Judge: Mark H. Epstein, Case: 25SMCV00782, Date: 2025-06-10 Tentative Ruling

Case Number: 25SMCV00782    Hearing Date: June 10, 2025    Dept: I

The motion to compel arbitration is GRANTED.  The matter is STAYED. 

Plaintiff filed a breach of contract against defendants.  Plaintiff is a contractor and defendants own the property where the work was done.  Plaintiff moves to compel arbitration.  Defendant Summers does not oppose the motion (although it might be that Summers opposes the stay), but defendant Yu does.  Yu contends that she did not sign the contract with the arbitration provision in it and thus cannot be bound by it.  Because she is not subject to the agreement (she claims), she is entitled to litigate and because there is a risk of inconsistent judgments, the case ought not be stayed.

Plaintiff notes that the construction work was done for the benefit of both defendants, since they both co-owned the property.  The court agrees.  That much is pretty obvious.  To the extent that the contract was to improve the property, Yu is (at a minimum) a third party beneficiary under the contract.  True, she is not a plaintiff here, but neither can the court say that she is a stranger.  The court also has to believe that the contract was signed with her knowledge and approval—certainly she does not contend that she was unaware that there was a construction contract.  And such has to be the case.  As an owner of the property, it is unclear that there could be any valid contract to do construction on the property without her consent and approval.  As such, the court believes that she is reasonably bound and that to the extent Summers signed, he signed both for himself and also implicitly as Yu’s agent.  But that does not completely end the analysis.  To be a third party beneficiary in the context of an arbitration agreement, it is not enough that the party to be bound is a third party beneficiary to the overall contract; the moving party’s burden is to show that the other party is a third party beneficiary to the arbitration clause itself.  (Soltero v. Precise Distribution, Inc. (2024) 102 Cal.App.5th 887.)  So to the extent that Yu is bound under a third party beneficiary theory as opposed to an agency theory, It is a bit ambiguous here as to whether Yu qualifies.  The arbitration provision was an optional one; it stated that the owner could elect not to agree to arbitration but the contract would remain binding.  In that sense, the arbitration clause is similar to a separate contract; it is harder for plaintiff to merge the clause with the overall contract benefits.  On the other hand, while defendants now do not want to arbitrate, arbitration provides benefits (and burdens) to all participants.  It is faster than normal litigation, and it is generally less expensive than normal litigation—even accounting for the arbitration fees.  But critically, and dispositively, the clause only makes sense if it binds everyone to its terms.  It makes little or no sense if it was meant to bind Summers but not Yu.  In that sense, Yu is a beneficiary to the clause itself.  As to equitable estoppel, the issue is a bit harder.  That doctrine applies where a nonsignatory defendant attempts to invoke the clause as against another.  That is, the party attempting to invoke the arbitration agreement did not actually sign it.  Courts have held that the opposing party will be equitably estopped from eschewing the arbitration provision where the gravamen of the lawsuit is to enforce rights created by the contract.  Where the rights upon which the plaintiff is suing are founded in and intertwined with the contract, then the plaintiff cannot enforce the contract against the defendant on the one hand but reject the duty to arbitrate thereunder on the other hand.  (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222.)  Yu might well be estopped.  Yu sent an email concerning filing a claim against plaintiff’s Contractor’s Bond.  She could only do that based on the contract (that she did not sign).  As such, she would be equitably estopped from rejecting the arbitration provision.  The court is not relying, however, on that doctrine.  While Yu took steps toward filing a claim against the Bond, that is not a part of this case.  Yu has not filed a cross-action (and neither has Summers).  Were they to do so, estoppel would almost certainly apply.  But without that, the court cannot really say that Yu is estopped as a defendant.  Thus, the court believes that Yu is closely enough related to the contract as a party for whom the contract was entered to be a third party beneficiary under the contract or to be bound by it as Summers’ principal, and because the arbitration provision makes no sense unless Yu is part of it, she is also a third party beneficiary under the arbitration provision.  Therefore, the motion is GRANTED and the action is STAYED.

Were the court to deny the motion as to Yu, though, the court would exercise its discretion to STAY the litigation nonetheless.  The matter will be resolved for all practical purposes by the arbitration.  If plaintiff prevails, it will get the relief it needs and will almost certainly not proceed against Yu as a practical matter.  If it does, Yu will have the right to litigate the issue, of course, but it is unlikely.  If Summers prevails at the arbitration, plaintiff will be collaterally estopped from proceeding against Yu.  Either way, the litigation against Yu will not likely go forward after the arbitration, and the court can see no prejudice to Yu ensuing therefrom.