Opinion
B298984 B303175
12-16-2021
ANDREW MILDER Plaintiff and Appellant, v. SHAWN HOLLEY et al., Defendants and Respondents.
Andrew Milder, in pro. per., for Plaintiff and Appellant. Nemecek & Cole, Jonathan B. Cole, Mark Schaeffer, and Marshall R. Cole, for Defendants and Respondents.
NOT TO BE PUBLISHED
APPEAL from a judgment and order of the Superior Court of Los Angeles County, No. BC581072 Yvette M. Palazuelos and Rupert A. Byrdsong, Judges. Affirmed.
Andrew Milder, in pro. per., for Plaintiff and Appellant.
Nemecek & Cole, Jonathan B. Cole, Mark Schaeffer, and Marshall R. Cole, for Defendants and Respondents.
BAKER, J.
Andrew Milder (plaintiff) initiated arbitration against his former attorney, Shawn Holley (Holley), and her law firm, Kinsella Weitzman Iser Kump & Aldisert, LLP (KWIKA) (collectively, defendants), as required by a provision in their retainer agreement. Plaintiff later sued to stop the arbitration on the theory that defendants fraudulently induced his agreement to arbitrate disputes. In these consolidated appeals from a judgment in favor of defendants and a post-judgment award of attorney fees, we principally consider whether substantial evidence supports the trial court's determination that the agreement was not fraudulently induced, whether plaintiff was entitled to a jury trial (as opposed to an evidentiary hearing) to decide that issue, and whether the trial court abused its discretion as to certain discovery and evidentiary matters.
I. BACKGROUND
A. Plaintiff's Demand for Arbitration
Plaintiff hired defendants to represent him in a criminal matter in 2011. About a week after Holley met plaintiff in jail and helped him obtain bail, plaintiff and defendants executed a retainer agreement. The agreement states defendants' goal was to provide plaintiff with "the highest quality legal services," defines the scope of the engagement, provides for a $15,000 retainer, and sets forth a procedure for resolving disputes.
The dispute resolution section, set forth beneath the underlined heading, "Arbitration," states "it is always possible that some dispute may arise which cannot be resolved by discussion between us. We believe that such disputes can be resolved more expeditiously and with less expense to all concerned by binding arbitration than by court action."
Following a brief general description of arbitration, the agreement states that "[a]rbitration usually results in a decision much more quickly than proceedings in court, and the attorneys' fees and other costs incurred by both sides are usually substantially less." The agreement further provides, in bold type: "By signing this letter, you agree that, in the event of any dispute arising out of or relating to this agreement, our relationship, or the services performed . . ., such dispute shall be resolved by submission to binding arbitration . . . ." The arbitration section of the retainer agreement closes with a paragraph providing that, subject to exceptions not applicable here, "[t]he prevailing party in any action, arbitration, or proceeding . . . will be awarded reasonable attorneys' fees and costs incurred in that action, arbitration, or proceeding . . . ."
Holley moved to be relieved as counsel in plaintiff's criminal case after a few months, citing an undisclosed conflict with plaintiff. Pursuant to the retainer agreement, plaintiff initiated arbitration against Holley in September 2014 and alleged she "failed to comply with her own written agreement, causing serious harm." A few months later, plaintiff filed an amended demand for arbitration against both defendants alleging breach of contract, breach of fiduciary duty, fraud, and unfair business practices based on defendants' failure to deliver "the 'highest quality legal services'" as promised.
B. Plaintiff's Lawsuit to Void the Arbitration Agreement
1. Complaint and motion practice
In May 2015, plaintiff filed a civil complaint in the trial court. In addition to reiterating the allegations in his amended demand for arbitration, he sought a declaratory judgment that the retainer agreement's arbitration provision was void.Plaintiff alleged he was fraudulently induced to agree to the arbitration provision based on a false assertion in the retainer agreement that the attorney fees and other costs incurred by both sides in arbitration are "usually substantially less" than proceedings in court.
Plaintiff's other causes of action were for fraud, breach of fiduciary duty, breach of contract, violation of Business and Professions Code section 17200, unjust enrichment, and intentional infliction of emotional distress. Shortly after filing this complaint, plaintiff filed a second amended demand for arbitration incorporating the complaint's allegations and claims for relief.
Soon after he filed the complaint, plaintiff filed an ex parte application for a temporary restraining order prohibiting defendants from proceeding with the arbitration. The trial court denied the application and plaintiff did not appeal.
Defendants demurred to plaintiff's complaint, and the trial court sustained the demurrer and entered judgment for defendants in October 2015. The trial court reasoned, in sustaining the demurrer, that plaintiff's theory of fraud in the inducement must be decided by the arbitrator rather than the trial court. Plaintiff appealed, and this court reversed. We explained that although claims of fraud in the inducement of a contract as a whole are decided by the arbitrator, claims of fraud in the inducement as to an arbitration provision in particular are to be decided by the court. (Milder v. Holley (Jan. 31, 2017, B267974) [nonpub. opn.] (Milder I).)
On remand, plaintiff contended he was entitled to a jury trial and "the full gamut of discovery." Defendants disagreed on both counts. They argued plaintiff was not entitled to a jury trial because his fraud claim should be considered an affirmative defense to arbitration. They also maintained plaintiff had already deposed Holley and no additional discovery should be permitted.
At an October 2017 status conference, the trial court scheduled a hearing, not a trial, to decide whether the arbitration agreement was induced by fraud. The court also permitted some additional discovery, ruling plaintiff was entitled to a three-hour deposition of defendants' person most knowledgeable on issues pertaining to his fraud claim as well as related written discovery. In response to plaintiff's suggestion that he would seek entry of defendants' default, the trial court explained defendants could "cure that by filing a petition for arbitration," but this was all unnecessary because everyone "agree[d] the only issue before us now is the arbitrability and fraudulent inducement."
This court twice summarily denied writ petitions in which plaintiff sought to compel the trial court to hold a jury trial on his fraud claim. (Milder v. Superior Court (Sept. 28, 2018, B292840) [nonpub. opn.]; Milder v. Superior Court (Jan. 3, 2018, B286852) [nonpub. opn.].)
The matter was thereafter reassigned to a new judicial officer who entered judgment in defendants' favor based on plaintiff's failure to file a brief on the fraud issue in March 2018. A couple months later, yet another judicial officer vacated the judgment and ordered defendants to show cause why their default should not be entered. The trial court subsequently stayed entry of default, severed plaintiff's declaratory relief cause of action from his other causes of action (staying those), and set a hearing on what it characterized as plaintiff's affirmative defense to arbitration.
Plaintiff requested dismissal of his declaratory relief cause of action and moved to lift the stay as to the remaining causes of action and to require defendants to answer the complaint. The trial court granted plaintiff's motion in part, lifting the stay as to plaintiff's remaining causes of action but ruling that entry of default would be stayed "until the court rules on [p]laintiff's 'fraud in the inducement' defense to the arbitration provision."
In a motion to stay or continue the hearing, plaintiff once again argued, among other things, that he was entitled to a jury trial and defendants should be ordered to answer or to petition to compel arbitration. The trial court denied the motion, explaining that defenses to arbitration are decided in summary proceedings and defendants need not petition to compel arbitration because the arbitration plaintiff initiated had already been held. The trial court declined to "put form over substance and require a filing of a petition to compel arbitration when all parties are aware of and cannot dispute that [p]laintiff's claims are brought to invalidate or establish that the clause requiring arbitration of [p]laintiff's affirmative claims does not apply."
Less than two weeks before the scheduled hearing, plaintiff filed an ex parte application to shorten time for his motion to compel the deposition of defendants' person most knowledgeable or, alternatively, to continue the hearing. The trial court denied that application.
2. Hearing and judgment
With his briefing submitted to the trial court on fraud in the inducement, plaintiff filed a declaration in which he stated, among other things, he would not have signed the retainer agreement "knowing what he kn[e]w now," including that arbitration would not cost substantially less than court proceedings. In a supplemental declaration, plaintiff contrasted the arbitrator's bill for $39,812.50 in his dispute with defendants with the much smaller filing fee he paid to commence this civil case. Plaintiff also lodged a number of documents relating to the cost and fairness of arbitration generally.
With their briefing on fraud in the inducement, defendants filed declarations by Holley and KWIKA's managing partner, Lawrence Iser (Iser). (As we shall discuss, plaintiff would later call both as witnesses.) Defendants also submitted excerpts of Milder's deposition in which he testified he reviewed the retainer agreement's arbitration provision prior to signing, had no questions, and thought it "seemed okay to [him]."
At an evidentiary hearing in October 2018, Iser testified he participated in drafting the retainer agreement, which the firm had used since 2006. The arbitration provision was taken from the retainer agreement used by another firm with which he was previously associated. Iser was not involved in drafting the arbitration provision. Iser testified the reason the firm favors arbitration over jury trials is that "[i]t's way more expensive for the firm and for the client to proceed in court versus in arbitration. It's multiples more expensive." The trial court sustained defendants' objections to questions regarding KWIKA's involvement in other arbitrations and its relationship with specific arbitration service providers as irrelevant.
Holley testified she had been with KWIKA for about 12 years. Other than entering the amount of the retainer, Holley did not draft any part of the retainer agreement. She represented plaintiff at a bail hearing days before she presented the retainer agreement to him. Holley and plaintiff "had a conversation in which it seemed that he was a sophisticated client and understood what [they] were discussing." Holley knew plaintiff had attended law school and believed he completed the program and graduated. Holley did not explain the arbitration provision to plaintiff, and, other than requesting a reduced fee, plaintiff had no questions about the retainer agreement. Holley had not represented clients in arbitration in the last 20 years, but she believed based on her 30 years of practice that the retainer agreement's statements regarding arbitration were true.
When it came time for argument during the hearing, plaintiff's counsel moved to reopen evidence and call plaintiff to testify as to his state of mind. The trial court denied the motion, explaining plaintiff had already submitted a declaration and only defendants could call him to testify. The trial court nonetheless permitted plaintiff to make an unsworn statement in which, among other things, he acknowledged he had no questions about the arbitration provision when he signed the retainer agreement because he "believed [his] lawyer" and "didn't think they were going to lie to [him]."
The trial court concluded plaintiff failed to establish he was fraudulently induced to agree to the arbitration provision. The court found "the language in the arbitration clause clearly indicates it reflects [d]efendants' beliefs regarding the benefits of arbitration, but [p]laintiff saw this and did not ask what they meant or the basis for such beliefs. [Citations.] Defendants state [that] had [p]laintiff asked, he would have been told such beliefs were based upon [d]efendants' experience and the general public policy in favor of arbitration. [Citations.] Further, such statements . . . are nothing more than non-actionable opinion as the arbitration clause goes out of its way on multiple occasions to indicate the representations regarding costs are based upon [d]efendants' beliefs. [Citations.]"
The trial court entered judgment for defendants and granted defendants' post-judgment motion for $241,048.50 in attorney fees. Plaintiff appeals the judgment and the order awarding attorney fees. Pursuant to the parties' stipulation, the appeals were consolidated for briefing, oral argument, and decision.
II. DISCUSSION
The grounds for reversal plaintiff raises can be grouped into four categories. As we summarize and then explain, none of his arguments carries the day.
Substantial evidence supports the trial court's finding that plaintiff's agreement to arbitrate was not induced by fraud. Even assuming the retainer agreement's statements regarding arbitration are false as a matter of overall empirics, there is credible, solid evidence defendants believed them to be true based on their legal experience. Plaintiff's contention that defendants' knowledge is instead irrelevant relies on inapplicable rules governing business transactions between attorneys and their clients and an unsupported theory of fraud in the execution.
Plaintiff's argument that he was entitled to a jury trial on fraud in the inducement because he raised it as a cause of action in his complaint rather than as an affirmative defense in opposition to a petition to compel arbitration also lacks merit. It was not necessary for defendants to seek to compel arbitration because plaintiff had already initiated arbitration before making an about-face and suing to stop it. The trial court's decision to conduct the type of hearing prescribed for petitions to compel arbitration-which resembles to a great degree the trial plaintiff claims was required given the court's decision to allow witness testimony-did not deprive plaintiff of notice of defendants' position as to arbitration or shift the burden of proof as to his affirmative defense.
None of the trial court's challenged discovery and evidentiary rulings warrants reversal. The trial court did not abuse its discretion in denying plaintiff's attempts to compel discovery on the eve of the evidentiary hearing, and given the lack of evidence that defendants knew the retainer agreement's statements regarding arbitration are false (if indeed they are), plaintiff was not prejudiced by the exclusion of evidence regarding their falsity.
Finally, the trial court's order granting defendants' motion for prevailing party attorney fees pursuant to the retainer agreement does not run afoul of the statutory prohibition against such awards against consumers in arbitration. The attorney fees awarded in this case were not incurred in arbitration.
A. Substantial Evidence Supports the Trial Court's Ruling on Plaintiff's Cause of Action for Fraud in the Inducement
"Fraud in the inducement is a subset of the tort of fraud. It 'occurs when "'the promisor knows what he is signing but his consent is induced by fraud, mutual assent is present[, ] and a contract is formed, which, by reason of the fraud, is voidable.'"' [Citation.]" (Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 294-295.) Although plaintiff claims he "would have changed his position and not agreed to the arbitration clause" had he been informed of "the true costs of arbitration," he repeatedly contradicts himself in his opening brief and argues he had no choice but to accept the retainer agreement as presented. Plaintiff, for instance, says he "had no authority, leverage or ability to change defendants' standard retainer agreement, even if he was able to request an adjustment to the amount of the retainer." And again: "Though [plaintiff] was able to request an accommodation regarding the amount of payment, he neither negotiated nor could have negotiated any other terms in the Retainer Agreement." Plaintiff's own arguments thus appear to preclude a conclusion he relied on any fraudulent representations in agreeing to the arbitration provision. (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239 ["Reliance exists when the misrepresentation or nondisclosure was an immediate cause of the plaintiff's conduct which altered his or her legal relations, and when without such misrepresentation or nondisclosure he or she would not, in all reasonable probability, have entered into the contract or other transaction"].)
We will charitably assume, however, that plaintiff did rely on the retainer agreement's statements regarding the benefits of arbitration and we will further assume for argument's sake that the agreement's statements could be proven empirically false, at least in some cases. Substantial evidence still supports the trial court's determination, which rested on testimony from Holley and Iser, that they had no knowledge of this assumed falsity and believed the representations to be true in their experience. Although a defendant's knowledge of the falsity of a statement is often shown by inference from circumstantial evidence (RSB Vineyards, LLC v. Orsi (2017) 15 Cal.App.5th 1089, 1097-1098), nothing in the appellate record-neither evidence the trial court admitted nor evidence plaintiff complains was improperly excluded-undermines the trial court's finding.
To reiterate, the agreement says defendants "believe that such disputes [i.e., disputes between defendants and their clients] can be resolved more expeditiously and with less expense to all concerned by binding arbitration than by court action." The agreement also adds: "Arbitration usually results in a decision much more quickly than proceedings in court, and the attorneys' fees and other costs incurred by both sides are substantially less." Plaintiff believes these statements are false because "the parties [would] bear the same attorneys' fees in [court proceedings as opposed to arbitration], but could avoid an additional $20,000 bill for the arbitrator." In other words, plaintiff construes these sentences to mean each category of costs (attorney fees and administrative costs) is lower in arbitration than in court proceedings. The only reasonable construction of these sentences, however, is that the total cost of arbitration (attorney fees plus administrative costs) is usually lower in arbitration than in court proceedings.
In a related vein, plaintiff also argues defendants had an affirmative duty to explain the arbitration provision's terms because they had already undertaken to represent him when the parties executed the retainer agreement. The argument invokes the concept of constructive fraud, which may exist where a party to a contract does not read it in favor of reasonable reliance on a fiduciary counterparty to explain its terms. (See, e.g., Ashburn v. AIG Financial Advisors, Inc. (2015) 234 Cal.App.4th 79, 102; Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal.App.4th 1105, 1131 ["'Constructive fraud 'arises on a breach of duty by one in a confidential or fiduciary relationship to another which induces justifiable reliance by the latter to his prejudice'"'].) Constructive fraud, however, has no application here. Plaintiff admits he read and understood the retainer agreement, and a fiduciary's failure to elaborate on the express terms of an agreement does not amount to fraud in the execution. In the trial court, plaintiff argued defendants' conduct could establish constructive fraud, but he did not contend, as he does for the first time on appeal, that constructive fraud could be shown by defendants' alleged violation of certain Rules of Professional Conduct. The argument is accordingly forfeited.
The belatedly advanced theory of constructive fraud is also meritless in any event. Rule 7.1 of the Rules of Professional Conduct applies to "communication[s] about the lawyer or the lawyer's services," not general statements about the benefits of arbitration. (Rules Prof. Conduct, rule 7.1(a).) Subject to exceptions not applicable here, rule 1.8.1 of the Rules of Professional Conduct "does not apply to the agreement by which the lawyer is retained by the client . . . ." (Rules Prof. Conduct, rule 1.8.1, com. 5.) Similarly, Probate Code section 16004 "does not apply to the provisions of an agreement between a trustee and a beneficiary relating to the hiring or compensation of the trustee." (Prob. Code, § 16004, subd. (c).)
Plaintiff's further contention that the retainer agreement is "fraudulent and unenforceable" because it violates Code of Civil Procedure section 1284.3, subdivision (a)'s prohibition against arbitration pursuant to an agreement that provides for an award of fees and costs against a consumer also lacks merit. There is no evidence plaintiff relied on a representation by defendants that the retainer agreement's arbitration provision complies with Code of Civil Procedure section 1284.3.
B. Plaintiff Was Not Entitled to a Jury Trial on the Issue of Whether the Arbitration Agreement Was Fraudulently Induced
The procedure for considering a petition to compel arbitration is succinctly set forth in Code of Civil Procedure section 1290.2: "A petition under this title shall be heard in a summary way in the manner and upon the notice provided by law for the making and hearing of motions, except that not less than 10 days' notice of the date set for the hearing on the petition shall be given." (Code Civ. Proc., § 1290.2.) "In these summary proceedings, 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 court's discretion, to reach a final determination." (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972 (Engalla), citing Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413-414 (Rosenthal).) The party opposing arbitration has no right to a jury trial in these proceedings. (Rosenthal, supra, at 413.)
The trial court here hewed closely to the Code of Civil Procedure section 1290.2 procedure even though defendants did not (and did not need to) petition to compel arbitration. This was not error. Plaintiff's affirmative claims served the same functional role as affirmative defenses raised in opposition to a petition to compel arbitration, and requiring defendants to file a petition to compel an already-commenced arbitration as a prerequisite to proceeding under Code of Civil Procedure section 1290.2 would, as the trial court reasoned, elevate form over substance. Plaintiff's rejoinder, that dispensing with the formality deprived him of the opportunity to file an opposition "raising all of his additional defenses to the arbitration provision", falls flat because he does not explain why he did not simply amend his complaint to allege any additional defenses. Plaintiff also suggests the lack of a petition to compel arbitration "left [him] in the dark as to defendants' basis for claiming that the arbitration agreement was not fraudulently induced." But even if defendants had been required to file a petition to compel arbitration, their petition would not have addressed plaintiff's affirmative defenses. (See Code Civ. Proc., § 1281.2 [petition must allege "the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that controversy"]; Rosenthal, supra, 14 Cal.4th at 413 ["[W]hen a petition to compel arbitration is filed and accompanied by prima facie evidence of a written agreement to arbitrate the controversy, the court itself must determine whether the agreement exists and, if any defense to its enforcement is raised, whether it is enforceable"], italics added.)
Plaintiff further contends that adopting the summary procedure set forth in Code of Civil Procedure section 1281.2 without requiring defendants to file a petition improperly "shifted the burden of proof on fraudulent inducement to [plaintiff] alone." Plaintiff is mistaken, however, in supposing that defendants would have been required to prove the absence of fraud to prevail on a petition to compel arbitration. (Rosenthal, supra, 14 Cal.4th at 413 ["If the party opposing the petition raises a defense to enforcement . . . [, ] that party bears the burden of producing evidence of, and proving by a preponderance of the evidence, any fact necessary to the defense"].) Plaintiff cites Engalla for the proposition that "[t]he petitioner bears the burden of proving the existence of a valid arbitration agreement" (Engalla, supra, 15 Cal.4th at 972), but overlooks the fact that fraud in the inducement renders a contract voidable (not void), and the contract remains valid unless voided. (1 Witkin, Summary of Cal. Law (11th ed. 2021) Contracts, § 2 ["The propriety of calling a transaction a voidable contract rests primarily on the traditional view that the transaction is valid and has its usual legal consequences until the power of avoidance (often called disaffirmance) is exercised"].) That means he would have borne the burden to prove fraudulent inducement either way.
C. Plaintiff Was Not Prejudiced by the Trial Court's Discovery and Evidentiary Rulings
We review a trial court's evidentiary rulings for abuse of discretion. (Shaw v. County of Santa Cruz (2008) 170 Cal.App.4th 229, 281; see also Balla v. Hall (2021) 59 Cal.App.5th 652, 692.) The party challenging such a ruling must demonstrate "both an abuse of discretion and a consequent miscarriage of justice." (Kim v. The True Church Members of Holy Hill Community Church (2015) 236 Cal.App.4th 1435, 1449; see also Evid. Code, § 354.) "Thus, plaintiff[ ] must demonstrate that, absent the error, 'a different result would have been probable.' [Citation.]" (In re Automobile Antitrust Cases I & II (2016) 1 Cal.App.5th 127, 142.)
Plaintiff moved to compel the deposition of defendants' person most knowledgeable about the retainer agreement less than two weeks before the scheduled evidentiary hearing on his cause of action for fraud in the inducement. The motion was accompanied by an ex parte application to shorten time for hearing. In his opening brief on appeal, plaintiff discusses various reasons his motion to compel should have been granted, but he fails to explain why he delayed until shortly before the hearing to file it. In a declaration filed in support of his motion to compel, plaintiff stated he "los[t] many months" for discovery (i.e., just over two months) due to the judgment entered against him in March 2018 that was later vacated in May 2018. He waited until the end of August 2018, however-just over a month before the scheduled evidentiary hearing-to attempt to meet and confer regarding the proposed deposition. With no explanation provided for this delay, the trial court did not abuse its discretion in denying plaintiff's motion. (See Hernandez v. Superior Court (2004) 115 Cal.App.4th 1242, 1246-1247 [discussing trial court's discretion to manage its calendar].)
Plaintiff also challenges the trial court's exclusion of certain evidence at the hearing. The trial court was correct, however, in sustaining objections to testimony and evidence suggesting defendants favored arbitration due to their relationships with arbitrators rather than its relative efficiency. The retainer agreement did not identify time and expense as the sole reasons that defendants prefer to arbitrate disputes, and defendants did not represent that they had no prior business with specific arbitration service providers. The trial court correctly excluded such evidence as irrelevant to plaintiff's fraud claim. In addition, and regardless of whether plaintiff should have been permitted to present expert testimony and other evidence regarding, as he puts it, "arbitration costs versus litigation costs, timelines for arbitrations compared to court cases, and so forth," such evidence would not have resulted in a different outcome. As we have already explained, plaintiff's claim for fraud in the inducement fails regardless of the empirical support (at some level of generality) for the statements in the retainer agreement. Generic expert testimony would not have altered the trial court's finding that defendants believed the statements to be true.
D. The Attorney Fee Award Is Not Prohibited by Statute
Plaintiff contends the award of attorney fees in this litigation is barred by Code of Civil Procedure section 1284.3, subdivision (a), which provides that "[n]o neutral arbitrator or private arbitration company shall administer a consumer arbitration under any agreement or rule requiring that a consumer who is a party to the arbitration pay the fees and costs incurred by an opposing party if the consumer does not prevail in the arbitration, including, but not limited to, the fees and costs of the arbitrator, provider organization, attorney, or witnesses." (Code Civ. Proc., § 1284.3, subd. (a).) Here, the challenged award concerns fees incurred in litigation-not the arbitration-and nothing in Code of Civil Procedure section 1284.3 precludes giving effect to a contractual provision providing for payment of prevailing party attorney fees in litigation, even litigation relating to arbitration.
DISPOSITION
The judgment and the post-judgment order granting defendants' motion for attorney fees are affirmed. Defendants are awarded costs on appeal.
WE CONCUR: RUBIN, P. J., KIM, J.