Weiler v. Marcus & Millichap Real Estate Investment Services

Citation: Not availableDocket: G053953

Court: California Court of Appeal; April 30, 2018; California; State Appellate Court

Original Court Document: View Document

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Rae Weiler filed an appeal against Marcus Millichap Real Estate Investment Services, Inc. seeking a court declaration to either compel the defendants to pay her share of arbitration costs or waive their right to arbitration, allowing her claims to be heard in court. Weiler and her husband claim losses exceeding $2 million due to defendants' alleged breach of fiduciary duty, negligence, and elder abuse. After years of arbitration, Weiler asserted she could no longer afford the costs, estimated at over $100,000, prompting her to seek relief under the precedent set in *Roldan v. Callahan, Blaine*. The arbitrators deemed her request outside their jurisdiction, leading to her filing a declaratory relief action in the superior court. However, the court ruled in favor of the defendants, stating the arbitration provisions were enforceable and disregarding Weiler's financial concerns. This decision was deemed erroneous, as the enforcement of arbitration must sometimes yield to the fundamental right of access to justice, particularly when a party cannot afford arbitration costs. The appellate court found triable issues regarding Weiler's financial ability to pay these costs, concluding that the trial court improperly granted summary judgment to the defendants. The case has been reversed and remanded for further proceedings. Additional background includes the couple's prior financial stability and the significant losses incurred from a failed commercial property investment in Texas, which was mismanaged by the defendants.

Plaintiff initiated a lawsuit against defendants for breach of fiduciary duty, negligence, negligent misrepresentation, and elder abuse, seeking compensatory and punitive damages before selling a Texas property at a loss. She claimed to have limited knowledge of commercial real estate and sought a secure investment, yet defendants allegedly misrepresented the Texas property as a lucrative investment, resulting in her purchasing it for $2 million above its fair market value. Defendants responded with a motion to compel arbitration, which plaintiff did not oppose, leading the court to order arbitration through the American Arbitration Association (AAA) and stayed the underlying action while retaining jurisdiction to monitor arbitration progress.

Arbitration proceeded slowly over approximately two years, with disagreements between the parties regarding both the claims and arbitration procedures. Defendants insisted on a three-arbitrator panel due to the claim amount of $2.8 million, while plaintiff sought a single arbitrator. The arbitrators ultimately decided on a three-member panel, establishing a discovery schedule and procedural rules. Nearly three years after the arbitration order, plaintiff claimed financial inability to cover her share of the costs, which had exceeded $15,000, with total anticipated costs exceeding $100,000. She requested the arbitrators to order defendants to either pay all arbitration costs or allow the case to proceed in superior court, but the panel found it lacked jurisdiction to grant such relief, directing her to seek a court determination instead.

In a subsequent declaratory relief action, plaintiff sought an order for defendants to fully bear the arbitration costs or to remand the underlying action to superior court, arguing her current financial situation warranted such measures. Defendants moved for summary judgment, labeling her Roldan claim as an unconscionability issue, asserting that such claims must be assessed at the time the arbitration agreement was made, highlighting plaintiff's wealth at that time. They contended that her Roldan claims were untimely, having not been raised during the initial arbitration motion. Plaintiff opposed this, asserting that her present financial status was critical for determining whether defendants should cover her arbitration costs or whether the case should be tried in superior court, and provided a declaration of her current financial situation, arguing that triable issues of material fact existed regarding her ability to afford arbitration.

The court initially intended to grant the motion but, after recognizing triable issues of fact during the hearing, accepted additional briefing from the defendants. Subsequently, after further consideration and arguments, the court granted summary judgment to the defendants, focusing on the unconscionability of the arbitration clause. The court determined that the plaintiff's current financial situation was not relevant, asserting that unconscionability should be assessed based on the circumstances at the time the agreement was made. The court noted that the undisputed facts indicated the plaintiff was previously affluent.

The core dispute between the parties centers on whether the plaintiff's current financial status affects her claims regarding arbitration costs, specifically whether the defendants must cover these costs or if the case should proceed to superior court. It was concluded that the plaintiff's financial circumstances are indeed relevant, indicating that the summary judgment was granted in error due to existing triable issues regarding her ability to pay arbitration costs.

In reviewing summary judgment orders, the court examines the facts presented, favoring the opposing party's evidence when doubts arise. Summary judgment is mandated when no triable issues of material fact exist. The plaintiff challenges the defendants' ability to compel her to arbitrate despite her changed financial situation, claiming it now renders arbitration unaffordable. She seeks a declaration that the defendants must cover the arbitration costs if they wish to maintain that forum, or else the case should shift to superior court. This situation mirrors the precedent set in Roldan, where similar issues regarding financial capacity and jurisdiction were addressed, involving elderly plaintiffs alleging financial elder abuse related to legal representation in a toxic mold case.

A defendant law firm successfully compelled arbitration based on a retainer agreement, leading the trial court to stay the case pending arbitration resolution. Years later, the Roldan plaintiffs sought relief from upfront arbitration costs, arguing their financial circumstances had changed, rendering them indigent and unable to afford these costs. The trial court denied their motion, deeming their financial status irrelevant. On appeal, the court reversed this decision, emphasizing California's public policy that ensures access to the justice system regardless of financial means. The court noted that if the plaintiffs could not pay for arbitration, they would effectively be denied a forum for their claims, which was unacceptable. 

The appellate court clarified it could not mandate arbitrators to waive fees or compel the defendant to pay them but proposed a solution: if the trial court determined a plaintiff could not afford arbitration costs, the defendant must choose between paying that plaintiff's share or waiving arbitration for that case. This approach aimed to maintain the plaintiffs' access to a resolution while preserving the defendant's right to arbitration.

The case drew parallels to a similar situation where a plaintiff, after nearly three years of arbitration, claimed an inability to continue due to escalating costs purportedly stemming from the defendants' tactics. The court recognized that if the plaintiff's financial claims were valid, forcing her to bear half the fees could deny her a forum to resolve her grievances, which was considered intolerable. It highlighted that defendants should not exploit arbitration to evade liability by imposing excessive costs, as that would undermine the principle of justice for all and contravene basic contract law, which states that hindrance of performance excuses nonperformance.

Avoiding an outcome that undermines arbitration agreements is prioritized over the parties’ interests in enforcing those agreements. Both the California Arbitration Act (CAA) and the Federal Arbitration Act (FAA) support a strong public policy favoring arbitration, requiring courts to compel arbitration when requested. However, the court retains jurisdiction over related actions, effectively pausing them until arbitration is completed as per the agreement. 

In Tillman v. Tillman, the Ninth Circuit addressed a situation where a plaintiff, unable to pay arbitration fees, had her case dismissed after arbitration was terminated. The court found that proper AAA procedures were followed, and since the arbitration concluded without reaching the merits, the plaintiff was allowed to pursue her claims in court. The Ninth Circuit's reasoning is deemed applicable to the current case under the CAA.

The case does not involve arguments about unconscionability—where a party claims an agreement is so one-sided it is unenforceable. The plaintiff did not challenge the arbitration's enforceability and accepted the court's decision to compel arbitration, indicating a willingness to proceed in either forum. The court's emphasis on unconscionability was misplaced.

A party engaged in good faith arbitration but unable to afford its continuation may seek relief from a superior court. If the court finds the party's financial hardship is not due to an intentional effort to evade arbitration, it can order that: 1) arbitration continues if the opposing party agrees to cover all associated fees, or the arbitrator mandates payment; 2) if neither occurs, the arbitration is considered 'had,' allowing the case to proceed in court. Concerns were raised about potential abuse of this provision, but the court is more focused on preventing wealthier parties from using their financial advantage to deny fair dispute resolution. Relief will not be granted if evidence shows the financial status is a deliberate attempt to avoid arbitration. The ruling aligns with California and federal law, which view arbitration and litigation as alternative dispute resolution methods without inherent disadvantages. The judgment has been reversed and the case is remanded to deny the defendants' motion for summary judgment, with the plaintiff entitled to costs on appeal.