Judge Randolph M. Hammock, Case 21STCV17018 2023-04-12 Tentative Ruling

Judge: Randolph M. Hammock, Case: 21STCV17018, Date: 2023-04-12 Tentative Ruling

Plaintiff Mark K. Johnson alleges Defendants John C. Lukes and John R. Lukes, who are both officers of the real estate brokerage Defendant Crown City Capital, Inc., induced him to invest in two real estate projects. The borrowers on the property were two entities owned by Defendant Stephen Snyder. Plaintiff alleges Snyder was to use the money to refinance the existing mortgages on the Properties, renovate the Properties, and place the Properties back on the market. Defendants John C. Lukes, John R. Lukes, and Crown City Capital, Inc., served as mortgage-brokers. Plaintiff alleges Defendant John C. Lukes made knowingly false material misrepresentations to Plaintiff to obtain his investment of $750,000.00. Plaintiff alleges Defendant has not completed the properties.

“[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). “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). “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 v. Inland Empire Personnel, Inc. (2007) 149 Cal.App.4th 1276, 1284).

“If a court of competent jurisdiction, whether in this State or not, has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies. . . .” (CCP § 1281.4.)

Plaintiff Mark K. Johnson alleges Defendants John C. Lukes and John R. Lukes, who are both officers of the real estate brokerage, Defendant Crown City Capital, Inc., induced him to invest in two real estate projects. The borrowers on the property were two entities owned by Defendant Stephen Snyder. Plaintiff alleges Snyder was to use the money to refinance the existing mortgages on the Properties, renovate the Properties, and place the Properties back on the market. Defendants John C. Lukes, John R. Lukes, and Crown City Capital, Inc., served as mortgage-brokers. Plaintiff alleges Defendant John C. Lukes made knowingly false material misrepresentations to Plaintiff to obtain his investment of $750,000.00. Plaintiff alleges Defendant Snyder has not completed the properties.

On February 7, 2022, Plaintiff Mark K. Johnson, Defendant John C. Lukes, and Defendant John R. Lukes stipulated to stay the action and compel the matter to arbitration. (See 02/07/2022 Stipulation). Accordingly, this court never determined whether a binding arbitration agreement existed.

Defendant John R. Lukes now moves for an order compelling Cross-Defendants Next Day Appraisals, LLC, and Tim Thibodeaux to arbitrate. Importantly, Cross-Defendants Thibodeaux and Next Day were not parties to the arbitration stipulation.

Lukes advances numerous arguments as to why Cross-Defendants Thibodeaux and Next Day should be ordered to join the pending arbitration. In support, he relies primary on non-binding federal and various state court authorities from outside of California.

As an initial note, despite contending that the arbitration clause here is “absolutely broad enough to cover the work [Cross-Defendants] did for the lender in their preliminary investigation,” Lukes’s memorandum never discusses the subject arbitration agreement(s) he purports to rely on. He only goes so far as to mention an Exhibit A, although there is no Exhibits accompanying the motion.

Because the parties to the stipulation to arbitrate voluntarily agreed that one or more agreements to arbitrate existed, this court has never determined whether a binding arbitration agreement existed in this case—much less what agreement said or who was bound by it. Defendant/Cross-Complaint Lukes concedes that the Cross-Defendants “have not executed arbitration agreements.” (Mtn. 4: 12-13.) It also undisputed that Cross-Defendants were not parties to the arbitration stipulation.

Lukes first contends the case is subject to mandatory arbitration pursuant to California Code of Civil Procedure, section 1141.11. In relevant part, section 1141.11(a) provides: “In each superior court with 18 or more judges, all nonexempt unlimited civil cases shall be submitted to arbitration under this chapter if the amount in controversy, in the opinion of the court, will not exceed fifty thousand dollars ($50,000) for each plaintiff.”

Lukes contends that “Plaintiff’s case is not likely to exceed $50,000.” (Mtn. 3: 28.) However, as noted by Cross-Defendant in opposition, the principal “amount in controversy” according to the Complaint is $750,000. (Compl. ¶ 22.) This represents the principal on the loans made by Plaintiff, not including prejudgment interest or any other damages.

Even to the extent it is proper to view the “amount in controversy” as being apportioned among the Cross-Defendants based on the Cross-Complaint, it is impossible for this court to speculate comparative fault at this time. This argument therefore fails. The case is not subject to mandatory arbitration.

Next, Lukes contends Cross-Defendants can be compelled to arbitrate under an “assumption” theory. Lukes cites no California authority where a party was bound to arbitrate based on an assumption theory. Federal courts have compelled nonsignatories to arbitrate where the parties’ “conduct manifested a clear intent to arbitrate the dispute.” (Gvozdenovic v. United Air Lines, Inc., 933 F.2d 1100, 1105 (2d Cir. 1991.) In Gvozdenovic, the Court found the parties had consented to arbitration by “active[ly] and voluntary[ily] participat[ing] in the arbitration.”

Plaintiff attempts to compare the case here by noting that neither Cross-Defendant Thibodeaux nor Next Day “have done anything in this case” since the arbitration stipulation. (Opp. 5: 12-13.) However, it is undisputed that Cross-Defendants were not parties to that stipulation, and that a stay had been entered. Indeed, by doing nothing, Cross-Defendants have demonstrated that they do not consent to arbitration. They have taken no acts manifesting an intent to arbitrate here. Just the opposite. This argument therefore fails.

Lukes, however, provides no discussion of California agency principles. When it comes to separate legal entities, an “[a]gency exists when a principal engages an agent to act on the principal's behalf and subject to its control. [Citation]. The essential elements necessary to establish an agency relationship are (1) manifestation of consent by one person to another that the other shall act on his [or her] behalf and subject to his [or her] control, and consent by the other so to act. [Citation]. Although the existence of an agency relationship is typically a question of fact, where the essential facts are not in dispute, the existence of agency becomes a matter of law.” (Church Mut. Ins. Co., S.I. v. GuideOne Specialty Mut. Ins. Co. (2021) 72 Cal. App. 5th 1042, 1061–62 [cleaned up].)

Here, there is no evidence that Cross-Defendants were subject to the control of Crown City Capital. Although it is unclear, it appears they prepared the appraisal for the subject transactions in the Complaint. Standing alone, this is insufficient. Thus, Lukes’ bare assertion of an agency relationship is unsupported by allegations in either the Complaint or Cross-Complaint, or by any item to which this court can take judicial notice. Accordingly, this argument fails.

Finally, Lukes suggests Cross-Defendants can be compelled to arbitrate under an equitable estoppel theory. Under equitable estoppel, “as applied in ‘both federal and California decisional authority, a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are “intimately founded in and intertwined” with the underlying contract obligations.’ [Citations.] ‘By relying on contract terms in a claim against a nonsignatory defendant, even if not exclusively, a plaintiff may be equitably estopped from repudiating the arbitration clause contained in that agreement.’ [Citation.] (Id.)

Plaintiff presents no California authority in which a court used equitable estoppel to compel a nonsignatory Cross-Defendant to arbitrate a dispute with parties to the separate underlying Complaint. Indeed, Lukes’ discussion focuses merely on the logistics of two separate proceedings, such as the potential for inconsistent results and the waste of judicial resources. The concerns may be valid, but they are not factors to consider for equitable estoppel. This argument also therefore fails.

To conclude, this court is well aware of the federal and California policy favoring arbitration. “Even so, parties can only be compelled to arbitrate when they have agreed to do so.” (Avila v. S. California Specialty Care, Inc. (2018) 20 Cal. App. 5th 835, 843.) That agreement, express or implied, is lacking here.

As raised by Cross-Defendant in opposition, it would appear the options going forward lie in Code of Civil Procedure section 1281.2(d). That section addresses the situation such as here where a party is involved in concurrent litigation and arbitration both based on the same transaction.

In that case, the court “(1) may refuse to enforce the arbitration agreement and may order intervention or joinder of all parties in a single action or special proceeding; (2) may order intervention or joinder as to all or only certain issues; (3) may order arbitration among the parties who have agreed to arbitration and stay the pending court action or special proceeding pending the outcome of the arbitration proceeding; or (4) may stay arbitration pending the outcome of the court action or special proceeding.”

Under the circumstances here—where Defendant itself already stipulated to arbitrate the Complaint without consideration of the Cross-Complaint—the most appropriate course would be to stay the pending court action until the arbitration is resolved. At that point, the parties to the Cross-Complaint can litigate apportionment of fault before this court, if necessary.

Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept49@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.