Judge: Stephen P. Pfahler, Case: 22CHCV00392, Date: 2022-12-28 Tentative Ruling

Case Number: 22CHCV00392    Hearing Date: December 28, 2022    Dept: F49

Dept. F-49

Date: 12-28-22 c/f 11-15-22 a/f 2-7-23 (10-13-22 ex parte order)

Case #22CHCV00392

Trial Date: N/A

ARBITRATION

MOVING PARTY: Defendant/Cross-Complainant, John Goshorn

RESPONDING PARTY: Plaintiffs/Cross-Defendants, Aqua Blue Construction, Inc., et al.

RELIEF REQUESTED

Motion to Compel Arbitration

SUMMARY OF ACTION

Plaintiffs Aqua Blue Construction, Inc., and Britton Julien allege Defendant John Goshorn failed to pay a remaining balance of $32,305 for construction of a pool and spa. The balance arises as a result change orders, which Plaintiffs allege Defendant requested knowing Defendant lacked the ability to pay the changes. Plaintiffs additionally contend that Defendants submitted a “fraudulent insurance claim containing” on the construction bond representing the construction delays were the fault of Plaintiffs. According to Plaintiffs: the construction was still completed; the claim on the bond was denied.

On May 31, 2022, Plaintiffs filed a complaint for Breach of Contract, Common Counts, and Fraud. On August 15, 2022, Goshorn filed a cross-complaint for Declaratory Relief, Breach of Written Contract, Fraud and Deceit, Negligence, Contracting without a License, and Recovery on Contractor’s License Bond against, Aqua Blue, Britton, Hanover Insurance Company, the North River Insurance Company, and Old Republic Surety. The cross-complaint alleges an alternative narrative regarding the basis of the construction delays, and claimed balance due.

On September 30, 2022, Old Republic Surety Company filed a cross-complaint for Interpleader. On October 4, 2022, The North River Insurance Company filed a cross-complaint for Express Indemnity, Implied Indemnity, Statutory Reimbursement, and Contribution against the Aqua Blue and Britton Julien.

On November 18, 2022, and December 5, 2022, Goshorm dismissed The North River Insurance Company from the cross-complaint, and The North River Insurance Company dismissed its cross-complaint against Aqua Blue and Julien. Meanwhile, on November 21, 2022, the court entered the stipulation of the parties for Old Republic Surety Company to interplead all $15,000 of bond funds.

RULING: Granted.

Request for Judicial Notice of Old Republic Surety Company: Granted.

Defendant/Cross-Complainant, John Goshorn moves to compel arbitration. Goshorn cites to the arbitration provision in the construction contract, and maintain all causes of action are subject to arbitration. Plaintiffs Aqua Blue Construction, Inc., and Britton Julien in opposition challenge the application of the clause to the subject dispute based on both an issue of licensure status of the corporate entity, and a third party case against Aqua Blue Construction, Inc., and Britton Julien. Goshorn in reply challenges any reliance on the unrelated third party case.

The complaint itself alleges that Plaintiffs sought arbitration, and Goshorn refused to participate. Goshorn counters the allegation regarding arbitration was conditioned on the dismissal of four causes of action within the cross-complaint. Regardless of the allegations and sought after terms and conditions of the parties, the court considers the standard.

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.)

“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… shall be adjudicated by private arbitration.” [Declaration of John Goshorn, Ex. A.] The existence and execution of the arbitration agreement itself is not in dispute. The court therefore considers whether the dispute is covered by the agreement.

The motion apparently comes under the presumption that the dispute arises from the construction of the pool and outdoor hardscape, and is therefore subject to arbitration. The opposition presents a counter narrative regarding the collateral circumstances raised in the cross-complaint, thereby leading to argument challenging application of the arbitration clause.

Aqua Blue begins with a discussion of pre-construction inquiry by the Contractors State Licensing Board (CSLB) regarding a lack of workers’ compensation insurance to which Aqua Blue maintained it was entitled to an exemption. Aqua Blue then follows with a reference of a third party report during or after the completion of construction, which led to the initiation of a disciplinary hearing by the CSLB regarding whether Aqua Blue employed any persons thereby requiring a workers’ compensation policy.

As for the source of the report and subsequent action by the CSLB, Aqua Blue references a second case entitled Kriste and Alfredo Galvan v. Aqua Blue Constructions, Inc., et al. (22CHCV00382), which Aqua Blue represents as containing similar claims and allegations as the cross-complaint regarding work without a license. The Galvan complaint was filed before the subject action by different counsel. As referenced above, the Galvans are also parties to the separate proceeding brought by the CSLB.

Plaintiffs maintain the totality of the circumstances ostensibly presents a potential situation for potential conflicting rulings under Code of Civil Procedure section 1281.2, subdivision (c) in that the Galvan’s report to the CSLB and pending action, pending separate complaint of the Galvans, and Goshorn cross-complaint due to the disparate proceedings. Plaintiffs also contend the licensure arguments pending before the CSLB and the parties’ actions render enough of the action outside the scope of the arbitration clause itself. The licensure claims permeate the first, second, third and fifth causes of action in the operative Goshorn cross-complaint.

In considering the scope of the arbitration clause itself, the court declines to consider any potential issues arising from the other action. The court also declines to consider any pending investigation, hearing or potential conclusions of the CSLB for purposes of determining the validity of the arbitration clause brought by the unrelated parties.

The complaint itself remains subject to the arbitration clause in that payment for completion of the improvement project remains outstanding. The operative cross-complaint frames the opposition arguments in that Defendant/Cross-Defendant presents numerous allegations regarding representation of a contracting business exempt from workers’ compensation requirements and operated as a licensed contractor in the introduction, and first, third, and fifth causes of action. [Cross-Comp., ¶¶ 25-30, 34-41, 57-60, .] The purpose of the allegations in the Goshorn cross-complaint present a claim that as an unlicensed contractor, Aqua Blue cannot recover compensation for work valued at over $500 under California Business and Professions Code section 7031, and seeks disgorgement. [Cross-Comp., ¶¶ 42-43, 61, 70-73.] The second and fourth causes of action for breach of contract and negligence challenge the charges in excess of the initial contract price and workmanship. The sixth cause of action seeking to collect on the contractors bond lacks any nexus with the alleged licensure claim.

To the extent Aqua Blue and Julien seek to collect on the balance due, the status of its right to demand payment depends on licensure status under Business and Professions Code section 7031. The court therefore finds the argument for disparate treatment of both the right to collect—an undisputed term subject to arbitration—versus issues challenging the right to collect due to licensure status, constitutes an inextricable distinction. In other words, the plain meaning of the arbitration clause includes claims for outstanding payments, which directly relates to the right to collect said outstanding claimed balance. The issue of whether Aqua Blue operated properly without workers’ compensation insurance or not as it relates to the disputed fees subject to arbitration remains integral. The court finds no basis for a conflicted ruling. The court therefore finds a basis to compel arbitration between Goshorn, Aqua Blue, and Julien.

Plaintiffs otherwise present no request to delay the arbitration pending resolution of the disciplinary hearing. The court declines to deny arbitration based on an outside proceeding.

In the prior order, the court noted the lack of address of the contractor bond companies. The court ordered supplemental briefing regarding these parties.

Following the prior order, on November 18, 2022, and December 5, 2022, Goshorm dismissed The North River Insurance Company from the cross-complaint, and The North River Insurance Company dismissed its cross-complaint against Aqua Blue and Julien. Meanwhile, on November 21, 2022, the court entered the stipulation of the parties for Old Republic Insurance Company to interplead all $15,000 of bond funds.

Moving party Goshorn contends nothing in the motion seeks to compel any bond surety into arbitration. Goshorn represents that Old Republic Surety, The North River Insurance Company, and Hanover Insurance Company all appear as bond sureties, and not insurers. Goshorn addresses the stipulation regarding Old Republic for the interpleader of funds, and the dismissal of North River. As for Hanover, Goshorn contends it should be compelled to join, while alternatively stating that Hanover is not a necessary party to arbitration in its role as a surety.

Old Republic in its supplemental brief maintains that the stipulation to interplead the $15,000 in bond funds renders any need for participation by Old Republic moot. Old Republic otherwise denies any basis compelling its participation in arbitration on grounds that it was never a contracting party, and it in no way acts as an “insurer” for purposes of the subject action. [Declaration of Carlos Sosa.]

The court finds no basis compelling Old Republic into arbitration given the interpleader of funds, and therefore no further necessity for involvement with the adjudication of the action. The dismissal of both The North River Insurance Company from the Goshorn cross-complaint, and The North River Insurance Company dismissal of its cross-complaint against Britton and Aqua Blue also renders them a non-party to any future proceedings. This only leaves Hanover Insurance Company, which again is represented by Plaintiffs’ counsel.

Hanover in its supplemental brief acknowledges its participation only as a surety bond issuer as well. Consistent with the findings for Old Republic and The North River Insurance Company, the court orders arbitration without the participation of Hanover as well. The arbitrator will determine any right to collect on the surety bonds, if necessary. (See Civ. Code, §§ 2807-2808.)

The court therefore orders the remaining parties—Britton, Aqua Blue, and Goshorn—into arbitration. The parties may raise any issues regarding any pending investigation with the CSLB and/or the other pending action with the arbitrator.

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.

The court will set an OSC re: Status of Arbitration at the time of the hearing. The concurrent demurrer will go off-calendar.

Goshorn to give notice to all parties.