Gregg Welsh v. Pacific Premier Bancorp, Inc.

Case Number

23CV03710

Case Type

Hearing Date / Time

Wed, 11/15/2023 - 10:00

Nature of Proceedings

Motion To Compel Arbitration

Tentative Ruling

For Plaintiff Gregg Welsh, individually and as Trustee of the Gregg Welsh

Revocable Trust U/T/D August 31, 2015: E. Patrick Morris, Law Offices of E. Patrick Morris

For Defendant Pacific Premier Bank: William S. O’Hare, Byron B. Mauss, Jing (Jenny) Hua, Snell & Wilmer L.L.P.

RULING

For all reasons discussed herein, the motion of Defendant Pacific Premier Bank to compel arbitration is granted. Plaintiff’s claims against Defendant shall proceed to arbitration. This litigation shall be stayed pending the completion of arbitration. The Court will set a follow-up CMC for 11/20/24 at 8:30am dismiss the case if everything is done.

Background

This action relates to the disbursement of insurance proceeds following a fire at property owned by the Gregg Welsh Revocable Trust U/T/D dated August 31, 2015 (the Trust) and located at 22 Brighton Avenue in Bolinas, California (the Brighton property). Plaintiff Gregg Welsh, individually and as trustee of the Trust, filed his original complaint in this matter on August 25, 2023, and filed an amended complaint on September 6, 2023, alleging six causes of action against Defendant Pacific Premier Bancorp, Inc. (PPB): (1) breach of written contract; (2) breach of fiduciary duty; (3) intentional or negligent infliction of emotional distress; (4) breach of the covenant of good faith and fair dealing; (5) waste; and (6) conversion.

The amended complaint is 41 pages long and includes 151 factually detailed paragraphs which are presented in a narrative fashion. Briefly, as alleged in the operative amended complaint:

In April 2016, Welsh borrowed the sum of $1,400,500 (the loan) pursuant to a written loan agreement (the loan agreement) with Heritage Oaks Bank (Heritage Oaks). (Am. Compl., ¶ 3.) The loan was secured by a deed of trust (the DOT) recorded against the Brighton property. (Am. Compl., ¶¶ 3, 4 & Exh. A.) Under the loan documents signed by Welsh, Heritage Oaks required Welsh to maintain casualty insurance on the Brighton property in Welsh’s name and to include Heritage Oaks as a loss payable beneficiary. (Am. Compl., ¶ 5.)

The DOT is the only loan document that reflects how insurance proceeds were to be handled in the event of loss or damage to the Brighton property. (Am. Compl., ¶ 6.) The relevant language of the DOT regarding the application of casualty insurance proceeds in the event of loss or damage to the Brighton property is as follows:

“ ‘If in Lender’s sole judgment Lender’s security interest in the Property has been impaired, Lender may, at Lender’s election, receive and retain the proceeds of any insurance and apply the proceeds to the reduction of the Indebtedness, payment of any lien affecting the Property, or to restoration and repair of the Property. If the proceeds are to be applied to restoration and repair, Trustor shall repair or replace the damaged or destroyed Improvements in a manner satisfactory to Lender. Lender shall, upon satisfactory proof of such expenditure, pay or reimburse Trustor from the proceeds for the reasonable cost of repair or restoration if Trustor is not in default under this Deed of Trust. Any proceeds which have not been disbursed within 180 days after their receipt and which lender has not committed to the repair or restoration of the Property shall be used first to pay any amount owing to Lender under this Deed of Trust, then to pay accrued interest, and the remainder, if any, shall be applied to the principal balance of the Indebtedness. If Lender holds any proceeds after payment in full of the Indebtedness, such proceeds shall be paid to Trustor as Trustor’s interests may appear.’ ”

(Am. Compl., ¶ 7.)

On March 21, 2017, PPB acquired Welsh’s indebtedness with Heritage Oaks and assumed all contracts between Heritage Oaks and Welsh with respect to the Brighton property. (Am. Compl., ¶ 8.)

On June 5, 2020, the Brighton property was substantially destroyed by a fire which made it uninhabitable for commercial or residential use. (Am. Compl., ¶ 10.) Welsh notified his casualty insurance company and PPB of the loss. (Am. Compl., ¶ 11.)

On August 17, 2020, Welsh entered into separate contracts with McCauley Construction (McCauley) to rebuild the Brighton property (the project) in two phases, the first phase relating to cleanup, demolition, and preservation and the second phase relating to design and reconstruction. (Am. Compl., ¶ 21, 22, 27, 30.) PPB was aware that Welsh had entered into the contracts with McCauley. (Am. Compl., ¶ 36.)

Welsh’s insurance carrier issued payments for the loss which Welsh presented for deposit with PPB. (Am. Compl., ¶ 13, 14, 40, 101.) PPB required Welsh to deposit the insurance proceeds into an account exclusively belonging to PPB, and told Welsh that PPB, who represented itself as an “expert” in handing insurance money to restore properties, would solely manage the remediation, preservation, and reconstruction of the Brighton property. (Am. Compl., ¶¶ 14, 36, 40, 101.)

McCauley issued invoices to Welsh and PPB for work at the Brighton property. (See Am. Compl., ¶¶ 38, 41, 44, 61, 62, 63, 66 & Exh. C.) PPB paid McCauley out of the insurance proceeds that Welsh had deposited without obtaining an approved budget, without notifying or consulting with Welsh, without seeking Welsh’s approval of any payments to McCauley, without having a “draw” system in place for making payments to McCauley, without requesting or receiving copies of supporting documentation before making “draw” payments to McCauley, without obtaining paid receipts from McCauley, without verifying percentages of completion of the project, and without receiving proof that McCauley was licensed and insured, among other things. (Am. Compl., ¶¶ 50-52, 54-57, 59-62, 64, 68-72, 74) At all times, PPB alone requested specific documents from McCauley and decided what to pay for and when, without consultation with or approval from Welsh. (Am. Compl., ¶ 19.)

As of December 4, 2020, McCauley had invoiced PPB a total of $176,130.60, and PPB had issued checks to McCauley totaling $155,332.80, which exceeded 50 percent of the insurance proceeds available for the project with no construction having been started. (Am. Compl., ¶¶ 67, 73, 75.)

An inspection report dated December 30, 2020, noted that the project was about 8 percent complete. (Am Compl., ¶¶ 86, 87.) On January 12, 2021 the Bank sent an email to Welsh stating that it had “ ‘gone above and beyond the allowance to disburse as it relates to the % disbursed in comparison to the insurance budget’ ”, that it had “ ‘disbursed 27% of the $988,000 in insurance funds that [PPB was] currently holding’ ” and that it would no longer pay for any further work on the property including for outstanding and unpaid invoices unless Welsh first paid out of pocket or deposited money with PPB equal to the insurance proceeds PPB was holding. (Am. Compl., ¶¶ 89, 90.)

At no time did PPB ever utilize any of the three mandatory options allowed under the DOT and loan agreement for the handling of insurance proceeds following destruction of the Brighton property by calamity. (Am. Compl., ¶ 19.) The DOT also does not allow PPB to make more than one election regarding the use of insurance proceeds or to change its mind and pay itself from those proceeds. (Am. Compl., ¶ 119.)

PPB asserted that delays and problems were Welsh’s fault. (Am. Compl., ¶ 113.) PPB also refused to defend Welsh in a lawsuit by McCauley seeking money held by PPB, refused to release insurance proceeds to commence the rebuilding of the Brighton property, insisted that the insurance proceeds belonged to it, and insisted that Welsh was in default under the loan. (Am. Compl., ¶¶ 114, 115.) In June 2022, PPB demanded that Welsh undertake at his own expense the remaining reconstruction of the Brighton property. (Am. Compl., ¶¶ 117.)

Though PPB had elected under the DOT to apply the insurance proceeds to repair and restore the Brighton property, PPB used the insurance proceeds it was holding in trust to pay itself principal owed on the loan in November 2022. (Am. Compl., ¶¶ 123.) PPB failed to follow the terms of the loan, in particular the requirements for use of insurance proceeds under the DOT, and instead demanded that Welsh turn over all insurance proceeds for PPB’s sole management and used the proceeds to pay itself notwithstanding that PPB elected to apply the proceeds to repair and restore the Brighton property. (See Am. Compl., ¶¶ 118, 119.) Welsh never elected to have PPB apply remaining insurance proceeds to balances due under the loan. (Am. Compl., ¶¶ 118.)

On October 9, 2023, PPB filed a motion to compel Welsh to arbitrate his claims against PPB in proceedings administered by Judicial Arbitration and Mediation Services (JAMS) and for an order staying the action during the pendency of the arbitration. As grounds for the motion, PPB asserts that the DOT includes a provision that requires the arbitration of disputes, claims, and controversies arising out of the DOT. Welsh opposes the motion.

In support of the motion, PPB submits the declaration of Bibi Moezzi who declares that she is currently employed by PPB as a Senior Vice President and Director of Commercial Banking. (Moezzi Decl., ¶ 1.) Previous to her present employment, in October 2007, Moezzi began working for Heritage Oaks as a relationship manager. (Id. at ¶ 2.) By April 2016, Moezzi had been promoted to the positions of First Vice President and Senior Client Relationship Manager for Heritage Oaks. (Ibid.) Moezzi continued to assist clients with their banking needs, including overseeing the loan process for clients who wished to obtain commercial loans. (Ibid.) During her employment with Heritage Oaks and PPB, Moezzi has fulfilled Welsh’s banking services for over 15 years including overseeing the loan at issue in this case. (Id. at ¶ 3.)

In late 2015, Welsh approached Heritage Oaks about obtaining a loan for the property to refinance an existing loan from a private party. (Moezzi Decl., ¶ 4.) As part of its due diligence, Heritage Oaks retained Duff & Phelps to prepare an appraisal report for the property. (Ibid. & Exh. 1.)

On April 18, 2016, Heritage Oaks and Welsh entered into the loan agreement under which Heritage Oaks would lend Welsh the sum of $1,450,000 over 10 years. (Moezzi Decl., ¶ 6 & Exh. 3.) The loan was secured by the DOT which was recorded in Marin County, California. (Ibid.) Welsh also signed a promissory note (the note) for the loan. (Ibid. & Exh. 4.)

In December 2016, the loan was modified pursuant to a Business Loan Agreement dated December 14, 2016 (the December 2016 loan agreement), to change the borrower from Welsh to the Trust and to add Welsh as a guarantor. (Moezzi Decl., ¶ 8 & Exhs. 6, 7.)

In April 2017, PPB acquired Heritage Oaks and succeeded to Heritage Oaks’ rights and obligations under the loan. (Moezzi Decl., ¶ 9.) As a result of the acquisition, Moezzi became employed by PPB as a First Vice President and Senior Client Relationship Manager and in February 2018, was promoted to Moezzi’s current positions at PPB. (Ibid.)

In support of his opposition to the motion, Welsh submits his declaration asserting that he would never voluntarily give up his right to allow a judge or jury to decide factual disputes by established legal precedent by agreeing to arbitration. (Welsh Decl., ¶¶ 2, 3.) To the degree Welsh had to give up his right to a judge or jury in this matter, he intended to do so only in the most limited way specifically required. (Id. at ¶ 3.)

Until a fire substantially destroyed the Brighton property, Welsh has never had to deal with a catastrophic loss to property. (Welsh Decl., ¶ 4.) In approximately 2016, Welsh was dealing with “fallout” from the real estate crisis of 2008, and had at least one high interest private lender bridge loan secured by the Brighton property as well as another loan coming due. (Id. at ¶ 5.)

Due to problems dealing with Wells Fargo during the mortgage “meltdown” of 2008 through 2010, Welsh expanded his banking relationship with Moezzi who became very familiar with Welsh’s financial situation, including the existing bridge loan, the trouble Welsh had with Wells Fargo, and that Welsh had a loan coming due. (Welsh Decl., ¶ 6.) Moezzi assured Welsh that he was a “high value” client to Heritage Oaks and encouraged Welsh to transfer his real estate loans and other banking to Heritage Oaks, while actively discouraging Welsh from banking elsewhere. (Id. at ¶ 7.)

Taking Moezzi at her word, Welsh took out multiple loans and opened other accounts with PPB. (Welsh Decl., ¶ 8.) By the time of the loan, Moezzi was familiar with Welsh’s financial situation. (Ibid.) About this time, Heritage Oaks changed its name to PPB. (Id. at ¶ 9.) Moezzi assured Welsh that nothing about their relationship would change including Welsh’s status as a “high value” client. (Ibid.)

In taking out the loans, Welsh understood that he would have to agree to terms dictated and written by PPB alone and that Welsh could not negotiate terms other than the amount, length, or interest rate of the loan. (Welsh Decl., ¶ 10.) None of the loan documents were sent to Welsh in advance and Welsh was not given time to read in detail the many pages of documents that were presented to him after the loan terms were agreed to. (Id. at ¶ 11.)

Welsh asserts that “[o]ne of the terms in the various documents is a paragraph about arbitration” which Welsh understood to involve “any issue directly related to the actual loans [Welsh] was taking out, such as repayments, interest rate adjustment” and not “matters not directly part of the loans….” (Welsh Decl., ¶ 12.) At the time Welsh signed the documents, Welsh did not know that PPB would “arbitrarily use insurance proceeds from a catastrophic loss by requiring [Welsh] to sign over the insurance checks because [PPB] wanted to control the money in trust for [Welsh], outside of any contract [Welsh] had with [PPB], and not allow [Welsh] to control the insurance money or be directly involved in restoring [the Brighton] property.” (Id. at ¶ 13.)

When signing the documents, Welsh “never believed that [PPB] could allow [the Brighton property] to deteriorate to the point where its value to [Welsh] was greatly reduced” and “did not agree to arbitrate such a bizarre circumstance if [PPB] did.” (Welsh Decl., ¶ 14.) Welsh further asserts that no one explained the arbitration paragraphs, which were among many in the loan documents signed by Welsh, he was not allowed any input on their wording. (Id. at ¶ 15.) In addition, no one advised Welsh that he should have an attorney read the documents first. (Ibid.)

Welsh was not then and is not now willing to engage in arbitration when PPB mandated a “trust” relationship to manage Welsh’s money in a manner that is not part of the loan agreement, and which directly contributed to destroying the value of the Brighton property. (Welsh Decl., ¶ 17.) Any willingness by Welsh to arbitrate was “narrowly limited to agreeing only to specifically doing what [PPB] required … in terms of … who would conduct the arbitration, and under what rules.” (Ibid.) Welsh also did not know that the arbitration would be “binding” and did not agree to “binding” arbitration. (Ibid.)

Welsh further asserts that the arbitration provisions at issue require arbitration under JAMS’ “financial services rules” which do not exist. (Welsh Decl., ¶¶ 22, 24.) Welsh did not agree to arbitrate under any other rules that he was not told about at the time. (Id. at ¶¶ 25, 28, 32, 36.)

Analysis

For all reasons discussed herein, the Court finds that a valid agreement to arbitrate exists which encompasses the dispute and controversy at issue in the present matter. Considering the totality of all information and evidence presented by the parties, Welsh has not met his burden to demonstrate that the arbitration agreement at issue is sufficiently unfair or unconscionable such that the Court may not enforce it. In addition, the arbitration agreement at issue is valid and enforceable with respect to the claims alleged by Welsh against PPB as alleged in the amended complaint. Therefore, the Court will grant PPB’s motion.

(1) Presumption of Arbitrability and the Parties’ Burdens

“ ‘Arbitration is ... a matter of contract.’ [Citation.] ‘The policy favoring arbitration cannot displace the necessity for a voluntary agreement to arbitrate. Although the law favors contracts for arbitration of disputes between parties, there is no policy compelling persons to accept arbitration of controversies which they have not agreed to arbitrate. Absent a clear agreement to submit disputes to arbitration, Courts will not infer that the right to a jury trial has been waived.’ [Citations]” (Remedial Construction Services, LP v. AECOM, Inc. (2021) 65 Cal.App.5th 658, 663, italics omitted.)

California law incorporates the presumption in favor of arbitrability contained in the Federal Arbitration Act, codified at 9 United States Code section 1 et seq. (the FAA), and a requirement that “an arbitration agreement must be enforced on the basis of state law standards that apply to contracts in general [citation].” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971-972.)

“Under both federal and state law, the threshold question presented by a petition to compel arbitration is whether there is an agreement to arbitrate.” (Cheng-Canindin v. Renaissance Hotel Associates (1996) 50 Cal.App.4th 676, 683 (Cheng-Canindin); see also 9 U.S.C. § 4; Chiron Corp. v. Ortho Diagnostic Systems, Inc. (9th Cir. 2000) 207 F.3d 1126, 1130 [under the FAA, the Court must determine “(1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue”].)

When a motion to compel arbitration is filed, “the petitioner bears the burden of proving [the] existence [of a written agreement to arbitrate the controversy] by a preponderance of the evidence.” (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413 (Rosenthal).) If the opposing party raises a defense to enforcement of the agreement, “that party bears the burden of producing evidence of, and proving by a preponderance of the evidence, any fact necessary to the defense.” (Ibid.)

(2) Existence of a Valid Arbitration Agreement

A party moving to compel arbitration “ ‘can meet its initial burden by attaching to the [motion or] petition a copy of the arbitration agreement purporting to bear the [opposing party’s] signature.’ [Citation.] Alternatively, the moving party can meet its burden by setting forth the agreement’s provisions in the motion. [Citations.] For this step, ‘it is not necessary to follow the normal procedures of document authentication.’ [Citation.] If the moving party meets its initial prima facie burden and the opposing party does not dispute the existence of the arbitration agreement, then nothing more is required for the moving party to meet its burden of persuasion. [¶] If the moving party meets its initial prima facie burden and the opposing party disputes the agreement, then in the second step, the opposing party bears the burden of producing evidence to challenge the authenticity of the agreement.” (Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 165 (Gamboa).)

The parties here do not dispute, or effectively dispute, that the loan agreement, the DOT, and the note each include arbitration provisions which are effectively identical. To the motion, PPB has attached a copy of the arbitration provisions contained within each of these documents which state, in pertinent part:

“[PPB and Welsh] agree that all disputes, claims and controversies between them whether individual, joint, or class in nature arising from this [“Agreement”, “Deed of Trust”, “Note”] or otherwise, including without limitation contract and tort disputes, shall be arbitrated pursuant to the financial services rules of [JAMS] or its successor in effect at the time the claim is filed, upon request of either party. No act to take or dispose of any [“Collateral”, “Property”, “collateral securing this Note”] shall constitute a waiver of this arbitration agreement or be prohibited by this arbitration agreement. This includes, without limitation, obtaining injunctive relief or a temporary restraining order; invoking a power of sale under any deed of trust or mortgage; obtaining a writ of attachment or imposition of a receiver; or exercising any rights relating to personal property, including taking or disposing of such property with or without judicial process pursuant Article 9 of the Uniform Commercial Code. Any disputes, claims, or controversies concerning the lawfulness or reasonableness of any act, or exercise of any right, concerning any “Collateral”, “Property”, “collateral securing this Note”], including any claim to rescind, reform, or otherwise modify any agreement relating to the [“Collateral”, “Property”, “collateral securing this Note”], shall also be arbitrated, provided however that no arbitrator shall have the right or the power to enjoin or restrain any act of any party….Nothing in this [“Agreement”, “Deed of Trust”, “Note”] shall preclude any party from seeking equitable relief from a Court of competent jurisdiction….The Federal Arbitration Act shall apply to the construction, interpretation, and enforcement of this arbitration provision.”

(Moezzi Decl., Exhs. 2 [loan agreement at p. 4]; 3 [DOT at p. 7], & 4 [note at p. 2]; see also Am. Compl., Exh. A [DOT p. 7].) (Note: For present purposes, the Court will refer to the arbitration provisions contained within the loan agreement, the DOT, and the note, collectively, as the arbitration provision.)

The loan agreement, DOT, and note are each signed by Welsh. Welsh’s signature on the DOT is notarized. There is no evidence indicating that Welsh’s signature on these documents is not authentic or that these documents were not presented to and signed by Welsh. Therefore, PPB has met its initial prima facie burden to provide evidence of a written agreement to arbitrate. (Cal. Rules of Court, rule 3.1330.)

The burden therefore shifts to Welsh to identify a factual dispute as to the existence of an agreement to arbitrate and to produce evidence to challenge the authenticity of the agreement. (Gamboa, supra, 72 Cal.App.5th at p. 165.)

Welsh does not contend that he did not sign the loan agreement, note, or DOT, or that his signature on these documents is not authentic. (See, e.g., Welsh Decl., ¶¶ 13 [referring to the time Welsh signed the “documents containing the arbitration provision”].)

Welsh contends that he was not given time to read these documents “in any detail” and did not believe he had to read the documents based on what Moezzi had told him. (Welsh Decl., ¶ 11.) Even if Welsh did not read the documents or the arbitration provision, “failing to read an agreement before signing it does not prevent formation of a contract.” (Iyere v. Wise Auto Group (2023) 87 Cal.App.5th 747, 759; see also Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236 (Pinnacle) [“[a]n arbitration clause within a contract may be binding on a party even if the party never actually read the clause”].) For these reasons, Welsh has not met his burden of producing evidence to challenge the authenticity of the arbitration provision on this ground.

Welsh asserts that in the motion, PPB has conceded that there exist no “financial services rules” promulgated by JAMS, as that term is used in the arbitration provision. Because the arbitration provision requires the arbitration of covered disputes under the “financial services rules” of JAMS, and not the “Comprehensive Rules” that PPB contends apply to the present dispute, Welsh argues, there exists an absence of an agreement between the parties. Because there exists no agreement as to the rules that apply to any arbitration required by the arbitration provision, Welsh contends, the arbitration provision is not enforceable.

Neither PPB nor Welsh has requested judicial notice of any rules promulgated by JAMS. Moreover, the “Comprehensive Rules” attached to the motion are not a proper subject of judicial notice. (Evid. Code, §§ 403, subd. (a)(1)-(3), 452.) Therefore, the Court declines to consider the “Comprehensive Rules” attached to PPB’s motion.

“[A]rbitration can take many procedural forms.” (Cheng-Canindin, supra, 50 Cal.App.4th at p. 687.) However, an agreement to arbitrate does not exist unless it provides for “a third party decision maker, a final and binding decision, and a mechanism to assure a minimum level of impartiality with respect to the rendering of that decision.^” (Id. at pp. 687-688, fn. omitted.)

The arbitration provision at issue here contemplates that an award will be made by a third party decisionmaker at JAMS who will arbitrate disputes encompassed by the provision and that both parties will have the opportunity to be heard at the arbitration proceeding. The arbitration provision further contemplates that the arbitrator’s award may be entered as a judgment in a Court of competent jurisdiction. For these reasons, the arbitration provision includes the necessary attributes of an agreement to arbitrate notwithstanding its general reference to “financial services rules”. (See Painters Dist. Council No. 33 v. Moen (1982) 128 Cal.App.3d 1032, 1036 (Painters) [“[m]ore important is the nature and intended effect of the proceeding”].)

Moreover, there is no evidence to suggest that the use of any particular or specific set of rules was an essential element of the parties’ agreement to arbitrate. (See Painters, supra, 128 Cal.App.3d at p. 1037 [“since the matter is one of contract, the parties to an arbitration agreement are free to delineate the governing procedure; judicial review is thus strictly limited to a determination of whether the party resisting arbitration in fact agreed to arbitrate”].)

For all reasons discussed above, PPB has met its initial prima facie burden to show the existence of a written agreement to arbitrate. For all reasons further discussed above, Welsh has not met his burden to present evidence sufficient to challenge the authenticity of the arbitration provision. Therefore, the Court finds that a valid agreement to arbitrate exists.

(3) Disputes Encompassed by the Arbitration Provision

PPB contends that the present controversy is encompassed by the arbitration provision because, based on the allegations of the amended complaint filed by Welsh in this matter, the parties’ dispute centers on the provisions of the loan agreement and DOT, which contain the arbitration provision, and on PPB’s purported failure to comply with the terms of the DOT and other loan documents with respect to the use of insurance proceeds.

Welsh contends that the present controversy arises from the forced creation of a trust relationship by PPB regarding the insurance proceeds and the breach of that trust relationship by PPB. Welsh maintains that although the DOT is the “only contract possibly involved here”, Welsh asserts the trust relationship and the breach of that relationship by PPB did not “arise from” the DOT but arose “extraneously” to the DOT. (Opp. at p. 3, l. 24-p. 4, l. 4.) Therefore, Welsh contends, he did not agree to arbitrate what Welsh contends is an “unusual circumstance” that arose outside of any contract or agreement between Welsh and PPB. (Id. at p. 4, ll. 15-17.)

“ ‘In light of California's strong public policy favoring arbitration as a method of dispute resolution, “[c]ourts should indulge every intendment to give effect to such proceedings (citation) and order arbitration unless it can be said with assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. [Citation.]” [Citation.] Hence, any reasonable doubt as to whether a claim falls within the arbitration clause is to be resolved in favor of arbitration. (Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 687 [99 Cal. Rptr. 2d 809].)’ [Citation.] (Villacreses v. Molinari (2005) 132 Cal.App.4th 1223, 1229, 34 Cal.Rptr.3d 281.) ‘The party opposing arbitration has the burden of demonstrating that an arbitration clause cannot be interpreted to require arbitration of the dispute.’ [Citation.]” (Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 355-356.)

Here, the arbitration provision includes broad terms that cover “all disputes, claims and controversies” between PPB and Welsh “arising from” the loan agreement, Note, or DOT “or otherwise, including without limitation contract and tort disputes[.]” (Moezzi Decl., Exhs. 2, 3, & 4, italics added.) The controversy alleged in the amended complaint centers on the purportedly improper use of insurance proceeds from an insurance policy that Welsh was required to maintain pursuant to these documents. Welsh asserts that the manner in which PPB handled the proceeds constitutes a breach of the DOT, among other things.

Notwithstanding whether or not the manner in which PPB handled the insurance proceeds effectively created a trust relationship between the parties as Welsh contends, based on the express allegations of the complaint as further discussed above, each cause of action, including those sounding in tort, is founded in and intertwined with the provisions of the loan agreement, Note, and DOT. Welsh contends that these documents govern the manner in which insurance proceeds may or may not be applied by PPB with respect to the restoration or repair of the Brighton property. Inasmuch as the claims asserted by Welsh each center around PPB’s handling of the insurance proceeds in a manner that, according to Welsh, did not conform to the requirements of the DOT or other loan documents and the alleged damages that resulted from PPB’s improper handling of the proceeds, the Court concludes that the claims alleged in the amended complaint arise out of the DOT and are therefore fall within the scope of its arbitration provision. Welsh has not demonstrated that the arbitration provision cannot be interpreted to require arbitration of the present dispute.

(4) Unconscionability

It is the Court’s understanding that Welsh challenges the enforceability of the arbitration provision on the ground that it constitutes a contract of adhesion.

“A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” (Code Civ. Proc., § 1281; see also 9 U.S.C. § 2.) Contract defenses such as unconscionability may be applied to invalidate an agreement to arbitrate. (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 125 (OTO).) If a party opposing a motion to compel arbitration raises a defense to enforcement of an arbitration agreement, “that party bears the burden of producing evidence of, and proving by a preponderance of the evidence, any fact necessary to the defense.” (Rosenthal, supra, 14 Cal.4th at p. 413.) Accordingly, Welsh bears the burden of producing and proving any fact necessary to establish that the arbitration provision as a contract of adhesion is unconscionable.

“The overarching unconscionability question is whether an agreement is imposed in such an unfair fashion and so unfairly one-sided that it should not be enforced.” (OTO, supra, 8 Cal.5th at p. 124.) “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.” (Id. at p. 125.)

“Unconscionability consists of both procedural and substantive elements. The procedural element addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power. [Citations.] Substantive unconscionability pertains to the fairness of an agreement’s actual terms and to assessments of whether they are overly harsh or one-sided. [Citations.] 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.” ’ [Citation.]” (Pinnacle, supra, 55 Cal.4th at pp. 246-247.)

In addition, though the party resisting arbitration must show both procedural and substantive unconscionability, “they need not be present in the same degree” and are evaluated on a “sliding scale”. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114 (Armendariz).) “[T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Id. at p. 114.)

          a.       Procedural Unconscionability:

“A procedural unconscionability analysis ‘begins with an inquiry into whether the contract is one of adhesion.’ [Citation.] An adhesive contract is standardized, generally on a preprinted form, and offered by the party with superior bargaining power ‘on a take-it-or-leave-it basis.’ [Citations.]” (OTO, supra, 8 Cal.5th at p. 126.) “[A] contract of adhesion is fully enforceable according to its terms [citations] unless certain other factors are present which, under established legal rules—legislativeor judicial—operate to render it otherwise.” (Graham v. Scissor-Tail, Inc. (1981) 28 Cal.3d 807, 819-820, fn. omitted.) “It is only when the contract is (1) contrary to the reasonable expectations of the ‘adhering party’ or (2) is ‘unduly oppressive or unconscionable,’ that it will not be enforced. [Citation.]” (Painters, supra, 128 Cal.App.3d at p. 1040.)

Apart from generally referring to the arbitration provision, or the loan documents, as contracts of adhesion, Welsh offers no information to demonstrate that the arbitration provision was oppressive or unconscionable. The arbitration provision is not hidden or buried within the loan agreement, note, or DOT, and is set out in a separate paragraph with readable text in “bold” font. It does not contain complex statutory references or legal jargon nor is the provision “unreasonably prolix or complex.” (Davis v. Kozak (2020) 53 Cal.App.5th 897, 907; cf. OTO, supra, 8 Cal.5th at p. 128 [finding that the agreement contained complex sentences with legal jargon written in “extremely small font”].)

Moreover, in the amended complaint, Welsh alleges that the handling of the insurance proceeds by PPB did not conform to the requirements of the DOT upon a catastrophic loss to the Brighton property. As Welsh’s own assertions demonstrate that the provisions of the DOT govern the retention and application of insurance proceeds with regard to the restoration and repair of the Brighton property, it would be reasonable to expect that the arbitration provision would require the parties to arbitrate any dispute arising from the retention or application of the insurance proceeds at issue here. Welsh presents insufficient evidence from which the Court could conclude that arbitration of the present dispute regarding PPB’s use of the insurance proceeds are contrary to the reasonable expectations of Welsh.

Welsh also offers no facts to establish that he did not have the capacity to read or understand the arbitration provision, that he was coerced into signing the arbitration under threat, or that had Welsh read the documents he signed in greater detail, Welsh nonetheless lacked any meaningful choice. (See Bolanos v. Khalatian (1991) 231 Cal.App.3d 1586, 1590 [“[w]hen a person with the capacity of reading and understanding an instrument [that is not one of adhesion] signs it, he may not, in the absence of fraud, coercion or excusable neglect, avoid its terms on the ground he failed to read it before signing it”].)

For example, Welsh submits no evidence that he could not have obtained a similar loan elsewhere without the arbitration requirement imposed on him by PPB. (See, e.g., Dean Witter Reynolds, Inc. v. Superior Court (1989) 211 Cal.App.3d 758, 768 [a claim of oppression “may be defeated if the complaining party had reasonably available alternative sources of supply from which to obtain the desired goods or services free of the terms claimed to be unconscionable”].) Accordingly, as the record does not show that Welsh had no meaningful choice in deciding to sign the DOT, the note, or loan agreement, there is no evidence of procedural unconscionability in this regard.
 

For all reasons discussed above, the arbitration provision does not carry the hallmarks of an adhesion contract which relegated to Welsh “only the opportunity to adhere to the contract or reject it.” (Neal v. State Farm Ins. Companies (1961) 188 Cal.App.2d 690, 694; accord, Armendariz, supra, 24 Cal.4th at p. 113.) Welsh has not met his burden to produce and prove facts necessary to establish that the arbitration provision constitutes a contract of adhesion or is otherwise procedurally unconscionable.

          (b) Substantive Unconscionability:

“Substantive unconscionability pertains to the fairness of an agreement’s actual terms and to assessments of whether they are overly harsh or one-sided.” (Pinnacle, supra, 55 Cal.4th atp. 246.) A substantive unconscionability analysis “ ‘ensures that contracts, particularly contracts of adhesion, do not impose terms that have been variously described as “ ‘ “overly harsh” ’ ” [citation], “ ‘unduly oppressive’ ” [citation] “ ‘so one-sided as to “shock the conscience” ’” [citation], or ‘unfairly one-sided” [citation] All of these formulations point to the central idea that the unconscionability doctrine is concerned not with “a simple old-fashioned bad bargain” [citation], but with terms that are “unreasonably favorable to the more powerful party.” ’ [Citation.]” (OTO, supra, 8 Cal.5th at pp. 129-130; see also Pinnacle, supra, 55 Cal.4th at p. 246 [“[a] contract term is not substantively unconscionable when it merely gives one side a greater benefit”].)

Welsh presents no reasoned argument to demonstrate that the arbitration provision is substantively unconscionable. Moreover, the Court does not find that the arbitration provision is unduly harsh, oppressive, or one-sided. For these reasons, the Court finds that the arbitration provision is not substantively unconscionable.