William N. Langstaff Professional Dental Corporation v. Swope

However, the right to arbitration is based on contract. (See Little v. Pullman (2013) 219 Cal.App.4th 558, 565.) Thus, the parties also may agree in the contract that the arbitration will be controlled by the Federal Arbitration Act (FAA.)

In addition, “[t]he FAA applies to any ‘contract evidencing a transaction involving commerce’ that contains an arbitration provision.” (Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 238, quoting 9 U.S.C. § 2.)

Here, Defendant CNB presents evidence that in November of 2022, it informed all clients, including Plaintiffs, that an arbitration agreement (Arbitration Agreement) would take effect starting on February 1, 2023. (See Decl. of Krista Biles in Supp. of Def. CNB’s Mot. to Compel Arbitration and to Stay Proceedings Pending This Mot. and Pending Arbitration (Biles Decl.), ¶ 9.)

Defendant CNB also submitted a copy of the Arbitration Agreement, which states:

This Arbitration Agreement shall be interpreted and enforced in accordance with the Federal Arbitration Act set forth in Title 9 of the U.S. Code to the fullest extent possible, notwithstanding any state law to the contrary, regardless of the origin or nature of the Claims at issue. You and we agree that, by virtue of your relationship with us and the products or services we have provided, will provide, or have offered to provide to you, we are participating in transactions involving the movement of money or goods among states.

(Id., Exh. D at p. 3.)

The Plaintiffs do not dispute that the parties agreed that the FAA applies in this case. Accordingly, the FAA governs here.

Standard for Compelling Arbitration

The FAA states that written arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (9 U.S.C. § 2.)

The United States Supreme Court has described 9 U.S.C. section 2 as reflecting both a “’liberal federal policy favoring arbitration,’” and the “’fundamental principle that arbitration is a matter of contract.’” (AT & T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 339, quoting Moses H. Cone Memorial Hospital v. Mercury Constr. Corp. (1983) 460 U.S. 1, 24 and Rent–A–Center, West, Inc. v. Jackson (2010) 561 U.S. 63, 67.)

As with the CAA, when a party to an arbitration agreement governed by the FAA refuses to submit to arbitration, the other party may petition the court to compel arbitration and stay any pending lawsuit. (See 9 U.S.C. § 4.)

On a motion to compel arbitration under the FAA, the court’s role is limited to deciding: “(1) whether there is an agreement to arbitrate between the parties; and (2) whether the agreement covers the dispute.” (Brennan v. Opus Bank (9th Cir. 2015) 796 F.3d 1125, 1130.) If these conditions are satisfied, the court is without discretion to deny the motion and must compel arbitration. (9 U.S.C. § 4; see Dean Witter Reynolds, Inc. v. Byrd (1985) 470 U.S. 213, 218 [“By its terms, the [FAA] leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration.”].)

When deciding whether a valid arbitration agreement exists, courts generally apply “ordinary state-law principles that govern the formation of contracts.” (First Options of Chicago, Inc. v. Kaplan (1995) 514 U.S. 938, 944.) Thus, the FAA permits arbitration agreements to be invalidated by “’generally applicable contract defenses, such

as fraud, duress, or unconscionability.’” (AT & T Mobility LLC v. Concepcion, supra, 563 U.S. at p. 339, quoting Doctor's Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 687.)

The party seeking to compel arbitration bears an initial burden to make a prima facie showing the claims asserted in the complaint are covered by a valid agreement to arbitrate. (Molecular Analytical Systems v. Ciphergen Biosystems, Inc. (2010) 186 Cal.App.4th 696, 710-711.) Then, “the party resisting arbitration bears the burden of proving that the claims at issue are unsuitable for arbitration.” (Green Tree Fin. Corp. v. Randolph (2000) 531 U.S. 79, 91.)

Existence of Arbitration Agreement

With regard to the existence of an agreement to arbitrate, the party seeking to compel arbitration bears “the ultimate burden of proof, but the court [is] obliged to resolve the dispute using a threestep burden-shifting process.” (Iyere v. Wise Auto Group (2023) 87 Cal.App.5th 747, 755.)

The Court of Appeal explained that this process requires that:

The arbitration proponent must first recite verbatim, or provide a copy of, the alleged agreement. A movant can bear this initial burden “by attaching a copy of the arbitration agreement purportedly bearing the opposing party’s signature.” At this step, a movant need not “follow the normal procedures of document authentication” and need only “allege the existence of an agreement and support the allegation as provided in rule [3.1330].”

If the movant bears its initial burden, the burden shifts to the party opposing arbitration to identify a factual dispute as to the agreement’s existence — in this instance, by disputing the authenticity of their signatures. To bear this burden, the arbitration opponent must offer admissible evidence creating a factual dispute as to the authenticity of their signatures. The opponent need not prove that his or her purported signature is not authentic, but must submit sufficient evidence to create a factual dispute and shift the burden back to

the arbitration proponent, who retains the ultimate burden of proving, by a preponderance of the evidence, the authenticity of the signature.

(Ibid., citations omitted, quoting Espejo v. Southern California Permanent Medical Group (2016) 246 Cal.App.4th 1047, 1060 and Condee v. Longwood Management Corp., supra, 88 Cal.App.4th at pp 218-219.)

Other ways that a party opposing arbitration may challenge the arbitration agreement is by testifying under oath, or declaring under penalty of perjury that: (1) they never saw the agreement, (2) they do not remember seeing the agreement, (3) they never signed the agreement, or (4) they do not remember signing the agreement. (See Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 165.)

As noted above, Defendant CNB presents evidence that in November 2022, it informed Plaintiffs and other clients that the Arbitration Agreement would become effective February 1, 2023. (See Biles Decl., ¶ 9.)

Specifically, Defendant CNB added a notice all of its customers’ November 2022 account statements that informed them that:

EFFECTIVE FEBRUARY 1 2023, THE DISPUTE RESOLUTION SECTION IN THE ACCOUNT AGREEMENT AND DISCLOSURES WILL BE REVISED TO IMPLEMENT BINDING ARBITRATION OF ALMOST ALL DISPUTES BETWEEN YOU AND THE BANK.

(Id., ¶ 10, Exh. C.)

Defendant CNB also included those same account statements the Addendum and Notice of Change in Terms, which stated:

Effective February 1, 2023, the section of the Account Agreement and Disclosures (“AA&D”) entitled “Dispute Resolution” will be replaced in its entirety with a new section also entitled “Dispute Resolution”.

THE REPLACEMENT “DISPUTE RESOLUTION” SECTION WILL IMPLEMENT BINDING ARBITRATION OF ALMOST ALL

DISPUTES BETWEEN YOU AND CITY NATIONAL BANK.

(Id., ¶¶ 11-12, Exh. D at p. 1.)

The Addendum and Notice of Change in Terms contains the Arbitration Agreement, which provides that:

Except to the extent that they may be resolved through small claims court or as set forth in the “Miscellaneous” section below, any and all Claims, regardless whether they (a) arise out of, affect, or relate to conduct that occurred prior to the Effective Date of the Agreement, or (b) are in contract, tort, statute, or otherwise, shall, at the election of either you or us, be resolved by confidential and binding arbitration.

...

This Arbitration Agreement shall be interpreted and enforced in accordance with the Federal Arbitration Act set forth in Title 9 of the U.S. Code to the fullest extent possible, notwithstanding any state law to the contrary, regardless of the origin or nature of the Claims at issue. You and we agree that, by virtue of your relationship with us and the products or services we have provided, will provide, or have offered to provide to you, we are participating in transactions involving the movement of money or goods among states.

(Id., Exh. D at p. 2.)

Therefore, Defendant CNB has met its initial burden to prove the existence of an arbitration agreement between Plaintiffs and Defendant CNB.

The burden now shifts to Plaintiffs to identify a factual dispute regarding the existence of an arbitration agreement between the parties.

Plaintiffs contend that the Addendum and Notice of Change was a “bill stuffer” that attempted to change the original terms agreed to by Plaintiffs without their consent.

Plaintiffs also argue that Defendant CNB failed to present evidence that, when Plaintiffs signed the original terms, they were aware that they would be required to arbitrate the claims brought in this action.

In support of this contention, Plaintiffs cite to Badie v. Bank of America (1998) 67 Cal.App.4th 779. In that case, the Court of Appeal addressed the issue of “[w]hether the Bank's customers can be said to have agreed to allow the Bank to add the ADR clause to those agreements simply by sending them notice of the change . . . .” (Id. at p. 791.)

The Court of Appeal explained that:

[The resolution of this issue] depends, as a threshold matter, on the meaning and scope of the change of terms provision itself. Implicit in the Bank's interpretation of that provision is the assumption that adding the ADR clause is not really a modification at all because, by entering the original account agreements, the customers agreed ahead of time to be bound by any term the Bank might choose to impose in the future. The Bank argues that neither traditional contract offer-and- acceptance principles nor Civil Code section 1698 's requirements of written consent or additional consideration apply if the modification is “in accordance with the terms of the contract.”

The Bank appears to contend that regardless of the nature of a modification, the new ADR provision is a valid part of the contract as long as the prescribed procedure for making the modification was followed. In this case, the only procedural requirement set forth in the change of terms provision was that the Bank would notify the customer of the change. Thus, the Bank argues, because it sent notice in the form of the “bill stuffer,” it met the sole procedural requirement of the change of terms provision, and the modification was therefore valid because it was made “in accordance with the terms of the contract.”

We cannot agree.

The contract modification cases cited by the Bank and relied on by the trial court in its statement of decision do not support the

proposition that a party with the unilateral right to modify a contract has carte blanche to make any kind of change whatsoever as long as a specified procedure is followed. In fact, those cases suggest that a modification made “in accordance with the terms of the contract” means, at least in part, a modification whose general subject matter was anticipated when the contract was entered into.

(Ibid., quoting Busch v. Globe Industries (1962) 200 Cal.App.2d 315, 320, footnote omitted.)

The Court of Appeal determined that “the method and forum for dispute resolution — a matter which is collateral to that relationship — is not discussed at all” in the original agreement, and that “there is nothing about the original terms that would have alerted a customer to the possibility that the Bank might one day in the future invoke the change of terms provision to add a clause that would allow it to impose ADR on the customer.” (Id. at pp. 800- 801, italics original.)

Defendant CNB contends that Badie v. Bank of America is distinguishable because the prior version of the Account Agreement and Disclosures, to which Plaintiffs had agreed, included an alternative dispute resolution provision and thus, the parties contemplated that disputes would be resolved out of court. (See Decl. of Angel Garcia in Supp. of Def. CNB’s Mot to Compel Arbitration (Garcia Decl.), ¶ 3, Exh. E at pp. 18-19.) (fn.1)

(fn.1) This evidence was submitted with Defendant CNB’s reply papers. While courts normally do not consider evidence presented for the first time in reply, they may do so when the evidence is submitted in rebuttal to points raised in the opposition papers. (Karlsson v. Ford Motor Co. (2006) 140 Cal.App.4th 1202, 1216.) The court will consider this evidence, which was submitted in response to Plaintiffs’ citation to Badie v. Bank of America in their opposition papers.

That provision states:

ALTERNATIVE DISPUTE RESOLUTION For California Only

If your account is maintained at a branch in California and a dispute that involves the combined claims of all parties totaling $250,000 or more arises between us with respect to the deposit account or safe deposit box, this Agreement, its enforcement or our deposit account services, either of us may require that it be resolved by judicial reference in accordance with California Code of Civil Procedure, Sections 638, et seq. The referee shall be a retired judge, agreed upon by the parties or appointed by the court.

The costs of the reference procedure, including the fee for the court reporter, shall be paid equally by all parties as the costs are incurred. The referee shall hear all pre-trial and post-trial matters, including requests for equitable relief, prepare an award with written findings of fact and conclusions of law, and apportion costs as appropriate. Judgment upon the award shall be entered in the court in which such proceeding was commenced and all parties shall have full rights of appeal.

(Id. at Exh. E at p. 18, bold original.)

In Mission Viejo Emergency Med. Assocs. v. Beta Healthcare Grp. (2011) 197 Cal.App.4th 1146, the Court of Appeal distinguished Badie v. Bank of America on the basis that there was a prior ADR provision. (See id. at p. 1156 [“But Badie is inapplicable here. This case does not involve a change to an existing contract which previously had no arbitration provision — an arbitration agreement of some sort had been present in every policy between plaintiffs and defendants since 2002.”].)

In Villa Milano Homeowners Ass'n v. Il Davorge (2000) 84 Cal.App.4th 819, the Court of Appeal distinguished Badie on a similar basis: “First, by use of the bill stuffers, the bank in Badie sought to change the terms to which the customers had already agreed. But here, there is no change in terms. Rather, the arbitration clause has been a part of the CC & R's since the date of recordation.” (Id. at p. 825, disapproved of on other grounds, Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223.)

Defendant CNB also argues that Badie v. Bank of America is distinguishable because the Arbitration Agreement had an opt-out provision.

Specifically, the Arbitration Agreement states:

Right To Opt Out. If you have an account that is (a) maintained at a branch in California, (b) governed by an AA&D with an effective date earlier than February 1, 2023, and (c) open as of January 31, 2023, then you have the right to opt out of the Arbitration Agreement below with respect to that account. To opt out, you must notify us in writing prior to February 1, 2023, by stating “I elect to opt out of the Arbitration Agreement with respect to the following account(s)” or any words to that effect.

You must specify the name(s) and the last four digits of the account number(s) as to which you elect to opt out. You may opt out by (a) sending a letter to City National Bank-Central Operations at 350 South Grand Avenue, 4th Floor, Los Angeles, CA 90071, signed by you and postmarked prior to February 1, 2023; or (b) sending an email to CentOpsAdmin- Dispute_Resolution@cnb.com prior to February 1, 2023. If you timely and properly opt out, then all Claims (as defined below) relating to the account as to which you opted out will be governed by the dispute resolution provisions contained in the AA&D that governed that account and that were in effect immediately prior to February 1, 2023.

Your opt-out will not be effective, and you will be deemed to have consented and agreed to the Arbitration Agreement, if you do not abide by the preceding sentences.

(See Biles Decl., Exh. D at p. 1.)

Defendant CNB cites to two federal cases that distinguished Badie v. Bank of America on this basis.

In Ackerberg v. Citicorp USA, Inc. (N.D.Cal.2012) 898 F.Supp.2d 1172, the District Court stated:

Plaintiff relies on Badie v. Bank of Am., 67 Cal.App.4th 779, 79 Cal.Rptr.2d 273

(1998) and Sears, Roebuck and Co. v. Avery, 163 N.C.App. 207, 593 S.E.2d 424 (2004) for the proposition that a unilateral addition of an arbitration clause under a change-of-terms provision is unenforceable. In those cases, however, the cardholders were provided no realistic opportunity to exit the account when the new terms were added. See Badie, 67 Cal.App.4th at 805, 79 Cal.Rptr.2d 273 (cardholder had to close the account immediately in order to opt-out of the new ADR requirement inserted in a mailer); Avery, 593 S.E.2d at 426–27 (to opt-out cardholder had to pay off the entire balance within 30 days, which she could not afford to do).

(Id. at p. 1176.)

In Cayanan v. Citi Holdings, Inc. (S.D. Cal. 2013) 928 F.Supp.2d 1182, 1200, the District Court relied on Ackerberg v. Citicorp USA, Inc. in concluding the plaintiff had agreed to arbitrate her claims against the defendant:

Plaintiff Baker also relies on Badie v. Bank of America, 67 Cal.App.4th 779, 79 Cal.Rptr.2d 273 (1998), for the proposition that a unilateral addition of an arbitration clause under a change-of-terms provision is unenforceable. However, Badie did not hold that bill stuffer notices are per se invalid. Rather, the particular notice in that case failed to provide consumers a “realistic opportunity to exit the account when the new terms were added.” Ackerberg v. Citicorp USA, Inc., 898 F.Supp.2d 1172, 1176 (N.D.Cal.2012) (distinguishing Badie where Citibank USA N.A.'s notice contained opt out provision and opportunity to pay off outstanding balance under existing terms of card agreement).

(Id. at p. 1200, footnote omitted.)

Badie v. Bank of America is not applicable here. In this case, when the parties agreed to the prior version of the Account Agreement and Disclosures, they anticipated that disputes involving the combined claims of all parties totaling $250,000 or more that arose between

them with respect to a deposit account would be resolved by alternative dispute resolution.

Thus, the “bill stuffer” was adding wholly new terms to the Account Agreement and Disclosure, but rather, was only modifying an alternative dispute resolution provision already within the contemplation of the parties.

Further, opt-out provision in this case gave Plaintiffs a “realistic opportunity to exit the account when the new terms were added.” In fact, Plaintiffs had an opportunity to avoid the terms of the Arbitration Agreement altogether without terminating their bank account.

Therefore, the court finds that there was a valid arbitration agreement between Plaintiffs and Defendant CNB.

Scope of Arbitration Agreement

Before the parties can be ordered to arbitration, the court must carefully examine the terms of the contract and apply the statutory rules of contract interpretation. (See Bono v. David (2007) 147 Cal.App.4th 1055, 1063.)

One overriding rule is that “[a] contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.” (Civil Code, § 1636.)

Here, the Arbitration Agreement requires that “any and all Claims, regardless whether they (a) arise out of, affect, or relate to conduct that occurred prior to the Effective Date of the Agreement, or (b) are in contract, tort, statute, or otherwise, shall, at the election of either you or us, be resolved by confidential and binding arbitration.” (Biles Decl., Exh. D at p. 2.)

The Arbitration Agreement clearly and unambiguously applies to “any and all Claims,” including those claims asserted against Defendant CNB in this action, and Plaintiffs do not argue otherwise.

Unconscionability

Plaintiffs do, however, contend that the Arbitration Agreement is unenforceable because it is unconscionable.

The doctrine of unconscionability 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.” (Sonic- Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1133.) It consists of both procedural and substantive components – “the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results.” (Ibid.)

In order to be unenforceable due to unconscionability, “’[procedural and substantive unconscionability] must both be present.’” (Armendariz v. Found Health Psychcare Servs., Inc., supra, 24 Cal.4th at p. 114, quoting Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1533; see Wherry v. Award, Inc. (2011) 192 Cal.App.4th 1242, 1246 [“To be voided on [unconscionability] ground[s], the agreement must be both procedurally and substantively unconscionable.”)

However, “they need not be present in the same degree.” (Armendariz v. Found Health Psychcare Servs., Inc., supra, 24 Cal.4th 83, 114; Parada v. Superior Court (2009) 176 Cal.App.4th 1554, 1570.)

“Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves. In other words, the more substantively unconscionable the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Armendariz v. Found Health Psychcare Servs., Inc., supra, 24 Cal.4th 83 at p. 114.)

“The party resisting arbitration bears the burden of proving unconscionability.” (Pinnacle Museum Tower Ass’n v. Pinnacle Market Dev. (US), LLC (2012) 55 Cal.4th 223, 247.)

Procedural Unconscionability (Arbitration Agreement)

Procedural unconscionability concerns the manner in which the contract was negotiated and the parties' circumstances at that time. It focuses on the factors of surprise and oppression. (Kinney v. United Healthcare Servs. (1999) 70 Cal.App.4th 1322, 1329.)

These factors “include, but are not limited to (1) the amount of time the party is given to consider the proposed contract; (2) the amount and type of pressure exerted on the party to sign the proposed contract; (3) the length of the proposed contract and the length and complexity of the challenged provision; (4) the education and experience of the party; and (5) whether the party’s review of the proposed contract was aided by an attorney.” (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 126-127.)

Thus, the Supreme Court has instructed courts to first determine whether an arbitration agreement is adhesive. (See Armendariz v. Found. Health Psychcare Servs., Inc., supra, 24 Cal.4th 83, 114– 15.) “Oppression generally takes the form of a contract of adhesion, 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.” (Carmona v. Lincoln Millennium Car Wash, Inc. (2014) 226 Cal.App.4th 74, 84, quotations and citations omitted.)

Plaintiffs contend that the Arbitration Agreement was a contract of adhesion as Defendant CNB had superior bargaining power and presented the agreement on a “take it or leave it basis.”

However, as noted above, the Arbitration Agreement had an opt-out provision that does away, or at least reduces greatly, the adhesive nature of the agreement.

Further, Defendant CNB presents evidence that Plaintiffs were informed that they had the right to opt out of the Arbitration Agreement and if they did not opt out, they would be subject to the terms of the Arbitration Agreement. (See Biles Decl., ¶¶ 13-15.)

Despite this, Plaintiffs did not opt out as they were permitted to do. (See id., ¶¶ 16-17, Exh.s E-F.)

Therefore, there is little or no procedure unconscionability present here.

Substantive Unconscionability

But even if the Arbitration Agreement was adhesive and procedurally unconscionable, that “does not as a matter of law render [it] unenforceable.” (McManus v. CIBC World Markets Corp. (2003) 109 Cal.App.4th 76, 91; see also Serpa v. California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, 704 [“[The] adhesive aspect of an agreement is not dispositive.”]; see also Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4th 1105, 1127 [“As we have seen, the cases uniformly agree that a compulsory pre-dispute arbitration agreement is not rendered unenforceable just because it is . . . offered on a ‘take it or leave it’ basis.”].)

In order to be invalid, the arbitration agreement must also be substantively unconscionable. “Substantive unconscionability pertains to the fairness of an agreement's actual terms and to assessments of whether they are overly harsh.” (Carmona v. Lincoln Millennium Car Wash, Inc., supra, 226 Cal.App.4th at p. 85, quotations and citations omitted.) “A contract term is not substantively unconscionable when it merely gives one side a greater benefit; rather, the term must be so one-sided as to ‘shock the conscience.’” (Ibid.)

The “paramount consideration” is the mutuality of the obligation to arbitrate. (Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1287.) “Substantive unconscionability focuses on the onesidedness or overly harsh effect of the contract term or clause.” (Harper vs. Ultimo (2003) 113 Cal.App.4th 1402, 1406-1407.) An arbitration agreement “lacks basic fairness and mutuality if it requires one contracting party, but not the other, to arbitrate all claims arising out of the same transaction or occurrence or series of transactions or occurrences.” (Armendariz v. Found Health Psychcare Servs., Inc., supra, 24 Cal.4th at p. 120.)

Plaintiffs contend that the Arbitration Agreement is unconscionable because it requires arbitration before a panel of three arbitrators rather than one arbitrator in cases over $500,000 and must be

administrated by the American Arbitration Association or JAMS, which would impose exorbitant costs and be prohibitively expensive. (See Opp’n to Def. CNB’s Mot. to Compel Arbitration at pp. 6-7.)

Plaintiffs cite to Green Tree Financial Corp.- Alabama v. Randolph (2000) 531 U.S. 79, but in that case, the Supreme Court held:

[W]e believe that where, as here, a party seeks to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive, that party bears the burden of showing the likelihood of incurring such costs.

(Id. at 92.)

The Supreme Court determined that the plaintiff “did not meet that burden” because “neither during discovery nor when the case was presented on the merits was there any timely showing at all on the point.” (Ibid.) Thus, the “‘risk’ that [plaintiff] will be saddled with prohibitive costs is too speculative to justify the invalidation of an arbitration agreement.” (Id. at p. 91.)

Here, Plaintiffs also provide no evidence that the fees would be prohibitively expensive.

They only assert in their briefing that “[t]he costs of a three-judge panel of arbitrators in this case is likely $30,000 a day” and “the JAMS fees would likely be in excess of $12,000 per day for each day of arbitration.” (Opp’n at pp. 6:12-13, 7:5-6.)

However, the “[s]tatements and arguments by counsel are not evidence.” (Gdowski v. Gdowski (2009) 175 Cal.App.4th 128, 139.)

Plaintiffs cite to Parada v. Superior Court (2009) 176 Cal.App.4th 1554, but in that case, the petitioners presented the court with evidence as to costs and their ability to bear those costs. (See id. at p. 1574 [“Petitioners presented evidence establishing the cost of a single day of arbitration would be at least $3,200 per arbitrator, plus additional case management fees charged by JAMS. Petitioners submitted evidence of their income, expenses, and savings showing their inability to pay those fees at the time they signed the Atlas Account Agreements.”].)

In this case, Plaintiffs did not submit any evidence of the actual cost of arbitration in this case or Plaintiffs’ financial status and ability to pay those costs.

Plaintiffs also fail to provide evidence to show that these costs would be prohibitively expensive relative to Plaintiffs’ claims that Defendant CNB “fail[ed] to follow their own fraud monitoring, prevention and protection policies and transferring millions of dollars of Plaintiffs’ funds” and causing Plaintiffs “injury in fact in the way of lost money in excess of five million dollars, or more.” (First Amend. Compl., ¶¶ 107, 109.)

Here, Plaintiffs has shown little or no procedural unconscionability and no substantive unconscionability.

Therefore, the court will grant the motion to compel arbitration.

Stay of Pending Court Action

Civil Procedure Code section 1281.4 provides:

If a court of competent jurisdiction, whether in this State or not, 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.)

The Court of Appeal has interpreted Section 1281.4 to mean that “[a]ny party to a judicial proceeding ‘is entitled to a stay of those proceedings whenever (1) the arbitration of a controversy has been ordered, and (2) that controversy is also an issue involved in the pending judicial action.’” (Heritage Provider Network, Inc. v. Superior Court (2008) 158 Cal.App.4th 1146, 1152, quoting Marcus v. Superior Court (1977) 75 Cal.App.3d 204, 209.)

This means that, as a general matter, if the court grants the motion to compel arbitration, it must stay the court action until completion of the arbitration. (See Thomas v. Westlake (2012) 204 Cal.App.4th 605, 620 [if court orders arbitration, “it must also stay proceedings on the claims until completion of arbitration”].)

In addition to Section 1281.4, Section 3 of the FAA states that:

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, providing the applicant for the stay is not in default in proceeding with such arbitration.

(9 U.S.C., § 3.)

Here, the court has ordered that Plaintiffs and Defendant CNB arbitrate the claims between them.

Thus, the court must stay the action between those parties.

Attorney’s Fees

Generally, attorney’s fees are borne by the party that incurred them. (See Pederson v. Kennedy (1982) 128 Cal.App.3d 976, 978-79).

Therefore, a party may recover attorney’s fees only if provided for by contract or statute. (See Code Civ. Proc., § 1033.5, subd. (a)(10); see also LNSU # 1, LLC v. Alta Del Mar Coastal Collection Community Association (2023) 94 Cal.App.5th 1050, 1081 [“Each party to an action must pay its own attorney fees unless a statute or contract requires the opposing party to pay them.”].)

For example, Civil Code section 1717 states that:

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.

(Civil Code, § 1717, subd. (a).)

Here, the Arbitration Agreement provides that:

Any party that fails to submit to arbitration following a proper demand to do so shall bear and agrees to pay all costs and expenses, including reasonable attorneys’ fees, incurred to compel arbitration. Such party shall bear and agrees to pay such costs and expenses (1) even if such party otherwise prevails, in whole or in part, on the Claim(s); and (2) notwithstanding any other provision of this Arbitration Agreement.

(Biles Decl., Exh. D at p. 3.)

Therefore, there is a basis upon which Defendant CNB may seek attorney’s fees for the instant motion.

Lodestar Calculation of Attorney’s Fees

Civil Code section 1717 provides that the amount of reasonable attorney’s fees shall be fixed by the court and shall be an element of the costs. (Civil Code, § 1717, subd. (a).)

The lodestar method normally is used to calculate reasonable fees in contract disputes. (See PLCM Group v. Drexler (2000) 22 Cal.4th 1084, 1090- 1091; Galbiso v. Orosi Pub. Util. Dist. (2008) 167 Cal.App.4th 1063, 1089 [court should use lodestar method for calculating amount of award of attorney’s fees, unless statute authorizing attorney’s fees provides for another method of calculation].)

When using this method, the court begins by determining the reasonable hours the prevailing

party’s attorney spent on the case and multiplying that number by the reasonable hourly rate. (See Ketchum vs. Moses, supra, 24 Cal.4th at pp. 1131-34 or Ketchum v. Moses (2001) 24 Cal.4th 1122, 1131-1134; Christian Research Institute v. Alnor (2008) 165 Cal.App.4th 1315, 1321.)

On a motion for attorney’s fees, the moving party has the burden of establishing entitlement to an award, including that the fees were incurred and that they were reasonably incurred. (ComputerXpress, Inc. v. Jackson (2001) 93 Cal.App.4th 993, 1020; Christian Research Institute v. Alno (2008) 165 Cal.App.4th 1315, 1320.)

Specifically, the party seeking attorney’s fees “’bear[s] the burden of . . . documenting the appropriate hours expended and hourly rates.’” (Computer Xpress, Inc., supra, 93 Cal.App.4th at p. 1020, quoting Hensley v. Eckerhart (1983) 461 U.S. 424, 437.)

In its original motion papers, Defendant CNB did not provide evidence of the number of hours expended or the hourly rates of its counsel.

Defendant CNB does provide some of this information in its reply papers. (See Supp. Decl. of Alexander H. Cote in Supp. of Def. CNB’s Mot to Compel Arbitration, ¶¶ 2-3.)

However, courts do not consider evidence presented in a reply declaration except in extraordinary circumstances and where the other party has an opportunity to respond. (See Jay v. Mahaffey (2013) 218 Cal.App.4th 1522, 1537 [“The general rule of motion practice, which applies here, is that new evidence is not permitted with reply papers.”]; San Diego Watercrafts, Inc. v. Wells Fargo Bank (2002) 102 Cal.App.4th 308, 310 [summary judgment reversed because trial court erred in considering evidence first submitted with reply]; Plenger v. Alza Corp. (1992) 11 Cal.App.4th 349, 362, fn. 8 [court may consider new evidence presented in reply only in exceptional cases and only if opposing party is given opportunity to respond to new evidence].)

Here, Defendant CNB does not explain why it did not present this evidence in its original moving papers, particularly as Defendant CNB made its request for attorney’s fees in those moving papers

and thus, was aware of the need to support its request.

Further, Plaintiffs did not have the opportunity to respond to this evidence.

Therefore, the court will deny the request for attorney’s fees without prejudice.

The arbitrator may decide the issue of attorney’s fees in the arbitration proceedings.

Defendant CNB shall give notice of this ruling.

3 Maldonado vs. CalOptima Motion to Seal

Defendant CalOptima Health’s Motion to Seal 30-2022-01299196 Portions of Its Motion for Summary Judgment, or in the Alternative, Summary Adjudication is GRANTED.

The court ORDERS that the following shall be sealed:

1. Appendix of Exhibits in Support of Defendant CalOptima Health’s Motion for Summary Judgment, or in the Alternative, Summary Adjudication (ROA #242), Exhibits 2-6 and 14-37.

Pending Motion

Defendant CalOptima Health moves to seal Exhibits 2-6 and 14-37 to the Appendix of Exhibits in Support of Defendant CalOptima Health’s Motion for Summary Judgment, or in the Alternative, Summary Adjudication (ROA #242).

Standard for Motion to Seal

“Unless confidentiality is required by law, court records are presumed to be open.” (Cal. Rules of Court, rule 2.550(c); see In re Marriage of Tamir (2021) 72 Cal.App.5th 1068, 1078 [public’s right of access to court records is based on both common law right of access to public documents, as well as constitutional right grounded in the First Amendment].)

To seal a record, the moving party must file a motion for such relief, along with a memorandum