Weiler v. Marcus & Millichap Real Estate Investment Services

Filed 4/30/18
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
RAE WEILER,
Plaintiff and Appellant, G053953
v. (Super. Ct. No. 30-2015-00764843)
MARCUS & MILLICHAP REAL OPINION
ESTATE INVESTMENT SERVICES,
INC. et al.,
Defendants and Respondents.
Appeal from a judgment of the Superior Court of Orange County, James L.
Crandall, Judge. Reversed and remanded with directions.
Cornelius P. Bahan, and Cornelius P. Bahan for Plaintiff and Appellant.
Cooper, White & Cooper, William H. G. Norman and Jill B. Rowe for
Defendants and Respondents.
* * *
INTRODUCTION
Plaintiff Rae Weiler seeks a declaration and order from the superior court
that defendants Marcus & Millichap Real Estate Investment Services, Inc., et al., must
either (1) pay plaintiff’s share of the costs in the previously ordered arbitration, or (2)
waive their contractual right to arbitrate the underlying claims and allow them to be tried
in the superior court. We conclude, based primarily on Roldan v. Callahan & Blaine
(2013) 219 Cal. App. 4th 87 (Roldan), plaintiff may be entitled to the relief she seeks.
Plaintiff and her husband allegedly lost more than $2 million at the hands
of defendants—the basis for her underlying breach of fiduciary duty, negligence and
elder abuse claims. After being ordered to arbitration and pursuing her claims in that
forum for years, plaintiff asserted she could no longer afford to arbitrate. According to
plaintiff, if she must remain in arbitration and pay half of the arbitration costs—upwards
of $100,000—she will be unable to pursue her claims at all.
Plaintiff initially sought Roldan relief from the arbitrators. But they ruled it
was outside their jurisdiction, and they directed her to the superior court. So, plaintiff
filed this declaratory relief action in the superior court, again seeking relief under Roldan.
However, the superior court granted summary judgment to defendants on the grounds the
arbitration provisions were valid and enforceable, and that plaintiff’s claimed inability to
pay the anticipated arbitration costs was irrelevant. This was error.
Though the law has great respect for the enforcement of valid arbitration
provisions, in some situations those interests must cede to an even greater, unwavering
interest on which our country was founded—justice for all. Consistent with Roldan, and
federal and California arbitration statutes, a party’s fundamental right to a forum she or
he can afford may outweigh another party’s contractual right to arbitrate.
In this case, there are triable issues of material fact regarding plaintiff’s
present ability to pay her agreed share of the anticipated costs to complete the arbitration.
The trial court therefore erred in granting defendants’ motion for summary judgment.
2
FACTS AND PROCEDURAL HISTORY
Plaintiff and her husband, now both in their 80’s, were fairly well-off at one
point in their lives. Among their assets were two properties in Las Vegas, Nevada. In
2006, they exchanged the Las Vegas properties, under federal Internal Revenue Code
section 1031, for a commercial property in Texas which was improved with a Red Robin
restaurant and was supposedly worth $4.1 million.
Defendants represented plaintiff and her husband in the property exchange
transactions. All of the relevant contracts plaintiff and her husband signed with
defendants contained arbitration clauses.
When they acquired the Texas property, plaintiff and her husband believed
they would receive rent payments from the tenant, Red Robin. They also understood that
the lease obligated the tenant to pay the property taxes.
Shortly after the Texas escrow closed, the tenant became delinquent in
making rent payments and failed to pay the property taxes. This persisted throughout the
next seven years, leading to an alleged loss to plaintiff and her husband of more than
$600,000 in income alone. The couple ultimately sold the Texas property for $2.1
million less they paid for it.
Before selling the Texas property at a loss, plaintiff filed suit against
defendants (the underlying court action), claiming breach of fiduciary duty, negligence,
negligent misrepresentation and elder abuse, and seeking compensatory and punitive
damages. The complaint in the underlying court action alleged plaintiff had informed
defendants “she knew very little about commercial real estate investing, . . . and that she
wanted a safe and secure investment with a decent return.” It further alleged defendants
recommended the Texas property because it was a “wonderful investment” and the
restaurant on the property “was busy and doing well financially.” And it alleged she
acquired the Texas property for $2 million above fair market value, based on
misrepresentations and other wrongdoing by defendants.
3
In response to the complaint, defendants filed a motion to compel
arbitration. Plaintiff did not oppose the motion, and the court ordered the matter to be
arbitrated by the American Arbitration Association (AAA). The court also stayed
underlying court action pending completion of the arbitration, and it expressly retained
jurisdiction for purposes of monitoring the progress of the arbitration.
Over the course of the next two years or so, the arbitration proceedings
moved forward slowly. From the outset, the parties disagreed not only about the
substance of plaintiff’s claims, but also about how the arbitration should proceed. For
example, due to the amount of plaintiff’s claim—$2.8 million—defendants insisted the
AAA rules dictated the case could “only be heard and determined by a Panel of three
arbitrators.” Plaintiff, on the other hand, believed a single arbitrator was permissible and
appropriate. An arbitrator eventually ordered the case to be decided by a three-person
panel, at an hourly rate of $1,450.
The arbitration panel set a discovery schedule and established procedural
rules for the arbitration. The parties engaged in discovery.
Nearly three years after the court ordered the arbitration, and during a
second prehearing conference with the arbitrators, plaintiff asserted she was unable to
afford her 50-percent share of the arbitration costs. Relying on Roldan, supra, 219
Cal. App. 4th 87, plaintiff asked the arbitrators to issue an order giving defendants two
options: (1) continue with the arbitration and pay the entire cost of it; or (2) have the
matter tried in superior court instead. At the time, plaintiff’s share of the arbitration costs
had already exceeded $15,000, and she anticipated the overall costs to complete the
arbitration would be upwards of $100,000, not including expert witness and discovery
related fees.
The arbitrators concluded Roldan relief was beyond their jurisdiction. So,
the panel ordered plaintiff to ask the superior court to determine whether Roldan required
defendants to be given the two above-described options.
4
Plaintiff filed this separate declaratory relief action, seeking a declaration
and order that either: (1) “Defendants [shall] bear the full financial responsibility of the
costs of the arbitration”; or (2) “Defendants have waived their right to arbitration and the
[u]nderlying [a]ction shall be remanded or refiled in the [s]uperior [c]ourt . . . .”
Defendants eventually moved for summary judgment in this case.
Defendants characterized plaintiff’s Roldan claim as being an “unconscionability” issue.
Defendants argued unconscionability must be determined as of the time the arbitration
agreement is entered into, and they claimed it was undisputed plaintiff and her husband
were wealthy at that time. They also argued plaintiff’s Roldan claims were untimely
because she should have raised them when the court originally considered defendants’
motion to compel arbitration.
Plaintiff opposed the motion. She contended, based on Roldan, the court
had to consider her current financial situation to determine whether defendants should be
forced to pay her share of arbitration costs or have the matter tried in the superior court.
She submitted a declaration detailing her current financial situation. She argued the
motion should be denied because there were triable issues of material fact concerning
whether she could still afford to arbitrate.
Although the court’s tentative ruling was to grant the motion, part way
through the hearing it appeared convinced there were triable issues of fact. Defendants,
however, persuaded the court to accept additional briefing. After considering the
additional briefing and hearing further argument, the court granted summary judgment to
defendants. The court believed the issue to be decided was whether the arbitration clause
was unconscionable, and the court determined plaintiff’s present financial status was
irrelevant. It agreed with defendants that unconscionability “look[s] to the facts in
existence when the agreement was entered into, not years after the date the contract was
entered into[,]” and that the undisputed facts showed plaintiff was previously wealthy.
5
DISCUSSION
Though presented and argued in various ways, the primary point of
contention between the parties is this: Are plaintiff’s current financial circumstances
relevant to whether her underlying claims against defendants remain in the arbitral forum,
at defendants’ sole expense, or get transferred to, and tried in, the superior court? For the
reasons explained below, we conclude plaintiff’s current financial circumstances are
relevant, and the summary judgment was granted in error, because there are triable issues
of material fact concerning plaintiff’s ability to pay her share of the arbitration costs.
“‘On review of an order granting or denying summary judgment, we
examine the facts presented to the trial court and determine their effect as a matter of
law.’ [Citation.] We review the entire record, ‘considering all the evidence set forth in
the moving and opposition papers except that to which objections have been made and
sustained.’ [Citation.] Evidence presented in opposition to summary judgment is
liberally construed, with any doubts about the evidence resolved in favor of the party
opposing the motion. [Citation.]” (Regents of University of California v. Superior Court
(2018) 4 Cal.5th 607, 618.)
“[A]ny party to an action, whether plaintiff or defendant, ‘may move’ the
court ‘for summary judgment’ in his favor . . . .” (Aguilar v. Atlantic Richfield Co.
(2001) 25 Cal. 4th 826, 843 (Aguilar).) “The court must ‘grant []’ the ‘motion’ ‘if all the
papers submitted show’ that ‘there is no triable issue as to any material fact’ . . . and that
the ‘moving party is entitled to a judgment as a matter of law.’” (Ibid., citations omitted.)
The party opposing summary judgment may defeat the motion by demonstrating there is
one or more triable issues of material fact. (Id. at p. 849.) The opposing party “‘may not
rely upon the mere allegations or denials’ of his ‘pleadings to show that a triable issue of
material fact exists but, instead,’ must ‘set forth the specific facts showing that a triable
issue of material fact exists as to that cause of action or a defense thereto.’” (Ibid.)
6
Relying principally on Roldan, supra, 219 Cal. App. 4th 87, plaintiff
questions defendants’ ability to force her to continue with the arbitration despite a drastic
change in her financial circumstances which allegedly makes arbitration unaffordable for
her now. Her declaratory relief complaint seeks a judgment declaring that defendants
must pay the entire cost of arbitration if they wish to remain in such a forum, and that if
they choose not to do so, the matter may instead proceed to trial in the superior court.
These were precisely the issues on which she sought an order from the arbitrators, and the
arbitrators told plaintiff to seek Roldan relief in the superior court because they believed
these issues were outside their jurisdiction.
Roldan involved proceedings much like those in this case. The plaintiffs, a
group of elderly individuals, sued the lawyers who had represented them in litigation
concerning toxic mold contamination in the apartment building where the plaintiffs lived.
(Roldan, supra, 219 Cal.App.4th at p. 90.) Among the allegations were claims of
financial elder abuse, conversion, and breach of fiduciary duty. (Id. at p. 92.) One of the
defendant law firms successfully moved to compel arbitration based on an arbitration
provision contained in the retainer agreement the plaintiffs had signed. (Ibid.) The trial
court stayed the case before it pending resolution of the matters via arbitration.
A couple of years after being ordered to arbitration, the Roldan plaintiffs
filed a motion in the superior court, “seeking an order decreeing they [were] not required
to pay any portion of the ‘up front’ costs of the arbitration between themselves and [the
defendant].” (Roldan, supra, 219 Cal.App.4th at pp. 92-93.) They claimed relief was
warranted because their circumstances had changed after the ordered arbitration. (Id. at
p. 93.) It was undisputed the plaintiffs had since been declared indigent by the court and
they could not afford the costs of arbitration, so they contended requiring them to pay
arbitration fees in advance would preclude them from pursuing their claims in the arbitral
forum. (Ibid.) The trial court denied the motion, believing the plaintiffs’ changed
financial status to be irrelevant. (Ibid.)
7
On appeal, we reversed. (Roldan, supra, 219 Cal.App.4th at p. 96.) We
assumed the trial court’s orders compelling arbitration were valid (id. at p. 95), but went
further based on “California’s long-standing public policy of ensuring that all litigants
have access to the justice system for resolution of their grievances, without regard to their
financial means.” (Id. at p. 94.) We explained that if the plaintiffs, in fact, lacked the
means to pay their share of the costs of arbitration, forcing the matter to remain in such a
forum would effectively result in the plaintiffs being deprived of any forum to resolve
their claims against the defendant. This was unacceptable. (Id. at p. 96.)
In fashioning a remedy, we recognized we do not have the authority to
order the arbitrators to waive their fees or to order the defendant to pay the plaintiffs’
share of them. (Roldan, supra, 219 Cal.App.4th at p. 96.) So, we held that if the trial
court were to conclude, on remand, that any of the plaintiffs were unable to share the
costs of arbitration, then the defendant should be given a choice: “either pay[] that
plaintiff’s share of the arbitration cost [and remain in arbitration,] or waive its right to
arbitrate that plaintiff’s case.” (Ibid.) Giving this choice to the defendant ensured the
plaintiffs would have an affordable forum for resolving their claims without stripping the
defendant of the ability to stay out of court if it so desired. (Ibid.)
The facts in this case are not materially different from Roldan. Plaintiff
was ordered to arbitrate her claims and she proceeded to do so. But after nearly three
years of arbitration, during which defendants supposedly “engaged in a scorched earth
policy and . . . ‘piled on’ the onerous costs of arbitration[,]” she claims to be unable to
continue to afford to arbitrate. Though there are factual disputes about her current
financial situation, if her claimed inability to pay is true, forcing her to remain in the
arbitral forum with an obligation to pay half the fees will lead to “the very real possibility
[that she] might be deprived of a forum” to resolve her grievances against defendants.
(Roldan, supra, 219 Cal.App.4th at p. 96.) As in Roldan, such an outcome is intolerable.
8
The very reason plaintiff filed the underlying court action against
defendants is because their alleged wrongful acts led her and her husband to lose a
significant amount of money. And, in the many years of pursuing her case in arbitration,
it appears defendants’ tactical decisions have further contributed to plaintiff’s ostensible
financial ruin. In other words, defendants appear to have effectively hindered plaintiff’s
continued performance under the arbitration provisions. Basic contract law dictates that
“hindrance of the other party’s performance operates to excuse that party’s
nonperformance.” (Erich v. Granoff (1980) 109 Cal. App. 3d 920, 930.)
Further, from a public policy standpoint, a defendant accused of
wrongdoing should not be permitted to avoid potential liability by forcing the matter to
arbitration and subsequently making it so expensive that the plaintiff eventually has no
choice but to give up. To hold otherwise would be to turn “‘“and justice for all’”” into
“‘“and justice for those who can afford it’”” and “‘threaten the very underpinnings of our
social contract.’” (Alan S. v. Superior Court (2009) 172 Cal. App. 4th 238, 263, fn. 25.)
The interest in avoiding such an outcome far outweighs the interest, however strong, in
respecting parties’ agreements to arbitrate. (Gutierrez v. Autowest, Inc. (2003) 114
Cal. App. 4th 77, 90 [preference for arbitration not served by “agreement that effectively
blocks every forum for the redress of disputes, including arbitration itself”].)
The California Arbitration Act (Code Civ. Proc., § 1280 et seq. (CAA)) and
the Federal Arbitration Act (9 U.S.C. § 1 et seq. (FAA)) lend further credence to our
conclusion. 1 Both are driven by a strong public policy of enforcing arbitration
agreements. (American Express Co. v. Italian Colors Restaurant (2013) 570 U.S. 228,
233; Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal. 4th 83, 98,
fn. omitted.) Thus, a court generally must compel arbitration in accordance with the
1 Because we will conclude the pertinent portions of the CAA and the FAA
are to be interpreted in a like manner, we need not decide which scheme governs here.
9
agreement when requested by one of the parties. (Code Civ. Proc., § 1281.2; 9 U.S.C. §
2.) However, the court action does not disappear and it is effectively held in abeyance
until the arbitration “has been had in accordance with the terms of the agreement.” (9
U.S.C. § 3; compare Code Civ. Proc., § 1281.4.) 2 The court retains vestigial jurisdiction
over the court action during that time. (Brock v. Kaiser Foundation Hospitals (1992) 10
Cal. App. 4th 1790, 1796; PMS Distributing Co., Inc. v. Huber & Suhner, A.G. (9th Cir.
1988) 863 F.2d 639, 642.)
What it means for an FAA arbitration “to be had” was considered under
similar circumstances by the Ninth Circuit Court of Appeals in Tillman v. Tillman (9th
Cir. 2016) 825 F.3d 1069 (Tillman). The plaintiff, an attorney who sued a law firm that
had represented her in a wrongful death action, was ordered to arbitrate her claims before
the AAA pursuant to an arbitration clause in a retainer agreement invoked by the
defendant law firm. (Id. at pp. 1071-1072.) As the case progressed, the plaintiff
“objected to several aspects of the arbitration as unnecessarily increasing costs.” (Id. at
p. 1072.) The arbitrators nevertheless moved forward with those aspects and required a
deposit of approximately $18,500 from the plaintiff. (Ibid.) She did not have the money
to pay the deposit, and the defendant refused to pay it for her. (Ibid.)
2 The cited provision of the FAA states more fully: “If any suit or
proceeding be brought in any of the courts of the United States upon any issue referable
to arbitration under an agreement in writing for such arbitration, the court in which such
suit is pending, upon being satisfied that the issue involved in such suit or proceeding is
referable to arbitration under such an agreement, shall on application of one of the parties
stay the trial of the action until such arbitration has been had in accordance with the
terms of the agreement. . . .” (9 U.S.C. § 3, italics added.) The cited provision of the
CAA similarly states: “If a court of competent jurisdiction . . . 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.” (Code Civ. Proc., § 1281.4, italics added.)
10
After the arbitration was terminated by AAA due to the unpaid deposit, the
defendant filed a motion in the district court, asking the court to lift its stay and dismiss
the complaint due to, what defendant characterized as, the plaintiff’s violation of the
order to arbitrate. (Tillman, supra, 825 F.3d at p. 1072.) The court found the plaintiff
was unable to pay her share of the arbitration fees, but nevertheless dismissed the case
because it believed it lacked the authority to hear the arbitrable claims despite the
plaintiff’s financial condition. (Id. at pp. 1072-1073.)
The Ninth Circuit reversed. It found that all the relevant AAA rules had
been followed: the AAA prescribed fees, it requested the parties pay the fees in advance
as it deemed necessary, and the arbitration proceedings were suspended and, ultimately,
terminated due to nonpayment of the full deposit. (Tillman, supra, 825 F.3d at p. 1074.)
Accordingly, “the arbitration had ‘been had’ pursuant to the agreement between the
[parties,]” and it was proper to lift the stay of the court proceedings. (Ibid.) In addition,
because the arbitration terminated before the merits were reached or an award issued, the
court concluded the plaintiff must be allowed to pursue her claims in the district court—it
was “the only way her claims [would] be adjudicated.” (Id. at p. 1076.) It remanded the
case to the district court so that could occur. (Id. at p. 1076.)
We find the Ninth Circuit’s reasoning in Tillman to be sound and agree its
conclusion should apply equally to this case under the CAA.
To be clear, this case is not about “unconscionability.” A party arguing
unconscionability generally contends that, despite being a term mutually agreed to by the
parties, the arbitration provision should be deemed unenforceable because: (1) it is “‘“‘so
one-sided as to “shock the conscience’”’”” (i.e., it is substantively unconscionable); and
(2) it came about by surprise or through a process which was unreasonably oppressive
due to, for example, unequal bargaining power (i.e., it is procedurally unconscionable).
(Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal. 4th 899, 910-911.) When proven,
it is a complete defense to enforcement of an arbitration provision. (Ibid.)
11
Here, plaintiff did not argue unconscionability or otherwise challenge the
enforceability of the arbitration provisions. She acknowledged the court properly granted
defendants’ motion to compel arbitration and had issued a corresponding nonappealable
order. And, her summary judgment opposition papers clearly stated: “[Plaintiff] is not
trying to claim that the arbitration clause was unconscionable when signed nor is she
seeking to deprive [defendants] of their right to arbitration. Plaintiff is fine with either
forum so long as she can proceed in one of them.” The court, therefore, erred in focusing
on unconscionability as the primary issue to be decided.
In sum, we hold, as we did in Roldan, when a party who has engaged in
arbitration in good faith is unable to afford to continue in such a forum, that party may
seek relief from the superior court. If sufficient evidence is presented on these issues,
and the court concludes the party’s financial status is not a result of the party’s intentional
attempt to avoid arbitration, the court may issue an order specifying: (1) the arbitration
shall continue so long as the other party to the arbitration agrees to pay, or the arbitrator
orders it to pay, all fees and costs of the arbitration; and (2) if neither of those occur, the
arbitration shall be deemed “had” and the case may proceed in the superior court. 3
3 At oral argument, defendants claimed that allowing parties to seek relief
from arbitration in the courts based on their current financial condition creates an open
invitation for abuse by those seeking to escape their arbitration obligations. We seriously
doubt parties will purposefully make themselves impecunious to have their cases returned
to the courts. Regardless, we are more concerned with deep-pocketed parties leveraging
their wealth to deprive their opponents of the right to resolve their disputes than we are
with parties choosing to bankrupt themselves as a way out of arbitration and into court.
And, under our holding today, a court may not grant relief if the evidence demonstrates a
party’s financial status is a result of the party’s intentional attempt to avoid arbitration.
12
As our Supreme Court has explained, “[b]oth California and federal law
treat the substitution of arbitration for litigation as the mere replacement of one dispute
resolution forum for another, resulting in no inherent disadvantage.” (Sonic-Calabasas
A, Inc. v. Moreno (2013) 57 Cal. 4th 1109, 1152.) With the rising costs of arbitration (see
Toyo Tire Holdings Of Americas Inc. v. Continental Tire North America, Inc. (9th Cir.
2010) 609 F.3d 975, 980-981), our decision today ensures those compelled to arbitrate
will not, as a result, be inherently disadvantaged.
DISPOSITION
The judgment is reversed. The matter is remanded with directions to deny
defendants’ motion for summary judgment. Plaintiff is entitled to her costs on appeal.
THOMPSON, J.
WE CONCUR:
BEDSWORTH, ACTING P. J.
MOORE, J.
13