2017-00215283-CU-PO

Albert Becker vs. Roseville Heritage Partners

Nature of Proceeding: Motion to Compel Arbitration

Filed By: Weil, Christine N.

Defendants Roseville Heritage Partners, Somerford Place LLC, Five Star Senior Living, Inc. and Fives Star Quality Care-Somerford, LLC’s (“Defendants”) Motion to Compel Arbitration of this action is denied.

Plaintiff’s opposition brief exceeds 15 pages and contains numerous footnotes in a font smaller than the minimum requirement. CRC 3. 1300(d). The Court has considered the opposition despite these defects. At defendant’s request, the Court will grant a brief continuance to allow plaintiff to respond to the reply and to allow defendants to file a sur-reply to ensure all issues are adequately addressed.

Plaintiff’s action for elder abuse and wrongful death arises out of decedent’s stay at the defendant’s residential care facility. Plaintiffs contend that after six weeks at defendant’s facility, decedent was taken by ambulance to the Kaiser ER severely malnourished and dehydrated with pressure ulcers. Decedent died four days later. At the time of admission to defendant’s facility, decedent’s daughter, Lori Dougherty, signed the admission agreement and arbitration agreement under a power of attorney granted to her by her father.

Defendants contend that the arbitration agreement covers all causes of action in the Complaint, including elder abuse, that it binds both signatory and non-signatory heirs, and that the Federal Arbitration Agreement governs construction and enforcement of the Agreement. In opposition, plaintiffs do not dispute these contentions. However, plaintiffs contend that the arbitration agreement is unconscionable and therefore is unenforceable. The Court agrees.

Plaintiffs also contend that defendants waived their right to arbitrate this controversy by not agreeing to pay plaintiffs’ share of the arbitration fees as provided in the Agreement. The Arbitration Agreement contains a provision that plaintiff may request that defendant pay plaintiffs’ share of the fees if plaintiff cannot afford them. As of the filing of the opposition, defendant had not responded to Plaintiffs’ request that defendants pay plaintiffs’ share of the arbitration costs. In Reply, defendants state that they have agreed to pay Plaintiff’s share of the arbitration expenses. The Court finds that defendants have not waived their right to seek arbitration because plaintiffs have not yet been required to pay any expenses and therefore have not been prejudiced. Defendants have not acted inconsistently with the right to arbitrate,

resulting in prejudice to the party opposing arbitration. See Britton v Co-op Banking Group (9th Cir 1990) 916 F.2d 1405, 1412. The cases relied on by plaintiff concern a party’s failure to pay its own costs after being ordered to do so by the arbitrators, which was deemed a breach and repudiation of the arbitration agreement, resulting in waiver.

A written agreement to submit a controversy to arbitration is valid, enforceable, and irrevocable consistent with standard contract principles. (Code Civ. Proc., §1281; Badie v. Bank of America (1998) 67 Cal.App.4th 779, 787.) There is a strong public policy favoring the enforcement of arbitration agreements. (CCP §1281; Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 706; Coon v. Nicola (1993) 17 Cal.App.4th 1225, 1232.)

Code of Civil Procedure section 1281.2 provides in relevant part:

On a 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 [parties] 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 revocation of the agreement.
Defendants argue arbitration “must be compelled because (1) there is a written agreement to arbitrate a controversy between the parties that is subject to the agreement; (2) Plaintiff has refused to arbitrate; and (3) Plaintiff has not and cannot establish that the right to compel arbitration has been waived or that any grounds exist for revoking the agreement.”

“A party seeking to compel arbitration of a dispute ‘bears the burden of proving the existence of an arbitration agreement, and the party opposing arbitration bears the burden of proving any defense, such as unconscionability.’ [Citation.]” (Jenks v. DLA Piper Rudnick Gray Cary US LLP (2015) 243 Cal.App.4th 1, 8.)

Here, Defendants have shown, and Plaintiffs do not dispute, the existence of a written arbitration agreement, which covers the causes of action alleged in the Complaint. Accordingly, the issue to be decided is whether the Arbitration Agreement is unconscionable.

Unconscionability

The Court may refuse to enforce any contract determined to be unconscionable. (Civil Code, § 1670.5.) “‘One common formulation of unconscionability is that it refers to “an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.” [Citation.]’ [Citation.]” ( Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1133.) “‘As that formulation implicitly recognizes, the doctrine of unconscionability has both a procedural and a substantive element, the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided

results.’ [Citation.]” (Ibid.) “Although both must appear for a court to invalidate a contract or one of its individual terms [citations]; they need not be present in the same degree: ‘[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.’” (Roman v. Super. Ct. (2009) 172 Cal.App.4th 1462, 1469 [quoting Armendariz v. Foundation Health Psychare Services, Inc. (2000) 24 Cal.4th 83, 114]; accord Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1243-

1244.)

“‘[A] finding of procedural unconscionability does not mean that a contract will not be enforced, but rather that courts will scrutinize the substantive terms of the contract to ensure they are not manifestly unfair or one-sided. [Citation.]’ [Citation.]” (Baltazar, supra, 62 Cal.4th at 1244.) “‘The ultimate issue in every case is whether the terms of the contract are sufficiently unfair, in view of all relevant circumstances, that a court should withhold enforcement.’ [Citation.]” (Id. at 1245.)

A. Procedural Unconscionability

“‘Procedural unconscionability’ concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. [Citation.] It focuses on factors of oppression and surprise.” (Kinney v. United Healthcare Servs. (1999) 70 Cal.App.4th 1322, 1329.) “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.” (Ibid.) “Surprise involves the extent to which the terms of the bargain are hidden in a ‘prolix printed form’ drafted by a party in a superior bargaining position.” (Roman, supra, 172 Cal.App.4th at 1469 [internal quotation marks and citations omitted].)

“There are degrees of procedural unconscionability. At one end of the spectrum are contracts that have been freely negotiated by roughly equal parties, in which there is no procedural unconscionability.” (Baltazar, supra, 62 Cal.4th at 1244 [internal quotation marks and citations omitted].) “Contracts of adhesion that involve surprise or other sharp practices lie on the other end of the spectrum.” (Ibid. [internal quotation marks and citations omitted].)

“‘Ordinary contracts of adhesion, although they are indispensable facts of modern life that are generally enforced [citation], contain a degree of procedural unconscionability even without any notable surprises, and “bear within them the clear danger of oppression and overreaching.” [Citation.]’ [Citation.]” (Baltazar, supra, 62 Cal.4th at 1244.) “[C]ourts must be ‘particularly attuned’ to this danger in the employment setting, where ‘economic pressure exerted by employers on all but the most sought-after employees may be particularly acute.’ [Citation.]” (Ibid.)

Courts focus on “oppression” or “surprise” and the manner in which the agreement was negotiated due to unequal bargaining power in determining procedural unconscionability. Martinez v. Master Protection Corp. (2004) 118 Cal.App.4th 107,

113. To show “oppression” for procedural unconscionability, plaintiffs must show that as the weaker party they lacked not only the opportunity to bargain but also any realistic opportunity to look elsewhere for a more favorable contract; they must either adhere to the standardized agreement or forego the needed service. Gatton v. T-Mobile USA, Inc., (2007) 152 Cal.App. 4th 571, 595. “Procedural unconscionability turns on the adhesiveness–a set of circumstances in which the weaker or ‘adhering’ party is presented a contract drafted by the stronger party on a take it or leave it basis.” (Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 174.)

The Court finds that the Arbitration Agreement in this case is procedurally unconscionable. The agreement was presented to Plaintiff’s daughter as part of a 70 page stack of documents which she did not have time to review because her father was imminently arriving at the facility in an ambulance after having been found not

suitable for other facilitates. Plaintiff states she was never told that she could modify, negotiate or refuse to sign any of the admission documents. Plaintiff did not know there was an arbitration agreement until after this lawsuit was filed.(See Declaration of Lori Dougherty)

An agreement bears the hallmarks of adhesion when it is drafted solely by one party, is not negotiated in any meaningful way by the other party, and is found as one part of a much larger group of documents. Victoria v Superior Court (1985) 40 Cal.3d 734, 743.

Moreover, Plaintiff was not provided a copy of the Commercial AAA rules at the time of the signing of the arbitration agreement. Those rules contain provisions regarding limitations on discovery that provide for document exchange but no special interrogatories, and depositions are allowed only in exceptional circumstances. Defendant contends that the failure to provide the AAA rules does not increase the procedural unconscionability. However, the failure to provide the applicable rules governing the arbitration may add to the procedural unconscionability when the content of the rules is the subject of the challenge to the arbitration procedure.(Mayers v. Volt Management Corp. (2012) 203 Cal.App.4th 1194, 1208-1209.) As explained by the Supreme Court in Baltazar v. Forever 21, some cases have held that the failure to provide a copy of the governing arbitration rules support a finding of procedural unconscionability. (Baltazar, supra, 62 Cal.4th at 1246.) “But in . . . each of th[ose] Court of Appeal decisions . . . , the plaintiff’s unconscionability claim depended in some manner on the arbitration rules in question.” (Ibid.) Here, unlike in Baltazar, Plaintiff’s challenge to the Arbitration Agreement in part concerns the substance of the arbitration rules governing discovery limitations in the arbitration. Therefore, in this case, the failure to provide the AAA rules does increase the procedural unconscionabtility.

B. Substantive Unconscionability

Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether they create overly harsh or one-sided results [Citations], that is, whether contractual provisions reallocate risks in an objectively unreasonable or unexpected manner. [Citation.]” (Roman, supra, 172 Cal.App.4th at 1469-1470 [internal quotation marks omitted].) “Substantive unconscionability ‘may take various forms,’ but typically is found in the employment context when the arbitration agreement is ‘one-sided’ in favor of the employer without sufficient justification, for example, when ‘the employee’s claims against the employer, but not the employer’s claims against the employee, are subject to arbitration.’ [Citations.]” (Id. at 1470.) Substantive unconscionability means the entire agreement is “so one-sided as to shock the conscience.” (Coast Plaza Doctors Hosp. v Blue Cross of California (2000) 83 Cal.App.4th 677, 689.

Courts have no power to cure illegality by reformation or augmentation. The only way a court can cure a contract’s illegality is through severance or restriction. Armendariz v Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114, 124. If the taint of illegality cannot be removed by those means, the court must void the entire agreement. Ibid

Plaintiffs contend that the following clauses render the Agreement substantively unconscionable: (1) limitations on discovery rights in the AAA rules; (2) the exclusion

of a punitive damages award in the arbitration agreement itself; (3) the cost-sharing agreement in the arbitration agreement; (4) the Arbitration Agreement clause providing that “This Agreement may be amended by Five Star upon thirty (30) days written notice to Resident. If Five Star provides notice to Resident that it intends to amend the Agreement, Resident may terminate the Agreement for any reason by providing written notice to Five Star within 30 days of receipt of Five Star’s notice,” (5) Section 5 requiring plaintiffs to waive their rights to jury trial for any claim for which arbitration is not ordered is unenforceable.

Discovery

The AAA Commercial rules provide for the exchange of documents, and upon a showing of good cause in exceptional cases, depositions at the discretion of the arbitrator (Ex. 2 Newman Decl, page 9, 19-20, 38) There is no specific provision for special interrogatories.

Plaintiff contends that this provision is overly harsh and one sided because an elder abuse case requires extensive discovery to uncover systematic abuse. Elder abuse cases are complex and involve a great deal of discovery into staffing practices, training, oversight, and regulatory compliance, among other things. This extensive discovery is required to obtain enhanced remedies under Welfare & Institutions Code section 15657.

Armendariz found that the limitation on discovery in an employment discrimination case was substantively unconscionable.

Limitations on Damages

Defendant contends that this limitation on damages is not unconscionable because the parties agreed to the provision and Armenderiz does not apply to this elder abuse case. The arbitration clause limits damages and prohibits the award of punitive damages. Defendant contends that if the court finds this provision objectionable it can simply sever it from the arbitration agreement and enforce the remaining provisions. In Armenderiz, the court of appeal had severed the limitation on damages provision and found the remaining provisions enforceable. The Supreme Court reversed the Court of Appeal and found that the limitation of damages, coupled with the discovery restrictions and failure to limit costs rendered the entire agreement unenforceable.

Fees

Defendant has agreed to pay plaintiffs fees.

Defendant’s option to Amend Agreement

The Arbitration Agreement contains a clause that “This Agreement may be amended by Five Star upon thirty (30) days written notice to Resident. If Five Star provides notice to Resident that it intends to amend the Agreement, Resident may terminate the Agreement for any reason by providing written notice to Five Star within 30 days of receipt of Five Star’s notice,”

The parties dispute the meaning of this ambiguous agreement. Plaintiff contends that it means that if plaintiff did not accept a hypothetical amendment which did not occur, decedent would have been forced to move out of the facility. Defendant contends that if defendant informs the resident that it intends to amend the Agreement, the resident

may terminate the Agreement (meaning arbitration agreement) by providing written notice to Five Star. Defendant’s interpretation is actually favorable to plaintiff, so therefore weighs against a finding of unconscionability.

Waiver of right to jury trial for non-arbitrable claims

Section 5 requires plaintiffs to waive their rights to jury trial for any claim for which arbitration is not ordered is unenforceable. Although plaintiff has not argued that there are any claims that are not covered by the arbitration agreement, nonetheless this provision is one-sided and increases the substantive unconsionability of the Agreement as a whole.

In cases involving the enforcement of an important statutory right involving the public interest, such as the right to be free from employment discrimination, an arbitration agreement cannot deprive a party of statutory remedies that they are otherwise entitled to, such as punitive damages and adequate discovery. Armendariz, supra, at 100-101. The Elder Abuse Act was enacted to protect elders from custodial neglect. The public policy involved is as important as that behind the Fair Employment and Housing Act which protects individuals from discrimination. The Court finds that the standards required for arbitration agreements in the Armenderiz case apply to this case alleging elder abuse.

Because the contract is permeated with unconsionable provisions such as the restriction on discovery, limitation on damages, and no limit on fees, the Court finds the arbitration agreement substantively unconscionable as well as procedurally unconscionable.

Defendant suggests in the Reply that the Court can simply sever the offending provisions. However this is not possible because the agreement is permeated with unfair provisions. The court could easily sever the limitation on damages, and defendants have agreed to pay plaintiff’s fees. However, the discovery provisions in the Commercial AAA rules are unconscionable the context of an elder abuse action because they limit the statutory rights provided by the CCP that are necessary to vindicate the statutory rights provided by the Elder Abuse Act. The Court has no power to re-write the agreement requiring the AAA arbitration to comply with the CCP, therefore the entire agreement is voided.

The motion to compel arbitration is denied.