Court Opinion

ID: 9911774
Source: CourtListenerOpinion
Date Created: 2023-12-20 20:02:23.699071+00
Date Added: 2024-06-11T12:54:21.116697
License: Public Domain

Filed 12/20/23 Smith v. Folsom Investors CA3
                                           NOT TO BE PUBLISHED
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 This opinion has not been certified for publication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
                                      THIRD APPELLATE DISTRICT
                                                     (Sacramento)
                                                            ----

 RONALD D. SMITH et al.,                                                                       C097549

                    Plaintiffs and Respondents,                                       (Super. Ct. No.
                                                                                34201900264159CUPOGDS)
           v.

 FOLSOM INVESTORS, L.P., et al.,

                    Defendants and Appellants.

         Carol McCormac (McCormac) was a resident at Empire Ranch Alzheimer’s
Special Care Center (Empire Ranch), a licensed elderly residential care facility owned,
operated, and managed by defendants Folsom Investors, L.P., doing business as Empire
Ranch, Folsom Group, LLC, Jerry Erwin Associates, Inc., doing business as JEA Senior
Living, and Brian Pawloski (Pawloski). After McCormac’s death, her surviving children
and partner, Ronald Smith, Carrie Zenker (Zenker), and Amario Ferreira (collectively,
plaintiffs), sued defendants as her successors in interest and in their individual capacity.

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Defendants petitioned to compel arbitration, citing the arbitration clause in McCormac’s
resident admission agreement. The trial court denied the petition.
       On appeal, defendants contend that the trial court erred in finding: (1) the
procedural provisions of the Federal Arbitration Act do not apply; (2) the arbitration
clause is procedurally unconscionable and contains substantively unconscionable terms;
and (3) severing plaintiffs’ individual claims from their successor claims is inappropriate.
       We agree with the trial court that the arbitration clause is unconscionable and
conclude that the trial court did not abuse its discretion in finding severance
inappropriate. Therefore, we need not address defendants’ Federal Arbitration Act
argument. The order denying defendants’ petition to compel arbitration is affirmed.
                   FACTUAL AND PROCEDURAL BACKGROUND
       McCormac needed to be transferred out of a hospital following a dementia-related
incident that made her dangerous to herself and others. Empire Ranch was the only
facility near McCormac’s family that provided the kind of care she needed.
       On the same day of McCormac’s admission, Empire Ranch’s administrator
Pawloski presented McCormac’s daughter Zenker “with a stack of paperwork to sign,”
including the resident admission agreement on a preprinted form. Zenker initialed and
signed the 24-page resident admission agreement as McCormac’s “Responsible Party.”
The agreement contains a half-page arbitration clause that states in pertinent part:

              By signing below, you agree, that any and all claims and
              disputes arising from or related to this Agreement or to your
              residency, care or services at the Facility, whether made
              against us or any other individual or entity, including, without
              limitation, personal injury or wrongful death claims, shall be
              resolved by submission to neutral, binding arbitration in
              accordance with the Federal Arbitration Act; except that any
              claim or dispute involving unlawful detainer proceedings
              (eviction) or any claims that can be brought in small claims
              court shall not be subject to arbitration unless both parties
              agree to arbitrate such proceedings. If someone other than the
              resident signs this arbitration clause, he/she understands and

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              agrees that he/she is agreeing to arbitrate on behalf of the
              resident and on behalf of him/herself as an individual . . . The
              arbitration shall be administered by the Judicial Arbitration and
              Mediation Services (“JAMS”) . . . Each party shall bear its own
              costs and fees in connection with the arbitration, unless
              awarded or part of an elder abuse case. You may withdraw
              your agreement to arbitrate within thirty (30) days after
              signing this Agreement by giving written notice of your
              withdrawal to us. This arbitration clause binds all parties to
              this Agreement and their executors, successors, as applicable
              ....

              By signing below, you warrant that this paragraph has
              been explained to you, that you understand its significance,
              that you voluntarily agree to be bound by it, and that you
              understand that agreeing to arbitration is not a condition
              of admission to the Facility.
       The arbitration clause contains its own signature block that Zenker signed as the
“Responsible Party.”
       “During the process of signing this paperwork,” Zenker stated in her declaration
opposing defendants’ petition, Pawloski “did not explain to me anything about what
arbitration consists of. He did not tell me how much an arbitration would cost or even
explain that arbitrators can make up their own fees. He did not explain to me that
arbitrators use their own rules (as opposed to the rules used in court) and he did not
provide me with a copy of the rules that would be used. He did not tell me that the
arbitration provision in the admission agreement could be negotiated.” She continued: “I
did not intend to waive my individual right to bring a case in civil court and I did not see
(nor was I advised of) any language in the arbitration clause that indicated I was waiving
my individual right to bring a lawsuit in civil court. Moreover, when I signed the
arbitration clause, I did not intend to waive the rights of anyone else.” Zenker did not
have a legal background.
       On the other hand, Pawloski declared that he “explained the arbitration process to
Ms. Zenker, advising her that if there was any dispute regarding Carol McCormac’s

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admission, that the dispute would be resolved via arbitration and not a trial.” He further
claimed he “told Ms. Zenker that signing the ADR Agreement was optional” and that he
“pointed out the bolded language in the agreement regarding the option to withdraw the
agreement within thirty days of signing the agreement.” According to Pawloski, Zenker
“expressed no reservations or objection to signing the documents.”
       After McCormac’s death, plaintiffs sued defendants for elder neglect/abuse,
negligence/negligence per se, violation of McCormac’s Resident Bill of Rights (Health &
Saf. Code, § 1569.269; 22 Cal. Code Regs., § 87468), fraud/misrepresentation, financial
elder abuse, unfair business practices, and wrongful death. Defendants petitioned to
compel arbitration.
       Plaintiffs’ counsel estimated that JAMS would charge the parties between
$138,600 and $161,200, excluding any incidental professional time, to conduct the
arbitration. McCormac’s estate consists of $30,000 in cash, a one-half ownership interest
in a home occupied by her surviving partner, and a one-third interest in a condominium
that was subject to ongoing litigation. Zenker allocated the cash to pay for attorney’s fees
and costs relating to the condominium litigation and for the refurbishment of
McCormac’s properties.
       The trial court denied defendants’ petition to compel. Defendants timely
appealed.
                                      DISCUSSION
       Defendants contend the trial court erred in finding the arbitration clause is
unconscionable. We disagree.
       Both California law and federal law favor enforcement of valid arbitration
agreements. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000)
24 Cal.4th 83, 97 (Armendariz).) But generally applicable contract defenses such as
unconscionability may be applied to invalidate an arbitration agreement without
contravening the Federal Arbitration Act or California law. (OTO, L.L.C. v. Kho (2019)

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8 Cal.5th 111, 125.) “A contract is unconscionable if one of the parties lacked a
meaningful choice in deciding whether to agree and the contract contains terms that are
unreasonably favorable to the other party.” (Ibid.) “[T]he doctrine of unconscionability
has both a procedural and a substantive element, the former focusing on oppression or
surprise due to unequal bargaining power, the latter on overly harsh or one-sided results.”
(Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1133.) Both procedural and
substantive unconscionability must be present to establish unconscionability.
(Armendariz, at p. 114.) “But they need not be present in the same degree. ‘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.’ ” (Ibid.)
       The party asserting unconscionability bears the burden of proof. (OTO, L.L.C. v.
Kho, supra, 8 Cal.5th at p. 126.) We review the unconscionability of an arbitration
agreement de novo, applying general principles of California contract law. (Dougherty v.
Roseville Heritage Partners (2020) 47 Cal.App.5th 93, 102.)
A.     Procedural Unconscionability
       “Analysis of unconscionability begins with an inquiry into whether the contract
was a contract of adhesion—i.e., a standardized contract, imposed upon the subscribing
party without an opportunity to negotiate the terms.” (Flores v. Transamerica
HomeFirst, Inc. (2001) 93 Cal.App.4th 846, 853.) But “[a]dhesion is not a prerequisite
for unconscionability.” (Harper v. Ultimo (2003) 113 Cal.App.4th 1402, 1409.)
       “Procedural unconscionability focuses on the factors of surprise and oppression.”
(Harper v. Ultimo, supra, 113 Cal.App.4th at p. 1406.) “The circumstances relevant to
establishing oppression 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

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the party; and (5) whether the party’s review of the proposed contract was aided by an
attorney.” (Grand Prospect Partners, L.P. v. Ross Dress for Less, Inc. (2015)
232 Cal.App.4th 1332, 1348.) “Surprise involves the extent to which the supposedly
agreed-upon terms are hidden in a prolix printed form drafted by the party seeking to
enforce them.” (Flores v. Transamerica HomeFirst, Inc., supra, 93 Cal.App.4th at
p. 853.)

       Here, the resident admission agreement is oppressive. After a dementia-related
incident at the hospital, McCormac needed to be transferred to a care facility to keep
herself and others safe, and Empire Ranch was the only realistic option. On the day of
McCormac’s admission, Pawloski presented Zenker “with a stack of paperwork to sign,”
including the 24-page resident admission agreement on a preprinted form. Given the
circumstances, Zenker had little choice but to sign the agreement. (See Dougherty v.
Roseville Heritage Partners, supra, 47 Cal.App.5th at pp. 103-104 [finding an arbitration
agreement that was provided on a preprinted form as part of a 70-page admission packet
provided to decedent’s daughter on the day of admission oppressive].)
       The arbitration clause also contains an element of unfair surprise. This element is
well illustrated in Lopez v. Bartlett Care Center, LLC (2019) 39 Cal.App.5th 311 (Lopez).
There, the decedent’s daughter signed an arbitration agreement with the care facility as
her representative. (Id. at p. 313.) The agreement required the daughter to arbitrate all
claims brought in her individual capacity. (Id. at pp. 320-321.) But this language was
“ ‘inserted into the arbitration agreement without headings or highlighting.’ ” (Ibid.)
“Nowhere does the agreement warn that a person who signs as a resident’s representative
or agent is agreeing to be bound in his or her individual capacity and representative
capacity.” (Id. at p. 321.) The arbitration clause “contains no heading or other warning
that it includes a provision waiving the individual trial rights of one who signs the
agreement as a resident’s representative or agent. Nor does the signature block warn of
the purported dual capacity in which the representative is signing.” (Ibid.) As such, “the

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brevity of the arbitration agreement and the fact it contained boldface and red lettering
does not overcome the fact the agreement on its face is between a resident and the
facility.” (Ibid.) Therefore, the Lopez court concluded the agreement as procedurally
unconscionable as to the daughter. (Ibid.)
       Similar to Lopez, the resident admission agreement and the arbitration clause are
on their face between McCormac and Empire Ranch. Zenker is identified as
McCormac’s “Responsible Party” throughout the agreement in initial lines and signature
blocks, including in the signature block for the arbitration clause. The jury trial waivers
for Zenker and McCormac’s other successors in interest are scattered throughout the half-
page arbitration clause without headings or highlighting. Nothing in the arbitration
clause calls out to Zenker that she was signing an agreement to arbitrate her and other
plaintiffs’ individual claims.
       Pawloski declared that he explained the arbitration process to Zenker and
informed her that “any dispute regarding Carol McCormac’s admission” would be
resolved in arbitration instead of at trial. He further told Zenker that she was not required
to sign the arbitration clause and that she could withdraw the arbitration clause within 30
days of signing. Pawloski, however, did not inform Zenker that any individual claims
brought by her or McCormac’s other successors in interest would also need to be
arbitrated or that the arbitration clause could be negotiated. Pawloski’s selective
explanation could lead Zenker, who has no legal background, to believe that his
representation covered all material terms of the arbitration clause. Therefore, the
arbitration clause is procedurally unconscionable as to plaintiffs.
       Zenker’s ability to withdraw from the arbitration clause within 30 days of signing
does not prevent us from scrutinizing or overturning the clause. (Gentry v. Superior
Court (2007) 42 Cal.4th 443, 470, disapproved on another ground in Iskanian v. CLS
Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 366.) An arbitration agreement
with an opt-out provision may still be procedurally unconscionable where the failure to

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opt out “did not represent an authentic informed choice.” (Gentry, at p. 470.) Here, as
discussed above, Zenker’s failure to withdraw from the arbitration clause was not “an
authentic informed choice” when she had little option to care for McCormac other than
Empire Ranch, the jury trial waivers are hidden in the prolix form prepared by
defendants, and defendants made no efforts to alert Zenker of the waivers.
B.     Substantive Unconscionability
       “[T]he paramount consideration in assessing conscionability is mutuality.”
(Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, 657.) “Substantively
unconscionable terms . . . may generally be described as unfairly one-sided.” (Little v.
Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071.) But “ ‘ “unconscionability turns not
only on a ‘one-sided’ result, but also on an absence of ‘justification’ for it.” ’ ”
(Armendariz, supra, 24 Cal.4th at pp. 117-118.) A 24-hour skilled nursing facility’s
arbitration agreement is “clearly ‘one-sided’ ” when it “requires residents to arbitrate
those claims they are most likely to bring against the Facility (medical malpractice,
personal injury, elder abuse) while allowing the Facility to pursue in court the actions the
Facility is most likely to bring against residents (evictions and collections).” (Lopez,
supra, 39 Cal.App.5th at pp. 321-322.)
       The arbitration clause here requires arbitration of “any and all claims and disputes
arising from or related to this Agreement or to your residency, care or services at the
Facility . . . including, without limitation, personal injury or wrongful death claims.” It
provides exceptions for “any claim or dispute involving unlawful detainer proceedings
(eviction) or any claims that can be brought in small claims court.” The claims related to
the care and services provided by Empire Ranch are most likely, if not exclusively,
brought by residents. On the other hand, the claims that could be filed in small claims
court are most likely brought by Empire Ranch.
       Defendants argue the arbitration clause does not lack mutuality because they are
also required to arbitrate actions relating to damages done to the facility’s property by the

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residents or violation of the resident admission agreement (obligating residents to
reimburse Empire Ranch for repairs and unapproved alterations to their apartments). But
many of these claims may indeed be brought in small claims court, which has jurisdiction
to hear actions for monetary damages not exceeding $5,000. (Code Civ. Proc.,
§ 116.220, subd. (a)(1).) Defendants provide no justification for this exception. (See
Gostev v. Skillz Platform, Inc. (2023) 88 Cal.App.5th 1035, 1057-1058 [“[T]he drafter of
a one-sided arbitration provision must provide ‘at least some reasonable justification for
such one-sidedness based on “business realities.” ’ ”].) We therefore conclude the
arbitration clause lacks mutuality.1
       The unconscionable one-sidedness of the arbitration clause is compounded in this
case by the fact that it may require plaintiffs to pay prohibitively high arbitration fees and
costs. “[W]here a consumer enters into an adhesive contract that mandates arbitration, it
is unconscionable to condition that process on the consumer posting fees he or she cannot
pay. It is self-evident that such a provision is unduly harsh and one-sided, defeats the
expectations of the nondrafting party, and shocks the conscience . . . . To state it simply:
it is substantively unconscionable to require a consumer to give up the right to utilize the
judicial system, while imposing arbitral forum fees that are prohibitively high.”
(Gutierrez v. Autowest, Inc. (2003) 114 Cal.App.4th 77, 89-90.)
       Here, plaintiffs’ counsel estimated the arbitration fees would be between $138,600
and $161,200, excluding any additional fees for incidental professional time. Defendants
do not dispute the accuracy of this estimate. But they appear to contend that the clause
does not require them to bear the arbitration fees and costs for McCormac in an elder
abuse action. Under the arbitration clause, McCormac could be required to pay one-half

1 Defendants also argue that the carve-out for unlawful detainer claims is necessary
because they cannot compel residents to arbitrate unlawful detainer claims. We need not
address this, as the small claims carve-out sufficiently supports our conclusion.

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of the total arbitration fees, between $69,300 and $80,600. But her estate consists of only
$30,000 in cash, which must cover attorney’s fees in a different lawsuit, and two real
properties that cannot realistically be sold promptly. Even if the $30,000 could all be
used to pay for the arbitration, it still would not cover half of McCormac’s share of the
fees. The arbitration clause is thus substantively unconscionable because it “effectively
blocks every forum for the redress of disputes, including arbitration itself” by imposing
prohibitively high fees on McCormac. (Gutierrez v. Autowest, Inc., supra,
114 Cal.App.4th at p. 90.)
       Defendants contend the arbitration clause is not substantively unconscionable
because it allows plaintiffs to recover attorney fees and costs under Welfare and
Institutions Code section 15657. Therefore, the clause is valid under Bickel v. Sunrise
Assisted Living (2012) 206 Cal.App.4th 1. This argument confuses the public policy
analysis and the substantive unconscionability analysis. An arbitration clause that waives
plaintiffs’ unwaivable statutory right to attorney’s fees and costs under Welfare and
Institutions Code section 15657 is invalid because it violates public policy. (Bickel, at
pp. 12-13.) On the other hand, an arbitration clause that requires plaintiffs to pay fees
exceeding their ability to pay is substantively unconscionable. (Gutierrez v. Autowest,
Inc., supra, 114 Cal.App.4th at pp. 90-91.)
       Having concluded the arbitration clause is unconscionable, we need not decide
whether the procedural provisions of the Federal Arbitration Act apply. (OTO, L.L.C. v.
Kho, supra, 8 Cal.5th at p. 125; Knapp v. AT&T Wireless Services, Inc. (2011)
195 Cal.App.4th 932, 939.)
C.     Severance
       Defendants contend that even if we found the arbitration clause unconscionable as
to plaintiffs, the proper remedy is to sever plaintiffs’ individual claims from their
successor claims. We disagree.

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       A trial court may also refuse to enforce an arbitration agreement if it is permeated
by unconscionability. (Armendariz, supra, 24 Cal.4th at p. 122.) “One relevant factor in
assessing severability is whether the agreement contains more than one objectionable
term.” (Abramson v. Juniper Networks, Inc., supra, 115 Cal.App.4th at p. 666.) “An
arbitration agreement can be considered permeated by unconscionability if it ‘contains
more than one unlawful provision . . . . Such multiple defects indicate a systematic effort
to impose arbitration . . . not simply as an alternative to litigation, but as an inferior forum
that works to the [stronger party’s] advantage.’ ” (Lhotka v. Geographic Expeditions,
Inc. (2010) 181 Cal.App.4th 816, 826.) “When an arbitration agreement is ‘permeated’
by unconscionability the decision whether to sever the objectionable clauses or refuse to
compel arbitration is within the trial court’s exercise of discretion.” (Samaniego v.
Empire Today, LLC (2012) 205 Cal.App.4th 1138, 1149.)
       Here, as discussed above, the arbitration clause is procedurally unconscionable
and contains substantively unconscionable terms. Severing plaintiffs’ individual claims
from their successor claims will not cure other defects such as the lack of mutuality or the
allocation of fees. “We cannot save the contract by simply hacking off the provisions
governing what claims are arbitrable, how fees and costs will be allocated . . . . If we did
so there would be virtually nothing of substance left to the contract. Instead, we need to
rewrite those provisions according to what we believed was fair and equitable. This, of
course, we cannot do.” (Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 185-
186.) The trial court thus acted within its discretion to find that the arbitration clause was
permeated by unconscionability and that severance is inappropriate.

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                                            DISPOSITION
       The trial court’s order denying defendants’ petition to compel arbitration is
affirmed. Plaintiffs shall recover costs on appeal. (Cal. Rules of Court, rule 8.278(a).)

                                                     MESIWALA, J.

We concur:

EARL, P. J.

KEITHLEY, J.*

* Judge of the Butte County Superior Court, assigned by the Chief Justice pursuant to article VI,
section 6 of the California Constitution.

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