Parada v. Superior Court

• Decision Date: 26 August 2009
• Docket Number: No. G041339.,G041339.
• Citation: 176 Cal.App.4th 1554,98 Cal. Rptr. 3d 743
• Court: California Court of Appeals Court of Appeals
• Parties: CLAUDIO PARADA et al., Petitioners, v. THE SUPERIOR COURT OF ORANGE COUNTY, Respondent; MONEX DEPOSIT COMPANY et al., Real Parties in Interest.

176 Cal.App.4th 1554

98 Cal. Rptr. 3d 743

CLAUDIO PARADA et al., Petitioners, v. THE SUPERIOR COURT OF ORANGE COUNTY, Respondent MONEX DEPOSIT COMPANY et al., Real Parties in Interest.

No. G041339.

Court of Appeals of California, Fourth District, Division Three.

August 26, 2009.

Law Offices of Steve A. Buchwalter, Steve Buchwalter; and Sheldon Jaffe for Petitioners.

Aidikoff, Uhl & Bakhtiari, Robert A. Uhl; and William A. Jacobson for Cornell Securities Law Clinic as Amicus Curiae on behalf of Petitioners.

No appearance for Respondent.

Pistone & Wolder, Thomas A. Pistone, Mitchell S. Riechmann, Aaron C. Watts; Farella Braun & Martel, Neil A. Goteiner and Frank J. Riebli for Real Parties in Interest.

OPINION

FYBEL, J.

INTRODUCTION

Plaintiffs and petitioners Claudio Parada and Elizabeth Garcia Parada (the Paradas), Fernando Perez and Jeanette Perez (the Perezes), and Sergio Navarrete (collectively, Petitioners) seek a writ of mandate to overturn the order compelling them to arbitrate their claims against defendants and real parties in interest Monex Deposit Company, Monex Credit Corporation (collectively, Monex), and Terry Parsons. We grant the petition and order the issuance of a writ of mandate.

Petitioners invested substantial sums of money through Monex, which deals in precious metals. When making their initial investments, Petitioners signed form agreements (referred to as Atlas Account Agreements) requiring any disputes with Monex to be arbitrated before a panel of three arbitrators from the Judicial Arbitration and Mediation Service (JAMS) and prohibiting consolidation or joinder of claims. At that time, the Paradas were school teachers, Fernando Perez worked as a driver for Federal Express, and Navarrete was a school custodian. Petitioners lost their entire investments with Monex. They sued Monex and Parsons for causes of action including constructive fraud, commodities fraud, and violation of the California unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.).

We hold the paragraphs in the Atlas Account Agreements requiring arbitration before a panel of three arbitrators from JAMS and prohibiting consolidation or joinder of claims are unconscionable and therefore unenforceable. Because those unconscionable paragraphs cannot be severed from the rest of the arbitration provisions, Petitioners cannot be compelled to arbitrate their claims against Monex and Parsons.

FACTS

I. The Atlas Account Agreements

Monex is a precious metals dealer. According to Monex, "[i]t offers broadly two types of services: (i) customers can purchase precious metals for cash delivery; or (ii) they can buy commodities for cash storage, buy commodities on credit, or borrow commodities through so-called `Atlas Accounts.'" Monex does not require investors to sign account agreements for cash transactions. For credit transactions, Monex requires investors to open an Atlas account and sign a Monex Atlas account agreement.

An Atlas account agreement consists of a purchase and sale agreement and a loan, security and storage agreement. Both agreements include identical 11-paragraph arbitration provisions. The first paragraph of the arbitration provisions states: "The parties agree that any and all disputes, claims or controversies arising out of or relating to any transaction between them or to the breach, termination, enforcement, interpretation or validity of this Agreement, including the determination of the scope or applicability of this agreement to arbitrate, shall be submitted to final and binding arbitration before JAMS, or its successor, in Orange County, California, in accordance with the laws of the State of California for agreements made in and to be performed in California (including, without limitation, the California Arbitration Act)."

Paragraph 15.11, subparagraph e of the purchase and sale agreement and paragraph 31.5 of the loan, security and storage agreement state: "The parties agree that the arbitration shall be heard by and determined by a panel of three (3) arbitrators. Nominations shall take place within thirty (30) days of the date that the dispute or controversy is at issue, that is, the day upon which all parties to the dispute or controversy have answered all claims and cross-claims. The parties will each select an arbitrator from JAMS list of arbitrators in Orange County, California. The selected arbitrators shall then select a third arbitrator from that list who shall act as Chairperson of the panel. The Chairperson shall be a retired judge of either the California Superior Court or any United States District Court in California." We refer to these paragraphs as the Arbitration Panel paragraphs.

Paragraph 15.11, subparagraph h of the purchase and sale agreement and paragraph 31.8 of the loan, security and storage agreement state: "Disputes and controversies between the parties to this Agreement shall not be joined or consolidated with the disputes or controversies of any person not a party to this Agreement. No party may attempt to assert claims on behalf of a class or group of persons." We refer to these paragraphs as the No Consolidation paragraphs.

The arbitration provisions state, "the arbitration shall be conducted in accordance with the provisions of JAMS Comprehensive Arbitration Rules and Procedures in effect at the time of filing the demand for arbitration." A copy of those JAMS rules and procedures are not attached to the Atlas Account Agreements. The JAMS rules and procedures require the parties to deposit the fees and expenses for arbitration before the hearing, and provide that if a party fails to deposit his or her pro rata or agreed-upon share of fees and expenses, the arbitrator may preclude that party from presenting evidence of an affirmative claim at the hearing.

Paragraph 15.11, subparagraph i of the purchase and sale agreement and paragraph 31.9 of the loan, security and storage agreement state: "The parties agree that they will share equally in the arbitration costs, subject to the arbitrators' discretion to allocate the costs of the arbitration, including the fees of the arbitrators and the parties['] reasonable attorney's fees, between the parties in any proportion."

Paragraph 16, subparagraph l of the purchase and sale agreement and paragraph 36, subparagraph m of the loan, security and storage agreement state: "I affirm that I have read and understand the foregoing and agree to submission of all disputes, claims or controversies arising out of or relating to my transactions with MDC [Monex] or to this Agreement to neutral arbitration in accordance with the provisions of this Agreement."

II. Petitioners Invest Through Monex

Each Petitioner opened an Atlas account with Monex in 2006. The Paradas were school teachers with a combined annual income of about $66,000 in September 2008.¹ They opened their Monex Atlas account on February 13, 2006, with an initial investment of $4,000 and ultimately invested over $140,000 through Monex.

When the Paradas opened their Monex Atlas account, a Monex representative (defendant and real party in interest Parsons), presented them with the purchase and sale agreement and the loan, security and storage agreement. Parsons told the Paradas, "they did not need to sign the Atlas Account Agreements if they intended on purchasing the precious metals for personal delivery." (Boldface omitted.) Parsons also explained the risks involved in investing in precious metals. Parsons told the Paradas, "they could take the Atlas Account Agreements home and review them and then call [him] with any questions before opening an account." The Paradas signed the Atlas Account Agreements at that time, and their account was opened. The Paradas alleged they purchased almost $2.5 million in metals on credit, and lost at least $113,000 in "out of pocket losses" from their Monex Atlas account.

Fernando Perez was a driver for Federal Express. He and his wife, Jeanette Perez, had a combined annual income of about $70,000 in September 2008. The Perezes opened a Monex Atlas account in March 2006 with a $30,000 check and ultimately invested a total of $43,000. They lost about $44,000 from their Monex Atlas account.

Fernando Perez first contacted Parsons about investing in precious metals through Monex in February 2006. Parsons agreed to mail Perez the purchase and sale agreement and the loan, security and storage agreement and told Perez he "did not need to sign the Atlas Account Agreements if he intended on purchasing the precious metals for personal delivery." (Boldface omitted.) The Perezes signed the Atlas Account Agreements on March 23, 2006. On March 24, 2006, Monex received signed Atlas Account Agreements from the Perezes, and, on March 29, a Monex representative signed those Atlas Account Agreements. On March 27, Parsons spoke with Fernando Perez, explained the "risks of doing business with . . . Monex," and asked him if he agreed to be bound by the Atlas Account Agreements. Fernando Perez "responded affirmatively." The Perezes made their first Atlas account purchase on March 27, 2006. Fernando Perez signed and submitted additional sets of Atlas Account Agreements on March 29 and May 16, 2006.

Navarrete opened a Monex Atlas account in April 2006. At that time, he worked as a custodian at an elementary school and had an annual salary of $55,000. On February 24, 2006, Navarrete telephoned Parsons and expressed interest in purchasing precious metals. Parsons explained the risks of investing in precious metals and investing through Monex. Parsons told Navarrete that "if he wished to finance purchases of precious metals and/or store them through Monex, he would have to review and sign the Atlas Account Agreements," but "he did not need to sign the Atlas Account Agreements if he intended on purchasing the precious metals for personal delivery" (bold-face omitted). After the telephone conversation, Parsons had the Atlas Account Agreements mailed...