Judge: Cynthia A Freeland, Case: 37-2022-00039943-CU-OR-NC, Date: 2023-09-29 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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SOUTH BUILDING TENTATIVE RULINGS - September 28, 2023

09/29/2023  01:30:00 PM  N-27 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Cynthia A. Freeland

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Civil - Unlimited  Other Real Property Motion Hearing (Civil) 37-2022-00039943-CU-OR-NC PAGAN VS. 5 STAR HOUSING [IMAGED] CAUSAL DOCUMENT/DATE FILED: Motion - Other, 08/07/2023

Defendant 5 Star Housing, LLC ('Defendant')'s motion to compel arbitration and stay proceedings is granted in part and denied in part.

On September 5, 2020, Plaintiffs Lynsey Pagan and Brenan Pagan (collectively, 'Plaintiffs') and Defendant, through its Managing Member Defendant Alexey Dolginov aka Alex Dolginov individually and dba Dolan Realty Company, entered into a California Residential Purchase Agreement and Joint Escrow Instructions (the 'Purchase Agreement') under which Plaintiffs agreed to purchase from Defendant the real property located at 751 Crest View Road, Vista, CA 92081 (the 'Property') for $760,000.00. See First Amended Complaint ('FAC'), Exs. C-D. In pertinent part, ¶ 22.B. of the Purchase Agreement, entitled 'Arbitration of Disputes,' (the 'Arbitration Agreement') states that: 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 of 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.

See Arbitration Agreement. As set forth above, the Arbitration Agreement is governed by the Federal Arbitration Act (9 U.S.C. §§ 1 et seq.) (the 'FAA')'s substantive and procedural rules.

In relevant part, the FAA provides that: A written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

9 U.S.C. § 2. The court applies state contract law in determining Defendant's right to enforce the Calendar No.: Event ID:  TENTATIVE RULINGS

2995390 CASE NUMBER: CASE TITLE:  PAGAN VS. 5 STAR HOUSING [IMAGED]  37-2022-00039943-CU-OR-NC Arbitration Agreement. See Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal. 4th 223, 236 ('In determining the rights of parties to enforce an arbitration agreement within the FAA's scope, courts apply state contract law while giving due regard to the federal policy favoring arbitration.'); Giuliano v. Inland Empire Personnel, Inc. (2007) 149 Cal. App. 4th 1276, 1285 (generally applicable contract defenses may invalidate arbitration agreements provided they do not contravene § 2 of the FAA). A threshold determination in that regard is the existence of an arbitration agreement. See Serafin v. Balco Properties Ltd., LLC (2015) 235 Cal. App. 4th 165, 172. Defendant bears the burden of proving the existence of an arbitration agreement by a preponderance of the evidence. Plaintiffs then bear the burden of proving by a preponderance of the evidence any facts necessary to their defense. See Lane v. Francis Capital Management LLC (2014) 224 Cal. App. 4th 676, 683.

The court finds that Defendant has satisfied its initial burden of proving the existence of an arbitration agreement. Notably, Plaintiffs do not dispute the existence of an arbitration agreement. Indeed, a copy of the Purchase Agreement containing the Arbitration Agreement is attached as Exhibit C to the FAC and incorporated by reference into the moving papers. Nothing further is required to prove the Arbitration Agreement's existence. See Condee v. Longwood Management Corp. (2001) 88 Cal. App. 4th 215, 218-219 ('For purposes of a petition to compel arbitration, it is not necessary to follow the normal procedures of document authentication . . . the court is only required to make a finding of the agreement's existence, not an evidentiary determination of its validity.'); Cal. R. Ct. 3.1330.

The burden thus shifts to Plaintiffs to prove by a preponderance of the evidence any facts necessary to preclude enforcement of the Arbitration Agreement. The court finds that Plaintiffs have met their burden, in part. More specifically, it is undisputed that Plaintiffs and Defendant are the only signatories to the Arbitration Agreement. However, Plaintiffs have sued various third-party nonsignatories, including: (1) Mr. Dolginov individually and dba Defendant's real estate brokerage firm, Dolan Realty Company; (2) Marek Marsala aka Mark Marsala (the selling agent); (3) Renovado Construction (a California licensed contractor that performed a remodel of the Property before its sale by Defendant to Plaintiffs); (4) Laurelle Wilson and Whole Life Properties, Inc. (Plaintiffs' real estate broker and agent); and (5) Roar Construction, Inc., Dennis Charles O'Neill, and Robert Mack O'Neill (contractors Defendant employed in renovating the Property). See ROA Nos. 8, 22-24.

That being said, as general rule, a person who is not a party to an arbitration agreement is not bound by it. See Buckner v. Tamarin (2012) 98 Cal. App. 4th 140, 142. There are numerous exceptions to this rule, however, including: '1) incorporation by reference; 2) assumption; 3) agency; 4) veil-piercing/alter ego; and 5) estoppel.' Boucher v. Alliance Title Co., Inc. (2005) 127 Cal. App. 4th 262, 268. These exceptions generally apply where a sufficient 'identity of interest' exists between the nonsignatory and the signatory. See DMS Services, LLC v. Sup. Ct. (2012) 205 Cal. App. 4th 1346, 1353. See also Thomas v. Westlake (2012) 204 Cal. App. 4th 605, 614; Marenco, 233 Cal. App. 4th at 1417; Valley Casework, Inc. v. Comfort Construction, Inc. (1999) 76 Cal. App. 4th 1013, 1021-1022; Jenks v. DLA Piper Rudnick Gray Cary US LLP (2015) 243 Cal. App. 4th 1, 8. In this case, Defendant moves to compel Plaintiffs as well as the nonsignatory Defendants to arbitrate this dispute under the theories of estoppel, agency, and third-party beneficiary. As explained below, while the court concludes that Plaintiffs, as signatories to the Arbitration Agreement, can be compelled to arbitration, the court agrees with Plaintiffs that the nonsignatories cannot be compelled to arbitration.

In the arbitration context, 'the equitable estoppel doctrine applies when a party has signed an agreement to arbitrate but attempts to avoid arbitration by suing nonsignatory defendants for claims that are 'based on the same facts and are inherently inseparable' from arbitrable claims against signatory defendants.'' JSM Tuscany, LLC v. Sup. Ct. (2011) 193 Cal. App. 4th 1222, 1238 (quoting Turtle Ridge Media Group, Inc. v. Pacific Bell Directory (2006) 140 Cal. App. 4th 828, 833). See also Boucher, 127 Cal. App. 4th at 272 ('By relying on contract terms in a claim against a nonsignatory defendant, even if not exclusively, a plaintiff may be equitably estopped from repudiating the arbitration clause contained in that agreement.'). Courts should analyze 'the relationships of persons, wrongs and issues, in particular whether the claims that the nonsignatory [seeks] to arbitrate were 'intimately founded in and intertwined Calendar No.: Event ID:  TENTATIVE RULINGS

2995390 CASE NUMBER: CASE TITLE:  PAGAN VS. 5 STAR HOUSING [IMAGED]  37-2022-00039943-CU-OR-NC with the underlying contract claims.'' Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal. App. 4th 1705, 1713 (quoting Choctaw Generation Ltd. Partnership v. American Home Assur. Co., 271 F.3d 403, 406 (2nd Cir. 2001)).

The court finds that estoppel does not apply in this instance. A review of the FAC confirms that Plaintiffs' claims against the nonsignatory Defendants are not based on the same facts and inherently inseparable from Plaintiffs' claims against Defendant. The gravamen of the dispute between Plaintiffs and Defendant is, in essence, Defendant's alleged breach of the Purchase Agreement and fraudulent conduct by failing to disclose all known material defects in the Property to Plaintiffs as required under the various disclosure agreements. However, Plaintiffs' contentions against Defendant and the various contractors centers on their negligence in repairing the Property or their endeavors to repair the Property in as cheap a manner as possible in order to conceal known defects. Plaintiffs' complaint against the various real estate brokers/agents involves their alleged failure to exercise reasonable care in inspecting the Property and disclosing to Plaintiffs all known material defects and conditions related to the Property.

While the foregoing allegations are tangentially related, they are not so inextricably intertwined to warrant compelling the nonsignatory Defendants to arbitration under the theory of equitable estoppel.

The court further finds that the agency exception does not apply in this case. 'The [agency] exception applies, and a defendant may enforce the arbitration agreement, 'when a plaintiff alleges a defendant acted as an agent of a party to an arbitration agreement . . . .'' Garcia v. Pexco, LLC (2017) 11 Cal. App. 5th 782, 788 (quoting Thomas v. Westlake (2012) 204 Cal. App. 4th 605, 614). See also Jones v. Jacobson (2011) 195 Cal. App. 4th 1, 19 ('Exceptions in which an arbitration agreement may be enforced by or against nonsignatories include . . . when a nonsignatory and one of the parties to the agreement have a preexisting agency relationship that makes it equitable to impose the duty to arbitrate on either of them.'). The First District Court of Appeal has stated: 'Not every agency relationship . . . will bind a nonsignatory to an arbitration agreement. [Citation] 'Every California case finding nonsignatories to be bound to arbitrate [on an agency theory] is based on facts that demonstrate, in one way or another, the signatory's implicit authority to act on behalf of the nonsignatory.' [Citations.] Courts have also stated that the agency relationship between the nonsignatory ant the signatory must make it ' 'equitable to compel the nonsignatory' ' to arbitrate. [Citations.] [¶] ...

Courts look to traditional principles of contract and agency law to determine whether a nonsigntaory is bound by an arbitration agreement signed by its principal or agent.' (Cohen, supra, 31 Cal.App.5th at pp.

859-860, 243 Cal.Rptr.3d 340.) Pillar Project AG v .Payward Ventures, Inc. (2021) 64 Cal. App. 5th 671, 676.

There is insufficient evidence that either Plaintiffs or Defendant had actual or ostensible authority to bind the nonsignatory Defendants to the Purchase Agreement and/or Arbitration Agreement. Nor is there evidence that the nonsignatory Defendants intended to be bound to those agreements. Moreover, while Defendant is correct that a preexisting relationship may have existed between the real estate brokers and agents of the parties to the Purchase Agreement, such relationship is not the type contemplated in binding nonsignatories to an arbitration provision. See, e.g., County of Contra Costa v. Kaiser Foundation Health Plan, Inc. (1996) 47 Cal. App. 4th 237, 243.

The court further finds that the third-party beneficiary exception does not apply in this instance. Whether a non-signatory third party may compel arbitration under an agreement is determined by state contract law. See Arthur Andersen LLP v. Carlisle, 556 U.S. 624 (2009); Kramer v. Toyota Motor Corp., 705 F.3d 1122, 1128 (9th Cir. 2013). Toward that end, a non-signatory is a third-party beneficiary only to a contract 'made expressly for [its] benefit.' Cal. Civ. Code § 1559. To compel arbitration, the third party bears the burden of establishing that: (1) it would in fact benefit from the contract; (2) a motivating purpose of the contracting parties was to provide a benefit to the third party; and (3) permitting the third party to enforce the contract is consistent with the objectives of the contract and the reasonable expectations of the contracting parties. See Goonewardene v. ADP, LLC (2019) 6 Cal. 5th 817, 930; Garcia v. Truck Ins. Exch. (1984) 36 Cal. 3d 426, 436. To start, it is unclear whether Defendant, as a Calendar No.: Event ID:  TENTATIVE RULINGS

2995390 CASE NUMBER: CASE TITLE:  PAGAN VS. 5 STAR HOUSING [IMAGED]  37-2022-00039943-CU-OR-NC party to the Arbitration Agreement, has standing to assert this exception as a signatory to the Purchase Agreement. Regardless, none of the nonsignatory Defendants have moved to compel arbitration in this instance. Moreover, a review of the Purchase Agreement does not reveal a motivating purpose of Plaintiffs and Defendant to provide a direct benefit to the nonsignatory Defendants. Defendant cites no authority for the proposition that real estate brokers/agents and/or listing agents are intended third-party beneficiaries under a real estate purchase contract merely by virtue of their roles as brokers/agents. In addition, a review of the Arbitration Agreement suggests that it was not the parties' intent to arbitrate their disputes with brokers in instances where the brokers have not agreed to do so in writing.

Finally, the court must respectfully disagree with Plaintiffs that the third-party litigation exception set forth in California Code of Civil Procedure ('CCP') § 1281.2(c) applies. CCP § 1281.2(c) does not apply where, as here, Plaintiffs and Defendant have expressly agreed that the FAA governs the enforceability of the Arbitration Agreement. See Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal. 4th 376, 394. Moreover, even if CCP § 1281.2(c) were applicable, it does not conflict with the applicable provisions of the FAA and does not compel a different outcome in this case.

In light of the foregoing, the court: (1) grants the motion to compel arbitration as to Plaintiffs, and (2) denies the motion to compel arbitration as to the nonsignatory Defendants. Under the circumstances, the court finds that judicial economy is best served by staying this action as to all nonsignatory Defendants pending the outcome of the arbitration hearing between Plaintiffs and Defendant. See 9 U.S.C. § 3. The court sets a status conference in this matter for January 5, 2024 at 9:30 a.m. in this department.

This is the tentative ruling for the hearing at 1:30 p.m. on Friday, September 29, 2023. If no party appears at the hearing, this tentative ruling will become the order of the court as of September 29, 2023.

If the parties are satisfied with the court's tentative ruling or do not otherwise wish to argue the motion, they are encouraged to give notice to the court and each other of their intention not to appear, though this notice is not required.

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