Judge: Frank M. Tavelman, Case: 22BBCV01306, Date: 2023-09-01 Tentative Ruling
Case Number: 22BBCV01306 Hearing Date: March 15, 2024 Dept: A
The Court is not
requesting oral argument on this matter. Pursuant to California Rules of
Court, Rule 3.1308(a)(1) notice of intent to appear is required. Unless
the Court directs argument in the Tentative Ruling, no argument will be
permitted unless a “party notifies all other parties and the court by 4:00 p.m.
on the court day before the hearing of the party’s intention to appear and
argue. The tentative ruling will become the ruling of the court if no
notice of intent to appear is received.”
Notice may be given
either by email at BurDeptA@LACourt.org or by telephone at (818) 260-8412.
ALLEGATIONS:
Kristina Hoekstra
(Plaintiff) moves to compel James and Annette Volken (Cross-Defendants) to
arbitrate the dispute between them. This action concerns Plaintiff’s purchase
of the property known as 10024 McBroom St, Sunland, CA 91040 (the Property).
Plaintiff alleges that the Property suffered from various defects at the time
of purchase of which she was not made aware. Plaintiff alleges both negligence
and fraud against defendants In Action Realtors, Bradley Korb, and Limo Matalan
(Defendants), all of whom participated in the sale of the Property to
Plaintiff.
On December 27, 2022,
Plaintiff filed her initial complaint against Defendants. Plaintiff did not
name Cross-Defendants as parties to the action. The Complaint states this
omission was because Cross-Defendants and Plaintiff agreed to arbitration of
any and all disputes regarding the sale of the Property. (Compl. ¶ 8.) On
February 16, 2023, Defendants filed a Cross-Complaint against Cross-Defendants
seeking contribution, though service of the Cross-Complaint was not made until
many months later. On October 30, 2023, Cross-Defendants filed an answer to the
Cross-Complaint.
ANALYSIS:
I. LEGAL STANDARD
Motion to
Compel
The
Federal Arbitration Act (FAA) governs a motion to compel arbitration when an
agreement provides its enforcement shall be governed by the FAA. (Victrola
89, LLC v. Jamon Properties 8 LLC (2020) 46 Cal.App.5th 337, 346.)
Parties
may be compelled to arbitrate a dispute upon the court finding that (1) there
was a valid agreement to arbitrate between the parties and (2) said agreement
covers the controversy or controversies in the parties’ dispute. (9 U.S.C. § 4;
Chiron Corp. v. Ortho Diagnostics Systems, Inc.(9th Cir. 2000) 207 F.3d
1126, 1130.) If the finding is affirmative as to both, the FAA requires the
Court to enforce the arbitration agreement in accordance with its terms. (Simula,
Inc. v. Autoliv, Inc. (9th Cir. 1999) 175 F.3d 716, 719-720.)
“The
petitioner bears the burden of proving the existence of a valid arbitration
agreement by the preponderance of the evidence, and a party opposing the
petition bears the burden of proving by a preponderance of the evidence any
fact necessary to its defense. In these summary proceedings, the trial court
sits as a trier of fact, weighing all the affidavits, declarations, and other
documentary evidence, as well as oral testimony received at the court’s
discretion, to reach a final determination.” (Giuliano v. Inland Empire
Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284.)
“If a
court of competent jurisdiction, whether in this State or not, has ordered
arbitration of a controversy which is an issue involved in an action or
proceeding pending before a court of this State, the court in which such action
or proceeding is pending shall, upon motion of a party to such action or
proceeding, stay the action or proceeding until an arbitration is had in
accordance with the order to arbitrate or until such earlier time as the court
specifies.” (C.C.P. § 1281.4.)
II. MERITS
Judicial
Notice
Plaintiff
requests judicial notice be taken of the Real Estate Purchase Agreement and the
Real Estate Transfer Disclosure Statement between Plaintiff and
Cross-Defendants. Plaintiff states that the Court may take notice of these
documents per Evidence Code §452(h) because their facts are not reasonably in
dispute, and because they were incorporated by reference into Plaintiff’s
complaint. Cross-Defendants do not object. The request is GRANTED.
Plaintiff
also requests judicial notice of an email exchange with Cross-Defendants’
counsel, also reasoning that the facts are not subject to dispute.
Cross-Defendants do not object and in fact attach these emails to their own
declaration. The request is GRANTED.
Arguments
of the Parties
Cross-Defendants
do not dispute that the agreement with Plaintiff exists and is enforceable.
Cross-Defendants’ opposition to the motion to compel proceeds entirely on the
argument that Plaintiff has waived her right to compel arbitration by virtue of
delay.
Both
Plaintiff and Cross-Defendants state in their moving papers that Plaintiff
served a demand for mediation via email sometime in early October, however,
neither party attaches the original email containing the demand. It appears
this demand was originally sent to Defendant’s counsel and was forwarded to
counsel for Cross-Defendants. Cross-Defendants’ counsel responded to this
demand on October 6, 2022, informing Plaintiff that he had just been retained
as counsel and would reply to the demand sometime before October 14. (Stein
Decl. Exh. A, p. 13.) Although it is not included in any of the exhibits, it
appears that Cross-Defendants counsel sent a letter on October 14, 2022
agreeing to mediation. (Id. p. 12.) From October 14, 2022 through
November 15, 2022, the parties exchanged emails in which they negotiated who
would mediate the case and the inclusion of the company who inspected the
Property. (Id. pgs. 11-13.) Cross-Defendants’ counsel proposed several
mediators, to which Plaintiff’s counsel countered. (Id. p. 10.) The Court notes that the initial colloquy
between the parties pertained to “mediation” and not to “arbitration,” which is
now the request to compel.
On
November 10, 2022, Cross-Defendants’ counsel informed Plaintiff’s counsel that
the insurance company for Cross-Defendants was still deciding on coverage and
that a decision to cover the claim would result in the substitution of new
counsel. (Id. p. 8.) Plaintiff’s counsel and Cross-Defendants’ counsel
then exchanged some less than cordial emails in which they went back and forth on
choosing a mediator. (Id. pgs. 4-7.) On November 11, 2022, Plaintiff’s
counsel informed that the inspection company would not be included in the
mediation. (Id. p. 4.) Plaintiff’s counsel asked how Cross-Defendants’
counsel would like to proceed given their impasse on a mediator and stated that
he would be happy to demand arbitration if Cross-Defendants would not agree to
mediate. (Id.) Cross-Defendants’ counsel responded that his clients
would wait until their insurance provider determined coverage before deciding
to proceed with mediation. (Id.)
On November 14, 2022, Plaintiff’s counsel emailed
Cross-Defendants’ counsel containing the statement “Unless you get back to me
by close of business today with your client’s agreement to have the mediation
service provider propose a mediator, my clients demand arbitration as we have
to this point gone out of our way to mediate the misrepresentation claims
against your clients.” (Id. p. 3.)
Cross-Defendants’ response was, in effect, that Plaintiff’s counsel should do
what he felt he must. (Id.) Plaintiff’s counsel email in
response reiterated that his clients were demanding arbitration. (Id. p. 2.)
In the long gap between these initial discussions
and the current motion, Plaintiff and Cross-Defendants counsel appear to have
communicated only a handful of times. Cross-Defendants’ counsel reached out
several times to ask whether the case had been resolved and was told it had
not. (Stein Decl. Exh. C, pgs.
3-7.) On January 27, 2023, Cross-Defendants’ counsel asked whether the filing
of a Complaint against the broker (Korb) meant that Cross-Defendants were not
going to be named as a party. (Id. p. 3.) Plaintiff replied that it was
unlikely, but not impossible. (Id. p. 2.) The next communication was in
April of 2023, wherein Plaintiff asked Cross-Defendants if they had any
discussions with Korb regarding liability. (Id.) As a result of this
conversation, Cross-Defendants became aware Korb had filed a Cross-Complaint
against them. (Id. p. 1.)
Communication
between Plaintiff and Cross-Defendants’ counsel was sparse over the next few
months and solely concerned Cross-Defendants’ waiting for Korb to serve the
Cross-Complaint on them. (Stein Decl. Exh. D, pg. 2-3.) On September 1, 2023,
counsel for Plaintiff sent an email asking whether the parties agreed to
stipulate to forgo mediation and reserve recovery of attorney’s fees. (Id.
p. 1.) Cross-Defendants counsel responded that he would address Plaintiff’s
questions once his clients were served. (Id.)
On
December 13, 2023, Plaintiff’s counsel emailed Cross-Defendants’ counsel to ask
whether early settlement was an option. (Stein Decl. Exh. E, p. 1.)
Cross-Defendants replied on January 4, 2024 that they did not believe the case
would settle given the positions of the parties. (Stein Decl. Exh. G.)
Analysis
The Court
notes that the arbitration clause which Plaintiff seeks to invoke explicitly
elects the Federal Arbitration Act (FAA) as governing any motions to compel
arbitration. The clause reads in relevant part:
Enforcement of, and any motion to compel
arbitration pursuant to, this agreement to arbitrate shall be governed by the
procedural rules of the Federal Arbitration Act, and not the California
Arbitration Act notwithstanding any language seemingly to the contrary in this
Agreement.
(RJN Exh. A.)
In her
reply Plaintiff argues that the provisions of C.C.P. § 1281(c), which afford
the Court discretion in compelling matters to arbitration, are inapplicable to
the agreement at hand. While Plaintiff is correct that the Court’s authority is
limited to the procedural confines of the FAA, the Court rejects Plaintiff’s
argument that there should be no consideration of waiver here. Plaintiff seems
to suggest that the only determining factor in compelling arbitration under the
FAA is whether there is a valid agreement that encompasses the dispute in this
case, citing Dean Witter Reynolds, Inc. v. Byrd. (See Dean Witter
Reynolds, Inc. v. Byrd (1985) 470 U.S. 213, 218.) The Court concurs that an
agreement of the correct scope must exist, however the holding in Dean
Witter does not preclude the concept of waiver under the FAA.
Federal
Courts have repeatedly found the concept of waiver can apply to agreements
governed by the FAA. The general rule in determining waiver under the FAA is as
follows:
To prove that a waiver of arbitration exists, a
party must demonstrate (1) knowledge of an existing right to compel
arbitration; (2) acts inconsistent with that existing right; and (3) prejudice
to the party opposing arbitration resulting from such inconsistent acts. The
party arguing waiver bears a heavy burden of proof. Any doubts as to waiver are
resolved in favor of arbitration. The Ninth Circuit has determined that waivers
of contractual rights to arbitration are not favored. Thus, to waive arbitration
rights, a party must ‘substantially invoke the litigation machinery in such a
way as to prejudice the other party. If there is any ambiguity as to the scope
of the waiver, the court must resolve the issue in favor of arbitration.
(Creative
Telcoms. v. Breeden (D.Haw. 1999) 120 F.Supp.2d 1225, 1232 [internal
citations and quotations marks omitted].)
From Creative
Telecoms we can glean a variety of factors which a court considering waiver
under the FAA may consider. The factors that courts usually consider are (1)
the time elapsed from the commencement of litigation to the request for
arbitration, (2) the proximity of a trial date when arbitration is sought, (3)
whether the party filing the lawsuit intended to elect a judicial forum rather
than the arbitral tribunal, (4) the degree to which the party seeking to compel
arbitration has contested the merits of its opponent’s claims, (5) whether that
party has informed its adversary of the intention to seek arbitration even if
it has not yet filed a motion to stay proceedings, (6) the extent of moving
party’s non-merits motion practice, (7) moving party’s assent to the court’s
pretrial orders, and (8) the extent to which both parties have engaged in
discovery. (Id. at 1233.)
Lastly,
although every Circuit Court adheres to the general principles of waiver, until
recently there was split as to whether a finding of waiver required a showing
of prejudice to the party opposing arbitration. The United States Supreme Court
recently resolved this split in Morgan v. Sundance, Inc. The Supreme
Court held that, as with other contractual waiver matters, a waiver of the
right to arbitrate did not require a showing of prejudice under federal law. (Morgan
v. Sundance, Inc. (2022) 596 U.S. 411, 420.)
Further,
Federal Courts have found the absence of a reasonable explanation for delay is
a significant factor weighing in favor of finding waiver. (See Smith v. GC
Services Limited Partnership (7th Cir. 2018) 907 F.3d 495, 499-500 [holding
defendant’s “entirely inadequate” explanation for five-month delay was a factor
showing they acted inconsistently with right to arbitrate]; see also Gray
Holdco, Inc. v. Cassady (3d Cir. 2011) 654 F.3d 444, 455 & fn. 9 [“It
is significant that … Gray offered no explanation to the District Court for its
delay in waiting ten months after filing suit … and that it certainly has not
offered such an explanation on this appeal”].)
Here, the
Court finds that Plaintiff has unreasonably delayed its demand for arbitration.
Plaintiff informally engaged with Cross-Defendants’ counsel regarding mediation
early in the litigation process. Plaintiff’s failure to file a petition to
compel arbitration could initially be reasonable given negotiations with
Cross-Defendants’ counsel. Regardless, there came a point where it was
abundantly clear to Plaintiff that Cross-Defendants would not engage in
mediation pursuant to the arbitration agreement. Plaintiff’s counsel stated he
would be happy to demand arbitration if Cross-Defendants would not voluntarily
agree, and he in fact did so on November 14, 2022. Despite Cross-Defendants
reply of “do what you must”, Plaintiff did not move to compel arbitration at
that time. Plaintiff then appears to completely drop the issue of arbitration
in subsequent correspondence. Plaintiff’s counsel did not even initiate email
communication again until April 2023, and even then, the correspondence
contained no mention of arbitration. Over a year has passed since Plaintiff
demanded arbitration via email and her filing of this motion.
Although
Cross-Defendants were not made parties to this action until October 2023, it is
clear from the parties’ submissions that Plaintiff was aware of her claims
against Cross-Defendants long before. Plaintiff offers no explanation why such
a large gap exists between her demand for arbitration and her filing of this
motion to compel. Plaintiff argues that Cross-Defendants’ insistence on waiting
for insurance coverage contributed to the delay. The Court finds this argument
unpersuasive. The impact of the insurance coverage on mediation discussions
clearly came to an impasse, after which Plaintiff issued her formal demand for
arbitration. There is no discussion of insurance coverage past November 2022 in
any of the email exchanges attached by either party. It appears that Plaintiff unnecessarily
delayed her motion to compel arbitration despite clear knowledge of her rights.
Plaintiff carried on litigation against Korb and other Defendants for over a
year after demanding arbitration, all the while Cross-Defendants were forced to
wait.
Further,
pursuant to Morgan, no finding of prejudice is required for the Court to
determine the right to arbitrate was waived. While the California Courts
require a finding of prejudice, they do so pursuant to C.C.P. § 1281(c). (See Saint
Agnes Medical Center v. PacifiCare of Cal. (2003) 31 Cal.4th 1187, 1203-04.
[“Because merely participating in litigation … does not result in a waiver,
courts will not find prejudice where the party opposing arbitration shows only
that it incurred court costs and legal expense.... Prejudice typically is found
only where the petitioning party’s conduct has substantially undermined this
important public policy or substantially impaired the other side’s ability to
take advantage of the benefits and efficiencies of arbitration.”].) As
previously mentioned, C.C.P. § 1281(c) and case law discussing its authority
are inapplicable. As such, a showing of Plaintiff’s unreasonable delay is
sufficient to determine a waiver has occurred.
Nor does
the Court find that any of the other factors in considering waiver outweigh the
unreasonable delay. Although Plaintiff
informed Cross-Defendants of an intent to arbitrate, she then proceeded to
ignore that intent for over a year. Further, although Plaintiff did not include
Cross-Defendants as parties, her counsel refused to confirm that she would not
do so throughout the mediation negotiations. Plaintiff has also engaged with
Korb in motions to compel discovery responses. While Cross-Defendants have not
been the subject of any of these motions, the motions make clear that movement
on the case which potentially concerns Cross-Defendants is proceeding without
them.
The Court
finds the factors weigh in favor of finding that Plaintiff has waived her right
to arbitrate her claims against Cross-Defendants. Accordingly, the motion to
compel arbitration is DENIED.
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RULING:
In the
event the parties submit on this tentative ruling, or a party requests a signed
order or the court in its discretion elects to sign a formal order, the
following form will be either electronically signed or signed in hard copy and
entered into the court’s records. To the extent necessary this tentative ruling
if adopted by the Court as its final ruling shall also serve as a Statement of
Decision pursuant to C.C.P. §1291.
ORDER
Kristina Hoekstra’s Motion to Compel Arbitration came on regularly for hearing
on March 15, 2024 with appearances/submissions as noted in the minute order for
said hearing, and the court, being fully advised in the premises, did then and
there rule as follows:
THE MOTION TO COMPEL ARBITRATION IS DENIED.
UNLESS ALL PARTIES WAIVE NOTICE, PLAINTIFF TO
GIVE NOTICE.
IT IS SO
ORDERED.