duty”].

Plaintiff opposes Defendants’ Motion to Compel on the following grounds: (1) that Defendants have not met their initial burden of establishing the existence of an agreement to arbitrate; (2) even if Defendants had met their initial burden, Plaintiff has shown that the “purported arbitration agreement” is ambiguous; (3) even if the Court were to find that the arbitration provisions are ambiguous, they are “void for fraud and undue influence” because Defendants had failed to disclose a conflict of interest; and (4) the arbitration provisions are void for unconscionability. (See Pl.’s Opp. to Deft.’s Motion to Compel, p. 1:5-17.)

With regard to procedural unconscionability, Plaintiff argues that Defendant was retained as counsel “at a critical time in [Defendant’s] representation when [Plaintiff] was under extreme stress[,]” that “[Defendant] was aware of [Plaintiff’s] desperate mental state[,] [Defendant] had recently threatened to quit on the eve of resolving the Rose Action, which [Defendant] had positioned to obtain recovery against Farmers[,] [Defendant] induced [Plaintiff] to consent to the purported arbitration provision” by exploiting the situation and by “constructive fraud” due in part to a failure to disclose a conflict of interest, and “Defendant] drafted the purported arbitration provision in a confusing and ambiguous manner . . . .” (See Pl.’s Opp. to Deft.’s Motion to Compel, p. 14:16-24; see also Lucena Decl., ¶¶ 8, 22-27.) Plaintiff’s sole argument concerning substantive unconscionability is that there was a lack of mutuality in the “purported” arbitration agreement because the only party who would assert a claim for “quality of services” would be Plaintiff. (See Pl.’s Opp. to Deft.’s Motion to Compel, pp. 14:25 – 15:7.)

Defendant’s motion to compel arbitration is GRANTED. Defendants have established the existence of valid agreements to arbitrate and that the arbitration provisions encompass Plaintiff’s claims herein. Under the circumstances presented, the Court does not find that the Arbitration Agreements are void for unconscionability or otherwise invalid. While Plaintiff has established that there was some degree of procedural unconscionability in light of the manner in which she entered into the Arbitration Agreements, there has been no appreciable showing of substantive unconscionability. The mere fact that the Arbitration Agreements required Plaintiff to arbitrate claims predicated on her attorney’s “quality of service” is insufficient in itself to establish substantive unconscionability; hence, the element of substantive unconscionability is lacking. (See Armendariz v. Foundation Health Psychcare Services (2000) 24 Cal.4th 83, 114.) Accordingly, Plaintiff shall submit all disputes alleged in this action to binding arbitration under the rules of the Judicial Arbitration and Mediation Services (“JAMS”). The judicial proceedings are stayed pending completion of the arbitration.

The currently-scheduled case management conference (7-29-14) is VACATED. The matter is re-set for arbitration status review on January 8, 2015, at 10:30 a.m. in Department 5.