Case Number: 20STCV08978 Hearing Date: January 05, 2021 Dept: 56
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF LOS ANGELES - CENTRAL DISTRICT
HOUCK CONSTRUCTION, INC., etc., et al.,
[TENTATIVE] ORDER RE: RENEWED PETITION TO COMPEL ARBITRATION AND TO DISMISS AND/OR STAY PROCEEDINGS AND FOR ATTORNEYS’ FEES; DEMURRER TO FIRST AMENDED COMPLAINT; MOTION TO STRIKE
Date: January 5, 2021
Time: 8:30 a.m.
MOVING PARTIES: Defendants Houck Construction, Inc. (“HCI”) and David Houck (“Houck”)
RESPONDING PARTY: Plaintiff George Georgallidis
The Court has considered the moving, opposition, and reply papers.
Plaintiff’s operative First Amended Complaint (“FAC”) arises from alleged wrongful actions in connection with the remodeling of Plaintiff’s home located at 3311 Coolidge Avenue, Los Angeles, California 90066 (the “Subject Property”). It alleges causes of action for: (1) fraud and deceit; (2) negligent misrepresentation; (3) declaratory relief; (4) declaratory relief; (5) negligence; (6) accounting; (7) unfair competition; and (8) rescission of contract.
In part, the FAC alleges that: (1) Plaintiff bought the Subject Property for $2,250,000.00; (2) he had no prior experience of any kind dealing with real estate transactions, remodeling, or construction transactions; (3) after purchasing the Subject Property, Plaintiff wanted to remodel the main house on the Subject Property; and (4) Plaintiff and HCI entered into a contract (the “Contract”) for the renovation of the Subject Property.
The Current Motions
Defendants filed the following motions: (1) a renewed petition to compel arbitration of all the causes of action asserted in the FAC (the “Petition”); (2) a demurrer to the FAC; and (3) a motion to strike portions of the FAC. The Court will address all the filings of Defendants in this ruling. If the Petition is granted, however, the Court need not rule on the demurrer and motion to strike.
Defendants filed the Petition based upon the existence of the Contract, which contains an agreement to arbitrate. Defendants request that this action be dismissed or, in the alternative, stayed pending arbitration. Defendants seek attorneys’ fees in connection with the Petition in the amount of $19,473.50.
In the Petition, Defendants present the following arguments: (1) the Federal Arbitration Act (“FAA”) mandates that the Court compel the entire FAC to arbitration; (2) Plaintiff’s claims that the Contract is illegal or otherwise unenforceable must be submitted to arbitration; (3) Bus. & Prof. Code § 7191 is preempted by the FAA; (4) Plaintiff is equitably estopped to deny the arbitration agreement; (5) Houck is entitled to enforce the arbitration agreement; (6) Defendants are entitled to recover their attorneys’ fees upon the granting of the Petition; (7) Defendants have complied with California Rules of Court, Rule 3.1330; and (8) Plaintiff agreed in writing to binding arbitration.
Plaintiff opposes the Petition on the following grounds: (1) the arbitration agreement does not comply with Bus. & Prof. Code § 7191 and therefore it is unenforceable as a matter of law; (2) the Court must decide the threshold issue of whether the Contract as a whole is illegal and thus unenforceable; (3) Plaintiff is not estopped from denying the enforceability of the entire Contract; (4) the FAA does not apply to the Contract; and (5) Defendants are not entitled to attorneys’ fees.
To the extent that Plaintiff failed to respond to any of the arguments raised by Defendants, the Court finds that Plaintiff has conceded to such arguments under Moulton Niguel Water Dist. v. Colombo (2003) 111 Cal.App.4th 1210, 1215.
The Demurrer and Motion to Strike
Defendants filed a demurrer to each cause of action in the FAC. As to the motion to strike, Defendants seek to strike allegations as to: (1) punitive damages; and (2) damages for the alleged breach of the unfair competition law.
The Court GRANTS the parties’ respective requests for judicial notice as to the Petition.
The Court SUSTAINS Plaintiff’s evidentiary objections numbers 1-10, 15, 17-21, 23, 40-43, and 62-71 to the declaration of Houck in support of the Petition and OVERRULES Plaintiff’s evidentiary objections numbers 11-14, 16, 22, 24-39, and 44-61 thereto.
The Court SUSTAINS Plaintiff’s evidentiary objections numbers 1-4 to the amended declaration of Norman Sands in support of the Petition.
The Court SUSTAINS Plaintiff’s evidentiary objections numbers 1-3 to the declaration of Ben Israel in support of the Petition.
The Court SUSTAINS Plaintiff’s evidentiary objections numbers 1-15 to the amended declaration of German Paiz in support of the Petition.
The Court OVERRULES Plaintiff’s evidentiary objections numbers 1-14 to the declaration of Tori Jackson (“Jackson”) in support of the Petition.
The Court OVERRULES Plaintiff’s evidentiary objections numbers 1-2 to the declaration of Karen Ferguson (“Ferguson”) in support of the Petition.
The Court SUSTAINS Defendants’ evidentiary objections numbers 1-11 to the declaration of Plaintiff in support of Plaintiff’s opposition to the Petition.
PETITION TO COMPEL
The purpose of the FAA is to move the parties in an arbitrable dispute out of court and into arbitration as quickly and easily as possible. (Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp. (1983) 460 U.S. 1, 22.) The FAA is consistent with the federal policy to ensure the enforceability, according to their terms, of private agreements to arbitrate. (Mastrobuono v. Shearson Lehman Hutton, Inc. (1995) 514 U.S. 52, 57.) Code Civ. Proc. § 1281 states that a written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable, and irrevocable, save upon such grounds as exist for the revocation of any contract. California law, like federal law, favors enforcement of valid arbitration agreements. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97.) On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that controversy, the court shall order the petitioner and the respondent to arbitrate the controversy unless grounds exist not to compel arbitration. (Code Civ. Proc. § 1281.2.)
Issue No.1: Applicability of California Business and Professions Code, Section 7191
Plaintiff asserts that because the arbitration provision in the Contract does not comply with Bus & Prof. Code § 7191, it is unenforceable as a matter of law.
Bus. & Prof. Code § 7191
The Legislature has expressed a strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution. (Woolls v. Superior Court (2005) 127 Cal.App.4th 197, 204.) Although arbitration is favored, there is also the recognition that the right to select a judicial forum, vis-a-vis arbitration, is a substantial right, not lightly to be deemed waived. (Id. at 205.) The Legislature has imposed mandatory disclosure requirements for arbitration provisions in various types of contracts. (Id.) The Legislature sought to ensure that an agreement to arbitrate disputes arising out of a contract for work on residential property of up to four units is obtained through a proper waiver of the right to a judicial forum. (Id.)
Bus. & Prof. Code § 7191(a) states that if a contract for work on residential property with four or fewer units contains a provision for arbitration of a dispute between the principals in the transaction, the provision shall be clearly titled ARBITRATION OF DISPUTES. Bus. & Prof. Code § 7191(a) further states that if a provision for arbitration is included in a printed contract, it shall be set out in at least 10-point roman boldface type or in contrasting red print in at least 8-point roman boldface type, and if the provision is included in a typed contract, it shall be set out in capital letters. Bus. & Prof. Code § 7191 also sets forth disclosure requirements that an arbitration provision alerts a consumer that by initialing the space below, you are giving up any rights you might possess to have the dispute litigated in a court or jury trial. (Woolls, supra, 127 Cal.App.4th 197, 207.) Additionally, Bus. & Prof. Code § 7191 requires an arbitration clause to be initialed by the parties in spaces below. (Id.) A failure to comply with Bus. & Prof. Code § 7191 renders an arbitration provision per se unenforceable against any person other than the licensee. (Id. at 211.) The plain and commonsense meaning of Bus. & Prof. Code § 7191, subdivision (c) is that it prohibits enforcement of a noncompliant arbitration provision against anyone other than the licensee, leaving no room for any exercise of discretion by the trial court. (Id. at 209.)
A review of the Contract shows that it is not compliant with Bus. & Prof. Code § 7191. The arbitration provision in the Contract did not notify Plaintiff that: (1) he was waiving his right to a court trial; and (2) he was waiving his right to a jury trial. (Houck Decl., Exhibit 1 at Page 5.) Moreover, the arbitration provision in the Contract did not have any space for the parties to initial. (Id.)
Therefore, the Court finds that the Contract is not compliant with Bus. & Prof. Code § 7191 and unless preempted by the FAA, the Contract will be unenforceable.
Issue No.2: Preemption
Defendants contend that the FAA preempts state law and as such Bus. & Prof. Code § 7191 is inapplicable to the instant dispute. Defendants assert that the Contract here evidences a transaction involving interstate commerce.
Although federal law may preempt state law, courts are reluctant to infer preemption, and it is the burden of the party claiming that Congress intended to preempt state law to prove it. (Woolls, supra, 127 Cal.App.4th 197, 211.) A party must present facts to show the transaction involved interstate commerce. (Id. at 214.) The FAA applies to any contract evidencing a transaction involving commerce which contains an arbitration clause. (Id. at 211.) A state court may not defeat an arbitration clause by applying state laws applicable only to arbitration provisions. (Id.) The term “involving interstate commerce” is broad and is indeed the functional equivalent of “affecting commerce.” (Id. at 212.) The FAA preempts conflicting state anti-arbitration law. (Shepard v. Edward Mackay Enterprises, Inc. (2007)148 Cal.App.4th 1092, 1097.)
Here, Defendants have presented sufficient admissible evidence to show that the Contract involved interstate commerce. Under Woolls and Shepard, Defendants have met their burden to establish preemption. While the Contract on its face does not touch on any interstate commercial activity, the declarations of Houck, Ferguson, and Jackson show that: (1) numerous materials used in the renovation of the Subject Property were shipped from numerous states and countries; (2) numerous materials used in the renovation of the Subject Property were manufactured in states and countries outside of California; and (3) HCI purchased such materials for use on the renovation of the Subject Property. Defendants have made a showing that this case is not “one involving a merely trivial impact on interstate commerce, which would be outside the limits of Congress’ power.” (Shepard, supra, 148 Cal.App.4th 1092, 1101.)
The Court therefore finds that the FAA preempts Bus. & Prof. Code § 7191.
Issue No.3: Alleged Illegality of the Contract
Defendants contend that the issue of whether the entire Contract is illegal or unenforceable must be decided by the arbitrator. Plaintiff, however, asserts that the Court must decide whether the Contract as a whole is illegal and therefore unenforceable. Initially, the Court finds that Plaintiff’s citation to Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co., Inc. (2018) 6 Cal.5th 59 is inapposite.
A challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator. (Buckeye Check Cashing, Inc. v. Cardegna (2006) 546 U.S. 440, 449.) Challenges to the validity of arbitration agreements upon such grounds as exist at law or in equity for the revocation of any contract can be divided into two types. (Id. at 444.) One type challenges the validity of the agreement to arbitrate. (Id.) The other challenges the contract as a whole, either on a ground that affects the entire agreement, or on the ground that the illegality of one of the contract’s provisions renders the whole contract invalid. (Id.)
Here, based on a reading of the FAC, the crux of such pleading is that the entire Contract is illegal. Given that Plaintiff is challenging the validity of the entire document and not just the arbitration provision contained therein, the Court finds that the arbitrator must decide the validity of the Contract.
The Court therefore finds unpersuasive Plaintiff’s argument that the Court must decide the threshold issue of illegality.
In sum, Defendants are entitled to enforce the arbitration provision in the Contract. The Court need not address the issue of Plaintiff being estopped from denying the arbitration provision in the Contract as that argument is irrelevant due to the Court’s finding that: (1) the FAA preempts Bus. & Prof. Code § 7191; and (2) the arbitrator should decide the issue of the claimed illegality of the Contract. The Court will now address the issue of attorneys’ fees.
Issue No.4: Attorneys’ Fees
Defendants contend that they are entitled to recover attorneys’ fees upon prevailing on the Petition in the amount of $19,473.50.
Civ. Code § 1717 governs awards of attorneys’ fees based on a contract and authorizes an award of attorneys’ fees in any action on a contract to the party prevailing on the contract if the contract provides for an award of attorneys’ fees. (Frog Creek Partners, LLC v. Vance Brown, Inc. (2012) 206 Cal.App.4th 515, 523.) A party who prevails on a petition to compel arbitration has an immediate right to make a claim for the attorneys’ fees he or she incurs in getting the trial court to move the controversy to arbitration. (Benjamin, Weill & Mazer v. Kors (2011) 195 Cal.App.4th 40, 79.) A party who incurs attorneys’ fees in vindicating a contractual right should not be forced to file a separate claim in arbitration in order to recover those expenses. (Id.) Given that a trial court is responsible for deciding a petition to compel arbitration, a trial court should also be responsible for resolving a claim for attorneys’ fees made in connection with that petition to compel arbitration. (Acosta v. Kerrigan (2007) 150 Cal.App.4th 1124, 1130.) A party who prevails on a petition to compel arbitration has an immediate right to make a claim for the attorneys’ fees he incurred in getting the trial court to move the controversy to arbitration. (Id. at 1132.) A trial court has discretion in fixing the amount of attorneys’ fees awarded to a prevailing party. (EnPalm, LLC v. Teitler (2008) 162 Cal.App.4th 770, 781, fn.2.)
Here, the arbitration provision in the Contract provides that where either Plaintiff or HCI institute an action in Court or through arbitration against the other party in accordance with any dispute or matter arising under the Contract, the prevailing party shall be entitled to reasonable attorneys’ fees. (FAC, Exhibit 1 at p.5.) Under Acosta and Benjamin, Defendants are entitled to expenses incurred in petitioning this Court to compel arbitration. Defendants’ counsel declares that: (1) he spent 39.30 hours on activities related to the Petition which equals $15,523.50 in attorneys’ fees based on his hourly rate of $395.00 per hour; (2) he anticipates that 10 hours of time will be incurred by him in connection with the opposition to the Petition, a reply brief, and attending the hearing on the Petition for an additional amount of $3,950.00; and (3) Defendants request an award of attorneys’ fees in the amount of at least $19,473.50.
The Court, however, does not see how 39.30 hours was spent on the Petition when it is substantially similar—and in some respects is identical—to Defendants’ initial petition to compel arbitration, which was denied without prejudice by this Court in July of 2020. The Court exercises its discretion under EnPalm and GRANTS Defendants’ request for attorneys’ fees in the amount of $14,970.50. This amount represents the attorneys’ fees requested in the initial petition to compel arbitration.
The Court therefore GRANTS the Petition and STAYS this action under Code Civ. Proc. § 1281.4 pending the completion of arbitration according to the arbitration provision in the Contract. The Court sets a status conference on Tuesday, October 5, 2021 at 8:30 a.m. in this department. The parties are ordered to file a joint status report at least seven court days prior to the status conference.
DEMURRER AND MOTION TO STRIKE
Due to the entire FAC being compelled to arbitration as indicated above—and this action being stayed pending the completion of arbitration—the demurrer and motion to strike are both MOOT and are both taken OFF-CALENDAR.
Moving parties are ordered to give notice of this ruling in its entirety.
Parties who intend to submit on this tentative must send an email to the Court at SMC_DEPT56@lacourt.org as directed by the instructions provided on the court website at www.lacourt.org. If the department does not receive an email and there are no appearances at the hearing, the motion will be placed off calendar.
Dated this 5th day of January 2021
Hon. Holly J. Fujie
Judge of the Superior Court
 The contract is attached as Exhibit A to the FAC.
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