Judge: Mel Red Recana, Case: 24STCV01964, Date: 2024-05-23 Tentative Ruling
Case Number: 24STCV01964 Hearing Date: May 23, 2024 Dept: 45
Hearing
date: May 23, 2024
Moving
Party: Defendants Sky properties, Inc.
and Goodrich Valley LLC
Responding
Party: Plaintiffs George Nicklas, et al.
Motion
to Compel Arbitration
The
Court considered the moving papers, opposition, and reply.
The motion is DENIED.
Background
On February 28, 2024, Plaintiffs George
Nicklas, an individual; Maria Nicklas; an individual; and Victoria Nicklas, Sophia
Nicklas, Job Nicklas, Jesse Nicklas, and Ricky Nicklas, minors by and through their
guardian ad litem and mother Maria Nicklas (“Plaintiffs”) filed the operative
First Amended Complaint (“FAC”) against Defendants Goodrich Valley LLC
(“Goodrich Valley”), a Limited Liability Company; Sky Properties, Inc. (“Sky
Properties”), a California Corporation (collectively, “Defendants”); and DOES 1
through 100, inclusive for: (1) Negligence; (2) Breach of the Warranty of Habitability;
(3) Breach of the Covenant of Quiet Enjoyment; (4) Nuisance; (5) Breach of
Contract; (6) Intentional Infliction of Emotional Distress; and (7)
Constructive Eviction.
On April 24, 2024, Defendant Sky
Properties filed the instant Motion to Compel Arbitration. The following day,
Defendant Goodrich Valley filed its Joinder in Motion to Compel Arbitration. On
May 8, 2024, Plaintiffs filed an opposition. On May 16, 2024, Defendant Sky
Properties filed a reply.
Legal Standard
The Federal Arbitration Act (the “FAA”) applies in
both federal and state courts to contracts evidencing a transaction involving
interstate commerce. (9 U.S.C. §§ 1–2; Southland Corp. v. Keating
(1984) 465 U.S. 1, 12.) The FAA preempts conflicting state law. (Preston v.
Ferrer (2008) 552 U.S. 346, 353.) The party that contends the FAA applies
bears the burden to demonstrate that the arbitration agreement is in a
“‘contract evidencing a transaction involving commerce’ . . . .” (Woolls
v. Super. Ct. (2005) 127 Cal.App.4th 197, 211.)
“On
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(a)-(b).)
Discussion
Applicability
of the FAA
Defendant moves for an order compelling arbitration
and staying this action on the grounds that the Federal Arbitration Act (“FAA”)
applies to the arbitration agreement at issue in this matter.
Here, the FAA does not apply to the arbitration
agreement at issue in this matter. Although the arbitration agreement is in
writing (the Lease Agreement), involves a dispute concerning habitability of a
residential rental property arising out of the Lease Agreement, and residential
lease agreements impact interstate commerce as held in Russell v. United
States (1985) 471 U.S. 858, 862, the language of the arbitration clause
clearly indicates that the claims between the parties “shall be resolved
through binding arbitration pursuant to California Code of Civil Procedure
§§1280, et seq.” (Gordon Decl., ¶3, Ex. B.) Therefore, California law governs the
arbitration agreement at issue here.
Prior Demand for
Arbitration
A party seeking to compel arbitration under Code of
Civil Procedure Section 1281.2 must “plead and prove a prior demand for
arbitration under the parties’ arbitration agreement and a refusal to arbitrate
under the agreement.” (Mansouri v. Super. Ct. (2010) 181 Cal.App.4th
633, 640; Civ. Proc. Code, § 1281.2.)
Here, Defendant Sky Properties contacted Plaintiffs’
counsel in effort to stipulate to arbitration of this action. (Brody Decl.,
¶2.) Plaintiffs’ counsel refused. (Id. at ¶3.) Therefore, Defendant Sky
Properties has proven that a prior demand for arbitration was made and
Plaintiffs’ refused to arbitrate the claims giving rise to the present lawsuit.
Existence of Valid Arbitration Agreement and Claims
Covered by Arbitration Clause
“[T]he petitioner bears
the burden of proving the existence of a valid arbitration agreement by the
preponderance of the evidence . . . .” (Giuliano v. Inland Empire Personnel,
Inc. (2007) 149 Cal.App.4th 1276, 1284 (Giuliano).) “In determining
whether an arbitration agreement applies to a specific dispute, the court may
examine only the agreement itself and the complaint filed by the party refusing
arbitration [citation]. The court should attempt to give effect to the parties’
intentions, in light of the usual and ordinary meaning of the contractual
language and the circumstances under which the agreement was made.” (Weeks
v. Crow (1980) 113 Cal.App.3d 350, 353.) “To determine whether a
contractual arbitration clause requires arbitration of a particular
controversy, the controversy is first identified, and the issue is whether that
controversy is within the scope of the contractual arbitration clause.” (Titolo
v. Cano (2007) 157 Cal.App.4th 310, 316.) “Doubts as to whether an
arbitration clause applies to a particular dispute are to be resolved in favor
of sending the parties to arbitration. The court should order them to arbitrate
unless it is clear that the arbitration clause cannot be interpreted to cover
the dispute.” (California Correctional Peace Officers Ass’n v. State
(2006) 142 Cal.App.4th 198, 205.)
[A] party opposing the petition bears the
burden of proving by a preponderance of the evidence any fact necessary to its
defense. [Citation.] 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.
(Giuliano, supra, 149 Cal.App.4th at p. 1284.)
The
language of Paragraph 57 of the Residential Rental Agreement ( the
“Lease Agreement”) states in relevant part, the following:
“Resident(s) and
Owner/Agent agree to mediate any dispute or claim arising out of this Agreement
or any resulting transaction before pursuing judicial or arbitration remedy.
…
If efforts at
mediation are unsuccessful in resolving any dispute or claim, then such dispute
or claim shall be resolved through binding arbitration pursuant to California
Code of Civil Procedure §§1280, et seq.
…
The arbitration
shall be held in the County where the Premises are located. Any judicial or
arbitration proceeding in which attorney's fees are awarded to the prevailing
party shall not exceed $500.00. The decision of the arbitrator shall be final. The
parties waive any right to appeal, and judgment may be entered on the
arbitration award in accordance with state law.” (Gordon Decl., ¶3, Ex. B.)
Here,
Defendant Sky Properties has met its initial burden of proving the existence of
a valid written agreement to arbitrate the claims at issue in this present
lawsuit. First, Plaintiffs are identified as “Resident(s)” and Defendant Sky
Properties is identified as the Owner Terra Bella’s authorized “Agent” for
purposes of the agreement. Furthermore, Terra Bella is owned by Defendant
Goodrich Valley. Finally, Plaintiffs George Nicklas and Maria Nicklas signed
the Lease Agreement with the arbitration clause.
The
question now is whether the Arbitration Agreement is enforceable against
Plaintiffs.
Enforceability
of the Arbitration Agreement
An
agreement is unenforceable if it is both procedurally and substantively
unconscionable. (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 125; Sanchez
v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 910.) But
procedural and substantive unconscionability need not be present in the same
degree. (OTO, supra, 8 Cal.5th at 125.) Courts use a “sliding
scale” approach—“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.” (Armendariz v.
Found Health Psychcare Servs., Inc. (2000) 24 Cal.4th 83, 114.) Under
general contract principles,¿unconscionability has both a procedural and
substantive element, with the former focusing on oppression or surprise due to
unequal bargaining power, and the latter focusing on overly harsh or one-sided
rules (Armendariz, supra, 24 Cal.4th at p. 114.) Both procedural and
substantive¿unconscionability must be present¿in order for¿a court to exercise
its discretion to refuse to enforce a contract on the basis of
unconscionability.¿(Stirlen¿v. Supercuts, Inc. (1997) 51 Cal.App.4th
1519, 1533.)
Procedural
Unconscionability
Here,
Plaintiffs did not have equal bargaining power as it relates to the Arbitration
Agreement. This was a rental agreement, which normally do not involve
negotiation between tenant and landlord. Furthermore, the Arbitration Agreement
was buried within a thirty-five page document and stylistically the clause was
not written in such manner to bring the Plaintiffs’ attention to it. Plaintiffs
were also not given the opportunity to seek legal advice or informed that such
advice could be obtained prior to signing the Lease Agreement. Therefore, the Arbitration
Agreement is procedurally unconscionable.
Substantive
Unconscionability
Under
Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24
Cal.4th 83 (Armendariz), an arbitration agreement is lawful if
it: (1) provides for neutral arbitrators, (2) provides for more than
minimal discovery, (3) requires a written award, (4) provides for all
of the types of relief that would otherwise be available in court, and (5)
does not require employees to pay either unreasonable costs or any arbitrators’
fees or expenses as a condition of access to the arbitration forum. (Armendariz,
supra, 24 Cal.4th at p. 102 (internal quotations omitted) (citing Cole
v. Burns Intern. Security Services (D.C. Cir.1997) 105 F.3d 1465, 1482).)
Here,
the Arbitration Agreement does not explicitly provide for a neutral arbitrator.
However, the Arbitration Agreement does state that the decision of the
arbitrator shall be final and the claims shall be resolved pursuant to Code of
Civil Procedure sections 1280, et seq., thus it may implicitly provide for a
neutral arbitrator. For the same reason, the Arbitration Agreement may also
implicitly provide for more than minimal discovery, requires a written award, and provides for other types
of relief that would otherwise be available in court. Moreover, the Arbitration
Agreement does not require Plaintiffs to pay any costs or arbitrator fees or
expenses as a condition of access to the arbitration forum. Nonetheless, it is
still unclear from the Arbitration Agreement whether or not Plaintiffs would in
fact have access to more than minimal discovery and other types of relief that
would otherwise be available in court. Additionally, Defendant Sky Properties
makes no arguments to support that such relief is available to Plaintiffs. Therefore,
the Arbitration Agreement is substantively unconscionable.
Public
Policy
Civil
Code section 1953, subdivision (a), states in pertinent part, “[a]ny provision
of a lease or rental agreement of a dwelling by which the lessee agrees to
modify or waive any of the following rights shall be void as contrary to public
policy: (1) His rights or remedies under Section 1950.5 or 1954…(2) His right
to assert a cause of action against the lessor which may arise in the future…(3)
His right to a notice or hearing required by law…(4) His procedural rights in
litigation in any action involving his rights and obligations as a tenant…[and/or]
(5) His right to have the landlord exercise a duty of care to prevent personal
injury or personal property damage where that duty is imposed by law.” (Civ. Code,
§ 1953, subd. (a).)
As
discussed above, the Arbitration Agreement in this instant case is governed by
California law not the FAA. Under California law, section 1953, subdivision
(a)(4) prohibits binding arbitration where tenants are suing landlords for
breach of warranty of habitability because the right to have a jury trial in
these instances may not be waived or modified. (Williams v. 3620 W. 102nd
Street, Inc. (2020) 53 Cal.App.5th 1087, 1093; see also Harris v.
University Village Thousand Oaks, CCRC, LLC (2020) 49 Cal.App.5th 847,
852.) Therefore, the Arbitration Agreement in this case is contrary to public
policy and unenforceable against Plaintiffs.
Accordingly,
Defendant Sky Properties, Inc.’s Motion to Compel Arbitration is DENIED. As
such, Defendant Goodrich Valley LLC’s Joinder in Motion to Compel Arbitration
is also DENIED.
It
is so ordered.
Dated: May 23, 2024
_______________________
MEL RED RECANA
Judge of the
Superior Court