California Court of Appeal, Gostev v. Skillz Platform, Inc., Docket No. A164407

Contracts of Adhesion

 

Terms and Conditions

 

Arbitration

 

Who Decides Arbitrability?

 

Statute of Limitations

 

Contractually Shortened Limitations Periods

 

Unconscionability

 

Consumer Law

 

Contract Drafting

 

California Law

 

 

 

 

Defendant Skillz Platform, Inc. (Skillz) appeals from an order denying its petition to compel arbitration. Skillz contends the trial court erred, first, by not referring questions of arbitrability to arbitration and, second, by finding the arbitration agreement unconscionable. We affirm.

 

 

Skillz provides a mobile platform that hosts games in which players can pay to compete against each other for cash prizes. To play games on its platform, a user must establish a player account, and to participate in paid-entry competitions, a user must save the player account. To save a player account, a user must provide an email address and verify age by entering the user’s date of birth; after entering a date of birth, the user must tap a box with the word “Next” on it. Below the “Next” box is the advisory statement, “By tapping ‘Next,’ I agree to the Terms of Service and the Privacy Policy.” The underlined text is a hyperlink, which, if tapped, takes the user to the Skillz’ terms of service.

 

 

The Agreement to Arbitrate in the Terms of Service

The 15-page Terms of Service has 15 sections. The first section begins: “1. GENERAL TERMS “1.1. Arbitration. TO THE MAXIMUM EXTENT PERMITTED UNDER APPLICABLE LAW, ANY CLAIM, DISPUTE OR CONTROVERSY OF WHATEVER NATURE (‘CLAIM’) ARISING OUT OF OR RELATING TO THESE TERMS AND/OR OUR SOFTWARE OR SERVICES MUST BE RESOLVED BY FINAL AND BINDING ARBITRATION IN ACCORDANCE WITH THE PROCESS DESCRIBED IN SECTION 14 BELOW. PLEASE READ SECTION 14 CAREFULLY. To the maximum extent permitted under applicable law, you are giving up the right to litigate (or participate in as a party or class member) all disputes in court before a judge or jury.”

 

 

Subsection 14.1 requires written notice of a dispute and “informal negotiation” after which either party may commence arbitration. Alternatively, the parties may bring claims that qualify for its jurisdiction in small claims court. Subsection 14.2 provides, “If you and we do not resolve any Dispute by informal negotiation or in small claims court, any other effort to resolve the Dispute will be conducted exclusively by binding arbitration as described in this Section.” Subsection 14.3 includes waivers of the rights to bring class actions and representative actions.

 

 

G. brought claims of violation of the Unfair Competition Law (Bus. & Prof. Code, §17200 et seq.; UCL), violation of the Consumers Legal Remedies Act (Civ. Code, §1750 et seq.; CLRA), and unjust enrichment, and he sought declaratory, injunctive, and equitable relief, including restitution.

 

 

B. Who Decides the Threshold Question of Enforceability?

 

The usual presumption is that a court, not an arbitrator, will decide in the first instance whether a dispute is arbitrable. (Ajamian, supra, 203 Cal.App.4th at p.781; Dennison v. Rosland Capital LLC (2020) 47 Cal.App.5th 204, 209 (Dennison).) The parties may agree to delegate authority to the arbitrator to decide arbitrability, but given the contrary presumption, evidence that the parties intended such a delegation must be “‘clear and unmistakable’” before a court will enforce a delegation provision. (Ajamian, supra, at p. 781; Dennison, supra, at p. 209.)

 

 

(Ajamian, supra, 203 Cal.App.4th at p. 790.) The Ajamian court continued: “We must be mindful of what the United States Supreme Court has emphasized unflinchingly for decades: notwithstanding the public policy favoring arbitration, arbitration can be imposed only as to issues the parties agreed to arbitrate; given the slim likelihood that the parties actually contemplated who would determine threshold enforceability issues, as well as the default presumption that such issues would be determined by the court, those threshold issues must be decided by the court absent clear and unmistakable proof to the contrary. This is a ‘heightened standard,’ higher than the evidentiary standard applicable to other matters of interpreting an arbitration agreement. (Rent–A–Center, [West, Inc. v. Jackson (2010) 561 U.S. 63, 69], fn. 1; First Options of Chicago, Inc. v. Kaplan (1995)] 514 U.S. 938, 944 [contrasting ‘ordinary state-law principles that govern the formation of contracts’ with the clear and unmistakable rule].) As the court cogently explained in Gilbert Street Developers, LLC v. La Quinta Homes, LLC (2009) 174 Cal.App.4th 1185,1191–1192: ‘It is not enough that ordinary rules of contract interpretation simply yield the result that arbitrators have power to decide their own jurisdiction. Rather, the result must be clear and unmistakable, because the law is solicitous of the parties actually focusing on the issue. Hence silence or ambiguity is not enough.’” (Ajamian, supra, 203 Cal.App.4th at pp. 790–791.)

 

 

We also agree with the reasoning of Ajamian, Beco, and Eiess and therefore conclude the incorporation by reference of AAA Commercial Arbitration Rules does not provide clear and unmistakable evidence the parties intended to delegate to the arbitrator the question of unconscionability in this case.

 

 

In Brennan, the Ninth Circuit Court of Appeals held “that incorporation of the AAA rules constitutes clear and unmistakable evidence that contracting parties agreed to arbitrate arbitrability” on the facts of the case (796 F.3d at p 1130), but the court expressly did not decide “‘the effect if any of incorporating AAA arbitration rules into consumer contracts’ or into contracts of any nature between ‘unsophisticated’ parties” (id. at p. 1131).

 

 

 

c. Shortened Limitations Periods 

 

By statute, the limitations period for a CLRA claim is three years (Civ. Code, §1783), and the limitations period for a UCL claim is four years (Bus. & Prof. Code, §17208), but the arbitration provision in this case limits all claims to a one-year statute of limitations. Parties may contract to a shortened limitations period so long as the limitation is reasonable. (Ellis v. U.S. Security Associates (2014) 224 Cal.App.4th 1213, 1222–1223.) However, contractually shortened limitations periods have not been “‘recognized outside the context of straightforward transactions in which the triggering event for either a breach of a contract or for the accrual of a right is immediate and obvious.’” (Id. at p. 1223, quoting Moreno v. Sanchez (2003) 106 Cal.App.4th 1415, 1430.) In Fisher v. MoneyGram International, Inc. (2021) 66 Cal.App.5th 1084, 1105 (Fisher), the Court of Appeal found substantively unconscionable an arbitration provision’s one-year limitations period, which was “considerably shorter than the otherwise applicable four-year limitations period for the plaintiff’s UCL claim and was inherently one-sided against complaining consumers.” And, in Magno v. The College Network, Inc. (2016) 1 Cal.App.5th 277 (Magno), the court observed, “An arbitral limitations period that is shorter than the otherwise applicable period is one factor that supports a finding of substantive unconscionability.” (Id. at p. 291 [arbitration provision was substantively unconscionable where, among other things, it required all claims to be filed within a year of accrual].)

 

 

(…) (See Magno, supra, 1 Cal.App.5th at pp. 288–289 [requiring college-aged students to travel from San Diego to Indiana to arbitrate claims against a company that solicited their business in California was substantively unconscionable]; Lhotka, supra, 181 Cal.App.4th 816, 825 [requiring residents of Colorado to mediate and arbitrate in San Francisco contributed to the substantive unconscionability of the arbitration clause].)

 

 

 

 

(California Court of Appeal, Feb. 28, 2023, Gostev v. Skillz Platform, Inc., Docket No. A164407, Certified for Publication)

Supreme Court of Texas, Van Dyke v. The Navigator Group, Docket No. 21-0146

Mineral Interests

 

Mineral Conveyances

 

1924 Deed’s Mineral Reservation of “One-Half of One-Eighth”

 

Interpretation of Contracts and Deeds

 

 

 

Estate-Misconception Theory

 

Oil-and-Gas Lease

 

Fee Simple Determinable with the Possibility of Reverter of the Entire Estate

 

 

Presumed-Grant Doctrine (= Title by Circumstantial Evidence = Common Law Form of Adverse Possession)

 

 

Oil & Gas Law

 

Property Law

 

Texas Law

 

 

 

 

Only in a legal text could the formula “one-half of one-eighth” mean anything other than one-sixteenth. But in the law, “one-half of one-eighth” sometimes equals one-half—in the context of reservations of mineral interests.

 

 

This case involves the first seeming oddity mentioned above: the so-called “double-fraction” dilemma from antique mineral conveyances in which the parties insisted on using two fractions. We must stretch back nearly a century to determine the meaning of a 1924 deed’s mineral reservation of “one-half of one-eighth.” This is not our first case involving double fractions, and it is likely not our last. But building on our precedents, and focused on our duty to faithfully interpret any legal text, we anticipate at least substantially reducing the frequency of disputes about double fractions. We conclude that an accurate construction of the 1924 text requires us to accept that the equation “one-half of one-eighth” equals one-half of the mineral estate. Even if this were not so, nearly a century of the parties’ unbroken understandings and representations would require us to recognize that allocation of present-day ownership by applying the presumed-grant doctrine. We accordingly reverse the judgment of the court of appeals and remand the case to the trial court for further proceedings.

 

 

In 1924, George H. Mulkey and Frances E. Mulkey conveyed their ranch and the underlying minerals to G.R. White and G.W. Tom (who had a general partnership called “White and Tom”) with the following reservation: It is understood and agreed that one-half of one-eighth of all minerals and mineral rights in said land are reserved in grantors, Geo. H. Mulkey and Frances E. Mulkey, and are not conveyed herein.

 

 

After the deed’s execution, both parties, their assignees, and various third parties engaged in numerous transactions and filings reflecting that each side of the original conveyance had an equal 1/2 interest in the minerals. This included further conveyances, leases, ratifications, division orders, contracts, probate inventories, stipulations, and various other recorded documents.

 

 

(…) For nearly ninety years after the original deed’s execution, the parties (including new owners who received various interests) continued without exception to engage in transactions and to make representations about their ownership interests that were consistent with the understanding that each original side had always had a 1/2 interest in the minerals.

 

 

(…) A text retains the same meaning today that it had when it was drafted. 1Thus, the ordinary meaning at the time of drafting remains the meaning to which courts must later adhere. We have made this basic point repeatedly, even in the very double-fraction context that we confront today: “Words must be given the meaning they had when the text was adopted.” Hysaw v. Dawkins, 483 S.W.3d 1, 13 (Tex. 2016) (quoting Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 78 (2012)).

 

 

1While there are minor differences between statutory interpretation and the interpretation of private instruments like contracts and deeds, the fundamental principle at issue here—that words keep meaning what they originally meant—is equally applicable to both.

 

 

Precisely because we are addressing the ordinary process of ascertaining a text’s meaning, we emphasize that the initial analysis remains confined to the four corners of the document as usual. We said that, too, in a case involving the double-fraction problem. See Garrett v. Dils Co., 299 S.W.2d 904, 906 (Tex. 1957). Our interpretation of any contract or deed primarily concerns the parties’ intended meaning. See, e.g., Myers v. Gulf Coast Mins. Mgmt. Corp., 361 S.W.2d 193, 197 (Tex. 1962). But as always, we determine intent objectively by giving words their fair meaning. Matagorda Cnty. Hosp. Dist. v. Burwell, 189 S.W.3d 738, 740 (Tex. 2006). We do not start with extrinsic evidence, nor do we credit claims made in litigation of a secret or bespoke meaning that no one not privy to the code reasonably would have understood. True, “parties may freely define an ordinary word to have an unusual meaning; when they do, they rebut the presumption of ordinary usage. Without any textually expressed bespoke meaning, however, courts will adopt the ordinary usage as a matter of law.” Perthuis v. Baylor Miraca Genetics Lab’ys, LLC, 645 S.W.3d 228, 236 (Tex. 2022) (footnote omitted). The question, then, is what the ordinary usage of the textually undefined term “one-half of one-eighth” actually was. In other words, we do not begin by asking what the original White and Mulkey parties secretly or unusually might have meant by it. Merely indulging that question at this stage of the analysis would invite a flood of unreliable and destabilizing extrinsic evidence, which would be contrary to our precedents and hostile to the rights of parties to have their documents’ meaning measured objectively without being undermined by a later (perhaps much later) subjective inquiry. Deeds provide a good example of why we insist on language bearing its ordinary meaning. Recording deeds and similar instruments is purposefully a public enterprise designed to elicit public reliance. “The reliability of record title contributes mightily to the predictability of property ownership that is so indispensable to our legal and economic systems.” Cosgrove v. Cade, 468 S.W.3d 32, 34 (Tex. 2015). A properly recorded deed, like the one at issue here, “provides all persons, including the grantor, with notice of the deed’s contents,” id., which would be far less valuable without a consistent and stable judicial construction of terms used in deeds. The meaning of a deed, in other words, matters to the public writ large, not merely to those who wrote it. So important is it that these records are public and permanent that we recently overturned a decades-old default judgment foreclosing a tax lien largely because of the failure “to consult public deed and tax records,” which would have revealed information necessary to achieve proper service on a defendant. Mitchell v. MAPRes., Inc., 649 S.W.3d 180, 191 (Tex. 2022).

 

 

We therefore ask, as the Court in New Prime did, whether there is some objective reason that the double fraction in the deed at issue meant something other than its arithmetical result. URI, 543 S.W.3d at 765. Said differently, using extrinsic evidence of subjective intent to inform the language that the specific parties used would impermissibly trespass beyond the document’s four corners. Courts frequently consult contemporary dictionaries because they convey objective and generally available—not subjective or bespoke—guides to meaning. Specialized or technical dictionaries can provide the same assistance for texts that arise in specialized or technical contexts. Indeed, the types of generally available sources that the Court used in New Prime to confirm that the meaning of “contracts of employment” has changed over time can benefit textual analyses of all kinds. The goal of such an inquiry is always to determine what a text could reasonably have meant to an informed but disinterested speaker at the time the text was written.

 

 

Determining what a text would have meant to a disinterested audience is an inquiry that is designed to confine courts to the four corners of the document and is a proper part of interpretation. See, e.g., U.S. Shale Energy II, LLC v. Laborde Props., L.P., 551 S.W.3d 148, 152 (Tex. 2018) (“We may consider such circumstances to the extent they ‘inform, rather than vary from or contradict, the instrument’s text.’” (quoting URI, 543 S.W.3d at 767)). As we discuss below, only if the text remains incapable of a clear meaning—and thus is unavoidably ambiguous—would we then move beyond the traditional, neutral, and objective tools of textual analysis.

 

 

This brings us to the now-familiar observation that, at the time the parties executed this deed, “1/8” was widely used as a term of art to refer to the total mineral estate. Notably, it is that fraction—not 1/3, 2/7, 6/241, or any other—that is so repeatedly deployed. Happily, we need not speculate as to why. Hysaw recently undertook the core analysis on which we rely today. The Court there examined what it called the “Double-Fraction Dilemma” in the context of a 1947 will-construction dispute where a provision of the will bequeathed each child a “one-third of one-eighth royalty.” Hysaw, 483 S.W.3d at 4. While recognizing that “discerning the nature of a particular royalty interest may be a simple matter when an instrument consistently uses single fractions to describe the interest,” double fractions can present serious complications. Id. at 9. The Court looked to the objective circumstances as a necessary part of defining the terms in their context. Id. at 9–15. The Court identified two related circumstances that explain why 1/8 in such instruments did not typically bear its arithmetical meaning: the historical use of 1/8 as the standard royalty and the estate-misconception theory. Id. at 8.

 

 

The estate-misconception theory reflects the prevalent (but, as it turns out, mistaken) belief that, in entering into an oil-and-gas lease, a lessor retained only a 1/8 interest in the minerals rather than the entire mineral estate in fee simple determinable with the possibility of reverter of the entire estate. Id. at 10; Concord Oil Co. v. Pennzoil Expl. & Prod. Co., 966 S.W.2d 451, 460 (Tex. 1998). Therefore, for many years, lessors would refer to what they thought reflected their entire interest in the “mineral estate” with a simple term they understood to convey the same message: “1/8.”

 

 

(…) Nor do we foreclose the possibility that an instrument may have enough textual evidence to drain confidence in the presumption yet insufficient evidence for a court to conclude that a reasonable reader at the time would have understood the instrument to require mere multiplication. In such a case, and if our ordinary rules of construction are incapable of generating a single answer, then our case law involving inescapable ambiguity—including the authorized but reluctant recourse to extrinsic evidence—provides the next step. When that happens, a factfinder may be needed to finally resolve the text’s meaning. Courts should endeavor to give meaning to the text without too hastily finding ambiguity, but there may be times in which no other choice remains.

 

 

(…) The use of a double fraction in this deed, combined with the lack of anything that could rebut the presumption, is precisely why we can conclude as a matter of law that this deed did not use 1/8 in its arithmetical sense but instead reserved to the Mulkey grantors a 1/2 interest in the mineral estate.

 

 

 

Presumed-grant doctrine:

 

Even if we were less persuaded by the double-fraction analysis, however, the Mulkey parties argue that we still would have to recognize their present-day ownership of one-half of the mineral estate. That is, even if the “one-half of one-eighth” reservation meant only a 1/16 mineral interest in 1924, they argue that the record conclusively establishes that they acquired the other 7/16 interest through the presumed-grant doctrine. The court of appeals disagreed, concluding that the presumed-grant doctrine played no role. 647 S.W.3d at 908–10. We agree with the Mulkey parties. The presumed-grant doctrine, “also referred to as title by circumstantial evidence, has been described as a common law form of adverse possession.” Fair v. Arp Club Lake, Inc., 437 S.W.3d 619, 626 (Tex. App.—Tyler 2014, no pet.). The doctrine requires its proponent to establish three elements: (1) a long-asserted and open claim, adverse to that of the apparent owner; (2) nonclaim by the apparent owner; and (3) acquiescence by the apparent owner in the adverse claim. Magee v. Paul, 221 S.W. 254, 257 (Tex. 1920).

 

 

We think that the parties’ history of repeatedly acting in reliance on each having a 1/2 mineral interest conclusively satisfies the presumed-grant doctrine’s requirements. This ninety-year history includes conveyances, leases, ratifications, division orders, contracts, probate inventories, and a myriad of other recorded instruments that provided notice. There was a long and asserted open claim—for nearly a century, both parties acted in accordance with each side owning a 1/2 interest. And until this litigation began in 2013, the White parties never said anything to the contrary.

 

 

For example, in 1926—just two years after the deed’s execution—the White parties acknowledged in a Purchase and Escrow Agreement with an oil company that they owned only half of the minerals and that the other half belonged to the Mulkey parties. The corresponding documents provide further support by indicating that after both parties leased their respective mineral interests, each side was to receive an equal share of the royalties.

 

 

(In cases where the presumed-grant doctrine is clearly implicated, a court could dispense with the deed-construction analysis. Fn. 11).

 

 

We conclude that the Mulkey parties hold title to 1/2 of the mineral estate because the original deed so requires and because the presumed-grant doctrine would remove any remaining doubts. Because the court of appeals held otherwise, we reverse its judgment and remand to the trial court for further proceedings.

 

 

 

 

(Supreme Court of Texas, Feb. 17, 2023, Van Dyke v. The Navigator Group, Docket No. 21-0146)

 

California Court of Appeal, G Companies Management, LLC v. LREP Arizona, LLC, Docket No. G060992

Interest Rates

 

Usury Law

 

Public Policy

 

Waiver

 

California Law

 

Forum Selection Clause

 

Loan Agreement

 

 

Procedure:

 

Third Party Cross-Complaint in Favor of Another Forum

 

Order Granting a Motion to Quash Service of Summons or Granting a Motion to Stay the Action on the Ground of Inconvenient Forum

 

 

Remedies:

 

Declaratory Relief

 

Equitable Indemnity

 

Reimbursement

 

Contribution

 

Equitable Apportionment

 

 

 

 

 

Appeal from an order of the Superior Court of Orange County, Nathan R. Scott, Judge. Reversed and remanded.

 

 

G Companies Management, LLC, a California limited liability company, appeals from an order staying its cross-complaint against LREP Arizona, LLC, based on the forum selection clause in a loan agreement between the parties. The cross-complaint alleges multiple causes of action, all based on the assertion that the interest rates charged in the loan agreement were usurious under California law, and G Companies contends the trial court erred because a forum selection clause is not enforceable if doing so would deprive a California resident of the protections of our fundamental public policy.1

 

 

1The order staying the third party cross-complaint in favor of another forum is appealable. (Code Civ Proc., §904.1, subd. (3) [an appeal may be taken “from an order granting a motion to quash service of summons or granting a motion to stay the action on the ground of inconvenient forum”].)

 

 

By virtue of its inclusion in article XV, section 1, of our Constitution, and because it cannot be waived, we find that California’s usury law does reflect a significant public policy. It prohibits money lending at rates higher than specified, even while recognizing numerous exceptions to those rate limitations. The complexity of the law does not imply a lack of commitment to the policy. To the contrary, such a fine-tuned approach suggests that significant effort has gone into determining the circumstances under which interest rate limitations are necessary for the protection of Californians.

 

 

If the circumstances of a loan transaction do not fit into one of the exceptions to California’s interest rate limitation, and the rate charged is higher than allowed, then the transaction violates California’s public policy against usury. And since California’s usury law reflects a significant public policy designed to protect its citizens, our law precludes enforcement of a forum selection clause that will deprive a California resident of that protection.

 

 

The loan agreement specified the use of an escrow agent located in Arizona and stated that the loan closing would take place at the agent’s office. The agreement also stated that it “shall be construed and governed by the laws of the state of Arizona without regard to conflict of laws principles. The Parties irrevocably submit to the exclusive jurisdiction of any federal or state court located within Maricopa County, Arizona over any dispute arising out of or related to this Agreement. Each party hereby irrevocably agrees that all claims with respect to such dispute or any suit, action or proceeding related thereto shall be heard and determined in such courts. G Companies defaulted on the loan, failing to make the first payment due in February 2016. In July 2016, LREP foreclosed on the real property given as security—obtaining it for a credit bid of $315,000—leaving an unpaid loan balance of over $4.6million.

 

 

G Companies, in turn, filed a cross-complaint against LREP, seeking declaratory relief, equitable indemnity and reimbursement, contribution, and equitable apportionment, all based on LREP’s alleged conduct of “collecting usurious interest against the Guarantor Plaintiffs (and indirectly but certainly against the Borrower G Companies as well), ”which is characterized as “illegal, unconscionable, criminal and a breach of the implied covenant of good faith and fair dealing in the LREP Loan Documents.”

 

 

LREP moved to dismiss or stay the cross-complaint, based upon the mandatory forum selection clause contained in the loan agreement. It argued that enforcement of the clause was not unfair or unreasonable because the chosen Arizona forum is closely tied to the transaction, the parties are sophisticated, and they agreed to it.

 

 

(Hyundai Securities, 232 Cal.App.4th at p. 1391). Hyundai Securities does not involve a motion to enforce a forum selection clause. It concerns the enforcement of an existing Japanese judgment under California’s Uniform Foreign-Country Money Judgments Recognition Act (Code Civ. Proc., §§1713-1725; the Act). The court concluded the existing Japanese judgment, which incorporated a 20 percent postjudgment interest rate allowed under Japanese law, was required to be recognized as a valid foreign country money judgment under the Act, but upon entry as a California judgment, the 20 percent rate would no longer be applied. Instead, the California judgment would accrue postjudgment interest at the 10 percent rate allowed under California law.

 

 

We explained in Hall that “while ‘California does not have any public policy against a choice of law provision, where it is otherwise appropriate’ [citation]. . . [citation], ‘an agreement designating a foreign law will not be given effect if it would violate a strong California public policy ... or “result in an evasion of ... a statute of the forum protecting its citizens.’”” (Hall, supra, 150 Cal.App.3d at pp. 416-417.) We then reasoned that if the pending litigation were transferred to Nevada where Nevada law would be applied, the investors would lose the benefit of California’s Corporate Securities Law of 1968 (Corp. Code, §25000 et seq.), which would otherwise govern the exchange. The investors would thus be denied California’s unwaivable protections against fraud and deception in securities matters. (Hall, supra, 150 Cal.App.3d at p.417.) Consequently, the trial court erred by enforcing the provision.

 

 

California’s Policy Against Usury

 

Usury in California is addressed in California Constitution, article XV, section 1, which sets interest rates, with exceptions. As explained in Bisno v. Kahn (2014) 225 Cal.App.4th 1087, 1098, “The usury law is based upon article XV, section 1 of the California Constitution as well as an initiative measure adopted in 1918. [Citations.] The initiative measure has not been codified but is published in Statutes and Amendments to the Codes and [West’s Annotated] Civil Code. [Citations.] The initiative measure remains in full force and effect except to the extent it conflicts with the constitutional usury provision. [Citations.] We refer to the constitutional and initiative provisions collectively as the ‘usury law.’” (See Civ. Code, §1916-5 [“This act whenever cited, referred to, or amended may be designated simply as the ‘usury law’”].

 

 

Our usury law does not set ironclad limitations on allowable interest rates. It allows different interest rates to be charged in different circumstances and exempts large categories of lenders while giving our Legislature the power to impose limitations on the exempt lenders. (Cal. Const., art XV, §1.) The law’s complexity has prompted our Supreme Court to remark that “the usury law is ...riddled with so many exceptions that the law’s application itself seems to be the exception rather than the rule.” (Ghirardo, supra, 8 Cal.4th at p. 807.) That may be true, but the inclusion of the usury law in our Constitution reflects it involves an important public policy. (Stevenson v. Superior Court (1997) 16 Cal.4th 880, 892 [“the California Constitution amply established the existence of a fundamental public policy”]; see Green v. Ralee Engineering Co. (1998) 19 Cal.4th 66, 71 [“aside from constitutional policy, the Legislature, and not the courts, is vested with the responsibility to declare the public policy of the state”].) We find it significant that the protections of our usury law cannot be waived. (WRI Opportunity Loans II, LLC v. Cooper (2007) 154 Cal.App.4th 525, 542-543 [because a usurious provision is void under California law, the prohibition against usury cannot be waived].) A public policy that cannot be waived qualifies as fundamental. (Brack v. Omni Loan Co., Ltd. (2008) 164 Cal.App.4^th 1312, 1323 [“The relative significance of a particular policy or statutory scheme can be determined by considering whether parties may, by agreement, avoid the policy or statutory requirement”].

 

 

Our usury law protects sophisticated borrowers as well as unsophisticated ones. (Ghirardo, supra, 8 Cal.4th at p. 807 [“There is . . . no exemption in the usury law for sophisticated borrowers. We decline to create one”].)

 

 

(…) We therefore conclude the trial court abused its discretion when it concluded California’s usury law does not reflect a fundamental public policy.

 

 

 

 

(California Court of Appeal, Feb. 15, 2023, G Companies Management, LLC v. LREP Arizona, LLC, Docket No. G060992, Certified for Publication)

 

California Court of Appeal, Zahnleuter v. Mueller, Docket No. C093909

Family Trust

 

No Contest Clause

 

A Trustee Is Bound to Deal Impartially with All Beneficiaries, Unless the Trust Document Provides Otherwise

 

California Law

 

 

 

The successor trustee named in the third amendment to the trust appeals from the order surcharging him for the trust assets he expended to defend against a beneficiary’s contest to the validity of that amendment. Finding no error, we shall affirm.

 

 

Establishment of the Trust 

In August 2004, the settlors created the Richard J. & Joan R. Mueller Living Trust. Under the terms of that document, Katherine and Amy were equal residual beneficiaries of the trust estate after the payment of certain expenses and gifts, including a $10,000 gift to their half-sister, Julie. Amy and then Katherine were named as the successor trustees upon the death of both settlors.

 

 

The trust document authorized the trustee, in his or her discretion, to initiate or defend, at the expense of the trust estate, any litigation the trustee considered advisable related to the trust or any property of the trust. The trust document also authorized the trustee to employ, at the expense of the trust estate, agents (e.g., attorney, accountant) to assist in the administration of the trust.

 

 

The trust document included a no contest clause.

 

 

A no contest clause is statutorily defined as “a provision in an otherwise valid instrument that, if enforced, would penalize a beneficiary for filing a pleading in any court.” (Prob. Code, § 21310, subd. (c); see Donkin v. Donkin (2013) 58 Cal.4th 412, 422 [a no contest clause “‘essentially acts as a disinheritance device, i.e., if a beneficiary contests or seeks to impair or invalidate the trust instrument or its provisions, the beneficiary will be disinherited and thus may not take the gift or devise provided under the instrument’”].) A “direct contest” includes a pleading filed by a beneficiary that alleges the invalidity of a trust document, or one or more of the terms of such a document, based on certain grounds, including lack of due execution or undue influence. (Prob. Code, § 21310, subd. (b).)

 

 

“On acceptance of the trust, the trustee has a duty to administer the trust according to the trust instrument and, except to the extent the trust instrument provides otherwise, according to this division.” (Prob. Code, § 16000.) Under the Probate Code, a trustee is entitled to reimbursement by the trust for “expenditures that were properly incurred in the administration of the trust,” and “to the extent that they benefitted the trust, expenditures that were not properly incurred in the administration of the trust.” (§ 15684, subds. (a), (b).) “Among the ordinary powers and duties of a trustee of a private trust are those of doing all acts necessary and expedient to collect, conserve and protect the property of the trust, to maintain and defend the integrity of the trust for the benefit of the beneficiaries and to employ such assistants as may be necessary for said purposes.” (Evans v. Superior Court (1939) 14 Cal.2d 563, 574.) “Where litigation is necessary for the preservation of the trust, it is both the right and duty of the trustee to employ counsel in the prosecution or defense thereof, and the trustee is entitled to reimbursement for his expenditures out of the trust fund.” (Metzenbaum v. Metzenbaum (1953) 115 Cal.App.2d 395, 399.) “If the trustee acts in good faith, he has the power to employ such assistants and to compensate such assistants out of the assets of the trust even though he may not ultimately succeed in establishing the position taken by him as such trustee.” (Evans v. Superior Court, supra, 14 Cal.2d at p. 574.) “The foregoing rules, of course, presuppose that the litigation was for the benefit of the trust estate. [Citation.] For example, the defense of a lawsuit that has the potential for depleting trust assets would be for the benefit of the trust, justifying the employment of counsel. However, litigation seeking to remove or surcharge a trustee for mismanagement of trust assets would not warrant the trustee to hire counsel at the expense of the trust. Such litigation would be for the benefit of the trustee, not the trust.” (Whittlesey v. Aiello (2002) 104 Cal.App.4th 1221, 1227 (Whittlesey).)

 

 

(…) “When a dispute arises as to who is the rightful beneficiary under a trust, involving no attack upon the validity or assets of the trust itself, the trustee ordinarily must remain impartial, and may not use trust assets to defend the claim of one party against the other.” (Doolittle v. Exchange Bank (2015) 241 Cal.App.4th 529, 537 (Doolittle).) However, a trustee may defend against a contest by a beneficiary, even if the beneficiary’s contest will have no other effect on the trust except for modifying the dispositive provisions for the trust estate, when the authority granted by the trust document directs the trustee to defend against any contest brought by a beneficiary. (Id. at pp. 537-538, 544; see Hearst v. Ganzi (2006) 145 Cal.App.4th 1195, 1208 [a trustee is bound to deal impartially with all beneficiaries, unless the trust document provides otherwise; if the terms of the trust give the trustee discretion to favor one beneficiary over the other, the court will not “ ‘control the exercise of such discretion, except to prevent the trustee from abusing it’ ”].)

 

 

Finally, we reject Thomas’s contention that the no contest clause in the third amendment should be construed as directing (i.e., requiring) the trustee to defend against any contest to that amendment. As Thomas acknowledges, the clause (which appears in both versions of the third amendment and contains identical language) does not include express language supporting such an interpretation. The text of the clause is not ambiguous, and it neither directs nor authorizes the trustee to defend the third amendment at the expense of the trust estate. Indeed, the clause only applies to contests by beneficiaries, and it makes no mention of any duty or obligation on the part of the trustee to defend against such contests. Further, there is nothing in either version of the third amendment indicating an intent on the part of Richard to modify the language of the trust document, which (as noted ante) explicitly did not authorize the trustee to defend, at the expense of the trust estate, any contest to an amendment of the trust. In short, because there is no ambiguity in the relevant language of the no contest clause in the third amendment, the plain meaning controls. (Trolan, supra, 31 Cal.App.5th at p. 949.)

 

 

 

 

(California Court of Appeal, Feb. 9, 2023, Zahnleuter v. Mueller, Docket No. C093909, Certified for Publication)

 

California Court of Appeal, Water for Citizens of Weed Cal. v. Churchwell White LLP, Docket No. C093421

 

Remedies:

 

-       Remedy of Cancellation

 

-       Action to Quiet Title

 

 

Property Interest

 

California Law

 

 

 

 

A void or voidable instrument that might cause harm to a party if left outstanding or in the chain of title can be removed by the remedy of cancellation, often referred to as removing a cloud on title. (Civ. Code, §§3412-3414; see Pixley v. Huggins, supra, 15 Cal. at p. 132.) An action to quiet title, however, may address adverse claims in addition to those traditionally referred to as clouds on title. As stated earlier, a quiet title action, unlike in a cancellation action, “is for the purpose of stopping the mouth of a person who has asserted or is asserting a claim to the plaintiff’s property.... It is not aimed at a particular piece of evidence, but at the pretensions of an individual.” (Castro, supra, 79 Cal. at p. 446.)

 

(Pixley v. Huggins (1860) 15 Cal.127, 134.)

 

(Castro v. Barry (1889) 79 Cal. 443, 446.)

 

 

 

 

(California Court of Appeal, Feb. 9, 2023, Water for Citizens of Weed Cal. v. Churchwell White LLP, Docket No. C093421, Certified for Publication)