Winter 2019 Newsletter

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Volume 15, Issue 1

Can You Afford to Arbitrate?

Courts Excuse Indigent Parties from Contractual Arbitration Provisions

Real estate contracts often include an arbitration provision. The provision provides that the parties to the contract have agreed to have any disputes between them heard outside of the court system and through private arbitration.

But what happens when one of the parties is unable to afford the costs of arbitration?

Two California Court of Appeals cases address this issue: A 2018 case entitled Weiler v. Marcus & Millichap Real Estate Investment Services, Inc. and a 2013 case entitled Roldan v. Callahan & Blaine.

In the Weiler case a couple sold their two Las Vegas properties for a $4.1 million dollar Red Robin restaurant in Texas. Marcus & Millichap was their broker.

Shortly after escrow closed the tenant stopped paying rent and property taxes and this persisted for the next seven years. Finally the couple sold the property for a $2 million loss.

The couple sued Marcus & Millichap Real Estate Investment Services for breach of fiduciary duty, negligence, negligent misrepresentation and elder abuse. They claimed that they knew very little about commercial real estate investing and wanted a safe and secure investment with a decent return.

The parties went to arbitration with a three-person panel at a combined hourly rate of $1,450. After another year of arbitration plaintiff claimed that she was no longer able to afford arbitration and brought suit in the Superior Court to address the issue.

Plaintiff submitted a detailed current financial statement and asked that defendant pay for the arbitration or allow the case to be heard in the court. The trial court determined that plaintiff’s current financial status was irrelevant. Instead, the trial court noted that plaintiff was wealthy and able to afford arbitration at the time the contract was entered into. Therefore the con- tract was not unconscionable and fully enforceable. The trial court granted summary judgment for defendants.

The issue was whether a party could be compelled to arbitrate even if they cannot afford it (thus having their case in arbitration dismissed for failure to pay).

The Short Answer: The Court of Appeal held that California has a long-standing public policy of ensuring that all litigants have access to the justice system for resolution of their grievances, without regard to their financial means. It would be unacceptable for a party to be deprived of any forum for re- solving his or her claims simply because they could not afford the high costs of arbitration.

The Solution: The Court cannot order the arbitration provider to waive their fees. Nor can the Court order the opposing party to pay another party’s fees. Therefore the solution is to offer the other party a choice: (1) Continue with the arbitration by paying the other side’s fees; or (2) Waive the right to arbitrate and have the case heard in the Superior Court.

Analysis: The Court found that the very reason plaintiff filed the action is because Defendants’ alleged wrongful acts led her and her husband to lose a significant amount of money. Moreover, Defendant’s tactical decisions in arbitration had driven up the cost of the proceeding. Basic contract law dictates that “hindrance of the other party’s performance operates to excuse that party’s nonperformance.”

More importantly, from a public policy perspective, a Defendant accused of wrongdoing should not be permitted to avoid potential liability by forcing the matter to arbitration and subsequently making it so expensive that the Plaintiff eventually has no choice but to give up. “To hold otherwise would be to turn ‘and justice for all’ into ‘and justice for those who can afford it’. The interest in avoiding such an out- come far outweighs the interest, however, strong, in respecting parties’ agreements to arbitrate.

This was not a case about unconscionability of the contract. Plaintiff agreed to proceed with either forum as long as she could proceed in one of them.

The Court therefore held that when a party who has engaged in arbitration in good faith is unable to afford to continue in such a forum, that party may seek relief from the superior court. The court will examine the party’s financial status and, if appropriate, offer one of the choices above.

In the Weiler case the Court addressed a situation where the Plaintiff was wealthy at the time the contract was entered but became indigent through the alleged wrongdoings of the Defendants. In the Roldan case the Court pointed out that there are also cases where the one party never had the ability to pay for arbitration, even at the time of signing the contract. Roldan involved an attorney-client retainer agreement between attorneys and a group of indigent clients. The Court noted that the clients were elderly Section 8 housing recipients and that the attorneys could not have reasonably assumed at the time of entering into the contract that the clients would be able to pay for arbitration. The Roldan court excused those clients from arbitration by offering up the same choice—the attorneys could pay for the arbitration or waive the arbitration and proceed in the Superior Court.

A Message From Laine…

One of my goals this year is to “Energize My Connections”. In other words to strengthen and expand my relationships. My strategies are much the same as they have always been. Make telephone calls (instead of responding by email!), invite people to lunch, grab a drink. The goal is to get closer to my friends, family, clients and colleagues.

In a bigger sense I have two words that stick in my mind: Influence and Impact. I want to be a person of influence who is making an impact in the world.

The first step in reaching this is to expand my goals and identify some big dreams. Typical goal setting exercises exhort you to aim for 20% more. But that doesn’t inspire me. Instead I am working on the 10X idea. How can I increase the quality of my life by ten times?

Brian Tracy defines success as “the progressive realization of a worthy goal.” In other words it is the accomplishing that is the key, not the result. I am not sure that I would ever stop and think “Ok, I have accomplished everything in life that I want to accomplish.” Instead I need to keep dreaming of bigger goals and figuring out how to reach them.

I hope you enjoy our first newsletter of 2019 and I hope we can connect soon.

Ask (No Really, Just Ask)

One reason people struggle to gain influence in their personal and professional lives is that they simply don’t ask for what they want. This is, in part, because people drastically underestimate the willingness of others to engage and help. Several replicated studies show that people tend to say yes over three times as often as people thought they would. Another reason people fail to ask is because they think the other person will judge them harshly. Studies show that people overestimate how often or to what degree others will judge them.

Ask and you shall receive. Underperformers fail to ask all the time. They let fear of judgment or rejection prevent them from speaking up, asking for help, trying to lead. And the sad thing is, they’re usually wrong.

I understand you worry what others think. But if no one has ever said it to you, here you go: Most people aren’t thinking about you at all. And even when you put yourself in front of them to make a request and they say no, within minutes they’re right back to not thinking of you. They’re not sitting there judging you; they’re too busy dealing with their own life. So you might as well get on with it and ask. Otherwise, you’ve set aside your dreams for judgments that probably don’t even exist.

If someone does say yes to helping you, they tend to like you even more after they’ve done something for you. People don’t grudgingly help you. If they didn’t want to, they’d probably say no. It’s counterintuitive, but if getting people to like you more is the goal, then just ask them to do you a favor.

If you want more influence, remember: Ask and ask often.

High Performance Habits by Brendon Burchard

Cases We Have Handled

Here are some examples of the types of lawsuits we handle:

Partnership and Shareholder Lawsuits: In one case we handled the majority shareholder in a corporation was sued by two minority shareholders for breach of fiduciary duty, fraud, accounting and involuntary dissolution. We took the case to trial in the Ventura Superior Court and won judgment on all causes of action for our client.

Family Lawsuits: We just finished a trial where we represented four siblings against two other siblings involving claims of fraud and quiet title over the ownership of some apartment buildings. We won the trial and judgment was entered in favor of our clients on all causes of action.

Real Estate Breach of Contract: In one case our manufacturing client had an option to purchase its leased warehouse for a price well below the current fair market value. But the Seller refused to sell. We brought a motion for summary judgment and won. The court ordered the Seller to complete the sale to our client. We are currently representing a buyer in a specific performance lawsuit against a seller who sought to cancel the transaction three days before close of escrow in an effort to accept a more lucrative offer.

Real Estate Fraud: We represented a shopping center buyer who received false financial books and records from the Seller. The Seller lied about the amount of rent being received. We settled the matter for a large payment to our client.

Neighbor Lawsuits: This last year we prevailed at trial in a neighbor-against-neighbor lawsuit where the real estate lawyer next door to our client sued for a prescriptive easement to a portion of our client’s property.

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