Judge: H. Jay Ford, III, Case: 20SMCV01114, Date: 2022-09-16 Tentative Ruling

Case Number: 20SMCV01114    Hearing Date: September 16, 2022    Dept: O

Case Name:  CAS-Concrete Asphalt Specialists, Inc. v. Shoreham Towers Homeowner’s Association, et al.

SUBJECT:                MOTION TO COMPEL ARBITRATION

MOVING PARTY:   Plaintiff CAS-Concrete Asphalt Specialists, Inc.

RESP. PARTY:         Defendant Ballentine Architects Studio

TENTATIVE RULING

            Plaintiff CAS-Concrete Asphalt Specialists, Inc.’s Motion to Compel Arbitration is DENIED.

I.  Applicable Law

            “On 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, unless it determines that:

(a) The right to compel arbitration has been waived by the petitioner; or (b) Grounds exist for rescission 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.”  CCP §1281.2.

            “The trial court may resolve motions to compel arbitration in summary proceedings, in which 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.  The party seeking arbitration bears the burden of proving the existence of a valid arbitration agreement by a preponderance of the evidence, and the party opposing arbitration bears the burden of proving any defense, such as unconscionability by a preponderance of the evidence.”  Mendoza v. Trans Valley Transport (2022) 75 Cal.App.5th 748, 718 (trial court properly decided plaintiff’s challenge to arbitration agreement despite delegation clause where plaintiff attacked contract formation and very existence of agreement to arbitrate). 

II.  Concrete Asphalt fails to establish the existence of an enforceable arbitration agreement with Ballentine

            Concrete Asphalt concedes it does not have any contract with Ballentine, the architect on the project.  Concrete Asphalt moves to enforce the arbitration provision contained in its Construction Services Agreement with Shoreham HOA.  See Dec. of J. Hawatmeh, Ex. A, ¶19. 

Ballentine is a nonsignatory to the Construction Services Agreement.  Concrete Asphalt argues Ballentien may be compelled to arbitrate as a nonsignatory based on (1) agency status; (2) third party beneficiary status; and (3) equitable estoppel.

            A.  Agency status

            “Even the strong public policy in favor of arbitration does not extend to those who are not parties to an arbitration agreement or who have not authorized anyone to act for them in executing such an agreement…Therefore, subject to limited exceptions, only parties to an arbitration contract may enforce it or be required to arbitrate.  [¶]  Exceptions in which an arbitration agreement may be enforced by or against nonsignatories include where a nonsignatory is a third party beneficiary of the agreement and 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.”  Nguyen v. Tran (2007) 157 Cal.App.4th 1032, 1036–1037.  

“A nonsignatory who is the agent of a signatory can even be compelled to arbitrate claims against his will.”  Rowe v. Exline (2007) 153 Cal.App.4th 1276, 1285.  “A nonsignatory to an agreement to arbitrate may be required to arbitrate, and may invoke arbitration against a party, if a preexisting confidential relationship, such as an agency relationship between the nonsignatory and one of the parties to the arbitration agreement, makes it equitable to impose the duty to arbitrate upon the nonsignatory.”  Westra v. Marcus & Millichap Real Estate Investment Brokerage Co., Inc. (2005) 129 Cal.App.4th 759, 765. 

            “Not every agency relationship, however, will bind a nonsignatory to an arbitration agreement.  Every California case finding nonsignatories to be bound to arbitrate is based on facts that demonstrate, in one way or another, the signatory's implicit authority to act on behalf of the nonsignatory.  Courts also have stated that the agency relationship between the nonsignatory and the signatory must make it equitable to compel the nonsignatory to arbitrate.

[¶]  But equity, without more, is not enough.  Courts must also ask who is seeking to bind whom, and on what basis.  The question of whether a principal's acts bind an agent is fundamentally different from the question of whether an agent's acts bind a principal.  Courts look to traditional principles of contract and agency law to determine whether a nonsignatory is bound by an arbitration agreement signed by its principal or agent.”  Cohen v. TNP 2008 Participating Notes Program, LLC (2019) 31 Cal.App.5th 840, 859–860 (parent company bound by arbitration agreement signed by subsidiary entity and investors where it had sufficient control over subsidiary entity such that subsidiary entity was mere agent of parent company). 

            “An agency relationship between an employer or company (the principal) and its individual employee or officer (the agent) does not normally bind the individual to an arbitration agreement entered into by the employer or company.  Persons are not normally bound by an agreement entered into by a corporation in which they have an interest or are employees.”  Id at 860-861 (corporate officer or agent could not be compelled to arbitrate as a nonsignatory based on arbitration agreement he signed on behalf of corporate entity in his representative capacity; exception based on employee personally benefitting from the agreement did not apply).

            Plaintiff argues Ballentine, a nonsignatory to the Construction Services Agreement, was the agent of Shoreham HOA, a signatory.  Plaintiff argues that the existence of this agency relationship is sufficient.  Plaintiff is incorrect.  See Cohen, supra, 31 Cal.App.5^th at 859–860; Jensen v. U-Haul Co. of California (2017) 18 Cal.App.5^th 295, 304-305 (rejecting position that “agency relationship alone gives the signatory the authority to bind the nonsignatory” and finding such position “fundamentally incompatible with the general rule that persons are not normally bound by an agreement entered into by a corporation in which they have an interest or are employees”). 

            In addition to demonstrating an agency relationship between the HOA and Ballentine, Plaintiff was required to identify facts and evidence that would support a finding that the HOA had implicit authority to agree to arbitration on Ballentine’s behalf.  Plaintiff fails to identify any such facts or evidence.

            Ballentine served as the architect on the project.  Under the Construction Services Agreement, the Scope of Work provided by Concrete Asphalt was to “supply, install, and construct all of the improvements which are specified in the Proposal dated March 19, 2019 a copy of which is attached to this Agreement as Exhibit A, which in turn is based on the Plans and Specifications prepared by Vallentine Architects Studio, Inc.”  See Dec. of J. Hawatmeh, Ex. A, ¶2. 

Ballentine prepared the plans and specifications for the HOA, which the HOA then used in its Proposal.  This alone does not support a finding of agency.  When Ballentine prepared the Plans and Specifications, it was not representing the HOA in dealings with third persons.  CC §2295 (agent “is one who represents another, called the principal, in dealings with third persons”).  Ballentine merely provided a “product” that HOA incorporated into its Proposal, which Concrete Asphalt was ultimately contractually obligated to follow. 

Plaintiff argues Ballentine held itself out as the HOA’s agent based on paragraph 15(e) of the Construction Agreement, which states, “Vallentine Architects Studios Inc. will obtain and provide all permits for the work performed under this Agreement which are required by any governmental entity.  Copies of the permit will be given to the Association upon request.”  At best, this establishes that Ballentine was the HOA’s agent in dealings with governmental entities responsible for permitting.  ¶15(e) does not establish that Ballentine ever dealt with Concrete Asphalt as agent of the HOA. 

Moreover, Ballentine had its own separate agreement with the HOA for architectural services, which does not contain an arbitration provision.  See Dec. of J. Hawatmeh, Ex. B.  Ballentine also did not personally benefit from the Construction Agreement between the HOA and Concrete Asphalt.  T

None of these facts support a finding of the HOA’s implicit authority to waive Ballentine’s right to jury trial and to file civil suit.  For example, implicit authority of a signatory principal to bind a nonsignatory agent to an arbitration agreement has been found in the relationship between a doctor and a medical group.  See Jensen, supra, 18 Cal.App.5^th at 304 (implied authority of medical group to bind employee doctor to arbitration agreement “discernible” because primary purpose of medical group is to provide medical services to patients and to provide patients to the doctor, so doctor is reasonably bound to contracts between medical group and patients or health plans); County of Contra Costa v. Kaiser Foundation Health Plan, Inc. (1996) 47 Cal.App.4^th 237, 242-243 (recognizing courts enforce arbitration agreements against nonsignatories with regularity and identifying preexisting relationship between nonsignatory and one of signatories as common factor, such as nonsignatory spouse bound by arbitration agreement signed by signatory spouse, minors bound by parents’ arbitration agreement, nonsignatory adult heirs of a group health plan member bound by member’s arbitration agreement for purposes of wrongful death claim).  An independent contractor who provides plans and specifications directly to a hirer and obtains necessary governmental permits on the hirer’s behalf would not reasonably expect such acts to imbue the hirer with implicit authority to contract away its right to a jury trial or bind him to private arbitration as to third parties. 

Plaintiff also relies on case law in which a nonsignatory defendant-agent sought to enforce the arbitration provision against a signatory plaintiff-principal.  See Westra v. Marcus & Mllichap Real Estate Investment Brokerage Co., Inc. (2005) 129 Cal.App.4^th 759, 763 (nonsignatory broker-agent could compel signatory buyer-principals to arbitrate their claims against him); Nguyen v, Tran (2007) 157 Cal.App,.4^th 1032, 1036-1037 (nonsignatory cooperating brokers could compel signatory purchasers and buyers to arbitrate their claims against them).  Such authority is inapposite, as Plaintiff is a signatory seeking to enforce the arbitration agreement against a non-signatory agent.  “Courts must also ask who is seeking to bind whom, and on what basis.  The question of whether a principal's acts bind an agent is fundamentally different from the question of whether an agent's acts bind a principal.”  Id. at 859–860.

Plaintiff fails to establish that the arbitration agreement can be enforced against nonsignatory Ballentine based on agency.  The petition to compel on this ground is denied.

            B.  Third party beneficiary status

            A nonsignatory can be compelled to arbitrate if it was a third party beneficiary of the agreement.  See Nguyen, supra, 157 Cal.App.4^th at 1036.  “In some cases, a nonsignatory was required to arbitrate a claim because a benefit was conferred on the nonsignatory as a result of the contract, making the nonsignatory a third party beneficiary of the arbitration agreement.”  County of Contra Costa v. Kaiser Foundation Health Plan, Inc. (1996) 47 Cal.App.4^th 237, 242. 

            Third parties do not become “third party beneficiaries” just because a contract benefits them. A contract must be “made expressly” for the third party's benefit. The test is “whether an intent to benefit a third person appears from the terms of the contract.”  Jensen, supra, 18 Cal.App.5th at 301-302,; see also Pillar Project AG v. Payward Ventures, Inc. (2021) 64 Cal.App.5th 671, 279 Cal.Rptr.3d 117, 120, 123 (plaintiff was not third party beneficiary to arbitration agreement between “cryptocurrency exchange” platform and intermediary plaintiff hired to convert his cryptocurrency into conventional currency).

            Plaintiff fails to identify any language in the Construction Services Agreement, or any other circumstances, suggesting that the Construction Services Agreement was made for the benefit of Ballentine.  The purpose of the Construction Services Agreement was to obtain Concrete Asphalt’s construction services for the HOA’s work of improvement in exchange for payment. 

            Plaintiff fails to establish that Ballentine was a third party beneficiary of the Construction Services Agreement and the arbitration agreement contained therein.  Plaintiff’s motion to compel arbitration based on third party beneficiary is denied. 

            C.  Equitable Estoppel

            “The doctrine of equitable estoppel applies to a signatory plaintiff who uses a non-signatory defendant’s right to enforce an arbitration clause that is contained within the contract that the plaintiff has placed at issue.”  Jenks v. DLA Piper Rudnick Gray Cary US LLP (2015) 243 Cal.App.4^th 1, 8-9.  “[A] nonsignatory may enforce an arbitration agreement under the doctrine of equitable estoppel.  The doctrine applies where, for example, a signatory plaintiff sues a nonsignatory defendant for claims that are based on an underlying contract. In such instance, the plaintiff may be equitably estopped to deny the nonsignatory defendant's right to enforce an arbitration clause that is contained within the contract that the plaintiff has placed at issue.”  Marenco v. DirecTV LLC (2015) 233 Cal.App.4th 1409, 1417.

“A nonsignatory plaintiff may be estopped from refusing to arbitrate when he or she asserts claims that are dependent upon, or inextricably intertwined with” the underlying contractual obligations of the agreement containing the arbitration clause.  The fundamental point is that a party is not entitled to make use of a contract containing an arbitration clause as long as it worked to his or her advantage, then attempt to avoid its application in defining the forum in which his or her dispute should be resolved.”  Jensen v. U-Haul Co. of California (2017) 18 Cal.App.5th 295, 306. 

            Plaintiff’s authority involves a nonsignatory defendant seeking to compel arbitration of a signatory plaintiffs’ claims against it.  Here, Plaintiff, a signatory, is seeking to enforce the arbitration agreement against a Ballentine, a nonsignatory.  Plaintiff fails to identify any action of Ballentine’s that would equitably estop it from objecting to arbitration under the Construction Services Agreement. 

In cases of a nonsignatory defendant seeking to compel a signatory plaintiff, the plaintiff is affirmatively suing on the agreement containing the arbitration provision and the plaintiff is a signatory.  It would be inequitable to allow the plaintiff under such circumstances to stand on the agreement to sue a nonsignatory defendant, but also allow plaintiff to defend against a request to arbitrate under that same agreement. 

Here, Ballentine has not sued on the Construction Services Agreement.  Ballentine has not sought to enforce any obligations or benefits under the Construction Services Agreement.  Ballentine has not acted inconsistently with its opposition to Concrete Asphalt’s motion to compel arbitration as a nonsignatory. 

III.  Motion to Compel is DENIED--No arbitration agreement applies to Plaintiff’s claims against Ballentine

            Plaintiff’s Motion to Compel Arbitration of Claims against Ballentine is DENIED.  Plaintiff did not enter into any arbitration agreement with Ballentine, nor can Ballentine be compelled to arbitrate based on the doctrines of third party beneficiary, agency or equitable estoppel.