Judge: Gary I. Micon, Case: 23CHCV02661, Date: 2024-05-01 Tentative Ruling


Case Number: 23CHCV02661    Hearing Date: May 1, 2024    Dept: F43

Dept. F43

Date: 5-1-24

Case #23CHCV02661 , Shawn Thursby-Palmer, et al. vs RAF Development, et al.

Trial Date: N/A

 

PETITION TO COMPEL ARBITRATION

 

MOVING PARTY: Defendants RAF Development, LLC, Horizon Underpinning LLC, and Glenn E. Farmer

RESPONDING PARTY: Plaintiffs Shawn Thursby-Palmer and Benjamin Thursby

 

RELIEF REQUESTED

Defendants are requesting that the Court compel the case to arbitration and stay the action.

 

RULING: Petition to compel arbitration is granted and the action stayed.

 

SUMMARY OF ACTION

On January 30, 2018, Defendant RAF Development LLC (RAF), the Seller of the property at issue in this case, entered into a Residential Purchase Agreement with Plaintiffs Shawn Thursby-Palmer and Benjamin Thursday (Plaintiffs). Around the time of the sale of the property, RAF, Defendant Horizon Underpinning (Horizon), and Glenn E. Farmer (Farmer) had just completed extensive renovations to the property. Horizon was the developer of the property, and Farmer was the managing member of both RAF and Horizon. Plaintiffs have alleged in their complaint that RAF and Horizon are a joint enterprise that share common ownership and a unity of interest and that they shared a single enterprise for the purpose of renovating and selling the property to Plaintiffs. Plaintiffs have also alleged that they are alter egos of one another.

 

Plaintiffs allege in their complaint that Defendants made misrepresentations to them regarding the condition of the property in Defendants’ mandatory disclosures. One of the main representations made by RAF and Farmer was the condition of the septic system. Another defendant, Bohmer Plumbing, provided a Septic System Certification for the property in September 2017 that represented that the septic system met all requirements for certification. Plaintiffs allege that had Bohmer done a thorough inspection, they would have found that the septic system was at the end of its useful life. RAF has represented to Plaintiffs that the septic system was new.

 

The septic system had issues after Plaintiffs took possession of the property, but Bohmer was unable to discern why the septic system required frequent service. In September 2022, the septic system backed up, depositing sewage through the interior of the property and causing damage. After the failure of the system, Plaintiffs discovered that it was not new and was at the end of its useful life.

 

After the failure of the septic system, Plaintiffs allege that they discovered several other defects with the property. In February 2023, there was a small mudslide on the property. Plaintiffs allege that Defendants never disclosed that the property had a history of landslides. Throughout 2023, Plaintiffs discovered several other issues with the property, including the partial failure of a segmental wall on the property.

 

Plaintiffs allege that Defendants knowingly concealed these defects from them. In August 2023, Plaintiffs were cited by the City of Santa Clarita for “unpermitted stacked block wall failure.” Plaintiffs allege that because of Defendants’ failure to disclose the defects and the resulting mitigation measures that they have had to employ, they have been damaged in excess of $1,000,000.

 

Against RAF, Horizon, and Farmer, Plaintiffs have alleged causes of action for breach of residential purchase agreement, negligence, intentional misrepresentation, fraudulent concealment, and negligent misrepresentation. Against Bohmer Plumbing and Kurt Bohmer, Plaintiffs have alleged a cause of action for negligence.

 

The arbitrations provision in the Residential Purchase Agreement reads as follows:

            “B. ARBITRATION OF DISPUTES

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 agreed 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…”

(Comp., Ex. A., Section 22(B).)

The provision goes on to set out the rules for arbitration and includes an explanation for the signees on what signing the provision meant.

 

Defendants argue in their petition that this provision is valid and enforceable and is conscionable. They request that the action be stayed pending arbitration. Plaintiffs oppose Defendants’ petition.

 

ANALYSIS

California law incorporates many of the basic policy objectives contained in the Federal Arbitration Act, including a presumption in favor of arbitrability. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971-972.) The petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence, the party opposing the petition then bears the burden of proving by a preponderance of the evidence any fact necessary to demonstrate that there should be no enforcement of the agreement, and the trial court sits as a trier of fact to reach a final determination on the issue. (Rosenthal v. Great Western Financial Securities Corp. (1996) 14 Cal.4th 394, 413.) The Court is empowered by CCP § 1281.2 to compel parties to arbitrate disputes pursuant to an agreement to do so.   

 

CCP § 1281.2 states that: 

“The court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that: 

(a) The right to compel arbitration has been waived by the petitioner; or  

(b) Grounds exist for the revocation of the agreement.  

(c) 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. For purposes of this section, a pending court action or special proceeding includes an action or proceeding initiated by the party refusing to arbitrate after the petition to compel arbitration has been filed, but on or before the date of the hearing on the petition. This subdivision shall not be applicable to an agreement to arbitrate disputes as to the professional negligence of a health care provider made pursuant to Section 1295.” (CCP § 1281.2.)

 

Plaintiffs do not dispute the existence of the arbitration agreement or its conscionability. Instead, Plaintiffs’ opposition is based on two arguments (1) that Horizon Underpinning LLC and Glenn E. Farmer are not parties to the arbitration agreement; and (2) that compelling the claims against Defendants to arbitration would open up the possibility of inconsistent rulings because there are other defendants and third parties who have not moved for arbitration.

 

Parties to the Agreement

The Residential Purchase Agreement containing the arbitration provision was signed by Plaintiffs and RAF. Horizon and Farmer did not sign the agreement. Plaintiffs argue in their opposition that this means that Horizon and Farmer cannot seek to enforce the arbitration agreement. However, Plaintiffs’ complaint alleges that RAF, Horizon, and Farmer all breached the Residential Purchase Agreement. Plaintiffs’ opposition contradicts their complaint.

 

Beyond alleging that all three breached the Residential Purchase Agreement, Plaintiffs’ complaint also alleges that the three defendants are in a joint venture with one another and are alter egos. Plaintiffs argue in their opposition that Horizon and Farmer cannot rely on the alter ego allegations in the complaint if they subsequently intend to insist that Horizon and RAF are separate entities. Even though a party is nonsignatory to the arbitration agreement, that party can enforce the arbitration agreement because of the plaintiff’s allegations that the party is an alter ego of the signing party. (Rowe v. Exline (2007) 153 Cal.App.4th 1276, 1284-1285.)

 

Defendants argue in their reply that all of the claims against the three defendants arise out of the Residential Purchase Agreement. The First Cause of Action for Breach of the Residential Purchase Agreement clearly arises from the Agreement. The Second Cause of Action for Negligence is based on the duties that Defendants owed to Plaintiffs as seller and developer. The Fourth through Sixth Causes of Action are related to misrepresentations made by Defendants as part of the Residential Purchase Agreement. All of these causes of action would be arbitrable because the arbitration provision states that “any dispute or claim in Law or equity arising between them out of this Agreement or any resulting transaction.” (Comp., Ex. A, Section 22(B).) These causes of action all arise out of the Residential Purchase Agreement.

 

Based on the fact that Plaintiffs have alleged that Horizon and Farmer breached the Residential Purchase Agreement, all of the causes of action against them arise from the Agreement, and Plaintiffs has alleged that they are alter egos of RAF, then all three parties may move for arbitration based on the provision in the Residential Purchase Agreement.

 

­Other Defendants

Plaintiffs also argue in opposition that arbitration cannot be compelled because of the non-signatory exception to the arbitration statute.

 

“In California, [Civil Code] Section 1281.2(c) allows a court to refuse to enforce an agreement to arbitrate, if the court determines that, “[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.” (See Los Angeles Unified School Dist. v. Safety National Casualty Corp. (2017) 13 Cal.App.5th 471, 478-479.) A trial court “may deny a party’s contractual right to arbitration only when all of section 1281.2(c)’s conditions are satisfied.” (Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal.App.4th 959, 980.) “[T]he allegations of the parties’ pleadings may constitute substantial evidence sufficient to support a trial court’s finding that section 1281.2(c) applies. A party relying on section 1281.2(c) to oppose a motion to compel arbitration does not bear an evidentiary burden to establish a likelihood of success or make any other showing regarding the viability of the claims and issues that create the possibility of conflicting rulings. An evidentiary burden is unworkable under section 1281.2(c) because the question presented is whether a ‘possibility’ of conflicting rulings exists and a motion to compel arbitration is typically brought before the parties have conducted discovery.” (Id. at 972 (citations omitted).)

 

Plaintiffs argue that Defendants Bohmer and Bohmer Plumbing are third parties for purposes of Civ. Code § 1281.2(c). Plaintiffs further argue that the allegations against the Bohmer Defendants arise out of the same transaction or series of transactions as those against RAF, Horizon, and Farmer.

 

The negligence cause of action against the Bohmer Defendants is entirely related to the septic system: their certification of the septic system, their failure to find the problems with the septic system, and their failure to realize that the septic system needed replacing. (Comp., ¶¶ 66-69.) Plaintiffs are alleging that the Bohmer Defendants were negligent in their certification of the septic system. Plaintiffs allege that the Bohmer Defendants should have known, if they had conducted a diligent investigation, that the septic system was at the end of its useful life. (Comp., ¶ 24.)

 

The negligence cause of action against RAF, Horizon, and Farmer alleges that they were negligent for reasons related to all of the construction defects at the property, as well as the septic system defects. Plaintiffs’ complaint alleges that it was “reasonably foreseeable the Plaintiffs…would reply upon the septic system certification to their detriment.” (Comp., ¶ 51.) Plaintiffs are also alleging that RAF, Horizon, and Farmer represented that the septic system was new (Comp., ¶ 27), when it was actually over 20 years old (Comp., ¶ 22). Plaintiffs are primarily alleging that these Defendants made misrepresentations concerning the septic system, not that they were negligent.

 

The only cause of action against the Bohmer Defendants is the negligence cause of action. It has very little, if any, overlap with the negligence cause of action against RAF, Horizon, and Farmer. The two negligence causes of action are even listed in Plaintiffs’ complaint as two separate causes of action because Plaintiffs have alleged different facts for the two causes of action and because the causes of action are based on different theories of negligence. Plaintiffs have alleged that RAF, Horizon, and Farmer, were negligent at the seller and developer of the property. Plaintiffs have alleged that the Bohmer Defendants were negligent in their certification of the septic system and subsequent attempts to repair the system. Because the two negligence causes of action are so different, there is little chance of inconsistent rulings between the two.

 

Plaintiffs have also argued that Civ. Code § 1281.2(c) would apply because Plaintiffs’ neighbors have filed a suit against Plaintiffs related to the hillside failure. Plaintiffs argue that this separate action creates a possibility of inconsistent rulings. Defendants do not address this argument in their reply.

 

Based on the pleadings attached as Exhibits 5 and 6 to Plaintiffs’ opposition, the Court does not find that there would be significant overlap between that case and this case. The defendants in this case are not parties to that case. That case is between Plaintiffs and their neighbors. There appears to be little risk of inconsistent rulings at this time.

 

CONCLUSION

Based on the foregoing, Plaintiffs’ claims against RAF, Horizon, and Farmer are compelled to arbitration. The petition to compel arbitration is granted, and the action is stayed pending arbitration.

 

Moving party to give notice.