Judge: John J. Kralik, Case: 24BBCV00352, Date: 2024-05-17 Tentative Ruling

Case Number: 24BBCV00352    Hearing Date: May 17, 2024    Dept: NCB

Superior Court of California

County of Los Angeles

North Central District

Department B

BACKGROUND

A.    Allegations

            Plaintiffs San Jac Facilities LLC (“SJ Facilities”), Robertson Caregivers Beverlywood (“Robertson Caregivers”), and Cabot Re LLC (“Cabot”) (collectively, “Plaintiffs”) allege that Defendant Promise Energy, Inc. (“Promise Energy”) stole $500,000 in funds from Plaintiffs through a series of 3 fraudulently induced contracts and material misrepresentations regarding urgency to find the proposed projects in order to participate in the Inflation Reduction Act of 2022 tax credits and other incentives.  Plaintiffs allege that Promise Energy, through its Executive Vice President Defendant Patrick Castro (“Castro”), engaged in deceptive and fraudulent actions and made false material representations to induce 3 separate contracts (dated January 26, 2023) and obtain over $500,000 in payments for the design and installation of co-generation and chiller plant equipment.  Plaintiffs allege that Promise Energy and Castro falsely represented to Plaintiffs that they were licensed contractors and authorized/equipped to perform co-generation and chiller plant equipment design and installation services.  Plaintiffs allege that despite Promise Energy and Castro’s representations, Plaintiffs were never at risk of losing out on tax credits and other financial incentives by the Inflation Reduction Act of 2022 and they lied to create a false sense of urgency.  Plaintiffs allege that Promise Energy and Castro represented to Plaintiffs that each contract would be contingent upon Plaintiffs’ ability to obtain financing and that any money paid upfront would be refunded, but Promise Energy never intended to refund any money paid upfront.  Plaintiffs also allege that Promise Energy and Castro had no intention of performing the work because they were not properly licensed.

            Plaintiffs allege that Defendant Adam Boucher is the CEO of Promise Energy, Defendant Charlie Kuffner is an officer of Promise Energy, and Defendant Lisa Schieber is the controller/manager of Promise Energy.   Plaintiffs allege that Defendant Hudson Insurance Company (“Hudson”) underwrote and provided in their capacity as a surety, a Contractor’s License Bond No. 10070467 in the penal sum of $25,000 on the California State Contractor’s License of Promise Energy, and assumes the liability of Promise Energy.  Plaintiffs also allege that Defendant Platt River Insurance Company underwrote and provided in their capacity as a surety, a Qualifying Individual Bond, for Defendant Charlie Kuffner (No. 2713743) in the amount of $25,000 on the California State Contractor’s License of Promise Energy, and assumes the liability of Promise Energy and Kuffner.

The complaint, filed February 9, 2024, alleges causes of action for: (1) breach of contract; (2) actual fraud; (3) breach of the covenant of good faith and fair dealing; (4) disgorgement; (5) action on surety bond I; (6) action on surety bond II; (7) P.C. 496; and (8) violation of Business & Professions Code, § 17200. 

On March 21, 2024, Hudson Insurance Company filed a cross-complaint against SJ Facilities, Robertson Caregivers, Cabot, and Promise Energy for: (1) declaratory relief; and (2) interpleader.

B.     Motion on Calendar

On April 12, 2024, Defendants Promise Energy, Boucher, Kuffner, Schieber, Castro, and Platt filed a demurrer to the complaint.  In the alternative, Defendants request that if the Court does not sustain the demurrer without leave to amend and dismiss the case, then in the alternative, the Court should compel mediation and arbitration. 

On April 26, 2024, Plaintiffs filed a Notice of Errata re: Plaintiff’s Opposition to Defendant’s motion to compel mediation and arbitration.  On May 7, 2024, Plaintiffs filed an Opposition to the demurrer and supplemental opposition to the motion to compel mediation and arbitration. 

On May 10, 2024, Defendants filed a single reply brief to both oppositions.

DISCUSSION

            Defendants demur to the 1^st to 8^th causes of action in the complaint, arguing that each of the claims arise from the 3 agreements, which include mediation and arbitration provisions.  They argue that the causes of action are within the scope of the contractual provisions, including claims against nonsignatory Defendants, such that the complaint is subject to a demurrer.  Defendants have brought this request as a demurrer with an alternative request to compel mediation and arbitration.  Defendants cite to Schatz v. Allen Matkins Leck Gamble & Mallory LLP (2009) 45 Cal.4th 557, which states:

Either a demurrer or a motion for summary judgment offers an appropriate procedural vehicle, in addition to a motion to compel arbitration (id., § 1281.2), for pointing out to the court that the plaintiff has no right to sue because he or she has agreed to arbitrate. (Charles J. Rounds Co. v. Joint Council of Teamsters No. 42 (1971) 4 Cal.3d 888, 899, 95 Cal.Rptr. 53, 484 P.2d 1397.) Therefore, for a person who has agreed in writing to arbitrate a dispute, the right to “a trial” (§ 6204, subd. (a)) granted in the MFAA would appear to be subject to a demurrer or summary judgment motion designed to compel contractual arbitration.

(Schatz v. Allen Matkins Leck Gamble & Mallory LLP (2009) 45 Cal.4th 557, 572–573.) 

As the discussion regarding the demurrer and the request to compel arbitration are essentially intertwined, the Court will consider the requests together.  The Court will consider the merits of the motion to compel mediation and arbitration first as the demurrer may be moot if the motion to compel is granted. 

Defendants cite to the 3 agreements at issue, which are attached to the complaint as Exhibits A-C: (A) the agreement between SJ Facilities and Promise Energy, dated January 26, 2023; (B) the agreement between Robertson Caregivers and Promise Energy, dated January 26, 2023; and (C) the agreement between Cabot and Promise Energy, dated January 26, 2023.  Defendants state that though the signatory parties differ, the terms are identical. 

The dispute resolution terms in the agreements state:

ARTICLE 5 DISPUTE RESOLUTION

§ 5.1 BINDING DISPUTE RESOLUTION

For any claim subject to, but not resolved by, mediation pursuant to Section 21.3, the method of binding dispute resolution shall be as follows:

[ X ] Arbitration pursuant to Section 21.4 of this Agreement

(Compl., Ex. A, § 5.1; Ex. B, § 5.1, Ex. C, § 5.1.) 

            The mediation and arbitration terms in the agreements at Article 21 state in relevant part:

            ARTICLE 21 CLAIMS AND DISPUTES

§ 21.1 Claims, disputes and other matters in question arising out of or relating to this Contract, excluding those arising under Section 16.2, shall be referred initially to the Owner for decision. Such matters, except those waived as provided in Section 21.8 and Sections 15.5.3 and 15.5.4, shall, after initial decision by the Owner or 30 days after submission of the matter to the Owner, be subject to mediation as a condition precedent to binding dispute resolution.

§ 21.2 If a claim, dispute or other matter in question relates to or is the subject of a mechanic's lien, the party asserting such matter may proceed in accordance with applicable law to comply with the lien notice or filing deadlines.

§ 21.3 The parties shall endeavor to resolve their disputes by mediation which shall be administered by the American Arbitration Association in accordance with their Construction Industry Mediation Rules, Procedures & Protocol in effect on the date of the Agreement. A request for mediation shall be made in writing, delivered to the other party to this Agreement, and filed with the person or entity administrating the mediation. The request may be made concurrently with the binding resolution but, in such event, mediation shall proceed in advance of binding dispute resolution proceedings, which shall be stayed pending mediation for a period of 60 days from the data filing, unless stayed for a longer period by agreement of the parties or court order.

§ 21.4 Either party, at its sole discretion, may consolidate and arbitration conducted under this Agreement with any other arbitration to which it is a party provided that (1) the arbitration agreement governing the other arbitration permits consolidation; (2) the arbitrations to be consolidated substantially involve common questions of law or fact; and (3) the arbitrations employ materially similar procedural rules and methods for selecting arbitrator(s).

§ 21.5 Any party to an arbitration may include by joinder persons or entities substantially involved in a common question of law or fact whose presence is required if complete relief is to be accorded in arbitration provided that the party sought to be joined consents in writing to such joinder. Consent to arbitration involving an additional person or entity shall not constitute consent to arbitration of a Claim not described in the written Consent.

§ 21.6 The foregoing agreement to arbitrate and other agreements to arbitrate with an additional person or entity duly consented to by the parties to the Agreement shall be specifically enforceable under applicable law in any court having jurisdiction thereof.

§ 21.7 In case of a dispute, the prevailing party shall be reimbursed for all of their legal and claims related expenses by the party that did not prevail.

(Compl., Ex. A, Art. 21; Ex. B, Art. 21; Ex. C, Art. 21.)

Defendants argue that there exist valid agreements to arbitrate as the basis for this action are the 3 agreements that Plaintiffs have attached to their complaint.  Defendants argue that because Plaintiffs have sued for breach of contract, the agreements are presumed valid and enforceable, including the arbitration provisions.  In opposition, Plaintiffs argue that they did not ignore the mediation and arbitration provisions by filing the action in Court.  Plaintiffs argue that while they do not dispute that the subject agreements and their arbitration provisions exist, they contend that the dispute resolution provisions are void and cannot be enforced against Plaintiffs because they were fraudulently induced by Defendants’ misrepresentations.

In their opposition briefs, Plaintiffs cite to various cases for the proposition that parties alleging they were fraudulently induced to enter a contract may rescind a contract and undo the transaction in its entirety.  (See Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 234; Denevi v. LGCC, LLC (2004) 121 Cal.App.4th 1211, 1220.)  However, neither the Chapman case nor the Denevi case involved an arbitration provision, and neither dealt with the issue where the plaintiffs sued for breach of contract and yet claimed that they were fraudulently induced to enter the contract. 

While Plaintiffs argue that the agreements were entered by fraudulent inducement, they also argue that Defendants breached the agreements by failing to perform under the agreements by demanding and accepting up-front money for work they never performed, failing to provide design and installation services, and failing to perform the significant portions of the contract.  (See Compl., ¶¶29-37.)  Plaintiffs seek relief in the amount of $505,000 for breach of contract.  (Id., ¶38.)  Here, Plaintiffs rely on the agreements as the basis for the action against Defendants.  (See e.g., Davis v. Nissan North America, Inc. (2024) 100 Cal.App.5th 825, 834 [“Equitable estoppel precludes a party from asserting rights they otherwise would have had against another when their own conduct renders assertion of those rights inequitable.”], 837 [“Equitable estoppel would apply if the plaintiffs had sued [nonsignatory] [Nissan] based on the terms of the sale contract yet denied [Nissan] could enforce the arbitration clause in that contract.”].)  In other words, Plaintiffs cannot have it both ways—seeking to sue for breach of contract under the 3 agreements, yet denying that the agreements (including the dispute resolution provisions) are valid and enforceable. 

With respect to nonsignatories, the dispute resolution provision provides in section 21.5 that any party to the arbitration may include by joinder, persons or entities substantially involved in a common question of law or fact whose presence is required if complete relief is to be accorded and if they consent to the joinder.  Section 21.4 also provide that arbitrations may be consolidated where the arbitrations substantially involve common questions of law or fact.  Here, each of the Plaintiffs (SJ Facilities, Robertson Caregivers, and Cabot) are signatories to one of the three agreements at issue in this action and each provide the same provision that arbitration may be consolidated.  According to the allegations of the complaint, the three agreements were entered on January 26, 2023 based essentially on the same underlying facts.  (Compl., ¶23.)  With respect to Defendants, Promise Energy is the only signatory to the three agreements.  However, the demurrer/motion to compel arbitration is brought by Promise Energy, Boucher, Kuffner, Schieber, Castro, and Platt River Insurance Company, such that these Defendants have joined together and consented to submitting to arbitration.  The only Defendant that has not joined in this demurrer/motion to compel arbitration is Hudson Insurance Company.  (The only cause of action alleged against Hudson is the 5^th cause of action for action on the surety bond.) 

Based on the above, the Court grants Defendants’ alternative motion to compel mediation and arbitration.  The Court will order the complaint to be submitted to mediation and arbitration, but the action will be stayed regarding the claims against Hudson.  In light of the ruling on the motion to compel, the demurrer will be taken off-calendar. 

CONCLUSION AND ORDER

Defendants Promise Energy, Inc., Adam Boucher, Charlie Kuffner, Lisa Schieber, Patrick Castro, and Platt River Insurance Company filed a demurrer o the complaint with an alternative motion to compel mediation and arbitration.  The Court has considered the merits of the motion to compel mediation and arbitration first as the demurrer may be moot if the motion to compel is granted.  The Court grants the motion to compel mediation and arbitration, such that Plaintiffs’ claims in the complaint against Defendants Promise Energy, Inc., Adam Boucher, Charlie Kuffner, Lisa Schieber, Patrick Castro, and Platt River Insurance Company shall be subject to mediation and arbitration.  The remainder of the action against Defendant Hudson Insurance Company shall be stayed pending the resolution of the mediation and arbitration. 

In light of the ruling on the motion to compel mediation and arbitration, the demurrer is taken off-calendar.

The Court sets a Status Conference re Arbitration for November 27, 2024 at 8:30 a.m. 

Defendants shall provide notice of this order.

DATED:  May 17, 2024                                             ___________________________

                                                                              John Kralik

                                                                              Judge of the Superior Court