Judge: Maurice A. Leiter, Case: 24STCV09687, Date: 2024-08-27 Tentative Ruling

Case Number: 24STCV09687    Hearing Date: August 27, 2024    Dept: 54

Hearing Date: August 27, 2024

Department 54, Judge Maurice A. Leiter

Motion to Compel Arbitration and Stay of Proceedings

Moving Party: Defendant Pinner Construction Co., Inc.

Responding Party: Plaintiff R&J Sheet Metal, Inc.

T/R:     THE MOTION TO COMPEL ARBITRATION IS GRANTED. THE ACTION IS STAYED PENDING COMPLETION OF THE ARBITRATION PROCEEDINGS.

MOVING PARTY TO NOTICE.

The Court considers the moving papers, opposition, and reply papers.

BACKGROUND

On April 17, 2024, Plaintiff R&J Sheet Metal, Inc. filed this action against Defendants Pinner Construction Co, Inc. (“PCC”), Los Angeles Community College District, and Doe Bonding Company, asserting causes of action for (1) Breach of Contract, (2) Indebitatus Assumpsit, (3) Accounts Stated, (4) Payment of Bond, and (5) Enforcement of Lien (Stop Notice).

ANALYSIS

            PCC moves to compel arbitration pursuant to the California Arbitration Act (“CAA”). According to the CAA, “[o]n petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such 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 the revocation of the agreement.” (Code Civ. Proc., § 1281.2.)

“The petitioner [seeking to compel arbitration] bears the burden of proving the existence of a valid arbitration agreement by a preponderance of the evidence, while a party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense.” (Ruiz v. Moss Bros. Auto Group, Inc. (2014) 232 Cal.App.4th 836, 842 (“Ruiz”).)

“If the moving party meets its initial prima facie burden and the opposing party disputes the agreement, then in the second step, the opposing party bears the burden of producing evidence to challenge the authenticity of the agreement.” (Gamboa, supra, 72 Cal.App.5th at p. 165.)

“California has a strong public policy in favor of arbitration and any doubts regarding the arbitrability of a dispute are resolved in favor of arbitration.” (Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 686.) “This strong policy has resulted in the general rule that arbitration should be upheld unless it can be said with assurance that an arbitration clause is not susceptible to an interpretation covering the asserted dispute.” (Ibid. [internal quotations omitted].)

PCC moves to compel arbitration based, in part, on the subcontract agreement that it entered with Plaintiff. Section 37 of the Subcontract states:

ARBITRATION: If any dispute shall arise between Contractor and Subcontractor pertaining in any manner to the construction or interpretation of this Agreement, or to the rights or obligations of the parties hereunder, or to the breach hereof which the parties are unable to settle by mutual agreement, Contractor shall have the exclusive option either to have the dispute determined by court action or by mediation and /or by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association. Contractor shall exercise said option by commencing a court action or by commencing an arbitration proceeding. If Subcontractor first commences a court action with respect to a dispute which Contractor desires to have determined first by an arbitration proceeding, Contractor shall have the right to have said Subcontractor initiated court action stayed for such reasonable time as is required for Contractor to commence and complete the arbitration proceeding desired by Contractor.”

            However, as Plaintiff points out, Section 37 also states: “Arbitration and/or binding mediation [will take place] only if all parties agree to arbitration and/or binding mediation. Mediation will be done prior to filing any court action or arbitration only if time allows for it to be done. If a suit must be filed to retain R. & J Sheet Metal. Inc.'s rights, it hereby reserves the right to do so, without mediation being a condition prior to doing so.”

“In determining whether there is an enforceable agreement to arbitrate a particular dispute, the court must examine and, to a limited extent, construe the underlying agreement. [Citation.]” (Zullo v. Superior Court (2011) 197 Cal.App.4th 477, 483 (“Zullo”).)

“In so doing, the court applies settled rules for interpreting contracts. And, as with any other contract, interpreting a purported arbitration agreement is solely a judicial function unless it turns upon the credibility of extrinsic evidence.” (Zullo, supra, 197 Cal.App.4th at p. 483.)

“A contractual ambiguity arises when the contract’s language is reasonably susceptible of more than one application to material facts.” (Bernard v. State Farm Mutual Automobile Ins. Co. (2007) 158 Cal.App.4th 304, 308–309.)

“Under the parol evidence rule, a party is not allowed to introduce extrinsic evidence of a prior agreement contradicting a writing which was intended by the parties to be a final expression of their agreement as to those terms. (Code Civ. Proc., § 1856, subd. (a)).” (Consolidated World Investments, Inc. v. Lido Preferred Ltd. (1992) 9 Cal.App.4th 373, 379 (“Consolidated”).)

The Subcontract is ambiguous to some degree. On one hand, it states that PCC can choose to stay the case and initiate arbitration if Plaintiff commences the lawsuit. On the other hand, it states that arbitration and/or mediation will take place “if all parties agree.”

PCC is the only party that has produced parol evidence to explain the meaning of Section 37. PCC’s counsel testifies that he was personally involved in negotiations with Plaintiff regarding the Subcontract and that “[a]lthough [Plaintiff] did request changes to Article 37 of the Subcontract, [counsel] understood at the time of negotiating the Subcontract that those changes meant that R&J could not become a ‘Party’ to the arbitration proceedings with the Project owner unless the Project owner agreed. No provision requested by R&J states that it was reserving the right to refuse to arbitrate with Pinner or participate in an arbitration with the owner. Finally, R&J did not request any change to the portion of Article 37 of PCC’s standard form subcontract that allows PCC to stay any court action commenced by R&J for a reasonable time if it is necessary to commence and complete arbitration proceedings with the Project owner.” (Kellam Decl., ¶¶ 6, 8.)

The declaration does not discuss Section 37 or deny that the parties agreed to arbitrate the dispute.

The Court finds that PCC has met its burden of showing that an arbitration agreement exists between the parties under Section 37 of the Subcontract. Plaintiff has failed to meet its burden of producing evidence challenging the authenticity of the agreement.

Plaintiff’s argument that PCC waived its right to arbitration because it filed its Answer to the Complaint is unpersuasive. (Gloster v. Sonic Automotive, Inc. (2014) 226 Cal.App.4th 438, 449 [“Answering a complaint and participating in litigation, on their own, do not waive the right to arbitrate”].)

Finally, Plaintiff argues that Section 37 is unconscionable because it lacks mutuality (it gives PCC the right to stay the action and initiate arbitration if Plaintiff commences a lawsuit but does not allow the vice versa to occur).

 “The burden of proving unconscionability rests upon the party asserting it.” (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 126.)

“‘[U]nconscionability has both a “procedural” and a “substantive” element,’ the former focusing on ‘oppression’ or ‘surprise’ due to unequal bargaining power, the latter on ‘overly harsh’ or ‘one-sided’ results.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114 [citations omitted].) 

“As a matter of general contract law, California courts require both procedural and substantive unconscionability to invalidate a contract.” (Torrecillas v. Fitness International, LLC (2020) 52 Cal.App.5th 485, 492 (“Torrecillas”).)  California courts “apply a sliding scale, meaning if one of these elements is present to only a lesser degree, then more evidence of the other element is required to establish overall unconscionability. In other words, if there is little of one, there must be a lot of the other.” (Ibid.)

Plaintiff has not proven procedural unconscionability with regard to Section 37. On the contrary, Plaintiff admitted that the parties negotiated the Subcontract's terms and have previous dealings. There was no oppression or surprise.

PCC’s motion to compel arbitration and stay proceedings pending arbitration is GRANTED.