Judge Teresa A. Beaudet, Case 21STCV15469 2022-08-29 Tentative Ruling

Plaintiff Leart, Inc. (“Plaintiff”) filed this action on April 23, 2021 against the Gemological Institute of America, Inc. (“GIA”) and Those Certain Underwriters at Lloyd’s, Longon (“Lloyd’s”) (jointly, “Defendants”). The operative First Amended Complaint (“FAC”) was filed on December 23, 2021, and asserts causes of action for (1) res ipsa loquitur, (2) negligence, (2) fraudulent inducement, (4) breach of insurance contract (failure to provide insurance), (5) breach of warranty of fitness of purpose, (6) trespass to chattel, (7) breach of insurance contract, and (8) breach of the implied covenant of good faith.[1]

GIA now moves for an order compelling arbitration and staying this action. Plaintiff opposes.

The Court rules on Plaintiff’s evidentiary objections to the Declaration of Arthur Wellman dated April 7, 2022 as follows:

The Court rules on Plaintiff’s evidentiary objections to the Declaration of Arthur Wellman dated June 23, 2022 as follows:

The Court rules on Plaintiff’s evidentiary objections to the Declaration of Christina D. Yates, as follows:

Objection 2: overruled. This objection references the Declaration of Arthur Wellman, Esq. signed June 23, 2022, not the Declaration of Christina D. Yates.

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. Securities Corp. (1996) 14 Cal.4th 394, 413.)

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. ((Code Civ. Proc., § 1281.2); (Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218-219.)

“[I]n the context of a petition to compel arbitration,¿‘it is not necessary to follow the normal procedures of document authentication.’” (Espejo v. Southern California Permanente Medical Group¿(2016) 246 Cal.App.4th 1047, 1058 (Espejo)); (see Cal. Rules of Court, rule 3.1330: “A petition to compel arbitration . . . must state . . . the provisions of the written agreement and the paragraph that provides for arbitration. The provisions must be stated verbatim or a copy must be physically or electronically attached to the petition and incorporated by reference.”) The Espejo Court noted that in Condee v. Longwood Management Corp.¿(2001) 88 Cal.App.4th 215, the court “concluded that by attaching a copy of the agreement to its petition, defendants had satisfied their initial burden of establishing the existence of an arbitration agreement.” (Espejo v. Southern California Permanente Medical Group, supra, 246 Cal.App.4th at p. 1058.)

GIA submits that Plaintiff entered into an agreement with GIA on November 25, 2019 (the “Client Agreement”), which provides, inter alia, that “except as expressly provided below in this Section 24 (Dispute Resolution and Arbitration/Class Action Waiver Provision), all disputes, suits, actions, and claims (‘Disputes’) related to or arising out of this Agreement shall be resolved by binding arbitration as provided in this Section 24 (Dispute Resolution and Arbitration/Class Action Waiver Provision). The parties acknowledge that, except with respect to GIA’s rights regarding Special Disputes (as defined below), they are waiving their right to bring claims and seek remedies in court, including the right to a jury trial, and that their disputes will be resolved by arbitrators, not a court.” (Wellman Decl., ¶ 2, Ex. 2, § 24.)

GIA asserts that all of the causes of action alleged in the FAC arise out of and relate to the Client Agreement (See Mot. at p. 7:1-10:19.) This does not appear to be disputed by Plaintiff.

Based on the foregoing, the Court finds that GIA has established that an arbitration agreement exists and that it covers the claims asserted against GIA by Plaintiff in this lawsuit.

Plaintiff contends that the motion should be denied for a number of reasons. First, Plaintiff asserts that the instant amended motion is untimely under Code of Civil Procedure section 1281.5, subdivision (b). But as GIA notes, Code of Civil Procedure section 1281.5 applies to actions to enforce certain liens and is thus inapplicable. Code of Civil Procedure section 1281.5, subdivision (b) provides in part, “[w]ithin 30 days after service of the summons and complaint, the claimant shall file and serve a motion and notice of motion pursuant to Section 1281.4 to stay the action pending the arbitration of any issue, question, or dispute that is claimed to be arbitrable under the agreement and that is relevant to the action to enforce the claim of lien.” (Emphasis added, see also Code Civ. Proc., § 1281.5, subd. (a), “[a]ny person who proceeds to record and enforce a claim of lien by commencement of an action…does not thereby waive any right of arbitration the person may have pursuant to a written agreement to arbitrate, if, in filing an action to enforce the claim of lien, the claimant does either of the following…”)

Second, Plaintiff notes that Section 22 of the Client Agreement provides in part, “You agree that this Agreement, any Dispute (as defined below) arising under or which is related to this Agreement (whether in contract, tort, or otherwise), and the validity, performance, and interpretation of this Agreement shall be governed by and construed in all respects under the laws of the United States of America and the State of California, USA, without giving effect to its conflicts of law principles.” (Wellman Decl., ¶ 2, Ex. 2, § 22.) Plaintiff asserts that “the agreement expressly invokes both state and federal law to govern the interpretation, validity and enforceability of the agreement, without regard to the conflict of laws statutes. That alone

creates an irreconcilable conflict.” (Opp’n at p. 9:6-10.) But Plaintiff does not cite to legal authority to support this point.

Plaintiff also asserts that “[w]hen the parties include an irreconcilable ambiguity that affects the arbitration provision, and the arbitrator is not authorized [sic] the interpret the agreement, a trial court must invalidate the agreement to arbitrate because the agreement would otherwise have to be impermissibly re-written to resolve the conflict.” (Opp’n at p. 9:25-10:1.) In support of this assertion, Plaintiff cites to a number of cases. (Opp’n at p. 10:1-4.) First, Plaintiff cites to Mount Diablo Med. Ctr. v. Health Net of Cal. (2002) 101 Cal.App.4th 711, but in that case, the Court of Appeal found that “the FAA leaves room for states to enact some rules affecting arbitration. State laws that apply to contracts generally can be applied to arbitration agreements, but courts may not . . . invalidate arbitration agreements under state laws applicable only to arbitration provisions.” ((Id. at p. 718 [internal quotations, citations, and emphasis omitted].) The cited cases Bravo v. RADC Enterprises, Inc. (2019) 33 Cal.App.5th 920, Nixon v. AmeriHome Mortgage Co., LLC (2021) 67 Cal.App.5th 934, Mastrobuono v. Shearson Lehman Hutton (1995) 514 U.S. 52, and Wolsey, Ltd. v. Foodmaker, Inc. (9th Cir. 1998) 144 F.3d 1205 do not discuss invalidating arbitration agreements, and Plaintiff’s opposition does not contain any discussion regarding how all of the foregoing cases apply here. Moreover, Wolsey is nonbinding.

Third, Plaintiff contends that the “notice of motion was defective because it was ambiguous or vague for failing to elect/chose [sic] which law it seeks to apply to definitively compel arbitration.” (Opp’n at p. 11:9-12.) But Plaintiff does not cite to any legal authority to support this assertion.

Fourth, Plaintiff asserts that the Client Agreement between GIA and Plaintiff superseded a previous Client Agreement between GIA and “Lazar Diamonds,” and that the Client Agreement between GIA and Plaintiff thus controls. But the Court does not see how this impacts the analysis of the instant motion, as Plaintiff states, “GIA required Plaintiff to sign a GIA ‘Client Agreement,’…That ‘Client Agreement’ appears to have the exact same terms as the one that Plaintiff’s agent executed over a month earlier and relates to the Plaintiff’s gemstone.” (Opp’n at p. 6:25-28.) Thus, the arbitration provisions in the two agreements appear to be the same.

Fifth, Plaintiff contends that GIA waived the right to arbitration because it delayed in invoking arbitration and “worked to obtain unfair advantages in discovery and on legal issues over Plaintiff prior to moving to compel arbitration.” (Opp’n at p. 14:5-8.)

Plaintiff cites to Kokubu v. Sudo (2022) 76 Cal.App.5th 1074, 1084, where the Court of Appeal found that “no single test delineates the nature of the conduct that will constitute a waiver of arbitration. Rather, given the variety of contexts in which waiver may be found…the following six factors (the St. Agnes factors) are relevant to determining whether waiver has occurred: (1) whether the party’s actions are inconsistent with the right to arbitrate; (2) whether the litigation machinery has been substantially invoked and the parties were well into preparation of a lawsuit before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place; and (6) whether the delay affected, misled, or prejudiced the opposing party.” (Internal quotations and citations omitted.)

As to the asserted delay, GIA notes that it was served with the FAC on March 8, 2022. (See Plaintiff’s Proof of Service filed on March 11, 2022.) GIA filed its initial motion to stay action and compel arbitration shortly thereafter after, on April 7, 2022. GIA filed the instant amended motion on June 23, 2022.

Plaintiff asserts that “Defendant did not invoke any arbitration and waited until it took discovery and obtained a court ruling on a dispositive issue before moving to compel arbitration more than two years after the claim was presented.” (Opp’n at p. 12:14-17.) The Court notes that it is unclear when such “claim” was presented (and what it pertains to), as Plaintiff does not provide evidence of the claim. It is also unclear what “dispositive issue” Plaintiff is referring to. If Plaintiff is referring to the demurrer filed by Lloyd’s in this action, the Court does not see how that is relevant, as GIA filed the instant motion. GIA also notes that “filing a demurrer does not constitute a waiver of the right to seek affirmative relief by answer or cross-complaint after the demurrer is overruled, and neither should filing a demurrer waive the right to petition for arbitration.” ((Gear v. Webster (1968) 258 Cal.App.2d 57, 64.)

Plaintiff also contends that GIA made the “tactical decision” to wait to file a motion to compel arbitration until after it obtained discovery. Plaintiff asserts that on or about December 9, 2020, Plaintiff’s counsel provided attachments in response to various “pre-litigation discovery requests” for documents and information by GIA. (Kroll Decl., ¶ 2.) Plaintiff’s opposition references an October 21, 2020 letter from GIA’s counsel. (Opp’n at p. 7:5-9.) As GIA notes, this letter was sent before this action was filed and is not a formal “discovery” demand. The October 21, 2020 letter indicates that GIA’s insurer was processing and investigating the claim[2] and that they always verify the ownership of the stone and request relevant information. (Wellman Decl., ¶ 2, Ex. 4, p. 6.) The letter indicates, “I hope you will provide [GIA’s insurance adjuster] with the information he indicated he needs to process your client’s claim.” (Ibid.)

Plaintiff also asserts that “[t]o this date, we have not received the GIA file or reports or any witness information.” (Kroll Decl., ¶ 3.) However, Exhibit “B” to Plaintiff’s counsel’s declaration includes an email from GIA’s counsel, which indicates in part, “GIA’s production provided you with production copies of both client agreements (and also the AGL Report, at GIA 0126, which you requested), along with the shipping sheet and memo. I think that is everything you might need to oppose GIA’s (and the Underwriters’) motions. If you believe there are additional documents or information that you require, please let me know…” (Kroll Decl., ¶ 3, Ex. B.) The Court does not find that Plaintiff has shown that GIA waived arbitration.

Sixth, Plaintiff asserts that “[t]he motion fails to establish that GIA had obtained the requisite insurance policy in order to command arbitration under the Client Agreement.” (Opp’n at p. 14:10-12.) Plaintiff notes that the Client Agreement provides, “GIA shall maintain (or cause to be maintained on its behalf) a standard form jewelers block insurance policy (or substantially similar insurance that is available in the jurisdiction where GIA operates) to insure an Article against loss or damage while in GIA’s possession.” (Wellman Decl., ¶ 2, Ex. 2, § 13.1.) Plaintiff asserts that “[t]he parties clearly agreed that maintaining a valid insurance policy was required on an ongoing basis and that it was a mandatory condition before GIA could invoke any remedy of arbitration.” (Opp’n at p. 14:18-20.) In support of this assertion, Plaintiff cites to Section 13.8 of the Client Agreement. However, Section 13.8 does not provide that maintaining a valid insurance policy is a condition precedent to a party invoking the right to arbitration.

Lastly, Plaintiff asserts that the subject arbitration provision is cost prohibitive because of the requirement for a three-panel arbitration. But Plaintiff does not present any evidence to support this argument or discuss what the asserted costs would be. In Parada v. Superior Court (2009) 176 Cal.App.4th 1554, 1579, cited by Plaintiff, the Court of Appeal found that “[w]e follow the approach taken in Gutierrez, and noted in Boghos, of considering the amount of arbitration fees and costs, and the ability of the party resisting arbitration to pay them, as factors in assessing substantive unconscionability of a predispute arbitration agreement.” Plaintiff provides no evidence regarding its inability to pay arbitration costs.

Code of Civil Procedure section 1281.4 states that the court shall stay the action or proceeding if the court has ordered arbitration. (Code Civ. Proc., § 1281.4.) The Court notes that Lloyd’s did not file an opposition to the instant motion opposing a stay of the action pending completion of GIA’s arbitrable claims.[3] Accordingly, the case is stayed pending completion of arbitration between Plaintiff and GIA.

For the foregoing reasons, GIA’s motion to compel arbitration is granted as to Plaintiff’s claims against GIA.

The Court orders that the entire action is stayed pending completion of arbitration of Plaintiff’s arbitrable claims against GIA.

The Court sets an arbitration completion status conference on _____________, at _________ in Dept. 50. The arbitrating parties are ordered to file a joint report regarding the status of the arbitration by _______________, with a courtesy copy delivered directly to Dept. 50.

[1]The first, second, third, fourth, fifth, and sixth causes of action are alleged against GIA only. The seventh and eighth causes of action are alleged against Lloyd’s only.

[2]The subject of the letter refers to a “[c]laim for damage to 20.16 carat sapphire.” (Wellman Decl., ¶ 2, Ex. 4, p. 1.)

[3]Lloyd’s filed a separate motion to stay the action and compel arbitration on July 5, 2022.

LEART, INC., Plaintiff, vs. THE GEMOLOGICAL INSTITUTE OF AMERICA, et al., Defendants.	Case No.:	21STCV15469
	Hearing Date:	August 29, 2022
	Hearing Time:	10:00 a.m.
	[TENTATIVE] ORDER RE: DEFENDANT GEMOLOGICAL INSTTITUTE OF AMERICA, INC.’S AMENDED MOTION TO STAY ACTION AND COMPEL ARBITRATION

Superior Court of California

County of Los Angeles

Department 50