Judge Bruce G. Iwasaki, Case 21STCV00749 2022-08-29 Tentative Ruling

Tentative Ruling: The Motion to Compel Arbitration is granted, and the case is stayed pending completion of the arbitration.

This is a dispute arising over an undisclosed lien during a sale of real property. PSF CA 3, LLC (Defendant or PSF) was the owner and seller of real property (1909 N. Berendo Street, Los Angeles, CA 90027). Matthew Berry Rillera and his Assigns entered into the Residential Purchase Agreement with PSF in November 2018. Rillera subsequently assigned the interests in the property to The Lincoln Crew, Inc. (Plaintiff or Lincoln). Other parties were involved, including Travis Metcalf, Plumb Realty, Celso Cardano, and Networth Realty, as brokers or wholesalers.

After the sale, in July 2019, Plaintiff discovered a Home Energy Renovation Opportunity (HERO) lien in the amount of $130,000.00. The lien was allegedly not included on the title report because it was reported as a tax assessment.

Plaintiff now sues PSF, Plumb Realty, Celso Cardano, Networth Realty, Inc., Travis Metcalf, and Matthew Berry Rillera for breach of contract, breach of covenant of good faith and fair dealing, negligent misrepresentation, fraudulent misrepresentation, and violation of Business and Professions Code section 17200. Defendant Rillera was dismissed on September 1, 2021.

On August 1, 2022, PSF moved to compel arbitration of all the claims and argues that no exception applies.

Plaintiff opposes, invoking the third-party litigation exception under Code of Civil Procedure section 1281.2, subdivision (c) because Defendants Networth Realty and Metcalf are not parties to the arbitration agreement, the claims arise from the same transaction, and there is a possibility of conflicting rulings. Plaintiff also argues that the case should not be stayed.

In reply, Defendant again argues that Plaintiff is asserting contract claims against PSF and tort claims against Networth and Metcalf, and that therefore, these transactions are separate.

The arbitration clause is in the Residential Purchase Agreement. The signatories are PSF and “Matt Rillera And/or Assigns.” The clause states:

22B. The Parties agree that any dispute or claim in Law or equity arising between them out of this Agreement or any resulting transaction, which is not settled through mediation, shall be decided by neutral, binding arbitration. The Parties also agree to arbitrate any disputes or claims with Broker(s), who, in writing, agree to such arbitration prior to, or within a reasonable time after, the dispute or claim is presented to the Broker. The arbitrator shall be a retired judge or justice, or an attorney with at least 5 years of residential real estate Law experience, unless the parties mutually agree to a different arbitrator. The Parties shall have the right to discovery in accordance with Code of Civil Procedure §1283.05. In all other respects, the arbitration shall be conducted in accordance with Title 9 or Part 3 of the Code of Civil Procedure. Judgment upon the award of the arbitrator(s) may be entered into any court having jurisdiction. Enforcement of this agreement to arbitrate shall be governed by the Federal Arbitration Act. Exclusions from this arbitration agreement are specified in paragraph 22C. (First Amended Complaint, Ex. A, ¶ 22(B).)

The parties do not dispute that Rillera and PSF signed the agreement, nor do they dispute the validity of the arbitration agreement. Instead, the contention is whether the Court should order the arbitration despite Defendants Metcalf and Networth Realty not being signatories.[1]

The Court finds that there is a valid arbitration agreement and grants the motion to compel arbitration.

Code of Civil Procedure section 1281.2 authorizes the court to order arbitration of a case if it finds the parties agreed to arbitrate that dispute “and that a party to the agreement refuses to arbitrate that controversy.” Arbitration agreements should be liberally interpreted and ordered unless the agreement clearly does not apply to the dispute in question. (Weeks v. Crow (1980) 113 Cal.App.3d 350, 353; Segal v. Silberstein (2007) 156 Cal.App.4th 627, 633.)

The party moving to compel arbitration has the initial burden to (1) affirmatively admit and allege the existence of a written arbitration agreement, and (2) prove the existence of that agreement by a preponderance of the evidence. (Rosenthal v. Great W. Fin. Sec. Corp, 14 Cal. 4th 394, 413.) Once this is met, the burden shifts to the responding party to prove that the agreement is unenforceable by a preponderance of the evidence. (Ibid.)

“ ‘Doubts as to whether an arbitration clause applies to a particular dispute are to be resolved in favor of sending the parties to arbitration. The court should order them to arbitrate unless it is clear that the arbitration clause cannot be interpreted to cover the dispute.’ ” (California Correctional Peace Officers Assn. v. State¿(2006) 142 Cal.App.4th 198, 205.)

Plaintiff Lincoln is not a signatory to the arbitration agreement; rather, it is “Matt Rillera And/or Assigns” and PSF that signed the Residential Purchase Agreement. The Complaint alleges that Rillera, Metcalf, and their associated broker entities set up a two-step assignment process to “make money on the deal.” (First Amended Complaint, ¶ 29.) Ultimately, Rillera “assigned the RPA to Plaintiff and Plaintiff entered into contract to purchase the Property.” (Id. at ¶ 34.) Therefore, by Plaintiff’s own admission, it is an assignee of the purchase agreement from Rillera. Plaintiff Lincoln is thus a party to the arbitration agreement. (Royal Bank Export Finance Co. v. Bestways Distribution Co. (1991) 229 Cal.App.3d 763, 768 [“ ‘ The assignee “stands in the shoes” of the assignor, taking his rights and remedies’ ”].)

As a proposed assignee, Plaintiff is also a third-party beneficiary of the contract. Lincoln benefitted from the contract, which provided it the rights to clear title of the Property; a motivating purpose was to benefit Lincoln because Rillera intended to assign his rights shortly after signing the contract. And permitting Lincoln to enforce the contract is consistent with the parties’ expectations because Defendant PSF knew and consented to Rillera assigning his rights to Lincoln. (First Amended Complaint, ¶¶ 19-20, 34; Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830 [providing the elements in evaluating whether a third party is a beneficiary].)

In addition, while PSF does not raise this argument, the Court finds that Lincoln is equitably estopped from opposing arbitration. Under the doctrine of equitable estoppel, a “nonsignatory plaintiff can be compelled to arbitrate a claim even against a nonsignatory defendant, when the claim is itself based on, or inextricably intertwined with, the contract containing the arbitration clause.” (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4^th 1222, 1241.) In JSM Tuscany, the court reasoned that when a “plaintiff is suing on a contract – on the basis that, even though the plaintiff was not a party to the contract, the plaintiff is nonetheless entitled to recover for its breach, the plaintiff should be equitably estopped from repudiating the contract’s arbitration clause.” (Id. at p. 1240.)

Here, Plaintiff Lincoln asserts causes of action that are intertwined with the underlying Residential Purchase Agreement. Lincoln is directly suing for breach of the Residential Purchase Agreement for which it is the assignee. (First Amended Complaint ¶ 50.) The equitable estoppel doctrine subjects Lincoln – even as a nonsignatory to the contract – to the arbitration provision.

In establishing the existence of an agreement to arbitrate, it is sufficient for defendant to provide a copy of the arbitration agreement or state the paragraph verbatim. (Baker v. Italian Maple Holdings, LLC, 13 Cal.App.5th 1152, 1160 (2017); Cal. Rules of Court, rule 3.1330.)

Here, the arbitration clause covers “any dispute or claim in Law or equity arising between [buyer and seller] out of this Agreement or any resulting transaction.” (First Amended Complaint, Ex. A, ¶ 22(B).) The “resulting transaction” was Lincoln’s purchase of the Property. Lincoln’s claims against PSF are directly related to the omission of a lien on the property in contravention of the clear title provisions of Section 13 of the contract. (First Amended Complaint, ¶ 44.) As such, the dispute arises out of the contract and the resulting transaction.

The Federal Arbitration Act applies, and the Court does not have authority to stay the arbitration under Code of Civil Procedure section 1281.2, subdivision (c).

Neither party addressed whether the California Arbitration Act or Federal Arbitration Act governs the arbitration provision in the Residential Purchase Agreement. Defendant apparently seems to concede that California law applies. (Motion, p. 9:5-9.)

If the procedures under the Federal Arbitration Act applies, then the Court is not permitted to stay arbitration pending completion of judicial litigation. (Mastick v. TD Ameritrade, Inc. (2012) 209 Cal.App.4th 1258, 1263 [The Federal Arbitration Act “does not authorize courts to stay arbitration pending resolution of litigation, or to refuse to enforce a valid arbitration provision to avoid duplicative proceedings or conflicting rulings”]; Valencia v. Smyth (2010) 185 Cal.App.4th 153, 157 [holding that the Federal Arbitration Act “does not permit a trial court to stay or deny arbitration”].)

The arbitration clause in this case provides that “Enforcement of this agreement to arbitrate shall be governed by the Federal Arbitration Act.” (First Amended Complaint, Ex. A, ¶ 22(B).)

Under similar facts, the Court of Appeal has held that the “reference to ‘enforcement’ under the FAA required the court to consider the [] motion to compel arbitration under the FAA.” (Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 348 (Victrola).) In Victrola, the appellate court addressed an arbitration clause embedded in a form similar to the one here: a “standard form created and distributed by the California Association of Realtors (CAR).” (Id. at p. 342, fn. 1.)

The Court of Appeal in Victrola reviewed prior case law involving the “enforcement” language, finding that “when an arbitration agreement provides that its ‘enforcement’ shall be governed by California law, the CAA governs a party’s motion to compel arbitration.” Therefore, “[i]t follows that when an agreement provides that its ‘enforcement’ shall be governed by the FAA, the FAA governs a party’s motion to compel arbitration.” (Id. at p. 346.)

Victrola also refuted the argument that the California Arbitration Act applies merely because the agreement references California law. Any provisions in the agreement referring to California law “ha[ve] no bearing on the law that should be used to determine whether arbitration is required,” and do not supersede the specific, mandatory clause that the Federal Arbitration Act governs enforcement. (Victrola, supra, 46 Cal.App.5th at pp. 349-350.) In addition, “the presence of interstate commerce is not the only manner under which the FAA may apply” and the parties may also “voluntarily elect to have the FAA govern enforcement of the Agreement.” (Id. at p. 355.)

Here, because the parties “incorporated the procedural provisions” of the Federal Arbitration Act into the arbitration agreement, this eliminates the Court’s authority under section 1281.2, subdivision (c) to deny arbitration. (Victrola, supra, 46 Cal.App.5th at p. 346; Valencia v. Smyth, supra, 185 Cal.App.4th at p. 157.)

Nevertheless, even if the Court considered Code of Civil Procedure section 1281.2, subdivision (c), the Court finds that exception inapplicable.

The exception under section 1281.2, subdivision (c) does not apply because there is no possibility of conflicting rulings.

Even if the Court considered the merits of Plaintiff’s argument that section 1281.2 applied to this case despite the applicability of the Federal Arbitration Act, the Court does not agree there is a possibility of conflicting rulings.

Code of Civil Procedure section 1281.2, subdivision (c) “allows the trial court to deny a motion to compel arbitration whenever ‘a party’ to the arbitration agreement is also ‘a party’ to litigation with a third party that (1) arises out of the same transaction or series of related transactions, and (2) presents a possibility of conflicting rulings on a common issue of law or fact.” (Whaley v. Sony Entertainment America, Inc. (2004) 121 Cal.App.4th 479, 486.)

Plaintiff Lincoln contends that Defendants Networth and Metcalf are not parties to the arbitration agreement.

The Court agrees that the lawsuit “arise[] out of the same transaction or series of related transactions.” All the cases involve the Subject Property and the underlying transaction between Lincoln and PSF. While Lincoln asserts non-contract, tort-based causes of action against the non-PSF Defendants, the overall transaction arises from the sale of the Property.

However, the Court does not agree there is a possibility of conflicting rulings on a common issue of law or fact. The underlying issue in this case is the presence of an unreported HERO lien on the Property. Plaintiff is asserting that PSF breached the contract by failing to disclose the lien. As to the non-PSF Defendants, that transaction related to a multi-step assignment process between Lincoln and Rillera, Plumb Realty, Metcalf, and Networth in acting as the “go-betweens for Plaintiff and PSF related to the RPA.” (First Amended Complaint, ¶ 63.) Thus, Lincoln is asserting tort-based claims against those Defendants for “several misrepresentations of material facts.” (Id. at ¶ 64.) From the face of the Complaint, Lincoln is asserting claims beyond the non-disclosure of the HERO lien against the non-PSF Defendants.

Any rulings in the arbitration case between Lincoln and PSF would not be inconsistent with rulings on whether the non-PSF Defendants made material misrepresentations to Lincoln. Accordingly, the Court grants the motion to compel arbitration and stays the proceedings as to the remaining Defendants. (Code Civ. Proc., § 1281.4.)

[1] Defendant Metcalf is alleged to be an authorized agent for Networth, who secured assignment rights from Rillera/Plumb Realty. Networth allegedly consented to arbitration if Lincoln agreed that such arbitration was binding. (Motion, p. 15, fn. 3.) However, because only PSF moved to compel arbitration, the Court does not reach the issue of whether Metcalf/Networth should be compelled to arbitration.

Department 58