Judge: H. Jay Ford, III, Case: 23SMCV01221, Date: 2023-08-10 Tentative Ruling

Case Number: 23SMCV01221    Hearing Date: August 10, 2023    Dept: O

Case Name:  Ashdale Development LLC, et al. v. Mir Harwood Design, Inc., et al.

SUBJECT:                 MOTION TO COMPEL ARBITRATION

MOVING PARTY:   Plaintiffs Ashdale Development LLC and Glass Residential Group, Inc.

RESP. PARTY:         Defendants/X-Complainants Mir Hardwood Design, Inc. and Mark Chaplya

TENTATIVE RULING

            Plaintiffs Ashdale Development LLC and Glass Residential Group, Inc.’s Motion to Compel Arbitration is GRANTED as to Mir Hardwood and DENIED as to Chaplya.

I.  Plaintiff fails to establish the FAA applies       

            “[T]he United States Supreme Court has identified three categories of activity that Congress may regulate under the commerce power: (1) the channels of interstate commerce, (2) the instrumentalities of interstate commerce and persons or things in interstate commerce, and (3) those activities having a substantial relation to interstate commerce.  The party asserting FAA preemption bears the burden to present evidence establishing a contract with the arbitration provision affects one of these three categories of activity, and failure to do so renders the FAA inapplicable.”  Carbajal v. CWPSC, Inc. (2016) 245 Cal.App.4th 227, 238.

Plaintiff argues the FAA applies, because the subcontract involved interstate commerce, namely use of imported lumber from other states.  Plaintiff’s only evidence of this is the subcontract itself.  See Dec. of D. Davidson, Ex. 3.  Plaintiff fails to identify where in the subcontract parties agreed that the lumber used at the site would be from other states. 

II. CAA applies

            Plaintiff fails to establish that the FAA applies.  As such, the CAA applies to the contract, which was executed in California for construction of a home in Bel Air, CA. 

            “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). 

III.  The Subcontract properly incorporated all the terms of the Prime Contract, including Addendum #1, which contained a mandatory arbitration provision

            Attachment A to the Subcontract between Plaintiff Glass Residential Group and Defendant Mir Hardwood Design expressly incorporates the Prime Contract.  See Plaintiffs’ Compendium of Exhibits, Dec. of D, Davidson, Ex. 3.  The subcontract was executed on 4-27-21.  Id. at p. 2 of 21.  The subcontract expressly incorporates the Prime Contract and “all addenda issued prior to and all modifications issued after the execution of the Prime Contract and agreed upon by the Contractor and Subcontractor…All of the Contract Documents referenced in this Section 1.2, and each of them, form the Subcontract and are as fully a part of the Subcontract as if attached thereto or fully repeated therein.”  Id. at Ex. 3, Subcontract, Attachment A, General Terms and Conditions, §1.2. 

            Defendants argue there is no clear and unequivocal language incorporating Addendum #1 of the Prime Contract into the Subcontract.  The Court disagrees.  Section 1.2 of Attachment A to the Subcontract clearly and unequivocally incorporates the Prime Contract and all existing addenda, which includes Addendum #1, into the Subcontract.  Defendants also acknowledged that “all such Prime Contract documents [which includes the addenda] have been made available to it and confirms that it has examined all such documents prior to execution of the Subcontract.”  See Dec. of D. Davidson, Ex. 3, Attachment A, §1.2. 

The arbitration provision alleged in Plaintiff’s motion is included in Addendum #1 to the Prime Contract.  See Dec. of D. Davidson, Ex. 2, Addendum #1.  Addendum #1 was executed on 9-20-20, before the Subcontract.  Id.  Thus, Addendum #1 of the Prime Contract was incorporated by reference into the subcontract. 

IV.  Plaintiffs satisfied the mediation precondition to arbitration under §15.4 of the Prime Contract

            Under §15.4 of Addendum #1 to the Prime Contract, the parties may only submit their dispute to final and binding arbitration to AAA, JAMS, or its successor after submitting the matter to mediation and mediation does not resolve the matter.  See Plaintiffs’ Compendium of Exhibits, Dec. of D. Davidson, Ex. 2, Addendum #1, §15.4.  Plaintiffs complied with the mediation requirement when they sent a letter demanding Defendants’ participation in mediation.  Id. at Ex. 4.  Plaintiff filed a formal demand with AAA on 2-27-23, which was also sent to Defendants.  See Exhibit 5.  On 3-10-23, AAA responded that Defendants were not cooperating or agreeing to mediation.  Id. at Ex. 6.  Plaintiffs therefore satisfied the requirement that they attempt mediation before seeking arbitration. 

            In response, Defendants admit they ignored Plaintiffs’ request for mediation in March 2023.  See Opposition, Dec. of J. Orland, ¶5.  Current defense counsel did not receive the file for this action until April 2023.  Id. at ¶4.  Defendants now seek to mediate the dispute, given that the insurer has now assumed defense of the matter.  Id. at ¶7.

            Defendants change of heart at this time does not change the fact that Plaintiffs properly sought mediation as required prior to filing this motion to compel arbitration.  Defendants chose to ignore the mediation demand.  If Plaintiffs would like to engage in mediation they may, but the Court will not impose any additional attempts to mediate the dispute as a precondition of arbitration.

IV.  Chaplya is subject to the arbitration provision as the alleged alter ego and agent of Mir Hardwood

            Defendant Mark Chaplya signed the Subcontract on behalf of Mir Hardwood.  See Plaintiffs’ Compendium of Exhibits, Dec. of D, Davidson, Ex. 3.  Plaintiffs are suing Chaplya on grounds that Mir is merely his alter ego and as agent of Mir Hardwood.  See Complaint, ¶¶7, 41.  Plaintiff fails to cite any authority applying a mandatory arbitration provision to a corporate officer who only signed the arbitration agreement in his corporate capacity.  The cases cited (Izzi v. Mesquite Country Club (1986) 186 Cal. App. 3d 1309, 1319 and Rowe v. Exline (2007) 153 Cal.App.4th 1276, 1286–1290) do not involve a plaintiff signatory attempting to compel a nonsignatory defendant to arbitrate pursuant to an arbitration provision signed by that nonsignatory solely in a corporate capacity. 

Rowe involved a nonsignatory defendant attempting to compel a plaintiff to arbitration.  The Court found that the plaintiff was equitably estopped from opposing arbitration based on the plaintiff’s allegations of alter ego against the nonsignatory defendant.  See Rowe, supra, 153 Cal.App.4^th at 1284.  Likewise, Izzi involved a motion to compel arbitration by defendants, including nonsignatory defendants, who had been sued as employees and agents of the signatory defendants.   See Izzi, supra, 186 Cal.App.3d at 1315, 1319.  In Izzi, it was the plaintiff who was attempting to avoid arbitration demanded by nonsignatory defendants who had been sued personally. 

Here, signatory Plaintiffs are seeking to compel nonsignatory Chaplya to arbitrate Plaintiffs’ claims against him, even though Chaplya admittedly only signed the agreement in his representative capacity.  “The fact that a nonsignatory to a contract may in some circumstances be viewed as a third-party beneficiary or an agent who is entitled to compel arbitration is legally irrelevant where, as here, [defendant] is not the one who wants to be bound by the arbitration provision in a contract that he signed only in a representative capacity.”  Benasra v. Marciano (2001) 92 Cal.App.4^th 987, 991.  The fact that Plaintiffs chose to sue Chaplya as an alter ego does not establish that he is in fact Mir Hardwood’s alter ego.  Plaintiffs therefore fail to establish the existence of an enforceable arbitration agreement with Chaplya in his individual capacity.

V.  Motion to Compel Arbitration GRANTED as to MIR Hardwood and DENIED as to Chaplya

            Plaintiff establishes the existence of an enforceable arbitration agreement with Defendant MIR Hardwood based on the Subcontract and the Prime Contract, including Addendum #1.  See Plaintiff’s Compendium of Exhibits, Exs. 1-3.  Defendant MIR Hardwood fails to establish any defense to the arbitration agreement.  Plaintiff has satisfied the mediation precondition to arbitration, and the Court finds Addendum #1 was adequately incorporated by reference into the Subcontract and reviewed and signed by MIR Hardwood. 

However, Plaintiff fails to establish the existence of an enforceable arbitration agreement with Defendant Chaplya.  Chaplya only signed in his corporate capacity, not his personal capacity.  See Plaintiff’s Compendium of Exhibits, Ex. 3.  “Directors and officers are not personally liable on contracts signed by them for and on behalf of the corporation unless they purport to bind themselves individually.”  Michaelis v. Benavides (1998) 61 Cal.App.4^th 681, 684. 

The motion to compel arbitration is GRANTED as to Defendant MIR and DENEID as to Defendant Chaplya.