Domestic Linen Supply Co., Inc. v. L J T Flowers, Inc. ( 2020 )

Filed 12/4/20
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
DOMESTIC LINEN SUPPLY 2d Civ. Nos. B292863,
CO., INC., B294788
(Super. Ct. No. 56-2016-
Plaintiff and Appellant, 00478348-CU-PT-VTA)
(Ventura County)
v.
L J T FLOWERS, INC.,
Defendant and Respondent.
An arbitration clause in a contract is invalid because the
clause is as inconspicuous as a frog in a thicket of water lilies.
The prevailing party is entitled to attorney fees per Civil Code
section 1717.1 Speaking of frogs, Frog Creek Partners, LLC v.
Vance Brown, Inc. (2012) 206 Cal.App.4th 515 (Frog Creek) does
not prohibit the award of attorney fees.
Plaintiff appeals the trial court’s order denying a petition to
compel arbitration and awarding attorney fees to the respondent.
We affirm.
1 All statutory references are to the Civil Code.
FACTS
Domestic Linen Supply Co., Inc. (Domestic) rents uniforms
to businesses. In 2011, L J T Flowers, Inc. (LJT) entered into a
contract drafted by Domestic to rent uniforms from Domestic.
The contract is printed on a single double-sided page. The
place designated for signature of the parties is on the front page.
The first paragraph on the front page provides, “THE PARTIES
HEREBY AGREE UPON THE TERMS SET FORTH BELOW
AND UPON THE REVERSE SIDE HEREOF.”
On the reverse side are paragraphs 5 to 21 of the
agreement. Paragraph 15 contains an arbitration agreement as
follows: “In the event of any controversy or claim in excess of
$10,000.00 arising out of or relating to this agreement, including
but not limited to questions regarding the authority of the
persons who have executed this agreement and enforcement of
any guarantee that is related to this agreement, the question,
controversy or dispute shall be submitted to and settled by
arbitration to be held in the city closest to the city in which the
branch office of the Company which serves the Customer is
located. Said arbitration shall be held in accordance with the
then prevailing commercial arbitration rules of the American
Arbitration Association except any rules which require the
parties to use the American Arbitration Association as their sole
Arbitration Administrator. Judgement upon and award rendered
by the Arbitrator may be entered in any court having jurisdiction
thereof. The filing party may use either court or arbitration
where the claim is less than $10,000.00. Venue for any court
proceeding shall be in the county of the Company’s branch office
servicing the Customer. The judge or arbitrator shall include as
part of the award all costs including reasonable attorney fees and
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arbitration fees of the non-breaching party where it is determined
that one of the parties has breached the agreement.”
All the paragraphs on the back page, including paragraph
15, are in eight-point type. Paragraph 15 contains no heading,
boldface, or italics. There is no place on the back page for the
parties’ signatures or initials.
Tom M. Goldberg signed the rental agreement on behalf of
LJT. Goldberg also signed a guaranty agreement in which he
personally guaranteed payment for “services rendered or for
contractual obligations incurred” under the rental agreement.
The guaranty agreement contained no reference to arbitration.
After three years of doing business together, a dispute
arose between the parties relating to Domestic’s performance.
LJT refused to pay Domestic. Domestic claims LJT owes it
$30,515.58 under the rental agreement.
Domestic filed a petition to compel arbitration against LJT
and Goldberg. Domestic filed an amended petition and set the
matter for a hearing. LJT filed opposition. Domestic took the
hearing off calendar.
Domestic filed third and fourth petitions to compel
arbitration against LJT and Goldberg. Both petitions requested
that the trial court order arbitration under the American
Arbitration Association (AAA) expedited procedure rules.2 Those
rules do not allow discovery. The AAA rules make use of the
expedited procedure mandatory where there are only two parties
and by agreement where there are more than two parties. LJT
filed opposition to both petitions. Domestic moved the third
2 Domestic’s request for judicial notice filed December 24,
2018, is granted.
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petition off calendar prior to a hearing. Thereafter the fourth
petition proceeded to a hearing.
Prior to the hearing, LJT deposed Jason Campbell,
Domestic’s person most qualified (PMQ). Campbell stated he did
not know the person who signed the agreement on behalf of
Domestic; did not know when the person left Domestic or under
what circumstances; and did not know whether the person
discussed the terms of the agreement. Campbell said the only
thing he knows about the transaction is what is written on the
agreement. He said Domestic’s employees are not trained to
disclose the arbitration agreement.
Domestic’s training manual states that no agreement will
be approved where the back side of the agreement is written on.
Another document tells the employee to have the client read the
personal guaranty while the salesperson fills out the front of the
agreement.
The trial court denied the petition to compel arbitration.
The court found that LJT suffered a lack of “procedural due
process” because the arbitration agreement was “inconspicuous.”
LJT made a motion for attorney fees pursuant to the fee
provision in the arbitration agreement. The trial court awarded
LJT $32,757.04.
DISCUSSION
I.
Arbitration Petition Dismissal
Domestic contends the arbitration agreement must be
enforced because there was no lack of consent.
Arbitration agreements are enforceable except upon such
grounds that exist in law or in equity for voiding any contract.
(Armendariz v. Foundation Health Psychcare Services, Inc. (2000)
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24 Cal.4th 83, 98.) There is no contract unless the parties agree
on the material terms. (Weddington Productions, Inc. v. Flick
(1998) 60 Cal.App.4th 793, 797.)
Domestic points out that there is a strong public policy in
favor of agreements to arbitrate. (Citing Wagner Construction
Co. v. Pacific Mechanical Corp. (2007) 41 Cal.4th 19, 25.) But no
public policy compels persons to accept arbitration of
controversies they have not agreed to arbitrate. (Victoria v.
Superior Court (1985) 40 Cal.3d 734, 744.)
There is a constitutional right to trial by jury. (Cal. Const.,
art. I, § 16.) That right is basic and should be zealously guarded
by the courts. (Titan Group, Inc. v. Sonoma Valley County
Sanitation Dist. (1985) 164 Cal.App.3d 1122, 1127-1128.) In case
of doubt, the issue should be resolved in favor of the right to a
trial by jury. (Id. at p. 1128.) The party seeking to compel
arbitration bears the burden of proving a valid agreement to
arbitrate. (Lacayo v. Catalina Restaurant Group, Inc. (2019) 38
Cal.App.5th 244, 257.)
Here the trial court could reasonably determine that there
was no agreement to arbitrate. The form of the rental agreement
is deceptive. The arbitration clause is not above the purchaser’s
signature, where one would expect to find it. Instead, it is after
the purchaser’s signature, on the back of the agreement. The
back is filled from top to bottom with closely spaced lines of small
type. The arbitration clause is number 15 of 21 paragraphs.
There is nothing to distinguish paragraph 15 from any other
paragraph. There is no heading, boldface, italics, or
capitalization that would draw attention to it. It is simply hidden
in a thicket of fine print. The warning that the garments
Domestic provides are not fire-resistant is in capitalized, boldface
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type, but not the provision waiving the purchaser’s constitutional
right to a jury trial.
Moreover, Domestic’s sales representatives are not trained
to bring attention to the arbitration clause. Instead, they are
advised to have the purchaser read the personal guaranty while
they fill out the contract, thus diverting the purchaser’s attention
from the back of the contract. There is no mention of arbitration
in the personal guaranty.
If the contract is not intentionally deceptive, it has that
effect. There was simply no agreement to arbitrate.
II.
Attorney Fees
Domestic contends the trial court erred in awarding LJT
attorney fees.
Attorney fees are recoverable only where the prevailing
party has a legal basis for recovery of fees grounded in
agreement, statute, or other law. (Santisas v. Goodin (1998) 17
Cal.4th 599, 606.) LJT based its claims for attorney fees on the
portion of the arbitration clause that states, “The judge or
arbitrator shall include as part of the award all costs including
reasonable attorney fees and arbitration fees of the
non-breaching party where it is determined that one of the
parties has breached the agreement.”
Domestic relies on the express language of the clause
awarding fees only where it has been determined that one of the
parties has breached the agreement. All that has been
determined so far is that the arbitration clause is not enforceable.
LJT argues, however, that the attorney fee clause
unilaterally favors Domestic. If Domestic prevails in its contract
action, it will be entitled to fees because LJT will have been
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determined to have breached the contract. But if LJT prevails on
the ground that it did not breach the contract, under the express
language of the fee clause, it cannot obtain an award of fees. LJT
claims that under the circumstances, section 1717 should apply
to make the attorney fee clause mutual, and to award fees to the
prevailing party in the contract action.
We agree with LJT. The attorney fee clause seems
designed to provide for an award of fees to Domestic should it
prevail, but to deny fees to the prevailing defendant. Section
1717, subdivision (a) provides in part: “(a) In any action on a
contract, where the contract specifically provides that attorney’s
fees and costs, which are incurred to enforce that contract, shall
be awarded either to one of the parties or to the prevailing party,
then the party who is determined to be the party prevailing on
the contract, whether he or she is the party specified in the
contract or not, shall be entitled to reasonable attorney’s fees in
addition to other costs.” The purpose of the section is to ensure
mutuality of remedy for attorney fee claims under contractual
attorney fee provisions. (Santisas v. Goodin, supra, 17 Cal.4th at
p. 610.) Under section 1717, we must treat the attorney fee
clause as providing for an award of fees to the prevailing party in
the contract action.
The question is whether LJT prevailed on the contract
action when it defeated Domestic’s petition to arbitrate. Both
parties rely on Frog Creek, supra, 206 Cal.App.4th 515.
In Frog Creek, plaintiff brought an action for damages
alleging breach of a construction contract. The contract
contained arbitration and attorney fee clauses. The defendant
petitioned to compel arbitration. The plaintiff defeated that
petition. The defendant brought a second petition to compel
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arbitration. The defendant prevailed on the second petition and
ultimately on the merits. The trial court awarded attorney fees
to both parties. The Court of Appeal reversed the award of fees
to the plaintiff for defeating the first petition to compel
arbitration. The court held there can be only one prevailing
party in a contract action, and that was defendant. (Frog Creek,
supra, 206 Cal.App.4th at p. 520.)
In so holding, however, the Court of Appeal distinguished
cases where there is an existing contract action in which a party
petitions to compel arbitration and cases such as the instant case
in which the action is initiated by filing a petition. The court
stated, “On the other hand, when a party defeats an independent
petition to compel arbitration, the action is terminated and the
prevailing party on the petition is entitled to fees under Civil
Code section 1717.” (Frog Creek, supra, 206 Cal.App.4th at
p. 533.)
Here, unlike Frog Creek, Domestic did not petition to
compel arbitration in an existing lawsuit. Where there is an
existing lawsuit, the lawsuit continues if the petition is defeated.
Instead, Domestic brought an independent petition to compel
arbitration. The defeat of the petition terminated the action,
leaving LJT as the prevailing party entitled to an award of fees.
Procedure
LJT filed a motion for attorney fees. Domestic claims it
believed LJT’s request for attorney fees was stayed by the filing
of the notice of appeal. The trial court miscalendared the hearing
on LJT’s motion, and the hearing took place without Domestic.
When Domestic learned the hearing had taken place, it filed
opposition to the motion. Two months later, the court awarded
LJT fees.
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It is well settled that the filing of an appeal does not stay a
motion for attorney fees. (Hennessy v. Superior Court (1924) 194
Cal. 368, 372.) When Domestic learned of the hearing on the
motion, it filed opposition prior to the trial court’s ruling.
Domestic cites no prejudice resulting from any error in the
procedure.
Unclean Hands
Domestic argues LJT should be denied fees under the
doctrine of unclean hands. Domestic cites Public Employees’
Retirement System v. Winston (1989) 209 Cal.App.3d 205, 211, for
the proposition that it is proper to take equitable considerations
into account in awarding attorney fees.
Domestic claims LJT pretended to negotiate for arbitration,
but its intent was only to cause delay and expense. LJT claims
that Domestic’s multiple petitions to compel arbitration were
defective, and were taken off calendar when LJT filed opposition.
LJT also claims that Domestic’s multiple requests to compel
arbitration under AAA’s expedited procedure were made in bad
faith because that procedure was not available to Domestic.
The trial court is in the best position to determine whether
either party acted in bad faith. (See Marsango v. Automobile
Club of Southern California (1969) 1 Cal.App.3d 688, 696 [bad
faith is a question of fact].) Nothing in the record supports
overturning the trial court’s decision here.
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DISPOSITION
The judgment is affirmed. Costs on appeal are awarded to
respondent.
CERTIFIED FOR PUBLICATION.
GILBERT, P. J.
We concur:
YEGAN, J.
PERREN, J.
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Kent M. Kellegrew, Judge
Superior Court County of Ventura
______________________________
Law Offices of Scott D. Wu and Scott D. Wu for Plaintiff
and Appellant.
Goldenring & Prosser and Peter A. Goldenring; Pachowicz /
Goldenring and Peter A. Goldenring for Defendant and
Respondent.
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