Judge: Deirdre Hill, Case: 22TRCV00156, Date: 2022-09-27 Tentative Ruling

Case Number: 22TRCV00156    Hearing Date: September 27, 2022    Dept: M

Hearing Date:                          September 27, 2022   

Moving Parties:                      Defendant and cross-complainant ASI Builders Inc.

Responding Party:                  Plaintiff and cross-defendant Constructure, Inc.

Motion to Compel Judicial Reference and to Stay the Action Pending Judicial Reference

            The court considered the moving, opposition, and reply papers.

RULING

            The motion is GRANTED.  The case is transferred to Dept. 1 to appoint a referee.

BACKGROUND

On March 1, 2022, Constructure, Inc. filed a verified complaint against ASI Builders Inc., 8521 S, LLC, Umpqua Bank, Victor Svilik, Alan James Svilik, Isabella Svilik, and The Western Surety Company for (1) foreclosure of mechanic’s lien, (2) breach of contract, (3) account stated, (4) open book account, (5) violation of Bus. and Prof. Code 7108.5, (6) recovery on contractor’s license bond, and (7) quantum meruit.

On May 17, 2022, plaintiff filed a request for dismissal as to Umpqua Bank, Victor Svilik, Alan James Svilik, and Isabella Svilik.

On May 20, 2022, plaintiff filed a FAC.

On June 23, 2022, ASI Builders Inc. filed a cross-complaint for (1) breach of contract, (2) breach of implied covenant of good faith and fair dealing, (3) negligence, and (4) unjust enrichment/restitution.

LEGAL AUTHORITY

Under CCP §638 states, in relevant part:  “A referee may be appointed upon the agreement of the parties filed with the clerk, or judge, or entered in the minutes, or upon the motion of a party to a written contract or lease that provides that any controversy arising therefrom shall be heard by a referee if the court finds a reference agreement exists between the parties:  [¶]  (a) To hear and determine any or all of the issues in an action or proceeding, whether of fact or of law, and to report a statement of decision.  [¶]  (b)  To ascertain a fact necessary to enable the court to determine an action or proceeding.”

Cal. Rules of Court, Rule 3.901 provides the procedures for an order appointing a referee under CCP §638.  A party must either submit a written stipulation or motion for an order appointing a referee under CCP §638.  Rule 3.901(a).)  In addition, the motion for the appointment of a referee under section 638 must:

(1) ¿Clearly state whether the scope of the requested reference includes all issues or is limited to specified issues;

(2) ¿State whether the referee will be privately compensated;

(3) ¿If authorization to use court facilities or court personnel is requested, describe the use requested and state the reasons that this would further the interests of justice;

(4) ¿If the applicant is requesting or the parties have stipulated to the appointment of a particular referee, be accompanied by the proposed referee's certification as required by rule 3.904(a); and

(5) ¿Be accompanied by a proposed order that includes the matters specified in rule 3.902.

Rule 3.901(b).) 

“A general reference may be had only with the consent of the parties.”  Ellsworth v. Ellsworth (1954) 42 Cal.2d 719, 722 [citing prior version of Code of Civil Procedure section 638].  “[T]he court has no power to make an unconsented-to general reference, which conclusively decides all or part of a matter, because not only is such a general reference not authorized except by explicit agreement of the parties . . .  but also, the California Constitution prevents delegation of judicial power except for the performance of ‘subordinate judicial duties,’” which does not include “[d]eciding a major legal issue in a case, which probably will determine liability.”  Aetna Life Insurance Co. v. Superior Court (1986) 182 Cal. App. 3d 431, 435-436.

Los Angeles County Superior Court Rules, Rule 2.24(a)(2) provides that “[t]he Supervising Judge of the Civil . . . Division [shall] appoint a referee who will hear the case for all purposes, including judgment.”

DISCUSSION

            Pursuant to CCP §§638, et seq., defendant and cross-complainant ASI Builders Inc. requests that the court order plaintiff and cross-defendant Constructure, Inc. to judicial reference to resolve the claims in this matter and to stay this matter pending that judicial reference proceeding. 

            Defendant contends that the parties have a binding judicial reference clause within the subject Subcontract Agreement.  See Contract dated September 1, 2020, para. 16.

            Paragraph 16 states in part:  “ALTERNATIVE DISPUTE RESOLUTION.  If any action or proceeding is commenced by either party to enforce any right or recover any damages in connection with any claim arising out of or related to this Agreement, all of the issues in such action, whether of fact, equity, or law, shall be heard by a reference proceeding, in the Superior Court of the State of California, for the County of Los Angeles pursuant to the provisions of [CCP 638 through 645.1.  Upon the commencement of any such action or proceeding, the parties shall endeavor to agree upon a retired Superior Court Judge or Supreme Court or Court of Appeal Justice from the then current list of retired judges available to serve as referees in Los Angeles County. . . . The parties shall advance, in equal shares, the fees and expenses of the referee selected pursuant to this Section but the losing party in such action or proceeding shall, in addition to paying any judgment awarded by the referee, reimburse the other party for any and all fees and expenses previously advanced by such party for the referee.”

            Defendant asserts that plaintiff made interlineations, including at para. 16:  “Any legal fees, attorney fees, mediation, fees, all fees shall be paid by owner until resolution is reached prevailing party shall be entitled to full compensation for all costs spent.”  Plaintiff initialed this interlineation and signed the agreement on September 11, 2020.  ASI crossed out plaintiff’s interlineation, signed the contract, and sent it back to Constructure in October 2020.

Defendant contends that after such removal of the added language, Constructure did not dispute such removal and continued to work on the project until December 2021.  Thus, defendant argues, Constructure accepted the changes made by ASI, citing to Civil Code §1584 (“Performance of the conditions of a proposal, or the acceptance of the consideration offered with a proposal, is an acceptance of the proposal.”) and ratified the changes made by ASI by continuing to perform work on the project and accepting payments for such work.

            Defendant also notes that in plaintiff’s verified FAC, at para. 11, plaintiff alleges:  “By recording a claim of lien and enforcing same by commencing this action, Constructure does not intend to waive any right to alternative dispute resolution, including mediation, arbitration, and/or judicial reference, and intends to file a stipulation or move the court, within 30 days after service of the summons an complaint, for an order to stay further proceedings in the action pending the completion of the contractually-required alternative dispute resolution.”

            Thus, defendant argues, both parties’ claims should be resolved by binding judicial reference because the intent of the parties was memorialized in the subcontract and by plaintiff in the FAC at para. 11.

            Defendant also contends that the dispute is a controversy within the scope of judicial reference provision.  The FAC alleges that plaintiff was not paid based on the work done on the project as contracted for in the subcontract.  The cross-complaint alleges that Constructure breached the subcontract.

            In opposition, plaintiff argues that there is no written agreement to submit to judicial reference since the parties never agreed to a final version of the subcontract.  Plaintiff contends that it did not consent to the further, subsequent changes in ASI’s revised subcontract.

            Plaintiff also argues that the judicial reference clause is unconscionable.  Plaintiff contends that there was no meaningful bargaining between the parties and ASI waited until Constructure had commenced work before it sent the further revised subcontract, in which ASI had stricken the interlineation. Plaintiff argues that it is substantively unconscionable because it includes a waiver of jury trial and there has been no showing that there will be any significant cost or time savings with a judicial reference. 

            Further, plaintiff asserts, the right to a jury trial cannot be waived unless authorized by statute.  Plaintiff contends that the judicial reference provision does not conspicuously warn that it will result in a waiver of the party’s right to a jury trial.

            Plaintiff also argues that ASI waived its right to seek to compel judicial reference because it did not request it at its earliest opportunity.

            Plaintiff further argues that ordering judicial reference will not promote judicial economy and may result in inconsistent judgments.

            Moreover, plaintiff argues, ASI’s arguments that plaintiff accepted or ratified ASI’s changes are without merit because ASI had already accepted and ratified Constructure’s version of the subcontract when it began work in September 2020.

            Alternatively, plaintiff requests that if the court grants the motion, the court should find that there was no agreement as to whom would pay fees and order that the referee’s fees be apportioned between the parties based on their respective ability to pay.

            In reply, defendant argues that plaintiff cannot claim to not be bound by the subcontract while enjoying the benefits of such subcontract.  Defendant asserts that plaintiff’s conduct cashing several checks for work done pursuant to the subcontract shows both an express and implied waiver of denying the existence of the judicial reference agreement.  Also, defendant reiterates that plaintiff admitted the existence of the judicial reference agreement in its verified FAC.  Defendant also refutes that the judicial reference clause is unconscionable.  Further, defendant asserts, the right to a jury trial can be contractually waived by an ADR clause.  Moreover, defendant argues, it did not waive its right to compel judicial reference.

The court finds that a judicial reference agreement exists.  Plaintiff alleges the existence of one in the verified FAC, at para. 11.  There were no interlineations or edits to the provision itself except that plaintiff added a sentence at the end as to the payment of costs.  As acknowledged by plaintiff, ASI crossed out the interlineation and sent the executed revised subcontract back to plaintiff.  There was no further negotiations and plaintiff continued to work on the project.  The agreement is as to “all issues.”  Further, the court finds that the reference provision is not unconscionable.

The court also finds that defendant has substantially complied with the requirements of Cal. Rules of Court, Rule 3.901(b), although it does not appear that moving party submitted a proposed order.  The motion makes clear that the scope of the requested reference is “all issues” between them arising out of the subcontract.  Para. 16 also sets forth that the referee will be privately compensated.  Authorization to use court facilities or court personnel is not requested in the motion.  Defendant is not requesting the appointment of a particular referee.

The court notes that defendant will not be able to lodge a proposed order that includes all of those matters (e.g., the name, business address, and telephone number of the referee and, if he or she is a member of the State Bar, the referee’s State Bar number [Cal. Rules of Ct., rule 3.902(1)]) until the court appoints a referee.   

Further, as stated above, Los Angeles County Superior Court Rules, Rule 2.24(a)(2) provides that “[t]he Supervising Judge of the Civil . . . Division [shall] appoint a referee who will hear the case for all purposes, including judgment.”  The court therefore transfers this case to Department 1 to appoint the referee as provided in CCP §640 and Cal. Rules of Court, Rule 3.903.  The court orders each party to submit to the court no later than May 10, 2021, up to three nominees (including the nominee’s name, business address, and telephone number and, if he or she is a member of the State Bar, the nominee’s State Bar number) for appointment as referee.  

The court orders defendant to lodge a proposed order on Judicial Council form ADR-110 (with as much of the applicable required information filled in as defendant is able to provide before the court appoints a referee) no later than ___________.    

Defendant is ordered to give notice of ruling.