Judge Ronald F. Frank, Case Number: 24TRCV00354, Date: 2024-08-01 Tentative Ruling

Judge: Ronald F. Frank, Case: 24TRCV00354, Date: 2024-08-01 Tentative Ruling

Case Number: 24TRCV00354 Hearing Date: August 1, 2024 Dept: 8

Tentative Ruling

HEARING DATE: August 1, 2024¿

CASE NUMBER: 24TRCV00354

CASE NAME: IZ & Co., Inc. v. Vinh Automobile Services, Inc., et al.

MOVING PARTY: Plaintiff, IZ & Co., Inc.

RESPONDING PARTY: Defendant, Vinh Automobile Services, Inc. dba Next Level Auto Center, et al.

TRIAL DATE: Not Set.

MOTION:¿ (1) Motion to Compel Arbitration

Tentative Rulings: (1) Deny. However, the Court will offer counsel at the hearing the option of orally arguing the very newly decided Quach case or having a brief continuance to consider and brief its effect.

I. BACKGROUND¿

A. Factual¿

On February 1, 2024, Plaintiff, IZ & Co., Inc. (“Plaintiff”) filed a complaint against Defendants, Vinh Automobile Services, Inc., a California corporation doing business as Next Level Auto Center, Ken Chang, Vinh Hoang, and DOES 1 through 10. The complaint alleges causes of action for: (1) Conversion; (2) Fraud (Deceit); (3) Breach of Written Contract; (4) Restitution for Unjust Enrichment/Quasi-Contract; (5) Breach of Implied Covenant of Good Faith and Fair Dealing; (6) Money Had and Received; and (7) Unfair Business Practices – Business & Professions Code § 17200.

Before the Court now is Plaintiff’s motion to compel Defendants, Vinh Automobile Services, Inc., dba Next Level Auto Center, Vingh Hoang, and Ken Chang (collectively, “Defendants”) to submit Plaintiff’s complaint and Defendants’ cross-action to arbitration pursuant to the parties’ contractual arbitration provision.

B. Procedural

On June 26, 2024, Plaintiff filed this motion to compel arbitration. On July 18, 2024, Defendants filed an opposition brief. On July 24, 2024, Plaintiff filed a reply brief.

II. EVIDENTIARY OBJECTIONS

Plaintiff’s Evidentiary Objections to Defendants’ Declaration of Scott Adrian and Ken Chang

Sustain: None – only because supplemental, signed declarations were subsequently filed.

Overrule: all.

III. ANALYSIS

A. Legal Standard

The Federal Arbitration Act (“FAA”) states that “[a] written provision in any . . . contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (9 U.S.C. § 2.) California law incorporates many of the basic policy objectives contained in the Federal Arbitration Act, which (until a 2024 SCOTUS decision) included a policy favoring arbitrability. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971-72.)

California law states that “[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 to the agreement refuses to arbitrate that 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….” (Code Civ. Proc, § 1281.2.) “The party seeking arbitration bears the burden of proving the existence of an arbitration agreement, and the party opposing arbitration bears the burden of proving any defense, such as unconscionability.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236.) Pursuant to Code of Civil Procedure §1281.2, generally, on a petition to compel arbitration, the court must grant the petition unless it finds either (1) no written agreement to arbitrate exists; (2)¿the right to compel arbitration has been waived; (3) grounds exist for revocation of the agreement; or (4) litigation is pending that may render the arbitration unnecessary or create conflicting¿rulings on common issues.

When seeking to compel arbitration, the initial burden lies with the moving party to demonstrate the existence of a valid arbitration agreement by preponderance of evidence. (Ruiz v. Moss Bros. Auto Group (2014) 232 Cal.App.4th 836, 841-42; Gamboa v. Northeast Community Clinic (2021), 72 Cal.App.5th 158, 164-65.) It is sufficient for the moving party to produce a copy of the arbitration agreement or set forth the agreement’s provisions. (Gamboa, 72 Cal.App.5th at 165.) The burden then shifts to the opposing party to prove by a preponderance of evidence any defense to enforcement of the contract or the arbitration clause. (Ruiz, 232 Cal.App.4th at 842; Gamboa, 72 Cal.App.5th at 165.) Subsequently, the moving party must establish with the preponderance of admissible evidence a valid arbitration agreement between the parties. (Ibid.) The trial court then weighs all the evidence submitted and uses its discretion to make a final determination. (Ibid.) Until last week, “California law, ‘like [federal law], reflect[ed] a strong policy favoring arbitration agreements and requires close judicial scrutiny of waiver claims.’” (Wagner Const. Co. v. Pacific Mechanical Corp. (2007) 41 Cal.4th 19, 31.)

The continuing viability of Wagner Construction in cases where the party opposing arbitration raises a waiver defense is now in question, in light of the California Supreme Court’s decision a few days ago in Quach v. California Commerce Club, Inc. (Cal., July 25, 2024, No. S275121) 2024 WL 3530266. In that very recent decision, filed after the briefing on this motion was completed, the California Supreme Court ruled that “in determining whether a party to an arbitration agreement has lost the right to arbitrate by litigating the dispute, a court should treat the arbitration agreement as it would any other contract, without applying any special rules based on a policy favoring arbitration.” (Quach, supra, 2024 WL 3530266, at *9.) The Quach Court also instructed trial courts that “there is no requirement that the party opposing enforcement of the contractual right demonstrate prejudice or otherwise show harm resulting from the waiving party's conduct.” (Id at *10.)

If the court orders arbitration, then the court shall stay the action until arbitration is completed. (See Code Civ. Proc., § 1281.4.)

B. Arbitration Agreement

Here, Plaintiff asserts that it has brought this motion to compel arbitration on the grounds that the subject Retail Installment Sales Contract contains an Arbitration provision. The parties do not disagree that an arbitration agreement is present in a contract between them. However, Defendants argue that Plaintiff has waived arbitration, and that not all of the claims contained in the lawsuit are subject to the arbitration agreement, and thus, the case is subject to the possibility of conflicting rulings on common factual or legal issues if others are forced into arbitration.

Pursuant to Code of Civil Procedure section 1281.2, subdivision (a), Defendants argue this Court should deny Plaintiff’s motion on the grounds that the right to compel arbitration has been waived by the petitioner. Defendants contend that Plaintiff is the first party to bring this lawsuit which was the first act inconsistent with an intent to invoke arbitration. Next, Defendants assert that Plaintiff also propounded seven (7) different types of discovery requests, with dozens of individual requests, and one (1) subpoena for bank records, Plaintiff threatened motions to compel discovery – all argued by Defendants as substantial engagement in the litigation process inconsistent with a party wishing to invoke arbitration. Defendants also argue that Plaintiff unreasonably delayed seeking arbitration and thus, engaged in gamesmanship by seeking arbitration only after a cross-complaint was filed and only after several discovery issues arose. Defendants assert that Plaintiff’s actions constitute the type of situation in which courts have found prejudice to exist – when the petitioning party uses/participates in litigation to get information and then petitions for arbitration when it faces having to give discovery responses.

In its reply brief, Plaintiff argues that although there is no single test for the type of conduct which may waive arbitration rights, the conduct must have caused prejudice to the opposing party. Plaintiff asserts that Defendants have not suffered any prejudice, and that the discovery previously propounded by it was scant, and Defendants did not respond to the Requests for Production of documents. Plaintiff emphasizes that it has not even filed a responsive pleading to the Cross-Complaint because the instant motion is pending and the case is still in its infancy.

Applying the Quach case to fact presented here, one might argue that Plaintiff finds itself in the same position as defendant Commerce Club did in Quach, i.e., “Rather than moving to compel arbitration at the outset of the case, Commerce Club answered the complaint and propounded discovery requests, suggesting it did not intend to seek arbitration.” (Quach, supra, 2024 WL 3530266, at *11.) Here, Plaintiff had the option of selecting its chosen forum “at the outset.” Given that the word “arbitration” appears in the very caption of the subject retail installment sales contract, Plaintiff can hardly claim now that it failed to realize that there was an arbitration provision when Plaintiff selected the court system to resolve its dispute with defendants rather than selecting an arbitration forum. Not only did Plaintiff eschew arbitration at the outset, it deployed a series of discovery procedures available in the court system, like the moving party in the Quach case. The parties briefed and argued the claimed prejudice or lack of prejudice suffered by Defendants, but under Quach the purported prejudicial impact of delaying to move to compel arbitration is no longer a factor for the Court to consider. Arbitration agreements are now on the same footing as any other contract for purposes of considering a waiver defense to arbitration of a litigated dispute, with no special rules for arbitration contracts as had been the directive of many published decisions before last week’s.

The Court will offer counsel at the hearing the option of orally arguing this newly decided case or having a brief continuance to consider and brief its effect, particularly since the Court’s tentative after considering Quach is to find waiver by conduct and deny the motion.

Next, Plaintiff also argues that the allegations and causes of action in the complaint are each bound by arbitration. Here, the arbitration agreement provides that the parties are to arbitrate “any claim or dispute, whether in contract, tort, statute or otherwise…which arises out of or relates to [Plaintiff’s] credit application, purchase or condition of this vehicle…” (Plaintiff’s Motion, Exhibit A.) In opposition, Defendants argue that the claims contained in this lawsuit are not all subject to the arbitration agreement and that since some of the causes of action would remain out of arbitration, the case is subject to the possibility of conflicting rulings on common factual and legal issues.

For example, Defendants note that though Defendant Ken Chang signed the arbitration agreement on behalf of Next Level Auto Center, Defendant Vinh Houng did not, and is therefore arguably not subject to being ordered into arbitration. Pursuant to Code of Civil Procedure § 1281.2(c), “[a] party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact. For purposes of this section, a pending court action or special proceeding includes an action or proceeding initiated by the party refusing to arbitrate after the petition to compel arbitration has been filed, but on or before the date of the hearing on the petition.” (Cal. Code Civ. Proc. § 1281.2(c).) This issue is not addressed by Plaintiff in its reply brief. As such, the Court requires oral argument on this topic during the hearing. The Court has jurisdiction to send some of the defendants to arbitration and stay the case pending that resolution. However, the Court would like to hear Plaintiff’s arguments as to severing the arbitrable issue/parties or keeping everything together.