Law Fin. Grp., LLC v. Key
| Citation | 14 Cal.5th 932,531 P.3d 326,309 Cal.Rptr.3d 796 |
| Docket Number | S270798 |
| Decision Date | 26 June 2023 |
| Parties | LAW FINANCE GROUP, LLC, Plaintiff and Appellant, v. Sarah Plott KEY, Defendant and Respondent. |
| Court | California Supreme Court |
Eisner, Weinberg Gonser Frost, Christopher L. Frost, Beverly Hills, Taylor S. Simeone, Los Angeles; Greines, Martin, Stein & Richland, Cynthia E. Tobisman, Alana H. Rotter and Jeffrey E. Raskin, Los Angeles, for Plaintiff and Appellant.
Grignon Law Firm, Margaret M. Grignon and Anne M. Grignon for Defendant and Respondent.
Zareh A. Jaltorossian ; Mathew H. Fisher ; R. Rex Parris, Lancaster; Michael J. Jaurigue, Glendale, Barbara DuVan-Clarke, Los Angeles; Joseph A. Kaufman, Newport Beach; and Kevin Chiang, Westlake Village, for KP Law, Da Vega Fisher Mechtenberg, LLP, Parris Law Firm, JLG Lawyers, Joseph A. Kaufman & Associates, Inc., and Equity Legal Group as Amici Curiae on behalf of Defendant and Respondent.
The Office of Michael Tenenbaum and Michael Tenenbaum for Michael Tenenbaum and Micha Star Liberty as Amici Curiae.
Law Finance Group, LLC, prevailed in an arbitration against Sarah Plott Key and filed a petition to confirm the award. Key filed a response seeking vacatur of the award, but she did so outside the 100-day deadline prescribed by Code of Civil Procedure section 1288.2. The primary questions now before us are whether, as the Court of Appeal held, this 100-day deadline is jurisdictional and, if not, whether the deadline is subject to the equitable doctrines of tolling and estoppel. We hold that the section 1288.2 deadline neither is jurisdictional nor otherwise precludes equitable tolling or estoppel. We remand for the Court of Appeal to determine in the first instance whether Key is entitled to equitable relief from the deadline.
The question in this case arises from a dispute within a dispute. After her parents' death, Sarah Plott Key became embroiled in a disagreement with her sister, Elizabeth Plott Tyler, over the disposition of the Plott Family Trust (the Trust). Under the terms of the Trust, Key's parents had provided equally for their three daughters, so that each would inherit a one-third interest in the parents' estate. When her mother died, Key expected to receive her one-third share. She soon learned, however, that several years before, her mother had executed an amendment to the Trust that effectively disinherited Key of millions of dollars. Believing the disinheritance was her sister's handiwork, Key filed a probate action against Tyler, alleging that Tyler had procured the Trust amendment through undue influence over their mother.
Key soon encountered difficulties in litigating the probate action. On the eve of trial, Key had run out of money to pay her litigation expenses, and her attorneys threatened to withdraw from the case. To continue financing the litigation, Key turned to Law Finance Group, LLC (which, for simplicity's sake, we will refer to as Lender), a California-licensed finance lender. The business relationship between Key and Lender would soon result in a second dispute, which gives rise to the issues now before us.
Key and Lender entered a contract (the Agreement) under which Lender agreed to loan Key up to $3 million to pay her attorneys' fees, and Key ultimately borrowed $2.4 million for that purpose. Lender charged interest at a rate of 1.53 percent per month, compounded monthly, with additional compound interest of 0.5 percent accruing monthly in the event of default. The Agreement also charged a due diligence fee of up to $10,000, an origination fee of $60,000, and a monthly loan-servicing fee of 0.25 percent of the outstanding loan principal. The loan was nonrecourse, meaning that Key's potential liability under the loan was limited to her interest in the Trust and that Lender would not have recourse to her other assets for repayment. The Agreement also included an arbitration provision.
Key ultimately prevailed in the probate action against Tyler, winning entitlement to one-third of her parents' estate, equivalent to about $20 million. Upon the successful completion of the litigation, Key repaid Lender the $2.4 million loan principal. But she refused to pay any of the interest or fees, claiming they were unlawful under the California Financing Law ( Fin. Code, § 22000 et seq. ), which restricts the interest and fees that can be charged on consumer loans (see id. , §§ 22306 [], 22309 [forbidding compound interest]; see also id. , § 22001, subd. (b) []).
Lender submitted the dispute to arbitration, seeking about $3.5 million in unpaid compound interest and fees. The arbitration panel concluded that the Agreement was generally enforceable but that the interest and fee provisions violated the California Financing Law. The panel agreed with Key that because the loan was meant to finance a dispute about her parental inheritance, the loan should be classified not as a "commercial loan" but as a "consumer loan" — that is, a loan "the proceeds of which are intended by the borrower for use primarily for personal, family, or household purposes" ( Fin. Code, § 22203 ) — and that as such, the loan was subject to the statute's restrictions on compound interest and certain other fees. In so concluding, the panel rejected Lender's argument that the loan was exempt from those prohibitions as a loan with a bona fide principal amount of $5,000 or more. (See id. , § 22250, subd. (b).)
The panel disagreed, however, with Key's further argument that, as a consequence of its efforts to charge the disputed compound interest and fees, Lender should be barred from recovering any amount under the Agreement beyond the principal she had already repaid. Key's argument relied on Financial Code section 22750, subdivision (a), which says that if a loan contract "willfully" charges "any amount other than, or in excess of, the charges permitted by" the California Financing Law, "the contract of loan is void, and no person has any right to collect or receive any principal, charges, or recompense in connection with the transaction." Rejecting the argument, the panel calculated "a fair computation of damages" based on what Key would have owed if the Agreement had charged simple, rather than compound, interest at the designated monthly rate, plus an additional assessment for default interest. In total, the panel awarded Lender about $800,000 in damages, plus substantial attorneys' fees and costs, and it also required Key to cover the arbitration forum's administrative expenses.
The arbitration panel served the parties with the final award on September 19, 2019.
On October 1, Lender filed a petition in superior court to confirm the award.
On October 10, Key's attorney called Lender's attorney to discuss various procedural matters related to Lender's petition. On that phone call, Key's attorney informed Lender that Key planned to file a petition to vacate the award in addition to her response in opposition to Lender's petition to confirm. They also discussed their mutual understanding that under Code of Civil Procedure section 1290.6 ( section 1290.6 ), Key had 10 days from the filing of the petition to confirm — that is, until October 11, the next day — to file her response to the petition. The attorneys agreed to extend the time for response. The attorneys further agreed to coordinate a hearing date so that the trial court could consider both Lender's petition to confirm and Key's petition to vacate at the same time, and to set a briefing schedule for both petitions corresponding to that date. In exchange for Lender's agreement to extend the October 11 deadline and adhere to the joint briefing schedule, Key agreed to waive personal service of Lender's petition to confirm and to use a peremptory challenge to disqualify the assigned trial judge. Key's attorney memorialized their agreement in a follow-up e-mail, noting that the parties had "agreed that the 10 day time period for filing a Petition to Vacate will not apply" and that the parties would "work backwards" from the hearing date "to come up with a briefing schedule [that] will include oppositions and replies."
On December 12 — 84 days after service of the arbitral award — Lender's attorney e-mailed Key's attorney asking, Key's attorney did not respond. On January 21, Key's attorney e-mailed Lender's attorney, informing him that he was "getting [the] moving papers prepared" and stating: "Looks like the last day to file and serve is January 27." The attorneys corresponded by phone shortly after to finalize the details of filing and serving the documents.
On January 27 — 130 days after service of the arbitral award — Key filed her petition to vacate the award. Then, on February 5 — 139 days after service — Key filed her response in opposition to Lender's petition to confirm, in which she also argued that the trial court should vacate the award. Key's primary contention in both filings was that the arbitration panel exceeded its authority by enforcing a modified version of the Agreement despite concluding that Lender had attempted to charge unlawful compound interest and fees. She argued that, rather than reform the contract by requiring Key to pay simple interest, the arbitration panel should have declared the loan void under Financial Code section 22750, subdivision (a), and forbidden Lender from collecting any recompense in connection with the transaction.
In response, Lender argued that Key's request to vacate was untimely because neither her petition to vacate nor her response to Lender's confirmation petition was filed within 100 days after service of the final award, as Code of Civil Procedure section...
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