Duffens v. Valenti

• Decision Date: 27 March 2008
• Docket Number: No. D050450.,D050450.
• Citation: 74 Cal.Rptr.3d 311,161 Cal.App.4th 434
• Court: California Court of Appeals Court of Appeals
• Parties: Elaine M. DUFFENS, et al., Plaintiffs and Respondents, v. Irene C. VALENTI, et al., Defendants and Appellants.

74 Cal.Rptr.3d 311

161 Cal.App.4th 434

Elaine M. DUFFENS, et al., Plaintiffs and Respondents, v. Irene C. VALENTI, et al., Defendants and Appellants.

No. D050450.

Court of Appeal, Fourth District, Division 1.

March 27, 2008.

Higgs, Fletcher & Mack and David R. Clark, San Diego, for Defendants and Appellants.

Gilliland & Gilliland and Douglas S. Gilliland, San Diego, for Plaintiffs and Respondents.

HUFFMAN, Acting P.J.

Plaintiffs and respondents Elaine Duffens, Sandra Marnell, and Sandy Shaulis (collectively respondents) brought an action against Irene Valenti, Valenti International Limited, LLC and Valenti International Foundation, Inc. (collectively Valenti) for general, special, and treble damages based on allegations of fraud and statutory violations of Civil Code section 1694 et seq. in the individual matchmaking consulting agreements sold to them by Valenti.¹ Section 1694 et seq., referred to here as the dating service statutes, prescribe certain standards and language that must be included in dating service contracts. Valenti brought a motion to compel arbitration, arguing that the arbitration clause within the matchmaking consulting agreement was severable and enforceable, regardless of any potential defenses to the underlying contract liability. (Code Civ. Proc, §§ 1281, 1281.2.) The superior court denied the motion, concluding the arbitration clause was unenforceable because it was contained within an agreement that lacked essential language required by the statutory scheme, and the agreement was entered into under misleading circumstances, also a violation of statute. (§§ 1694.3; 1694.4, subds. (a), (b).)

On appeal, Valenti argues the superior court erred when it determined the agreements were illegal under California law, and that in any case, the arbitration clauses within them should have remained enforceable under state or federal law. Resolving these arguments requires us to analyze, under the standards of Rosenthal v. Great Western Financial Securities Corp. (1996) 14 Cal.4th 394, 402, 58 Cal. Rptr.2d 875, 926 P.2d 1061 (Rosenthal), the particular causes of action in the underlying complaints, for purposes of determining arbitrability of fraud allegations related to contract (fraud in the inception or execution, as opposed to fraud in the inducement). (Id. at pp. 414-419, 58 Cal. Rptr .2d 875, 926 P.2d 1061.) We address respondents' defenses against the enforcement of illegal contracts, and further, the public policy preferences for enforcing arbitration agreements where appropriate, such as cases in which fraudulent inducement of an agreement is alleged. (Ibid.) We conclude that under California law, these "consulting agreements" are part of a small class of contracts regulated by specific statutes that expressly render nonconforming contracts void and unenforceable. Because the agreements sued upon violated express requirements of the dating service statutes that clearly apply here, they are void and unenforceable, and their arbitration provisions are likewise not enforceable. (§ 1694.4, subd. (a).) We affirm the superior court's order.

FACTUAL AND PROCEDURAL BACKGROUND

Respondents individually entered into three-year "consulting agreements" (the agreements) with Valenti for matchmaking services. The agreements stated that the company was not intended to be a dating service, but rather, "[it is a matchmaking service in the traditional sense." In exchange for respondents' retainer fees,² Valenti promised to help respondents establish "personal relationships" by analyzing their personal data and matching them with eligible persons of the opposite sex. Each agreement contained a clause, which respondents individually initialed, that required the parties to submit disputes to arbitration.³ The arbitration clauses were followed by provisions stating that California provided the governing law and the forum for resolution of any disputes arising under or relating to the agreement. Some of the agreements added that this forum would be the Superior Court in San Diego. The agreements further provide in two places that the retainer fees paid would be completely' nonrefundable and were distributed directly toward time spent by staff psychologists in the evaluation process and personal consulting and coaching, among other things.

On October 13, 2006, respondents filed a complaint for damages claiming Valenti made fraudulent misrepresentations about the characteristics of the other clients to whom Valenti could introduce them. Respondents alleged Valenti claimed to have a network of employees who recruited and screened high level, wealthy, single potential romantic partners throughout the United States and internationally, and Valenti promised it had such wealthy, successful persons as active clients. Respondents alleged Valenti never had any suitable matches to introduce to them and had therefore obtained their assent to the agreements through these misrepresentations. Respondents argued the agreements violated the dating service statutes because the services to be provided fell within the scope of the statutory scheme, but did not comply with statutory requirements. Respondents further alleged the contracts were void and unenforceable for violating these statutes because they were entered into in reliance on "willful and fraudulent or misleading information or advertisements" by Valenti. Respondents requested damages for lost retainer money and for emotional distress, as well as treble damages under section 1694.4, subdivision (c).

On December 5, 2006, Valenti filed a motion to compel arbitration. On January 9, 2007, respondents filed opposition to the motion, arguing the agreements, and arbitration clauses contained therein, were void and unenforceable because they (1) were permeated with fraud, (2) violated the dating service statutes, and (3) were unconscionable.

On January 19, 2007, the superior court denied Valenti's motion to compel arbitration. The ruling stated the agreements violated the dating service statutes, by failing to contain provisions complying with section 1694.3. That section requires such contracts to have provisions that address the purchaser's or successor's rights to relief from contractual obligations in the event of death or disability of the purchaser, and that allow for refunds and relief from contractual obligations in the event that the buyer relocates his or her primary residence more than 50 miles from the dating service office. (§ 1694.3, subds.(a) & (b).) The court impliedly found another violation of the dating service statutes when it noted in its ruling: "Also, it is alleged that the contracts were entered into under misleading circumstances." (§ 1694.4, subd. (b) ["Any contract for dating services entered into under willful and fraudulent or misleading information or advertisements of the seller is void and unenforceable"].)

Valenti appeals the order.

DISCUSSION

I INTRODUCTION AND STANDARDS OF REVIEW

These actions are based upon respondents' individual agreements under which they were entitled to a three-year period of Valenti's matchmaking services. We must interpret these agreements to evaluate the enforceability of the arbitration clauses they contained, in light of various provisions of the statutory scheme for measuring the validity of comparable "dating service contracts." (§ 1694 et seq.) That statutory scheme contains various provisions that are raised as defenses to the enforceability of these agreements.

In reviewing the superior court's order denying the petition to compel arbitration, we apply basic rules for interpreting contracts, to analyze both the agreement and the arbitration clause within it. (Fittante v. Palm Springs Motors, Inc. (2003) 105 Cal.App.4th 708, 713-714, 129 Cal.Rptr.2d 659 (Fittante).) An "arbitration agreement is subject to the same rules of construction as any other contract, including the applicability of any contract defenses." (Id. at p. 713, 129 Cal.Rptr.2d 659.) "[U]nder both federal and California law, arbitration agreements are valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. [Citations.] In other words, ... an arbitration agreement may only be invalidated for the same reasons as other contracts." (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 98, 99 Cal. Rptr.2d 745, 6 P.3d 669, fn. omitted.)

"A motion to compel arbitration is, in essence, a request for specific performance of a contractual agreement. The trial court is therefore called upon to determine whether there is a duty to arbitrate the matter; necessarily, the court must examine and construe the agreement, at least to a limited extent. Determining the validity of the arbitration agreement, as with any other contract, `"is solely a judicial function unless it turns upon the credibility of extrinsic evidence; accordingly, an appellate court is not bound by a trial court's construction of a contract based solely upon the terms of the instrument without the aid of evidence."' [Citation.]" (Fittante, supra, 1,05 Cal.App.4th 708, 713, 129 Cal.Rptr.2d 659, fn. omitted.)

Courts may be called upon to determine the legality of contracts either before or after arbitration has taken place. Regarding the first situation, in 1 Witkin, Summary of California Law (10th ed. 2005) Contracts, section 450, pages 490-492, the authors explain the holding of Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 33, 10 Cal.Rptr.2d 183, 832 P.2d 899 (Moncharsh) in this way: Case authorities "do not authorize judicial review where but a single provision is challenged on the ground of illegality. In that situation, the proper rule is as follows: `[T]he normal rule of limited judicial review may not be avoided by a claim that a provision of the contract, construed or applied by the arbitrator, is "illegal," except in rare cases when according finality to the arbitrator's...