Case Number: BC551527    Hearing Date: September 30, 2014    Dept: 34

SUBJECT: Petition to compel arbitration and stay proceedings; motion to compel arbitration

Moving Party: Defendants and petitioners Scott Saks and American Mutual Mortgage (“petitioners”); defendants James D’Arezzo, World Energy LLC, and Empire Gold LLC (“defendants”)

Resp. Party: Plaintiff Randy Crockett (“plaintiff”)

Petitioners Saks and American Mutual Mortgage’s petition to Compel Arbitration is GRANTED. Defendants James D’Arezzo, World Energy LLC, and Empire Gold LLC’s motion to compel arbitration is DENIED.

BACKGROUND:

Plaintiff commenced this action on 7/14/14 against defendants for: (1) fraud; (2) negligent misrepresentation; (3) breach of contract; (4) breach of implied covenant of good faith and fair dealing; (5) unfair business practices; (6) conspiracy; (7) conversion; and (8) breach of fiduciary duty.

ANALYSIS:
“A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” (Cal. Code of Civ. Proc, §1281.) Section 1281.2 of the Code of Civil Procedure states in pertinent part:

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.

(Cal. Code Civ. Proc., §. 1281.2.)

A proceeding to compel arbitration is in essence a suit in equity to compel specific performance of a contract. (Freeman v. State Farm Mutual Auto Insurance Co. (1975) 14 Cal.3d 473, 479.) Such enforcement may be sought by a party to the arbitration agreement. (Cal. Code Civ. Proc., § 1280, subd. (e)(1).)

The petition to compel arbitration functions as a motion and is to be heard in the manner of a motion, i.e., the facts are to be proven by affidavit or declaration and documentary evidence with oral testimony taken only in the court’s discretion. (Cal. Code Civ. Proc., §1290.2; Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413 414.) The petition to compel must set forth the provisions of the written agreement and the arbitration clause verbatim, or such provisions must be attached and incorporated by reference. (Cal. Rules of Court, rule 3.1330; see Condee v. Longwood Mgmt. Corp. (2001) 88 Cal.App.4th 215, 218 19.) This rule does not require the petitioner to authenticate the agreement or do anything more than allege its existence and attach a copy. (Ibid.) Once this is done, the burden shifts to the opposing party to demonstrate the falsity of the purported agreement. (Condee, supra, 88 Cal.App.4th at 218 219.)

In deciding a petition to compel arbitration, trial courts must first decide whether an enforceable arbitration agreement exists between the parties, and then determine the second gateway issue of whether the claims are covered within the scope of the agreement. (Omar v. Ralphs Grocer Co. (2004) 118 Cal.App.4th 955, 961.) “The petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence, and a party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense. 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. No jury trial is available for a petition to compel arbitration.” (Engalla v. Permanente Medical Group, Inc.(2007) 15 Cal.4th 951, 972 [citations omitted].)

A. The Arbitration Agreement between Plaintiff and American Mutual Mortgage

1. An Enforceable Arbitration Agreement Exists

Petitioners point to an arbitration agreement entered into between plaintiff and American Mutual Mortgage which states, in relevant part:

THE BORROWER agrees that any and all disputes or controversies involving the Loan, including claims arising from the origination, documentation, servicing, disclosure, servicing, collection any other aspect of the Loan transaction or the coverage or enforceability of this Agreement between THE BORROWER and THE BROKER and/or the LENDER, identified by THE BROKER to THE BORROWER shall be subject to resolution exclusively BY BINDING ARBITRATION UNDER THE TERMS OF THIS AGREEMENT. SUCH ARBITRATION SHALL PROCEED IN ACCORDANCE WITH THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION, LOS ANGELES SECTION, COMMERCIAL RULES, THEN EXISTENT. IN THE EVENT OF ANY SUCH ARBITRATION, THE PARTIES THERETO SHALL BE ENTITLED TO CONDUCT DISCOVERY AS PROVIDED CODE OF CIVIL PROCEDURE SECTIONS 1283.05 AND 1283.1, THE PROVISIONS OF THE SAME BEING INCORPORATED HEREIN BY THIS REFERENCE.

(Pet. Exh. A.)

The Court notes that, according to the express terms of the agreements, plaintiff and American Mutual Mortgage are the only parties to the agreement. Generally, just signatories to arbitration agreements have standing to enforce them, with exceptions as to nonsignatory persons “who are agents or alter egos of a signatory party or intended third party beneficiaries of an arbitration agreement.” (Bouton v. USAA Casualty Ins. Co. (2008) 167 Cal.App.4th 412, 424. Accord Smith v. Microskills San Diego L.P. (2007) 153 Cal.App.4th 892, 896.) “[A] plaintiff’s allegations of an agency relationship among defendants is sufficient to allow the alleged agents to invoke the benefit of an arbitration agreement executed by their principal even though the agents are not parties to the agreement.” (Thomas v. Westlake (2012) 204 Cal.App.4th 605, 614-615.) The Court finds that Defendant Saks was acting as the agent of American Mutual Mortgage.

The Court rejects plaintiff’s objection that this document is not properly authenticated. Petitioners sufficiently authenticate their arbitration agreement because Saks declares that he personally signed the agreement along with plaintiff, and that exhibit A to the petition is a “true and correct copy” of the agreement he signed. (See Saks Decl., ¶ 2.) Plaintiff acknowledges that the signatures on the agreements appear to be his. (See Crockett Decl., ¶ 13.)

Therefore, defendants and petitioners have established the existence of arbitration agreements between the parties.

2. Scope of the Agreement

There appears to be no dispute that plaintiff’s claims are within the scope of the agreement. The agreement expressly governs any disputes relating to or arising from the transactions. (See Pet., Exh. A; D’Arezzo Decl., Exh. A.) Plaintiff does not appear to contest this issue.

3. The Agreement is Enforceable

Plaintiff argues that the petition should be denied because the arbitration provision is unconscionable. “[P]rocedural and substantive unconscionability must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 102.) Procedural and substantive unconscionability need not be present to the same degree. (Id. at p. 114.) “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.” (Ibid.)

[T]he core concern of unconscionability doctrine is the “ ‘ “ absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.” ’ ” [Citations.] Unconscionability doctrine ensures that contracts, particularly contracts of adhesion, do not impose terms that have been variously described as “ ‘ “overly harsh” ’ ” [citation], “unduly oppressive” [citation], “ ‘so one-sided as to “shock the conscience” ’ ” [citation], or “unfairly one-sided” [citation]. All of these formulations point to the central idea that unconscionability doctrine is concerned not with “a simple old-fashioned bad bargain” [citation], but with terms that are “unreasonably favorable to the more powerful party” [citation]. These include “terms that impair the integrity of the bargaining process or otherwise contravene the public interest or public policy; terms (usually of an adhesion or boilerplate nature) that attempt to alter in an impermissible manner fundamental duties otherwise imposed by the law, fine-print terms, or provisions that seek to negate the reasonable expectations of the nondrafting party, or unreasonably and unexpectedly harsh terms having to do with price *or other central aspects of the transaction.” [Citation.]

(Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1145.)

Procedural unconscionability includes oppression arising from unequal bargaining power causing an absence of meaningful choice and real negotiating, and surprise due to hidden terms drafted by the party seeking to enforce the provisions. (Gatton v. T-Mobile USA, Inc. (2007) 152 Cal.App.4th 571, 581.) Where a contract of adhesion includes the unequal bargaining power of contracting parties, with the weaker party’s inability to negotiate, this may indicate procedural unconscionability in the form of oppression. (See Thompson v. Toll Dublin, LLC (2008) 165 Cal.App.4th 1360, 1372.) “The term ‘adhesion contract’ refers to standardized contract forms offered to consumers of goods and services on essentially a ‘take it or leave it’ basis without affording the consumer a realistic opportunity to bargain and under such conditions that the consumer cannot obtain the desired product or services except by acquiescing in the form contract. [Citations.] The distinctive feature of a contract of adhesion is that the weaker party has no realistic choice as to its terms. [Citations.]” (Wheeler v. St. Joseph Hospital (1976) 63 Cal.App.3d 345, 356.)

Plaintiff declares that he recalls signing a “large stack” of documents in July 2011 at the urging of defendant Tweed. (Crockett Decl., ¶ 8.) Plaintiff states that he never read the documents and simply accepted Tweed’s assurances that the documents were required to finish the deal. (Ibid.) Plaintiff declares that the deal and the documents were presented on a take-it-or-leave-it basis. (Ibid.) Plaintiff declares that the transaction was precipitated by Tweed and D’Arezzo being high-ranking members of the Church of Scientology, and were therefore more respected and prestigious within the Church. (Id., ¶ 9.) This led plaintiff to trust Tweed and D’Arezzo, which is why he signed the documents without reading them. (Id., ¶ 10.) Plaintiff declares that he did not negotiate the terms of the agreements and that the terms were not explained to him. (Id., ¶ 15.)

Plaintiff’s arguments regarding procedural unconscionability ring hollow. Basically, plaintiff is saying that the brilliant light that reflected off of the large pot of gold he saw on the horizon blinded him to the effects of the documents he was signing.

Plaintiff makes various allegations that he trusted Tweed and D’Arezzo because they were high-ranking members of the Church of Scientology. (See, e.g., Complaint, ¶ 15; Crockett Declaration, ¶ 9.) Interestingly, there is no evidence that any faith that Crockett may have put in these defendants was reasonable – in fact, there is no evidence that Crockett is himself a member of the Church of Scientology.

Further, Crockett testifies that the negotiations over this loan took place over the course of a week. “I am embarrassed to admit that over the course of approximately one week in my office, Ms. Tweed tricked me into agreeing this deal [sic] without even looking at any paperwork.” (Crockett Declaration, ¶ 7.) It appears that he may well have had the paperwork throughout the course of the week. That Crockett chose not to read these papers is not a basis for finding procedural unconscionability.

Plaintiff argues that he could not have known what the arbitration agreement meant because he was not provided with other agreements and rules referenced in the arbitration provisions. At most, plaintiff’s evidence establishes that there may be some minor procedural unconscionability.

Plaintiff fails to establish that the agreements are substantively unconscionable. “ ‘ “Substantively unconscionable terms can take various forms, but may generally be described as unfairly one-sided.” ’ ” (Sonic-Calabasas, supra, 57 Cal.4th at p. 1133.) Substantive unconscionability has been found where an agreement lacks mutuality, or where it mandates a post-arbitration proceeding largely to the benefit of one party at the expense of the other. (Id. at pp. 1133-1134.) “In determining unconscionability, our inquiry is into whether a contract provision was unconscionable at the time it was made.” (Id. at p. 1134 [internal quotations and citations omitted].)

Plaintiff does not provide any evidence or argument that the agreements lack mutuality or are otherwise unfairly one-sided.

The Court finds that the arbitration agreement with American Mutual Mortgage (and Saks) is enforceable.

B. The Arbitration Agreement between Plaintiff and Empire Gold

1. An Enforceable Arbitration Agreement Does Not Exist

Defendants provide the Court with an agreement which states, in relevant part,

“This AGREEMENT shall be governed by and construed in accordance with California law and any dispute arising out of or in connection with this AGREEMENT will be referred to arbitration in the State of California. The reference shall be to three arbitrators, one to be appointed by each of the parties hereto and the third by the two arbitrators so chosen and their decision or that any two of them shall be final and binding.

“A party wishing to refer a dispute to arbitration shall appoint its arbitrator and send notice of such appointment in writing to the other party requiring the other party to appoint its arbitrator within 14 (fourteen) calendar days of that notice. In the event of arbitration each side shall bear its own costs.” (D’Arezzo Declaration., Exh. A, ¶¶ 2.1, 2.2.)

Other than stating that there shall be three arbitrators, this purported “agreement” contains no terms. Among other lacunae, the agreement does not specify under what rules the arbitration will proceed, whether the parties will be allowed discovery, what qualifications the arbitrators must have, or even if the arbitrators must be neutral.

As indicated above, a proceeding to compel arbitration is in essence a suit in equity to compel specific performance of a contract. (Freeman v. State Farm Mutual Auto Insurance Co. (1975) 14 Cal.3d 473, 479.) “ ‘An agreement cannot be specifically enforced unless the terms are “sufficiently certain to make the precise act which is to be done clearly ascertainable.” (Civ.Code, s 3390(5).) It must not only contain all the material terms but also express each in a reasonably definite manner. (Citations.)’ [Citation.]” (White Point Co. v. Herrington (1968) 268 Cal.App.2d 458, 465.)

The terms of this purported arbitration agreement are so lacking as to preclude enforcement by this Court.

The motion to compel arbitration by D’Arezzo, World Energy and Empire Gold LLC is DENIED.

The Court will STAY the proceedings as to Defendants American Mutual Mortgage and Saks. The case as to the rest of the defendants – including defendants D’Arezzo, World Energy and Empire Gold LLC whose motion is DENIED, and defendants Robert Weiss, John Fletcher, Catherine Tweed, and International Funds Management who have not petitioned for arbitration – will proceed, with a Case Management Conference scheduled for Nov. 13, 2014.