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Date: 04-02-2020

Case Style:

William Dennison v. Rosland Capital, LLC

Case Number: B295350

Judge: Grimes, J.

Court: California Court of Appeals Second Appellate District, Division Eight on appeal from the Superior Court, County of Los Angeles

Plaintiff's Attorney: Lann G. McIntyre, Tracy D. Forbath, Craig Holden and Sudhir L. Burgaard

Defendant's Attorney: Bruce A. Berman


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This is an appeal from an order denying a motion to compel
arbitration. Plaintiff William Dennison made four purchases of
precious metals from defendant Rosland Capital LLC, then sued
Rosland Capital and its sales agent Matthew M. Smith, alleging
they misled him. Defendants moved to compel arbitration
pursuant to their Customer Agreement. The trial court found the
contract was procedurally and substantively unconscionable, and
denied defendants’ petition. We agree and affirm.
In September 2018, Mr. Dennison sued defendants in his
individual capacity, and in his capacity as trustee for the
Dennison Family Trust. The first amended complaint alleged
that in 2016, Mr. Dennison contacted Rosland Capital after
seeing its television commercials promoting investment in
precious metals. At the time, he was 82 years old, and had no
experience investing in metals. Mr. Smith discussed the risks
Mr. Dennison faced if he kept his retirement funds in the bank
and the profit he could secure if he invested with Rosland
Capital. Soon thereafter, Mr. Dennison signed and returned
documents he received by FedEx from Mr. Smith, with a check
for $49,982. In return, Mr. Dennison received 40 gold and 322
silver coins.
After Mr. Dennison’s first investment, Mr. Smith
repeatedly called him, encouraging him to make further
investments. Mr. Dennison placed additional orders for $50,000
in September 2016, $49,500 in March 2017, and another $49,968
a week later. The coins he bought from Rosland Capital were
worth significantly less than what Mr. Dennison paid for them.
Defendants filed their petition to compel arbitration in
December 2018, arguing all of plaintiffs’ claims were subject to
arbitration based on the Customer Agreement Mr. Dennison
signed when he placed his first order. Defendants also sought
their attorney fees and costs of $7,300 for having to bring their
petition to compel arbitration.
Appended to their petition was a copy of the Customer
Agreement. The standard form agreement is two pages long, in
two compressed side-by-side columns, printed in extremely small
font. It is impossible to read without a magnifying glass.
When the font size is increased by 150 percent, one can see
that Paragraph 15.5 of the agreement provides: “Customer
agrees to arbitrate all controversies between customer and
Rosland (including any of Rosland’s current or former officers,
directors, managers, members, employees or agents) arising out
of or relating in any way to the products or this agreement,
including the determination of the scope or applicability of this
agreement to arbitrate. . . .” (Capitalization omitted.)
Plaintiffs opposed the petition, arguing the Customer
Agreement was procedurally and substantively unconscionable,
and therefore the arbitration clause was unenforceable.
Mr. Dennison’s declaration in support of the opposition
testified that he is a retired Navy aviator, and in April 2016, he
saw Rosland Capital’s television commercials warning about
stock market volatility and inflation, and touting the security of
investing in precious metals. He responded to the ads, and
received a call back on April 29, 2016 from Mr. Smith, an account
representative with Rosland Capital. The call lasted for more
than 30 minutes.
Mr. Dennison told Mr. Smith he was a retired widower in
his 80’s, and that he was interested in learning about silver
investments. Mr. Smith explained that investing in precious
metals would hedge against the risks faced by keeping retirement
savings in the bank and that there was never a better time to
invest in precious metals. Mr. Smith held himself out as an
expert, promising to advise Mr. Dennison on how to successfully
invest. Mr. Smith never mentioned a customer agreement, nor
did he tell Mr. Dennison he would receive documents to sign that
would strip Mr. Dennison of his legal rights.
Within a few days, Mr. Dennison received a FedEx package
from Mr. Smith. He signed the enclosed documents and returned
them with a check for $49,982 to Rosland Capital using the selfaddressed envelope Mr. Smith included in the package.
Defendants argued in their reply brief the Customer
Agreement delegated to the arbitrator the authority to decide if
the agreement is unconscionable; the agreement is not
unconscionable; and any unconscionable provisions may be
severed from the agreement.
The trial court found the delegation clause was not
enforceable, the contract was procedurally and substantively
unconscionable, and the arbitration clause could not be made
enforceable by severing the unconscionable provisions of the
contract. The trial court denied the petition.
This timely appeal followed.
Code of Civil Procedure section 1281.2 requires a trial court
to grant a petition to compel arbitration “if [the court] determines
that an agreement to arbitrate the controversy exists.” (Ibid.)
The party seeking to compel arbitration has the initial burden to
plead and prove the existence of a valid arbitration agreement
that applies to the dispute. Once that burden is satisfied, the
party opposing arbitration must prove any defense to the
agreement’s enforcement, such as unconscionability. (Ibid.; see
also Avery v. Integrated Healthcare Holdings, Inc. (2013)
218 Cal.App.4th 50, 59.) On appeal from the denial of a petition
to compel arbitration, we apply the de novo standard of review if
the trial court’s ruling rests on a decision of law, and the facts are
undisputed. (Avery, at p. 60.)1
1. The Arbitration Agreement Does Not Clearly and
Unmistakably Delegate Authority to the Arbitrator to
Decide Unconscionability.
Under California law, it is presumed the judge will decide
arbitrability, unless there is clear and unmistakable evidence the
parties intended the arbitrator to decide arbitrability. (Aanderud
v. Superior Court (2017) 13 Cal.App.5th 880, 891-892.) The
arbitration clause here provides in pertinent part that the
“Customer agrees to arbitrate all controversies between customer
and Rosland . . . arising out of or relating in any way to the
products or this agreement, including the determination of the
scope or applicability of this agreement to arbitrate.” (Italics
added & capitalization omitted.) However, paragraph 15.11 of
the Customer Agreement provides: “The terms and provisions in
this Agreement are severable. If any provision of this Agreement
is held by a court of competent jurisdiction to be void, invalid, or
unenforceable, then that provision will be enforced to the
maximum extent permissible and the remaining terms and
provisions of this Agreement will continue in full force and
effect.” (Italics added.)
1 California law, and not the Federal Arbitration Act, applies
to this dispute, because the agreement expressly states that the
agreement is governed by California law.
Where, as in paragraph 15.11 of the Customer Agreement,
a contract includes a severability clause stating a court of
competent jurisdiction may excise an unconscionable provision,
there is no clear and unmistakable delegation to the arbitrator to
decide if the arbitration agreement is unconscionable. (Baker v.
Osborne Development Corp. (2008) 159 Cal.App.4th 884, 891, 893-
894 [arbitration agreement did not clearly provide issues of
enforceability were to be decided by the arbitrator due to
severability provision that “ ‘any provision of this arbitration
agreement shall be determined by the arbitrator or by any court
to be unenforceable. . . .’ ”]; Parada v. Superior Court (2009)
176 Cal.App.4th 1554, 1566 [“ ‘although one provision of the
arbitration agreement stated that issues of enforceability or
voidability were to be decided by the arbitrator, another provision
indicated that the court might find a provision unenforceable’ ”];
Hartley v. Superior Court (2011) 196 Cal.App.4th 1249, 1257-
1258 [same]; cf. Aanderud v. Superior Court, supra,
13 Cal.App.5th at pp. 893-894 [distinguishing Baker, supra, on
the basis that the arbitration provision at issue “here expressly
states that any disputes, which include those over the scope and
applicability of the arbitration provision, are to be resolved
through binding arbitration except those within small claims
court jurisdiction. Since arbitration is not at issue in a small
claims court action, the small claims court can only find
unenforceable provisions . . . other than the arbitration provision.
Thus, when the severability clause provides for severance of any
provision . . . , the court being referred to is the small claims
court, which is not empowered to determine the scope or
applicability of the arbitration provision.”].)
We therefore determine it was for the court, and not the
arbitrator, to determine arbitrability.
2. The Arbitration Agreement Is Unconscionable.
Unconscionability is determined based on the unique
factual situations of each case. (Walnut Producers of California
v. Diamond Foods, Inc. (2010) 187 Cal.App.4th 634, 644
[“ ‘[W]hile unconscionability is ultimately a question of law,
numerous factual inquiries bear upon that question. [Citations.]
The business conditions under which the contract was formed
directly affect the parties’ relative bargaining power, reasonable
expectations, and the commercial reasonableness of the risk
allocation as provided in the written agreement.’ ”].)
Unconscionability has both a procedural and a substantive
element, the former focusing on “oppression” or “surprise” due to
unequal bargaining power, the latter on “overly harsh” or “onesided” results. (Armendariz v. Foundation Health Psychcare
Services, Inc. (2000) 24 Cal.4th 83, 114 (Armendariz).) “ ‘The
prevailing view is that [procedural and substantive
unconscionability] must both be present in order for a court to
exercise its discretion to refuse to enforce a contract or clause
under the doctrine of unconscionability.’ [Citation.] But they
need not be present in the same degree. . . . [Citations.] In other
words, the more substantively oppressive the contract term, the
less evidence of procedural unconscionability is required to come
to the conclusion that the term is unenforceable, and vice versa.’ ”
Defendants say Mr. Dennison cannot show procedural
unconscionability because he had a lifetime of experience to draw
upon, including his military service, and he could have negotiated
the terms of the arbitration clause. An 82-year-old consumer who
calls a telephone number displayed in a television ad to make his
first-ever investment in the highly volatile precious metals
market, no matter how sophisticated he may be in other matters,
cannot reasonably be expected to consider negotiating the terms
of a form contract in such tiny print it cannot be read without a
magnifying glass. In any event, the point is of no consequence
because “[i]n the context of consumer contracts, [the Supreme
Court has] never required, as a prerequisite to finding procedural
unconscionability, that the complaining party show it tried to
negotiate standardized contract provisions.” (Sanchez v. Valencia
Holding Co., LLC (2015) 61 Cal.4th 899, 914.)
Here, the adhesive nature of the contract is sufficient to
establish some degree of procedural unconscionability. (Sanchez
v. Valencia Holding Co., LLC, supra, 61 Cal.4th at p. 915.) Thus,
we consider the substantive terms of the contract to determine if
they are manifestly unfair or one-sided. We discuss below
various aspects of the agreement we find render it
unconscionable. There are other problematic terms in the
contract, but those discussed below render it unnecessary to
address the other unconscionable terms.
a. Lack of mutuality
The Customer Agreement requires plaintiffs, but not
defendants, to arbitrate, and defendants did not sign the
agreement. Paragraph 15.7 states Mr. Dennison must pay
defendants’ costs and attorney fees if defendants obtains “any
relief” on a motion to compel arbitration, but provides no
mechanism for Mr. Dennison to recover his fees if he successfully
resists arbitration.
“Substantively unconscionable terms may ‘generally be
described as unfairly one-sided.’ [Citation.] For example, an
agreement may lack ‘a modicum of bilaterality’ and therefore be
unconscionable if the agreement requires ‘arbitration only for the
claims of the weaker party but a choice of forums for the claims of
the stronger party.’ ” (Fitz v. NCR Corp. (2004) 118 Cal.App.4th
702, 713, quoting Armendariz, supra, 24 Cal.4th at p. 119; see
also Carmona v. Lincoln Millennium Car Wash, Inc. (2014)
226 Cal.App.4th 74, 86 [finding no mutuality where employer did
not sign arbitration agreement, and that unilateral attorney fees
provision is substantively unconscionable].)
b. Limitations on defendants’ liability
Paragraphs 14.2, 14.3, and 15.10 of the Customer
Agreement limit defendants’ liability, and are one-sided and an
unfair surprise. For example, paragraph 14.2 provides that
Rosland Capital is not liable “to customer or any third party for
consequential, incidental, indirect, punitive or special damages
. . . arising out of, relating to or connected with the products or
this agreement. . . .” Paragraph 14.3 puts a cap on damages,
providing that “[i]n no event will Rosland’s aggregate liability
arising from, relating to, or in connection with the products or
this agreement exceed the amount that customer paid for the
products, less the fair market value of such products.”
(Capitalization omitted; see Penilla v. Westmont Corp. (2016)
3 Cal.App.5th 205, 222-223 [limitation on remedies supports
finding of substantive unconscionability].)
c. Statute of limitations
The one-year statute of limitations to bring claims in
paragraph 15.9 applies only to Mr. Dennison, and severely
shortens the time in which he may bring a claim. For example,
plaintiffs’ elder abuse claim has a limitations period of four years
from the discovery the facts constituting financial elder abuse.
(Welf. & Inst. Code, § 15657.7; see Nyulassy v. Lockheed Martin
Corp. (2004) 120 Cal.App.4th 1267, 1283 [“Moreover, the
unilateral arbitration clause places time limitations upon
plaintiff’s assertion of any claims against defendant. . . . Of
course, the employment agreement limits none of the employer’s
rights against the employee (including the statutory time for
bringing suit against him).”].)
3. We Cannot Save the Arbitration Agreement by
Severing a Single Offending Clause Because the
Agreement Is Permeated With Unconscionable
“The final question is whether the unconscionable
provisions warrant a refusal to enforce the entire arbitration
agreement, or whether the offending provisions may be limited or
severed to avoid an unfair result. ‘In deciding whether to sever
terms rather than to preclude enforcement of the provision
altogether, the overarching inquiry is whether the interests of
justice would be furthered by severance; the strong preference is
to sever unless the agreement is ‘permeated’ by
unconscionability.’ ” (Bakersfield College v. California
Community College Athletic Assn. (2019) 41 Cal.App.5th 753,
769, citations omitted.)
“An agreement to arbitrate is considered ‘permeated’ by
unconscionability where it contains more than one
unconscionable provision. ‘Such multiple defects indicate a
systematic effort to impose arbitration on [the nondrafting party]
not simply as an alternative to litigation, but as an inferior forum
that works to the [drafting party’s] advantage.’ An arbitration
agreement is also deemed ‘permeated’ by unconscionability if
‘there is no single provision a court can strike or restrict in order
to remove the unconscionable taint from the agreement. If ‘the
court would have to, in effect, reform the contract, not through
severance or restriction, but by augmenting it with additional
terms,’ the court must void the entire agreement.” (Magno v. The
College Network, Inc. (2016) 1 Cal.App.5th 277, 292, citations
Here, as described above, the arbitration agreement
contains numerous unfair and one-sided provisions, and we
would have to rewrite the Customer Agreement by severing most
of its terms and adding new ones in order to compel arbitration.
We believe the Customer Agreement should be rewritten, but we
will not do so here.

Outcome: The order is affirmed. Respondents are awarded their costs on appeal.

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