Judge: Daniel S. Murphy, Case: 23STCV00641, Date: 2023-04-12 Tentative Ruling

Case Number: 23STCV00641    Hearing Date: April 12, 2023    Dept: 32

BACKGROUND

            On January 12, 2023, Plaintiffs Jay Paul Deratany and Curtis Smith initiated this action against Defendants AG Builders & Development Corporation (AG Builders), Jose Rivas (Rivas), and Jon Brouse (Brouse), asserting various claims arising from defective construction performed on Plaintiffs’ home. The complaint alleges causes of action for: (1) breach of contract; (2) fraud; (3) accounting; (4) negligence; (5) fraudulent inducement; (6) ultra vires; and (7) intentional infliction of emotional distress.

According to the allegations, Plaintiffs hired Brouse, an architect, to design and implement the remodeling plan, as well as recommend an appropriate builder and contractor. (Compl. ¶ 2.) Brouse recommended Rivas and his company, AG Builders, promising that Rivas had the skill and qualifications to perform the job. (Id., ¶ 5.) In reality, Rivas was not qualified and failed to properly complete the construction. Based on the complaint, the only basis for liability against Brouse is his recommendation of Rivas. Plaintiffs allege that Brouse committed fraud by misrepresenting Rivas’ qualifications, which induced them into contracting with Rivas for the remodeling job. (Id., ¶¶ 48-50.)

On March 17, 2023, Brouse filed the instant motion to compel arbitration based on a clause in the contract between Plaintiffs and Brouse, which was executed when Plaintiffs hired Brouse. Plaintiffs have not filed an opposition.

LEGAL STANDARD

The California Arbitration Act (CAA) states that “[o]n 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 if it determines that an agreement to arbitrate the controversy exists….” (Code Civ. Proc, § 1281.2.) “The party seeking arbitration bears the burden of proving the existence of an arbitration agreement, and the party opposing arbitration bears the burden of proving any defense, such as unconscionability.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236.)

DISCUSSION

I. Existence of Valid Agreement

            “The moving party ‘can meet its initial burden by attaching to the motion or petition a copy of the arbitration agreement purporting to bear the opposing party's signature.’” (Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 165, quoting Bannister v. Marinidence Opco, LLC (2021) 64 Cal.App.5th 541, 543-44.)

            Here, the undisputed evidence shows an agreement signed by Plaintiffs and Brouse, executed in May 2020, the same time Plaintiffs allege they hired Brouse. (See Compl. ¶ 2; Melkonian Decl., Ex. 1.) The agreement contains an arbitration clause stating: “All claims, disputes and other matters in question between parties to this Agreement arising out of or relating to this agreement or the breach thereof, shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then obtaining unless the parties mutually agree otherwise.” (Melkonian Decl., Ex. 1.)

            There is no dispute as to the existence or coverage of the agreement. Therefore, Brouse has satisfied his initial burden. Because Plaintiffs do not oppose the motion, they have offered no defense against enforcement of the contract.

II. Pending Claims Against Third Parties

            However, a motion to compel arbitration is properly denied where “[a] party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact.” (Code Civ. Proc., § 1281.2(c).) A court may also “stay arbitration pending the outcome of the court action or special proceeding.” (Id., § 1281.2.)

            Brouse argues that this exception does not apply because Plaintiffs are not third parties to the arbitration agreement. However, Plaintiffs are engaged in a pending action against third parties (Rivas and AG Builders) arising from the same transaction. In other words, “a party to the arbitration agreement [Plaintiff] is also a party to a pending court action or special proceeding with a third party [Rivas and AG Builders], arising out of the same transaction [the remodel].” (Code Civ. Proc., § 1281.2(c).) Therefore, the exception is triggered.

            Section 1281.2(c) “allows the trial court to stay arbitration proceedings while the concurrent lawsuit proceeds or stay the lawsuit while arbitration proceeds to avoid conflicting rulings on common issues of fact and law amongst interrelated parties.” (Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 393.) “Section 1281.2(c) addresses the peculiar situation that arises when a controversy also affects claims by or against other parties not bound by the arbitration agreement.” (Ibid.)

Such a peculiar situation has arisen in this case. Plaintiffs’ claim against Brouse is intertwined with their claims against Rivas and AG Builders because Brouse allegedly falsely represented that Rivas was a qualified builder. In other words, whether Brouse committed fraud depends on whether Rivas performed the construction competently. Rivas’ competence is an issue in the pending court action between Plaintiffs and Rivas. Therefore, proceeding with arbitration on the fraud claim against Brouse risks inconsistent findings. For example, if Rivas is found to have competently performed the remodel, then Brouse could not have committed fraud in recommending him.

Because Rivas’ competence must be adjudicated before Brouse’s alleged fraud, the arbitration should be stayed pending the court action. While the Court has discretion to do the opposite—i.e., stay the action pending arbitration—doing so does not make sense in the context of this case. Rivas’ competence needs to be adjudicated first. Otherwise, it would be possible for Brouse to be found liable for fraud even though Rivas is found to have performed the work competently.

CONCLUSION

            Defendant Jon Brouse’s motion to compel arbitration is GRANTED. The arbitration is stayed pending the outcome of the court action against Defendants Jose Rivas and AG Builders.