Judge: Maurice A. Leiter, Case: 24STCV12890, Date: 2024-08-27 Tentative Ruling

Case Number: 24STCV12890    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 Neubauer Electric, 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 May 22, 2024, Plaintiff Neubauer Electric, Inc. filed this action against Defendants Pinner Construction Co, Inc. (“PCC”), Hartford Casualty Insurance Company, and Hartford Fire Insurance Company, asserting causes of action for (1) Breach of Written Contract, (2) Reasonable Value, (3) Breach of Covenant of Good Faith and Fair Dealing, (4) Enforcement of Stop Payment Notice Release Bond, and (5) Claim on Payment Bond.

ANALYSIS

            PCC’s request for judicial notice of NEI’s Complaint and PCC’s Answer to the Complaint is unnecessary, but granted.

            PCC moves to compel NEI’s claims to arbitration pursuant to the California Arbitration Act (“CAA”).

Under 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”).) “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].)

The parties do not dispute that their subcontract agreement contains an arbitration requiring the parties to arbitrate their dispute.

NEI only argues that (1) the arbitration provision is unenforceable because it is unconscionable under Cabatit v. Sunnova Energy Corp. (2020) 60 Cal. App. 5th 317 (“Cabatit”), (2) even if the arbitration agreement is enforceable, PCC has not complied with the arbitration provision, (3) NEI proposed reasonable terms for submitting its claims to arbitration, but PCC refused those terms, and (4) PCC’s notice of motion is untimely.

The motion was set to be heard on October 3, 2024, but on August 5, 2024, PCC filed an Amended Notice notifying the parties that the hearing on the motion had been continued to August 27, 2024. NEI claims that in so doing, PCC failed to give the plaintiff the statutory 16-court day notice before the hearing. The Court can continue the hearing to compensate for insufficient notice if the opposing party has been prejudice by the lack of sufficient notice. (Shields v. Shields (1942) 55 Cal.App.2d 579, 584-585 [holding that lack of enough notice under Section 1005(b) is a “technical one,” and, in any event, the party raising that argument did not show they were prejudiced by the other party’s failure to give them the statutory notice].) NEI already has filed a substantive opposition and has not shown any prejudice.

 “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.)

The Court finds no procedural unconscionability here. NEI’s President Fred Neubauer declares that although PCC provided him with a copy of their standard form subcontract for review and execution, (1) he proposed some changes, (3) some changes were made and agreed to, and (4) he did not propose any changes to Section 37 of the Subcontract which contains the arbitration provision. (Declaration of Fred Neubauer, filed August 14, 2024 (“Neubauer Decl.”), ¶¶ 8, 10.) There was no surprise and no oppression because NEI was able to negotiate the terms of the Subcontract. In addition, NEI’s President states he has “many years of experience” (Neubauer Decl., ¶ 10), suggesting that he was aware of the arbitration terms in PCC’s “standard” subcontract and still decided to bid to be PCC’s subcontractor. This case involves sophisticated parties, unlike Cabatit, which involved homeowners who sued a solar-power-system installer for cancellation of a solar-power lease agreement. (Cabatit, supra, 60 Cal.App.5th at p. 320.)

The Court also finds unpersuasive NEI’s argument that PCC has failed to comply with the arbitration agreement because, according to plaintiff, PCC failed to commence arbitration proceedings as required by the arbitration agreement. Section 37 of the Subcontract states that: “Contractor shall exercise said option by commencing a court action or by commencing an arbitration proceeding.” But the agreement also states that “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.” NEI commenced a court action with respect to a dispute that PCC desires to resolve through arbitration. NEI has the right under the agreement to have the court action stayed for a reasonable time to commence and complete arbitration.

NEI argues that PCC seeks to force it to join an arbitration instead of initiating a new arbitration. However, the arbitration provision and Subcontract do not prohibit PCC from doing so. The Court does not find that requiring NEI to join an arbitration proceeding is contrary to the terms arbitration agreement.

            Finally, the fact that PCC rejected NEI’s proposed terms after the arbitration agreement already had been formed is irrelevant to the instant motion.  

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