DeBlasis v. Cohen & Lord

Filed 5/21/08 DeBlasis v. Cohen & Lord CA2/2

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION TWO

APPEAL from an order of the Superior Court of Los Angeles County. Michael L. Stern, Judge. Reversed and remanded.

Hogan & Hartson, Kenneth D. Klein, Amy Marshall Gallegos; Greines, Martin, Stein & Richland, Kent L. Richland, Feris M. Greenberger, and Jeffrey E. Raskin for Defendants and Appellants.

Hornberger & Brewer, Nicholas W. Hornberger and Jason H. Gorowitz for Plaintiffs and Respondents.

____________________

Appellants Cohen & Lord and Bruce M. Cohen challenge a trial court order denying their request to arbitrate claims initiated by respondents Robert J. DeBlasis (DeBlasis) and Luigia A. Pizzo (Pizzo). Appellants argue that the trial court erred in finding that the parties arbitration agreement (1) did not cover all claims asserted by respondents, and (2) was unconscionable and therefore unenforceable.

We agree with appellants. Pursuant to the contracts plain language, it governs all causes of action alleged by respondents against appellants.

Moreover, the arbitration provision is not unconscionable. Unconscionability consists of two elements: procedural unconscionability and substantive unconscionability. (See, e.g., Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 15321533 (Stirlen); see also Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114 (Armendariz).) [T]hese two elements 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. (Stirlen, supra, at p. 1533.) Because there is no evidence of procedural unconscionability, the trial court erred in refusing to grant appellants motion to arbitrate the claims raised by respondents. Moreover, for the sake of completeness, we note that the parties agreement is not substantively unconscionable as well.

Accordingly, we reverse the trial courts order and remand the matter to the trial court with instructions to grant appellants motion and order this dispute to arbitration.

FACTUAL AND PROCEDURAL BACKGROUND

This litigation arises out of appellants representation of respondents in two legal matters: Etess v. DeBlasis (Super. Ct. L.A. County, No. GC026033) (the Etess action); and DeBlasis v. Hahn & Hahn (Super. Ct. L.A. County, No. BC277159) (the Hahn action).

Respondents Retain Appellants

According to the complaint in the instant matter, the Etess action arose from a land sale. DeBlasis, a general contractor, (1) constructed and completed repairs to property owned by Pizzo, and (2) negotiated the sale of the property to M. Hank Etess on Pizzos behalf. In October 2000, Mr. Etess sued respondents for fraud, breach of contract, and negligence.

Respondents initially were represented by the law firm Hahn & Hahn. In August 2001, respondents terminated their relationship with Hahn & Hahn and hired appellants to defend them in the Etess action.

The terms of appellants engagement are set forth in a four-page retainer agreement dated August 8, 2001. The letter begins: Please pardon the formality of this letter but it is intended to clearly state the terms of our firms representation of you. Please carefully look it over and, if it is acceptable, sign and return it as soon as possible.

Paragraph A of the agreement provides, in relevant part: Our responsibility is to represent you . . . and solely in connection with [the Etess action]. Additional matters that we agree to undertake will be under the same terms as stated in this letter unless otherwise agreed in writing. Paragraph F, which begins on the following page and flows into the third page of the agreement, is titled Dispute Resolution and provides: In the unlikely event of any dispute between us arising out of or related to our legal representation, including disputes over bills or the quality of representation, the matter will be resolved, to the extent permitted by California law, not by a Court proceeding, but by arbitration, in California, pursuant to the California Code of Civil Procedure. The result of arbitration will be binding and judgment may be entered in any Court having jurisdiction. By agreeing to arbitrate, we are both agreeing to a simplified procedure which does not have all of the costs, or all of the safeguards, of a Court proceeding. For example, neither party would have the right to demand a jury trial, obtain depositions or utilize other forms of discovery, or appeal.

DeBlasis and Pizzo both signed the retainer agreement below a line acknowledging that they AGREED to its terms.

Respondents Commence an Action Against Hahn & Hahn

On July 5, 2002, respondents commenced a separate suit for legal malpractice against their former attorneys, Hahn & Hahn (the Hahn action). Appellants agreed to undertake their representation in this additional matter. The parties did not enter into any new written agreement regarding the terms of appellants representation of respondents in the Hahn action.

Respondents Initiate This Action Against Appellants

On January 11, 2007, respondents filed the instant action against appellants, alleging that they committed legal malpractice in both the Etess action and the Hahn action.

Appellants Attempt to Enforce the Arbitration Provision

On February 21, 2007, appellants formally demanded arbitration of respondents claims. Respondents did not respond.

On February 28, 2007, appellants filed a motion to compel arbitration.

Respondents opposed appellants motion, raising three theories: (1) the arbitration provision is ambiguous; (2) the retainer agreement is a contract of adhesion; and

(3) respondents were unaware of the ramifications of signing a retainer agreement that contained an arbitration clause.

Trial Court Order and Appeal

After entertaining oral argument, the trial court denied appellants motion. It first noted that [t]his case concerns two matters in one: the [Etess] and Hahn cases. The trial court determined that those matters were not entwined to the point that arbitration of one case would have an effect on the other. Therefore, the trial court analyzed them separately.

With respect to the Hahn action: Because there was no valid agreement between the parties in the Hahn case, the trial court denied appellants motion to compel arbitration.

With respect to the Etess action: The trial court found both procedural and substantive unconscionability in connection with the arbitration agreement. As for procedural unconscionability, the trial court ruled: [DeBlasis] furnishes a declaration stating that he was unsophisticated and did not realize that he had bargaining power with regard to arbitration. The retention letter lacks an integration clause or even a statement to the effect that the client has read and understands the agreement. Therefore, there is an element of procedural unconscionability. As for substantive unconscionability, the trial court determined that the arbitration agreement violates this prong because it contains unenforceable discovery provisions or other provisions that deprive a party of a fair opportunity to be heard or present one[]s case.

This timely appeal ensued.

DISCUSSION

I. Applicable Law and Standard of Review

The right to arbitration depends on a contract. [Citations.] Accordingly, a party can be compelled to submit a dispute to arbitration only where he has agreed in writing to do so. [Citation.] (Boys Club of San Fernando Valley, Inc. v. Fidelity & Deposit Co. (1992) 6 Cal.App.4th 1266, 1271, fn. omitted.) In a motion to compel arbitration, [t]he 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. [Citation.] (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972 (Engalla).)

When adjudicating a motion to compel arbitration, 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 courts discretion, to reach a final determination. [Citation.] (Engalla, supra, 15 Cal.4th at p. 972.) A reviewing court will uphold the trial courts resolution of disputed facts if supported by substantial evidence. When there is no disputed extrinsic evidence considered by the trial court, its decision concerning arbitrability is reviewed de novo. (Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1277.)

II. The Arbitration Agreement Governs Both the Etess Action and the Hahn Action

At issue is whether the parties retainer agreement, including its arbitration provision, applies to claims arising out of appellants representation of respondents in the Hahn action. We conclude that it does.

The interpretation of a written arbitration agreement is a judicial function to be exercised according to the generally accepted canons of interpretation so that the purposes of the instrument may be given effect. [Citations.] (Powers v. Dickson, Carlson & Campillo (1997) 54 Cal.App.4th 1102, 1111 (Powers).) We interpret the intent and scope of the agreement by focusing on the usual and ordinary meaning of the language used and the circumstances under which the agreement was made. [Citation.] (Ibid.)

Applying these principles, it is evident that the arbitration agreement governs the parties disputes arising out of both the Etess action and the Hahn action. Specifically, paragraph A of the retainer agreement sets forth the scope of appellants representation of respondents. In the first sentence, the letter provides that appellants were retained to represent respondents solely in connection with the Etess action. However, in that same two-sentence paragraph, the agreement also provides: Additional matters that we agree to undertake will be under the same terms as stated in this letter unless otherwise agreed in writing. The parties did not agree to any other terms, let alone any other terms in writing. It follows that this retainer agreement covers all matters in which appellants represented respondents, including the Hahn action.

Respondents defend the trial courts order by asserting that the parties agreement is ambiguous regarding the scope of appellants representation and that the uncertain sentences should be interpreted in respondents favor. We cannot agree; there is nothing ambiguous about this agreement. Rather, the contract plainly provides that respondents retained appellants to represent them in the Etess action and any [a]dditional matters. The additional matter[] in this case was the Hahn action. Thus, the parties relationship in connection with the Hahn action is governed by the subject retainer agreement.

In fact, respondents so admit in the pleading that initiated this lawsuit. In their complaint, respondents allege that they entered into [a] valid and binding retainer agreement . . . with [appellants] for [appellants] to render legal services for the [Etess action] and additional matters under the same terms. Respondents go on to allege negligence and other torts in connection with appellants handling of both the Etess action and the Hahn action. Then, the complaint alleges breach of the retainer agreement and seeks damages in an amount not less than $157,527.78.

In light of respondents pleading, the additional matters provision necessarily includes the Hahn action. After all, the prior paragraphs of the complaint, incorporated by reference into the breach of contract cause of action, allege malfeasance in the Hahn action. And, the earlier-pled causes of action seek the same amount of damages for appellants allegedly tortious conduct in both the Etess action and the Hahn action as in the breach of contract cause of action.

Accordingly, this agreement, including its arbitration provision, governs the parties disputes in both the Etess action and the Hahn action.

III. Unconscionability and Arbitration Agreements

Having determined that this agreement applies, if at all, to disputes arising out of both the Etess action and the Hahn action, we next consider whether the arbitration agreement is unconscionable and therefore unenforceable.

A. Policy favors arbitration

The California Arbitration Act (Code Civ. Proc., 1280 et seq.) embodies a strong public policy of enforcing arbitration agreement. But that strong policy does not arise until an enforceable agreement is established. (Mitchell v. American Fair Credit Assn. (2002) 99 Cal.App.4th 1345, 1355.) In determining the enforceability of an arbitration agreement, generally applicable contract defenses, such as fraud, duress, and unconscionability apply. (Doctors Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 687.) Unconscionability is one ground upon which a court may refuse to enforce an arbitration agreement. (Civ. Code, 1670.5; Code Civ. Proc., 1281.)

B. Analytical framework

In deciding whether an agreement to arbitrate is enforceable, the first step in the analysis is to determine whether the agreement implicates public or private rights. (Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, 651652 (Abramson).) Where the plaintiffs claims arise from unwaivable public rights, whether statutory or nonstatutory, the arbitration agreement must satisfy the minimum requirements set forth in Armendariz. [Citation.] Assuming it satisfies the Armendariz requirements, an agreement to arbitrate public claims also must be conscionable. (Abramson, supra, at p. 652.) Where the plaintiff asserts private rights rather than (or in addition to) unwaivable public rights, the agreement to arbitrate those claims is tested only against conscionability standards. (Ibid.; see also Armendariz, supra, 24 Cal.4th at p. 113.)

Here, respondents claims arise only from private rights. (Boghos v. Certain Underwriters at Lloyds of London (2005) 36 Cal.4th 495, 505508; Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 12881291.) Whether framed as a tort or as breach of contract, nothing more than respondents claim for legal malpractice is at issue.

Thus, we turn our focus to whether the parties arbitration agreement is unconscionable.

As set forth above, unconscionability consists of two elements: procedural unconscionability and substantive unconscionability. Both elements must be present in order for a court to refuse to enforce a contract as unconscionable. (Armendariz, supra, 24 Cal.4th at p. 114.)

1. Procedural unconscionability

Procedural unconscionability concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. [Citation.] [Citation.] The relevant factors are oppression and surprise. [Citations.] (Abramson, supra, 115 Cal.App.4th at p. 656.)

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. [Citations.] [Citation.] (Abramson, supra, 115 Cal.App.4th at p. 656.) It generally takes the form of a contract of adhesion (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071), a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it. (Neal v. State Farm Ins. Cos. (1961) 188 Cal.App.2d 690, 694.) Where an adhesive contract is oppressive, surprise need not be shown. (Abramson, supra, at p. 656.)

The component of surprise arises when the challenged terms are hidden in a prolix printed form drafted by the party seeking to enforce them. [Citation.] (Nyulassy v. Lockheed Martin Corp., supra, 120 Cal.App.4th at p. 1281.)

2. The parties agreement is not procedurally unconscionable

Applying these principles, we readily conclude that the parties arbitration agreement is not procedurally unconscionable. There is no evidence of an inequality of bargaining power. (See, e.g., Trend Homes, Inc. v. Superior Court (2005) 131 Cal.App.4th 950, 957958.) Rather, respondents simply wanted to retain appellants for legal representation, and the parties entered into an agreement regarding that business relationship.

This situation is a far cry from an employment situation, where an employer thrusts an arbitration agreement upon an employee as a condition of employment or a potential employer requires that a new employee agree to arbitration in order to obtain employment.[1] (See, e.g., Armendariz, supra, 24 Cal.4th at p. 115; Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 172173.) If respondents did not like the terms of appellants representation, they could have negotiated different terms or retained a different attorney, particularly in Los Angeles, which has no shortage of attorneys. (See, e.g., Powers, supra, 54 Cal.App.4th at p. 1110 [clients are generally free to employ the attorney of their choice and bargain for the terms of their choice].)

For this reason, we reject respondents claim that they were not provided any notice that they had any bargaining power with [appellants] in fashioning the retainer agreement. There is no legal requirement that an attorney provide a potential client with notice that he or she has the power to negotiate terms of the retainer agreement; rather, pursuant to well-established legal authority, such as Powers, supra, 54 Cal.App.4th 1102, that ability is presumed when two parties in equal bargaining position are negotiating a contract.

In their brief, respondents assert that [t]here was positively no opportunity for [them] to negotiate the terms of [the] retainer agreement. Respondents cite to no evidence in the appellate record to support this contention. It is well-established that we do not consider evidence purportedly contained in the briefs. (Westoil Terminals Co., Inc. v. Industrial Indemnity Co. (2003) 110 Cal.App.4th 139, 152.) Absent evidence that they attempted to negotiate the terms of the retainer agreement but were rebuffed, respondents unfounded argument fails. (Trend Homes, Inc. v. Superior Court, supra, 131 Cal.App.4th at p. 958.)

As the trial court found, respondents claim that the retainer agreement is oppressive based upon DeBlasiss averments[2]in his declaration submitted in opposition to respondents motion to compel arbitration that he was unfamiliar with retainer agreements and did not know that he had waived his right to a jury trial. DeBlasiss statements are an apparent, belated attempt to escape arbitration. The law does not allow him to do so.

Ordinarily, one who accepts or signs an instrument, which on its face is a contract, is deemed to consent to all its terms, and cannot escape liability on the ground that he or she has not read it. (1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts,  118, p. 157l; see also Marin Storage & Trucking, Inc. v. Benco Contracting & Engineering, Inc. (2001) 89 Cal.App.4th 1042, 1049.) Moreover, [n]o law requires that parties dealing at arms length have a duty to explain to each other the terms of a written contract, particularly where, as here, the language of the contract expressly and plainly provides for the arbitration of disputes arising out of the contractual relationship. (Brookwood v. Bank of America (1996) 45 Cal.App.4th 1667, 1674.) Reasonable diligence requires the reading of a contract before signing it. A party cannot use his own lack of diligence to avoid an arbitration agreement. (Ibid.)

It follows that DeBlasis was bound by the arbitration provision, regardless of whether he understood it at the time he signed the retainer agreement. (Brookwood v. Bank of America, supra, 45 Cal.App.4th at p. 1674; see also Powers, supra, 54 Cal.App.4th at p. 1109 [The Powers contend that the arbitration provisions are unenforceable because they did not carefully read the agreements, did not understand the significance of the arbitration provisions, and did not knowingly waive their right to a jury trial in a legal malpractice action. As a general rule, such arguments may not be used to invalidate a written arbitration provision].) If DeBlasis did not understand what he was signing, he should have asked appellants to explain the terms of the arbitration provision to him.[3]

While respondents do not address two other points raised by the trial court, we are compelled to illustrate why they do not warrant affirming the trial courts order. First, the trial court found unconscionability because the retainer agreement lacks an integration clause. This makes no sense. An integration clause expresses the parties intent that the written agreement is the final expression of the parties agreement and may not be contradicted by evidence of any prior or contemporaneous oral agreement. (Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 953.) That has nothing to do with whether an agreement is unconscionable.

Second, the trial court was troubled by the retainer agreements failure to include a statement to the effect that the client has read and understands the agreement. As set forth above, it is no defense that a plaintiff did not carefully read or understand an agreement. (See, e.g., Powers, supra, 54 Cal.App.4th at p. 1109.) It follows that conscionability cannot turn upon whether an agreement contains such a clause.

Regardless, it is undisputed that the parties agreement contains the following language: Please carefully look [the retainer agreement] over and, if it is acceptable, sign and return it as soon as possible. The letter concludes with the word AGREED, just above respondents signature lines. Thus, while the retainer agreement does not contain the exact verbiage that the trial court was searching for (but which was not required), it does contain language to the same effect.

Moreover, there is no evidence of surprise. The parties agreement is not a standardized or prolix printed form agreement; it is a simple, four-page letter agreement, with its sections easily demarcated by underlined headings. It is clearly written . . . and easily understood. (Trend Homes, Inc. v. Superior Court, supra, 131 Cal.App.4th at p. 959.) And, the arbitration provision itself is set apart from the other sections by a separate section heading titled Dispute Resolution.

Such an agreement is far different than the one in Higgins v. Superior Court (2006) 140 Cal.App.4th 1238. In that case, the court rightly found surprise where five orphaned siblings signed an agreement containing 24 single-spaced pages and 72 numbered paragraphs drafted by a television network. (Id. at pp. 1242, 1252.) Buried at the end of that agreement was a section titled MISCELLANEOUS, which included 12 numbered subparagraphs. (Id. at pp. 1243, 1252.) One of those subparagraphs was an arbitration provision. (Id. at pp. 1243, 1252.)

In light of the foregoing, we readily conclude that the parties agreement to arbitrate was not procedurally unconscionable. Absent procedural unconscionability, the trial courts order must be reversed. Our analysis can stop here.

3. Substantive unconscionability

Although unnecessary, for the sake of completeness, we address the question of whether the parties arbitration agreement was substantively unconscionable.

The substantive prong of unconscionability encompasses overly harsh or one-sided results. (Fittante v. Palm Springs Motors, Inc. (2003) 105 Cal.App.4th 708, 722723.) Courts have identified a number of factors that may result in substantive unconscionability. (Abramson, supra, 115 Cal.App.4th at p. 656.) But the paramount consideration in assessing conscionability is mutuality. (Id. at p. 657.)

As the trial court expressly found, the retainer agreement, including its arbitration provision, is mutual. No one challenges this finding, and we agree with the trial courts determination.

Instead, respondents argue that the agreement is substantively unconscionable because of the following language: [N]either party would have the right to . . . obtain depositions or utilize other forms of discovery. Like the trial court, respondents misinterpret the law.

As set forth above: Where the plaintiffs claims arise from unwaivable public rights, whether statutory or nonstatutory, the arbitration agreement must satisfy the minimum requirements set forth in Armendariz. (Abramson, supra, 115 Cal.App.4th at p. 652.) One of those minimum requirements includes the right to adequate discovery. (Armendariz, supra, 24 Cal.4th at pp. 102103.)

That minimum requirement does not apply here because this case does not involve unwaivable public rights. This case is a simple legal malpractice case, which only implicates private rights. As such, the arbitration provision is measured only against the normal unconscionability analysis. (Abramson, supra, 115 Cal.App.4th at p. 652.) Thus, the minimum requirements of Armendariz are not implicated. (See, e.g., Boghos v. Certain Underwriters at Lloyds of London, supra, 36 Cal.4th at pp. 505508; Giuliano v. Inland Empire Personnel, Inc., supra, 149 Cal.App.4th at pp. 12881291.)

Respondents engage in an emotional plea, claiming that the agreement is unfairly one-sided because they cannot prove their case without adequate discovery. What respondents ignore, however, is the retainer agreements provision that any dispute must be resolved by arbitration, in California, pursuant to the California Code of Civil Procedure. Instead of traditional discovery, the statutory scheme embodied in the Code of Civil Procedure requires certain disclosures where, as here, the amount in controversy exceeds $50,000. (Code Civ. Proc., 1282.2, subd. (a)(2).) For example, not less than 30 days before the arbitration proceeding, the parties must exchange witness lists and lists of designated experts. (Code Civ. Proc., 1282.2, subd. (a)(2)(A).) And, at that same time, the parties are entitled to inspect and copy all documents the other intends to introduce during the proceeding. (Code Civ. Proc.,  1282.2, subd. (a)(2)(C).) Respondents fail to demonstrate how it would be substantively unconscionable to merely adopt the arbitration provisions of the Code of Civil Procedure.

DISPOSITION

The order of the trial court is reversed and remanded to the trial court with instructions to order the parties to arbitration. Appellants are entitled to costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

_____________________, J.

ASHMANN-GERST

We concur:

_____________________, P. J.

BOREN

_____________________, J.

DOI TODD

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[1] We note, however, that the cases uniformly agree that a compulsory predispute arbitration agreement is not rendered unenforceable just because it is required as a condition of employment or offered on a take it or leave it basis. . . .  [] . . .  We think it plain that . . . an employees rights to a jury trial and a judicial forum can be validly waived by agreement, even where the waiver is required as a condition of employment. (Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4th 1105, 11271128.)

[2] Notably, respondents did not offer a declaration from Pizzo. Thus, even if this argument were persuasive, which it is not, it would not apply to her. She never offered any evidence that she did not understand what she was signing or what she was waiving.

[3] We simply cannot accept DeBlasiss assertion that he did not know that he was waiving his right to demand a jury trial when the arbitration provision provides, in no uncertain terms, that neither party would have the right to demand a jury trial.