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Ruth S. Hartley, Individually and As Trustee, Etc v. Superior Court of San Diego County

June 28, 2011


PROCEEDINGS in mandate after the Superior Court of San Diego County granted defendants' motion to compel arbitration. Jeffrey B. Barton, Judge. (Super. Ct. No. 37-2009-00097879- CU-FR-CTL)

The opinion of the court was delivered by: Mcconnell, P. J.


Petition granted.

Ruth Hartley seeks a writ of mandate to overturn the trial court's order compelling her to arbitrate her claims against real parties in interest. Hartley contends the court erred by finding the parties' arbitration agreement clearly and unmistakably gives the arbitrator the exclusive authority to decide the gateway issue of unconscionability, or arbitrability. We agree, and accordingly, grant the petition and order the issuance of a writ of mandate.


In September 2009 Hartley filed a complaint for damages against Monex Deposit Company and numerous associated companies and individuals (collectively, Monex).*fn1 The complaint alleges Ruth is an elderly widow. Her husband, Millard Hartley (Millard), who died in 1999, had handled all their finances. Millard had opened an account with Monex, a precious metals dealer. After Millard's death, Hartley invested with Monex, signing standard form contracts titled "Atlas Account Agreements" (hereafter account agreements), which included a "Purchase and Sale Agreement" (purchase agreement) and "Loan, Security and Storage Agreement" (loan agreement), both of which contained an arbitration clause. Hartley lost more than $400,000 by following the advice of a Monex account executive to purchase silver on margin. The agent concealed the risks of investing in volatile precious metals on margin.

The complaint includes claims for breach of fiduciary duty, negligence, fraud, elder abuse and other statutory violations, and for injunctive relief under the Consumers Legal Remedies Act (Civ. Code, § 1750 et seq.). The complaint also seeks declaratory relief as to whether certain disclaimers in the account agreements, and the arbitration clauses of the agreements, are unconscionable and unenforceable.

Monex petitioned to compel arbitration. Hartley opposed, arguing Monex had the greater bargaining power, the arbitration clause is a contract of adhesion, and it is oppressive. A week after Hartley signed an account agreement that did not contain an arbitration clause, Monex required her to sign a new account agreement, which added an arbitration clause, on the guise the original agreement was outdated. The contracts looked virtually alike, and the arbitration clause in the new agreement was in "fine print type." Hartley complained that arbitration before Judicial Arbitration and Mediation Services (JAMS) would be prohibitively costly to her given the hourly rates charged by retired judges. Further, she argued the arbitration clause unfairly provides that a party requesting a three-member panel pay the entire cost of the panel, whereas the parties split the cost of a single arbitrator; allows an appeal only when one arbitrator is used; prohibits punitive damages, damages for statutory violations and award of attorney fees; and prohibits class actions and joinder or consolidation, and waives any customer reliance on federal or state judicial opinions denying enforcement of arbitration under such circumstances.

The court granted Monex's petition to compel. The court determined the arbitration clause requires the arbitrator, rather than the court, to determine the issue of arbitrability. The court cited the United States Supreme Court's opinion in Rent-A-Center, West, Inc. v. Jackson (2010) __ U.S. __ [130 S.Ct. 2772] (Rent-A-Center).



Legal Principles

A threshold dispute as to whether an arbitration agreement is unconscionable is ordinarily for the court's decision rather than the arbitrator's. In Discovery Bank v. Superior Court (2005) 36 Cal.4th 148, 171, disapproved on another point in AT&T Mobility LLC v. Concepcion (2011) __ U.S. __, __, 131 S.Ct. 1740, 1753, our high court explained: "[T]he question whether 'grounds exist for the revocation of the [arbitration] agreement' (Code Civ. Proc., § 1281.2) based on 'grounds as exist for the revocation of any contract' (id., § 1281) is for the courts to decide, not an arbitrator. [Citation.] This includes the determination of whether arbitration agreements or portions thereof are deemed to be unconscionable or contrary to public policy."

In federal cases, the United States Supreme Court has held that although the issue of arbitrability is usually for judicial determination, under contract principles the parties may reserve the issue for the arbitrator's exclusive determination, but only by clear and unmistakable evidence. (AT&T Technologies, Inc. v. Communication Workers of America (1986) 475 U.S. 643, 649 (AT&T); Howsam v. Dean Witter Reynolds, Inc. (2002) 537 U.S. 79, 83 (Howsam)*fn2 ; First Options of Chicago, Inc. v. Kaplan (1995) 514 U.S. 938, 943-945 (First Options)); Rent-A-Center, supra, 130 S.Ct. 2772, 2778-2779.)

Here, the trial court relied on Rent-A-Center, a case under the Federal Arbitration Act (FAA), in which the court designated the "clear and unmistakable" test as a "heightened standard." (Rent-A-Center, supra, 130 S.Ct. at p. 2777, fn. 1.) In Rent-A-Center, the parties' contract delegated to the arbitrator " 'exclusive authority to resolve any dispute relating to the . . . enforceability . . . of this Agreement including, but not limited to any claim that all or any part of this Agreement is void or voidable.' " (Id. at p. 2777.) The parties there agreed this provision met the heightened standard. (Id. at p. 2777, fn. 1.) The court explained the "clear and unmistakable" requirement "pertains to the parties' manifestation of intent [as to who will decide the gateway issue of arbitrability], not the agreement's validity. . . . [I]t is an 'interpretative rule,' based on an assumption about the parties' expectations. In 'circumstance[s] where contracting parties would likely have expected a court to have decided the gateway matter,' [citation], we ...

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