Judge: Stephen P. Pfahler, Case: 22CHCV00382, Date: 2023-04-06 Tentative Ruling

Case Number: 22CHCV00382    Hearing Date: April 6, 2023    Dept: F49

Dept. F-49

Date: 4-6-23

Case #22CHCV00382

Trial Date: N/A

ARBITRATION

MOVING PARTY: Defendants, Aqua Blue Construction, Inc., et al.

RESPONDING PARTY: Plaintiffs, Kristen and Alfredo Galvan

RELIEF REQUESTED

Motion to Compel Arbitration

SUMMARY OF ACTION

Plaintiffs Kristen and Alfredo Galvan allege defendants Aqua Blue Construction, Inc., and Britton Julien entered into a contract for installation of a swimming pool and hardscape improvements to Plaintiffs’ home without a valid contractors license, due to the failure to maintain workers compensation insurance. Plaintiffs also allege the construction project was defectively completed.

On May 27, 2022, Plaintiffs filed a complaint for Breach of Contract, Negligence, Negligence Per Se, Breach of Implied Covenant of Good Faith and Fair Dealing, Breach of Express Warranty, and Recovery on Contract’s License Bond. On December 8, 2022, Aqua Blue Construction, Inc., and Britton Julien filed a cross-complaint against the Galvans for Breach of Written Contract, Defamation, and Fraud and Deceit. On December 22, 2022, American Contractors Indemnity Co. answered the complaint and filed a cross-complaint against Aqua Blue Construction, Inc., and the Galvans for Interpleader and Injunctive Relief.

On February 27, 2023, the court deemed the subject action and Aqua Blue Construction, Inc., et al. v. John Goshorn 22CHCV00392 NOT related. On March 20, 2023, Plaintiffs filed their first amended complaint without leave of court. On April 4, 2023, the court sustained the demurrer to the complaint and deemed the first amended complaint filed.

Meanwhile, on March 24, 2023, the court entered the parties’ stipulation whereby American Contractors Indemnity Company agreed to interplead the $15,000 in funds on the bond. Upon the completion of the deposit, American Contractors Indemnity Company will be dismissed from the complaint and will dismiss its own cross-complaint.

RULING: Granted.

Defendants, Aqua Blue Construction, Inc. and Britton Julien moves to compel arbitration. Defendants cite to the arbitration provision in the construction contract, and maintain all causes of action are subject to arbitration. Defendants deny any waiver of the right to seek arbitration or basis for revocation. Plaintiffs Kristen and Alfredo Galvan in opposition challenge the application of the clause to the subject dispute based on waiver due to prior litigation on the action, and a lack of applicability of the contract terms to compelling arbitration. Plaintiffs also challenge the joinder of any non-signatory third party subcontractors, defendant surety companies, and non-signatory Alfredo Galvan to the arbitration. Defendants in reply describes the chronological circumstances leading to the motion, and denies any waiver. Defendants also defend their decisions to answer and file a cross-complaint rather than waive said rights while waiting for the arbitration hearing. Defendants challenge the legal and factual basis of Plaintiffs’ arguments. Finally, Defendants deny any prejudice.

The Arbitration Clause

In a motion to compel arbitration, the moving party must prove by a preponderance of evidence the existence of the arbitration agreement and that the dispute is covered by the agreement. The burden then shifts to the resisting party to prove by a preponderance of evidence a ground for denial (e.g., fraud, unconscionability, etc.). (Rosenthal v. Great Western Fin'l Securities Corp. (1996) 14 Cal.4th 394, 413-414; Hotels Nevada v. L.A. Pacific Ctr., Inc. (2006) 144 Cal.App.4th 754, 758.) Defendants in oral argument cited recent case law regarding the three step process for moving party to establish an enforceable arbitration agreement. (Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 164–165.) The first step requires either presentation of a written agreement to arbitrate, or presentation of terms without dispute from the opposing party. (Id., at p. 165.)

The motion comes under the presumption that the dispute arises from the construction of the pool and outdoor hardscape, and is therefore subject to arbitration. The scope of the arbitration itself depends on the interpretation of the parties’ agreement. The operative section of the arbitration clause provides in part: “Buyers and Aqua Blue Construction, Inc. agree that any and all disputes regarding any provision contained in this agreement or any work performed by Aqua Blue Construction,, any of its sub-contractors, or agents, shall be adjudicated by private arbitration.” [Declaration of K.W. Kampe, Ex. 1.] The existence and execution of the arbitration agreement itself is not in dispute. Theresa Galvan’s assent to the agreement also remains undisputed. The court therefore considers whether the dispute is covered by the agreement.

The first amended complaint itself arises from the contract for improvements to the real property, whereby the work done was performed by an unlicensed contractor, who hired unqualified laborers and subcontractors, thereby leading to substandard work. The operative complaint incorporates allegations regarding reports to the Contractors State Licensing Board.

The opposition presents a counter narrative regarding the complaints to the Contractors State Licensing Board. Plaintiffs also cite to an Accusation filed by the California Attorney General, which is not part of the subject action, and an impending special motion to strike the cross-complaint of Aqua Blue Construction, Inc., and Britton Julien currently set for hearing on May 30, 2023.

The opposition lacks a sufficient nexus between the existence of the California Attorney General filed Accusation and its impacts on the subject action and motion. Nothing in the opposition alleges any potential restitution to Plaintiffs. Even if the action were pertinent, nothing establishes a bar to the arbitration. Should the Attorney General impact either the adjudication of the action, if it remains with the court, or whether it potentially impacts the arbitration, either such result constitutes an issue for either the court or the arbitrator to address at a later date. In other words, the court finds no impact to the motion from the filed Accusation and declines to indefinitely postpone consideration based on an unknown impact. The cross-complaint and pending special motion to strike also constitutes an item that may or may not be subsumed within the arbitration given the claims arise from the parties underlying transaction.

“Private arbitration is a matter of agreement between the parties and is governed by contract law. (Platt Pacific, Inc. v. Andelson (1993) 6 Cal.4th 307, 313; Jones v. Jacobson (2011) 195 Cal.App.4th 1, 17.) Contracts are interpreted under certain rules.

“‘A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.’ (Civ. Code, § 1636.) ‘The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity.’ (Civ. Code, § 1638.) ‘When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible; subject, however, to the other provisions of this Title.” (Civ. Code, § 1639.) “The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.’ (Civ. Code, § 1641.) ‘A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties.’ (Civ. Code, § 1643.) ‘The words of a contract are to be understood in their ordinary and popular sense, rather than according to their strict legal meaning; unless used by the parties in a technical sense, or unless a special meaning is given to them by usage, in which case the latter must be followed.’ (Civ. Code, § 1644.) ‘However broad may be the terms of a contract, it extends only to those things concerning which it appears that the parties intended to contract.’ (Civ. Code, § 1648.) ‘Repugnancy in a contract must be reconciled, if possible, by such an interpretation as will give some effect to the repugnant clauses, subordinate to the general intent and purpose of the whole contract.’ (Civ. Code, § 1652.) ‘Stipulations which are necessary to make a contract reasonable, or conformable to usage, are implied, in respect to matters concerning which the contract manifests no contrary intention.’ (Civ. Code, § 1655.)”

(Siligo v. Castellucci (1994) 21 Cal.App.4th 873, 880–881.)

“A contract term should not be construed to render some of its provisions meaningless or irrelevant.” (Estate of Petersen (1994) 28 Cal.App.4th 1742, 1754 (footnote 4).) “A well-settled maxim states the general rule that ambiguities in a form contract are resolved against the drafter. (Citations.) But that is a general rule; it does not operate to the exclusion of all other rules of contract interpretation. It is used when none of the canons of construction succeed in dispelling the uncertainty.” (Oceanside 84, Ltd. v. Fidelity Federal Bank (1997) 56 Cal.App.4th 1441, 1448.)

The purpose of the allegations regarding unlicensed contractor work support a potential claim barring Aqua Blue from recovering compensation for work valued at over $500 under California Business and Professions Code section 7031. Plaintiffs may also seek disgorgement. [First Amend. Comp., ¶ 33.] While the first cause of action for declaratory relief alleges the violation, the second claims lack incorporations though the remainder of the claims reference it. [First Amend. Comp., ¶ 36.]  

To the extent the first amended complaint both alleges faulty work AND a challenge to any right to collect payment for any of the work done under Business and Professions Code section 7031, the court finds any distinction in interpreting the claims relative to the arbitration agreement presents an insufficient distinction. All claims remain intertwined and integral. The plain language of the arbitration clause requires submission for work performed, and the agreement itself constitutes an agreement for payment of said work. A defense to payment of the work performed constitutes a dispute subsumed within the agreement. The court therefore finds a basis to compel arbitration between Defendants and Theresa Galvan.

Waiver

Waiver generally occurs upon a finding of prejudice against the challenging party. Examples include the propounding discovery or service of an answer, where such action reveals the strategies or theories that would not otherwise be available to the party in arbitration. (Berman v. Health Net (2000) 80 Cal. App. 4^th 1359, 1367; Davis v. Continental Airlines, Inc. (1997) 59 Cal. App. 4^th 205, 212.) Where an agreement lacks a specific time frame, an excessive and unreasonable delay in a demand for arbitration can support a finding of a waiver. (Spear v. California State Auto. Assn. (1992) 2 Cal.4th 1035, 1043; Allstate Ins. Co. v. Gonzalez (1995) 38 Cal.App.4th 783, 790.) “‘[W]hat constitutes a reasonable time is a question of fact, depending on the situation of the parties, the nature of the transaction, and the facts of the particular case.’ Among the facts a court may consider is any prejudice the opposing party suffered because of the delay. [Citation.]” (Spear v. California State Auto. Assn. supra, 2 Cal.4th at 1043.) The determination of diligence applicable to an arbitration motion commences upon the filing of the action. (Allstate Ins. Co. v. Gonzalez, supra, 38 Cal.App.4th at 790; Schumpert v. Tishman Co. (1988) 198 Cal.App.3d 598, 603.)

The Galvans filed the subject complaint May 27, 2022, and the motion to compel arbitration was filed on February 10, 2023. In the interim, the cross-complaints were filed, as well as Defendants demurrer to the complaint, and the special motion to strike the cross-complaint of Plaintiffs/Cross-Defendants. The notice of related cases was also briefed. Following the filing of the motion to compel arbitration and prior to any substantive ruling on the demurrer, Plaintiffs elected to file a first amended complaint, which the court accepted.

The subject court of events in no way demonstrates an improper course of conduct supporting an argument for waiver under the circumstances. An answer prevents entry of a default. The filing of the cross-complaint preserved potential rights, which may be subsumed into arbitration. While the filing of the demurrer itself very well could have supported the finding of a waiver, if Plaintiffs actually opposed the demurrer thereby providing potential exposure of both strategy and supporting a finding of demonstrated intent against arbitration, the filing of the amended complaint in lieu of an opposition demonstrates minimal prejudice. The court order sustaining the demurrer deeming the first amended complaint filed constituted a pro forma ruling without substantial consideration of any merits on the action. The filing of a supplemental brief regarding a related case already in arbitration also lacks a demonstrated showing of action contrary to the intent to seek arbitration. The incurrence of attorney fees by the parties is not a recognized form of prejudice for arbitration standards. Finally, the parties have not otherwise presented any discovery disputes, and nothing in the opposition suggests any service of discovery, thereby truly supporting the claimed prejudice as a result. The mere delays in calendaring will not constitute a basis for a finding of prejudice absent proof of actual conduct demonstrating a material disadvantage to Plaintiffs. (Christensen v. Dewor Developments (1983) 33 Cal.3d 778, 781–784.) The court therefore finds no showing of prejudice notwithstanding the time frame, filing of the cross-complaint, filing of the demurrer, filing of a supplemental brief on related cases, and incurrence of attorney fees.

Non-Signatory Parties

Plaintiffs next challenge the arbitration involving the surety, subcontractors, and plaintiff Alfredo Galvan. As a matter of court policy, the court prefers to send all parties to arbitration, rather than engage in piecemeal litigation. “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: … (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...” (Code Civ. Proc., § 1281.2.)

The court declines to consider any claims involving unnamed parties, such as the subcontractors. On March 24, 2023, the court entered the parties’ stipulation whereby American Contractors Indemnity Company agreed to interplead the $15,000 in funds on the bond. Upon the completion of the deposit, American Contractors Indemnity Company will be dismissed from the complaint and will dismiss its own cross-complaint. The court finds no basis compelling American Contractors Indemnity Company into arbitration given the stipulated interpleader of funds, and planned dismissal of American Contractors Indemnity Company from the entire action. The arbitrator can determine any right to collect on the surety bonds, if necessary. (See Civ. Code, §§ 2807-2808.)

This only leaves Alfredo Galvan. While arbitration agreements may only be generally compelled by parties to the agreement, the doctrine of equitable estoppel allows for a non-signatory party to compel arbitration “‘when the causes of action against the nonsignatory are “intimately founded in and intertwined” with the underlying contract obligations.’” (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1237; Felisilda v. FCA US LLC (2020) 53 Cal.App.5th 486, 495-496; Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 217-218; Crowley Maritime Corp. v. Boston Old Colony Ins. Co. (2008) 158 Cal.App.4th 1061, 1070 [Under equitable estoppel, a party cannot avoid participation in arbitration, where the party received “a direct benefit under the contract containing an arbitration clause…”]; Boucher v. Alliance Title Co, Inc. (2005) 127 Cal.App.4th 262, 271.) Alfredo Galvan is both a party to the action, and a direct beneficiary or victim of the work performed by Defendants via the work performed at the Galvan home. Creating a fiction between Alfredo and Theresa on grounds that Alfredo never initialed the agreement defies the policy for joinder of non-signatory parties in such situations.

Special Motion to Strike

The court finally considers the impact of the calendared special motion to strike. As it was filed by Plaintiffs on the cross-complaint, the court finds no basis of prejudice in that Plaintiffs are opposing the motion to arbitrate. Nevertheless, whether the cross-complaint becomes part of the arbitration as well, or the special motion to strike remains on calendar presents a separate question.

The special motion to strike statute itself only places a stay on discovery. The instant special motion to strike was actually filed two days prior to the motion to compel arbitration, yet was not reserved until well after the instant scheduled hearing. Neither party presents any authority, and the court could not find anything on point regarding whether a special motion to strike stays on calendar in the case of a preceding motion to compel arbitration.

A review of the cross-complaint subject to the special motion to strike apparently arises from both the underlying contract, which clearly places it subject to arbitration, but also includes defamation and fraud causes of action, which appear based on statements made to the Contractors State License Board as part of Plaintiffs’ challenge to demand for payment and sought after restitution. The court declines to consider whether the cross-complaint remains subject to the anti-SLAPP statute for purposes of the subject motion, but finds all causes of action in the cross-complaint sufficiently congruent with the complaint as to render it subject to arbitration.

The court therefore finds a basis for compelling arbitration between Plaintiffs and Defendants, not including the dismissed or soon to be dismissed surety company. The agreement itself only requires private, neutral arbitration with no other criteria. In the absence of selection criteria, the court cites to the applicable code section:

If the arbitration agreement does not provide a method for appointing an arbitrator, the parties to the agreement who seek arbitration and against whom arbitration is sought may agree on a method of appointing an arbitrator and that method shall be followed. In the absence of an agreed method, or if the agreed method fails or for any reason cannot be followed, or when an arbitrator appointed fails to act and his or her successor has not been appointed, the court, on petition of a party to the arbitration agreement, shall appoint the arbitrator.

(Code Civ. Proc., § 1281.6.)

The participating parties are to select an arbitration organization and/or individual arbitrator. If the parties cannot agree on an organization, or arbitrator, the court orders the parties to submit a list of one to two organizations and/or arbitrators from each party, where the court will select the organization or individual. The parties have 30 days from the date of this order to begin the selection process, with any proposed list due the day after the lapse of the 30 day period. (Code Civ. Proc., § 1281.6.)

“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.” (Code Civ. Proc., § 1281.4.) The action is stayed.

Again, given the court cannot find a determinative procedural basis for separately considering the special motion to strike, the court finds the cross-complaint becomes subsumed within the arbitration. The parties may present the issue of the cross-complaint and special motion to strike before the arbitrator for a determination. The timeliness of the special motion to strike remains intact during the stay, and pending any potential return following arbitration. Plaintiff may also appeal this order.

The court will set an OSC re: Status of Arbitration at the time of the hearing. The pending demurrer and special motion to strike are off-calendar, as part of the stay.

Defendants to give notice to all parties.