Judge: Latrice A. G. Byrdsong, Case: 23STLC03476, Date: 2023-10-31 Tentative Ruling
Case Number: 23STLC03476 Hearing Date: October 31, 2023 Dept: 25
Hearing Date: Tuesday, October 31, 2023
Case Name: NYC
CONSTRUCTION, INC. dba TEAMWORK REMODELING GROUP, a corporation v. ALUMACOVERS
OF CALIFORNIA, INC, a corporation; and DOES 1-10
Case No.: 23STLC03476
Motion: Motion to Compel Arbitration of
Complaint and Stay of Proceedings
Moving Party: Defendant
Alumacovers of California, Inc.
Responding Party: Plaintiff
NYC Construction, Inc. dba Teamwork Remodeling Group.
Notice: OK
Tentative Ruling: Defendant Alumacovers of California,
Inc.’s Motion to Compel Arbitration of Complaint is GRANTED.
The action is
STAYED pending arbitration.
BACKGROUND
On May 30, 2023, Plaintiff NYC
Constructions, Inc. dba Teamwork Remodeling Group (“Plaintiff”) filed an action
against Defendant Alumacovers of California, Inc. (“Defendant”) for (1) breach
of contract, (2) California Commercial Code § 2201, (3) Business and
Professions Code § 17538(D), (4) Business and Professions Code § 7159, and (5)
unjust enrichment.
On June 30, 2023, Defendant filed
the instant Motion to Compel Arbitration of Complaint and Stay Proceedings
(“Motion”). Plaintiff filed an Opposition on July 10, 2023, and Defendant filed
a Reply on August 21, 2023.
On September 11, 2023, Plaintiff
filed a First Amended Complaint (“FAC”), adding a cause of action for statutory
fraud. The FAC alleges that the parties entered into a contract for the
construction of a patio cover on August 18, 2022, and Plaintiff made an initial
payment of $8,845. It is further alleged that Plaintiff cancelled the contract
because no work had been completed except for obtaining the permit. The FAC
claims that Plaintiff is being improperly charged a 25% restocking fee and
seeks a refund of the payment made less the cost of the permit.
On September 21, 2023, the Court,
with Hon. Thomas J. Griego presiding, found that the notice of motion was
defective because it did not identify the correct courthouse, and the Court
continued the matter to correct this defect.
See September 21, 2023 Minute Order pp. 2-3. On the same day, Defendant filed an amended
notice of motion, specifying the correct courthouse and the continued hearing
date.
MOVING PARTY
POSITION
Defendant asserts
that the parties entered into contract wherein Defendant agreed to build a
custom patio cover for Plaintiff. Within the contract, there contained an
arbitration agreement, and it specified that any controversy or claim arising
from the contract would be settled by arbitration agreement. Defendant argues
that it has met its initial burden of proving the existence of an arbitration.
Defendant further argues that there is no grounds to invalidate the arbitration
agreement because Defendant has not waived its right to compel arbitration and
the agreement is not illegal or unconscionable. Any other ground for revocation
pursuant to Code of Civil Procedure § 1281.2 is inapplicable.
OPPOSITION
Plaintiff
argues that the arbitration provision was fraudulently included because it
never acknowledged or initialed the provision. Furthermore, Plaintiff asserts that the
arbitration provision is unconscionable because it is an adhesion contract and
supplants the discovery process. Thus, because the arbitration provision is the
product of fraud, the Court should deny the motion.
REPLY
In reply,
Defendant argues that Plaintiff’s claim of fraudulent inducement is
categorically false. First, despite Plaintiff’s declaration, the contract was
not electronically executed. Second, the contract specifically references that
terms and conditions are set forth on the reverse side and incorporated into
the contract. Third, Plaintiff has previously signed a contract with Defendant
on a separate project, and it contained the same terms. Fourth, there is no
evidence to show that arbitration provision was fraudulently inserted into the
contract. It is immaterial that Plaintiff did not initial or acknowledge the
terms and conditions on the reverse side of the contract because they were
incorporated by reference.
ANALYSIS
I. Motion
to Compel Arbitration
A. Legal Standard
Under California and federal law, public policy favors
arbitration as an efficient and less expensive means of resolving private
disputes. Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 8-9; AT&T
Mobility LLC v. Concepcion (2011) 563 U.S. 333, 339. Accordingly, whether an agreement is governed
by the California Arbitration Act (“CAA”) or the Federal Arbitration Act
(“FAA”), courts resolve doubts about an arbitration agreement’s scope in favor
of arbitration. Moncharsh,
supra at 9; Comedy Club,
Inc. v. Improv West Assocs. (9th Cir. 2009) 553 F.3d 1277, 1284; see
also Engalla v. Permanente Med.
Grp., Inc. (1997) 15 Cal.4th 951, 971-972 (“California law
incorporates many of the basic policy objectives contained in the Federal
Arbitration Act, including a presumption in favor of arbitrability [citation]
and a requirement that an arbitration agreement must be enforced on the basis
of state law standards that apply to contracts in general [citation]”]). “[U]nder both the FAA and California law,
‘arbitration agreements are valid, irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the revocation of any contract.’ ” Higgins
v. Sup. Ct. (2006) 140
Cal.App.4th 1238, 1247.
“Code of Civil Procedure section
1281.2 requires a trial court to grant a petition to compel arbitration ‘if the
court determines that an agreement to arbitrate the controversy exists.’” Avery
v. Integrated Healthcare Holdings, Inc. (2013) 218 Cal.App.4th 50,
59, quoting Code Civ. Proc., § 1281.2. Accordingly, “when presented with a petition
to compel arbitration, the court’s first task is to determine whether the
parties have in fact agreed to arbitrate the dispute.” Ibid. A petition to compel arbitration is in essence
a suit in equity to compel specific performance of a contract. Id.
at 71. As with any other specific
performance claim, “a party seeking to enforce an arbitration agreement must
show the agreement’s terms are sufficiently definite to enable the court to
know what it is to enforce.” Ibid. (internal citations omitted).
“Only the valid and binding agreement of
the parties, including all material terms well-defined and clearly expressed,
may be ordered specifically performed.” Ibid. An arbitration agreement
“must be so interpreted as to give effect to the mutual intention of the
parties as it existed at the time of contracting, so far as the same is
ascertainable and lawful.” Civ. Code, §
1636. The language of the contract
governs its interpretation if it is clear and explicit. Civ. Code, § 1368. If uncertainty exists, “the language of a
contract should be interpreted most strongly against the party who caused the
uncertainty to exist.” Civ. Code, §
1654.
The party seeking to compel
arbitration bears the burden of proving the existence of a valid arbitration
agreement by the preponderance of the evidence. Engalla
v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972. It would then be plaintiff’s burden, in
opposing the motion, to prove by a preponderance of the evidence any fact
necessary to her opposition. (See Ibid.)
“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.” Ibid.
B. Existence of a Valid Arbitration
Agreement
As with any contract, mutual assent
or consent is necessary for the formation of a valid arbitration
agreement. Civ. Code, §§ 1550, 1565. “Consent is not mutual, unless the parties
all agree upon the same thing in the same sense.” Civ. Code, § 1580. The moving party bears the initial burden of
showing the existence of an agreement to arbitrate by a preponderance of the
evidence. Mitri v. Arnel Mgmt. Co. (2007) 157 Cal.App.4th 1164, 1169 (“Because
the existence of the agreement is a statutory prerequisite to granting the
petition, the petitioner bears the burden of proving its existence by a
preponderance of the evidence.”).
Here, Defendant has met its initial
burden of showing that a signed agreement containing an arbitration provision
exists between the parties. In support of its motion, Defendant presents the
Declaration of William Redmon, who is Defendant’s CEO, and he attests that the
written contract between the parties was prepared by his staff on a form that
has been used for 10 years since the company had been formed. See Redmond Decl. ¶ 2, Exh. A. On the reverse side of the contract, there is
an arbitration provision that states:
XIX. Arbitration: Any
controversy or Claim arising out of or relating to this contract or contract
warranty or the breach thereof which cannot be resolved by mediations shall be
settled by arbitration administered by the American Arbitration Association
under the Construction industry Arbitration Rules, and judgment on the award
rendered by the arbitrator(s) may be entered in any court having jurisdiction
thereof. Nothing in this contract shall prevent application of the Federal
Arbitration Act for resolving disputes that arise under this agreement.
Anything in this contract notwithstanding, any Claim arising out of or relating
to the Contract Documents or warranty or the breach thereof may, at the option
of Claimant, be filed in any Small Claims Court having jurisdiction, in lieu of
an arbitration proceeding.
Id. at pg. 2, § XIX.
In
opposition, Plaintiff does not deny signing the contract, but instead, it
argues that the arbitration provision was fraudulently included into
contract. See Opposition at pg. 2,
relying on Strotz v. Dean Witter Reynolds, Inc. (1990) 223 Cal. App. 3d
211 and Leon v. Pinnacle Prop. Mgmt. Servs. (2021) 72 Cal.App.5th 476,
287. Plaintiff further asserts that it
did not acknowledge or initial the arbitration provision. Ibid.; see also Goldshmid Decl.
¶ 3.
However, this argument is
unpersuasive, and Plaintiff’s reliance on Strotz and Leon are
distinguishable from the present case. In
Strotz, the Court of Appeals affirmed the trial court’s decision in
denying the defendants’ motion to compel arbitration because the plaintiff
alleged sufficient facts to support that defendants had deceived plaintiff as
to the nature and effect of the documents she was signing. See Strotz, supra, 223
Cal.App.3d at 210, 218-220. Because
fraud was alleged at the contracts’ inceptions, it was determined that the
issue of fraud was properly placed before the trial court. Id. at 218. Such is not the case here.
The elements of fraud are: “(a)
misrepresentation (false representation, concealment, or nondisclosure); (b)
knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce
reliance; (d) justifiable reliance; and (e) resulting damage.” Charnay v. Cobert (2006) 145
Cal.App.4th 170, 184. In California,
fraud must be pled with specificity. See Small v. Fritz Companies,
Inc. (2003) 30 Cal.4th 167, 184. “The particularity demands that a plaintiff
plead facts which show how, when, where, to whom, and by what means the
representations were tendered.” Cansino
v. Bank of America (2014) 224 Cal.App.4th 1462, 1469. As alleged in the FAC, Plaintiff states that
the restocking fee and arbitration provision were obtained by fraud because
Defendant intentionally misrepresented that no additional clauses would be
included in the subject contract. See
FAC at ¶¶ 22, 47-49. It is further
alleged that the misrepresentation was made to induce Plaintiff to sign the
agreement; otherwise, Plaintiff would not have done so. Id. at ¶¶ 50, 52. These
allegations are insufficient because it fails to allege who made this purported
misrepresentation, when it was made, and by what means. Notably, Plaintiff
failed to attach the contract in either the FAC or its opposition to
corroborate the claim that the contract consisted of only one-side. Thus, the
issue of fraud has not been sufficiently alleged for the Court.
Even if the issue of fraud was
properly before the Court, Plaintiff has failed to present sufficient evidence
to show that Plaintiff had been fraudulently induced to sign a contract that
contained unauthorized terms. For
instance, in Strotz, the plaintiff had alleged that the defendants, who
managed her investments, misrepresented the nature of the contracts and did not
allow her to read the contracts before signing them. Strotz, supra,
223 Cal.App.3d at 211. In this case,
Plaintiff fails to allege or present any evidence to suggest that Defendant
prevented Plaintiff from reading the contract.
Instead, Defendant has present extensive evidence to show that Plaintiff
took the contract and returned it electronically after executing it. See Motion, Redmond Decl. ¶ 3. Defendants also submit evidence to show that
Plaintiff retained Defendant on two instances.
Each time, the same contract was used, and their contents were explained
to Plaintiff. See Reply, Acuna
Decl. ¶¶ 3-6; Jimenez Decl. ¶¶ 3-5, 6.
Thus, Plaintiff’s assertion that the arbitration provision was
fraudulently inserted into the contract is untenable. Ultimately, Plaintiff is responsible for reading a contract
before signing it. (Brookwood v. Bank of America (1996) 45 Cal. App. 4th
1667, 1674 [“Reasonable diligence requires the reading of a contract before
signing it. A party cannot use his own lack of diligence to avoid an
arbitration agreement.”]) Unlike Strotz,
there is no showing that a fiduciary relationship existed between the parties
that would have excused Plaintiff’s lack of diligence. See Strotz, supra, 223
Cal.App.3d at 219.
Moreover, it is immaterial that Plaintiff did not
acknowledge or initial the terms on the reverse-side of the contract. See Goldshmid Decl. ¶¶ 2-3. As stated on the front-side of the contract
near the signature lines, “It is expressly understood und agreed that the terms
and conditions set forth on the reverse side of this document are incorporated
herein by this reference thereto.” See
Motion, Exh. A. Because Plaintiff signed
the contract, it is bound by the contracts’ terms and conditions, which includes
an obligation to submit its claims into arbitration.
Accordingly, an arbitration
agreement exists between the parties that encompasses the claims asserted in
the FAC.
C. Unconscionability
The
doctrine of unconscionability refers to “an absence of meaningful choice on the
part of one of the parties together with contract terms which are unreasonably
favorable to the other party.” Sonic-Calabasas
A, Inc. v. Moreno (2013) 57 Cal.4th 1109, 1133. It consists of procedural and substantive
components, “the former focusing on oppression or surprise due to unequal
bargaining power, the latter on overly harsh or one-sided results.” Ibid.
Although both components of
unconscionability must be present to invalidate an arbitration agreement, they
need not be present in the same degree. Armendariz v. Found Health Psychcare Servs.,
Inc. (2000) 24 Cal.4th 83, 114. “Essentially a sliding scale is invoked which
disregards the regularity of the procedural process of the contract formation,
that creates the terms, in proportion to the greater harshness or
unreasonableness of the substantive terms themselves. [Citations.] In other
words, the more substantively unconscionable the contract term, the less evidence
of procedural unconscionability is required to come to the conclusion that the
term is unenforceable, and vice versa.” Ibid. “The party resisting arbitration bears the
burden of proving unconscionability.” Pinnacle Museum Tower Assn. v. Pinnacle
Market Dev. (US), LLC (2012) 55 Cal.4th 223, 247.
Next, Plaintiff briefly argues that
the arbitration provision is unconscionable because it is an adhesion contract
and improperly limits the scope of discovery.
See Opposition at pp. 2-3, relying on Leon v. Pinnacle Prop.
Mgmt. Servs. (2021) 72 Cal.App.5th 476.
These arguments are unavailing. The
mere fact an adhesion contract is involved does not per se render the
arbitration provision unenforceable because such contracts are “an
inevitable fact of life for all citizens—businessman and consumer alike.” Graham v. Scissor-Tail, Inc.¿(1981) 28
Cal.3d 807, 817. Thus, there is only a
small degree of procedural unconscionability present within the arbitration
provision. In terms of the scope of
discovery, it is noted that the arbitration provision selects the American
Arbitration Association (“AAA”) to administer the arbitration. See Motion, Exh. A at pg. 2, §
XIX. AAA’s procedures and rules have
been found to be presumptively valid and abide by the Armendariz
requirements. (See Lucas v. Gund, Inc. (C.D. Cal. 2006) 450 F.Supp.2d
1125, 1132-1134.)
Therefore, Plaintiff has failed to
meet its burden in showing that the arbitration provision is unconscionable.
III. Conclusion
Based on the foregoing, Defendant’s Motion to Compel
Arbitration is GRANTED.
The entire action is STAYED pending the completion of
the arbitration pursuant to Code of Civil Procedure § 1281.4.
(setting of date for Status of Arbitration Proceedings will be discussed at hearing.)
Moving Party is ordered to give notice.