Judge: Michael P. Linfield, Case: 21STCV08285, Date: 2022-12-05 Tentative Ruling

Case Number: 21STCV08285    Hearing Date: December 5, 2022    Dept: 34

SUBJECT:                 Motion to Vacate the Judicial Reference Order

Moving Party:          Plaintiff ADH Swall Limited

Resp. Party:            None

Plaintiff’s Motion to Vacate the Judicial Reference Order is DENIED. The Parties shall submit a further Stipulation setting forth the details of their agreement to arbitration and the agreed-upon Referee within 45 days of the issuance of this Order.

BACKGROUND:

On March 3, 2021, Plaintiff ADH Swall Limited filed its Complaint against Swall Heights, LLC on a cause of action for violation of Civil Code § 895, et seq.

On June 17, 2021, Plaintiff filed its First Amended Complaint against Defendant on causes of action for: (1) violation of Civil Code § 895, et seq.; (2) fraud; and (3) negligent misrepresentation.

On December 21, 2021, pursuant to a stipulation by the Parties, the Court entered its Order, which among other things, ordered the Parties to submit a further Stipulation setting forth the details of their agreement to arbitrate and the agreed-upon Referee within 45 days from the date of the Order.

On May 2, 2022, Plaintiff’s Counsel, Larry Kent, filed his Declaration. Among other things, the Declaration requested that the Court return this matter to the civil active list.

On May 23, 2022, Defendant filed its Objection and Response to the Declaration of Plaintiff’s Counsel.

On May 23, 2022, Plaintiff filed the following Amendments to the First Amended Complaint: (1) substituting Sam Ghanouni for Doe 1; (2) substituting Avi Galili for Doe 2; and (3) substituting Charles Hefner for Doe 4.

On June 6, 2022, Plaintiff’s Counsel filed his Supplemental Declaration.

On September 26, 2022, Defendants Sam Ghanouni, Avi Galili, and Charles Hefner filed their respective Answers to the First Amended Complaint.

On October 25, 2022, Plaintiff filed an Amendment to the First Amended Complaint, substituting Eduardo Castro for Doe 5.

On November 2, 2022, Plaintiff filed its Motion to Vacate the Judicial Reference Order.

No opposition or other response have been filed.

ANALYSIS:

I.           Legal Standard

“A referee may be appointed upon the agreement of the parties filed with the clerk, or judge, or entered in the minutes, or upon the motion of a party to a written contract or lease that provides that any controversy arising therefrom shall be heard by a referee if the court finds a reference agreement exists between the parties:

(a)        “To hear and determine any or all of the issues in an action or proceeding, whether of fact or of law, and to report a statement of decision.

(b)       “To ascertain a fact necessary to enable the court to determine an action or proceeding.”

(Code Civ. Proc., § 638, subds. (a)–(b).)

“Objections, if any, to a reference or to the referee or referees appointed by the court shall be made in writing, and must be heard and disposed of by the court, not by the referee.” (Code Civ. Proc., § 642.)

II.        Discussion

Plaintiff moves the Court to “vacate its previous Order setting this matter for Judicial Reference and instead set the matter for a Further Case Management Conference or trial.” (Motion, p. 7:14–16.) Plaintiff does not cite any case law in support of this requested relief and solely cites Code of Civil Procedure section 638 – which does not have a subdivision regarding vacatur of such orders. (Motion, pp. 4:21–26, 5:1–11.)

A.      The Contract at Issue

The Parties’ Contract contains a signed addendum that outlines the dispute resolution process. (Motion, Ex. A, “Addendum F”.) The first step requires that the party with a dispute shall give notice and allow the other party to inspect and correct the dispute. (Id. at ¶¶ 12.4.1, 12.4.2.) The second step requires that the parties mediate if the dispute is not resolved within 90 days after the respondent receives the dispute notice. (Id. at ¶ 12.4.3.) The third step requires judicial notice, with the relevant excerpt of the provision as follows:

“If a Dispute remains unresolved after the mediation required by Section 12.4.3 is completed, then any of the Parties may file a lawsuit . . . . All lawsuits regarding Disputes must be resolved by general judicial reference pursuant to California Code of Civil Procedure Section 638 and 641 through 645.1, as modified by this Section 12.4.4. The Parties shall cooperate in good faith to ensure that all necessary and appropriate parties are included in the judicial reference proceeding. No Party shall be required to participate in the judicial reference proceeding if all Parties against whom such Party would have necessary or permissive cross-claims or counterclaims will not or cannot be joined in the judicial reference proceeding.”

(Id. at ¶ 12.4.4.) The fourth step requires binding arbitration if “for any reason the judicial reference procedures in Section 12.4.4 are legally unavailable, unenforceable at the time a Dispute would otherwise be referred to judicial reference, or if all necessary parties cannot be joined in the judicial reference proceeding described in Section 12.4.4”. (Id. at ¶ 12.4.8.)

B.      The Requested Relief

As a procedural matter, the Court notes that no order has yet issued which has either: (1) appointed a judicial referee; or (2) submitted this case to a judicial referee, for either a general or limited referral. Rather, the Court signed the Parties’ Proposed Order (and wrote in Item 3), which ordered:

1.   In light of the Parties’ Stipulation to submit all claims asserted in this matter to Judicial Reference pursuant to C.C.P. §638, the Court hereby vacates all future hearing dates in this matter, including the August 31, 2021, Case Management Conference and Motion for an Order Compelling Appointment of Judicial Referee[.]

2.   The Parties must submit a further Stipulation setting forth the details of their agreement to arbitrate and the agreed-upon Referee within 45 days from the date of this Order.

3.   Submitting party is to give notice.

Thus, as there is no order setting appointing a judicial referee or submitting this case to a judicial referee, the Court cannot vacate such an order. However, the Court does consider whether: (1) it would be appropriate to vacate the Order it has issued; and (2) whether it would be appropriate to issue a judicial reference order upon the Court’s own motion.

C.      Lack of Compliance with the Court’s Prior Order

Neither Plaintiff nor Defendant has complied with the Court’s Order. Plaintiff’s Counsel initially declared that this was because Defendant refused to cooperate with the process. (Decl. Kent, ¶ 4.) Defendant responded that the failure to file a further stipulation was due to the Parties continuing to negotiate. (Objection, ¶¶ 1–4.) Plaintiff’s Counsel declares that this is not an accurate history of the negotiations. (Supp. Decl. Kent, ¶ 11.)

The Court does not find either argument to be convincing. In this case, both Parties have failed to comply. Thus, the Court looks elsewhere as to how it should dispose of the Motion.

D.      Considerations Regarding the Court’s Discretion

The statutes at hand give the Court discretion regarding the appointment of referees – regardless of whether parties are in agreement. (Code Civ. Proc., §§ 638 (“A referee may be appointed upon the agreement of the parties…”), 639, subd. (a) (“When the parties do not consent, the court may, upon the written motion of any party, or of its own motion, appoint a referee in the following cases…”), italics added.)

Moreover, the Supreme Court has clearly held that this Court has the discretion to deny a reference motion based on concerns about judicial economy or the possibility of conflicting rulings on a common issue of law or fact. (Tarrant Bell Property, LLC v. Super. Ct. (2011) 51 Cal.4th 538, 542.)

1.       Judicial Economy

At this time, the Court does not find that there would be an issue with judicial economy were the Court to keep this case rather than appoint a referee.

2.       Conflicting Rulings

Among multiple arguments, Plaintiff argues: (1) that judicial reference is specifically precluded here as Plaintiff has since identified multiple Doe Defendants who cannot be joined in the judicial reference proceeding; and (2) that the “only way that Plaintiff can obtain complete relief and avoid potential inconsistencies in rulings between the Reference and the court proceeding is for the Court to terminate the Reference and have all matters tried in a single venue before the Court.” (Motion, pp. 4:8–20, 5:14–21.)

The Court is not persuaded that Plaintiff’s assumptions are correct. Specifically, the Court is not sure whether the newly-identified Defendants – all of whom were either contractors or employees of Defendant Swall Heights, LLC – would be bound by Defendant Swall Heights, LLC’s signature on the contract. (Motion, pp. 3:27–28, 4:1–4, listing the newly-identified Defendants as a project architect, two project designers, a drywall subcontractor, and a general contractor.) After all, the underlying issue in this case is about an allegedly defective soundproofing during construction, not an issue that would involve truly independent third parties.

Given the lack of legal support for Plaintiff’s requested relief, the Court considers contract provisions that would apply in similar situations. For example, as it relates to forum selection clauses, parties who have not signed a forum selection clause can still be bound by one if they are a third-party beneficiary of the contract or “closely related to the contractual relationship.” (Berclaim Am. Latina v. Baan Co. (1999) 74 Cal.App.4th 401, 405; Net2phone, Inc. v. Super. Ct. (2003) 109 Cal.App.4th 583, 588.) In another example, as it relates to arbitration clauses, parties who have not signed an arbitration can still be bound by one under the doctrine of equitable estoppel if the claims against the nonsignatory are “founded in and inextricably bound up with the obligations imposed by the agreement containing the arbitration clause.” (Felisilda v. FCA US LLC, 53 Cal.App.5th 486, 496, quoting Goldman v. KPMG, LLP (2009) 173 Cal.Ap.4th 209, 219.)

“Where the reason is the same, the rule should be the same.” (Code Civ. Proc., § 3511.)

The thrust of the exceptions discussed above are that nonsignatories to contracts can still be bound by them when they or their acts are closely related to the contract. Here, the newly-identified Does are employees or contractors who directly worked for Defendant Swall Heights, LLC – a signatory to the contract – on the matters directly at issue in the contract. The Court does not see why the law would not bind these Defendants to this contract’s judicial reference clause. Such a conclusion is strengthened by the Court’s discretionary authority to submit nonconsenting parties to a referee. (Code Civ. Proc., § 639, subd. (a).)

Plaintiff and Defendant Swall Heights have signed a contract which contains a judicial reference clause. These Parties have further stipulated to enforcing the judicial reference clause. Prior to Plaintiff’s objection to the judicial reference clause, the Court issued its Order for the Parties to further stipulate as to a judicial referee. Plaintiff’s arguments (including those regarding cost and hindrance of the settlement process) do not persuade the Court that it would be appropriate to change course.

The Court DENIES Plaintiff’s Motion to Vacate the Judicial Reference Order.

E.       Court Selection of a Referee

“The court shall appoint as referee or referees the person or persons, not exceeding three, agreed upon by the parties.” (Code Civ. Proc., § 640, subd. (a).)

“If the parties do not agree on the selection of the referee or referees, each party shall submit to the court up to three nominees for appointment as referee and the court shall appoint one or more referees, not exceeding three, from among the nominees against whom there is no legal objection. If no nominations are received from any of the parties, the court shall appoint one or more referees, not exceeding three, against whom there is no legal objection, or the court may appoint a court commissioner of the county where the cause is pending as a referee.” (Code Civ. Proc., § 640, subd. (b).)

At this time, in accord with the Court’s prior Order, the Court will provide the Parties with an additional 45 days from the date of this Order to submit a further Stipulation setting forth the details of their agreement to arbitration and the agreed-upon Referee. After that time, the Court shall consider whether it would be appropriate to appoint a referee pursuant to Code of Civil Procedure section 640, subdivision (b).

F.       Effect of Settlement with Swall Heights

Plaintiff and Swall Heights have indicated that they may be reaching a settlement. The Court is not sure how this might effect the judicial reference.  The Court will discuss these issues with the (remaining) parties at the next status conference.

III.     Conclusion

Plaintiff’s Motion to Vacate the Judicial Reference Order is DENIED. The Parties shall submit a further Stipulation setting forth the details of their agreement to reference and the agreed-upon Referee within 60 days of the issuance of this Order.

All parties – including the newly-named Doe Defendants – are to file a Joint Status Conference Report 5 court days prior to the status conference hearing discussing their position(s) on this issue.