Judge Teresa A. Beaudet, Case Number: 223STCV13462, Date: 2023-10-03 Tentative Ruling

On April 22, 2022, Plaintiff KCS West, Inc. (“KCS”) filed this action against Defendants 5959 LLC (“5959”) and Koar Airport Associates, LLC. The Complaint asserts causes of action for (1) foreclosure of mechanic’s lien, (2) breach of contract, (3) common count – quantum meruit, and (4) violation of prompt payment statutes.

On July 15, 2022, a Cross-Complaint was filed in this action by 5959 against KCS and Kajima U.S.A. Inc. (“Kajima”). On May 26, 2023, 5959 filed the operative First Amended Cross-Complaint in this action against KCS, Kajima, and Kohler Co. (“Kohler”) asserting causes of action for (1) breach of contract, (2) express indemnity, (3) statutory indemnity, (4) recovery on guarantee agreement, (5) strict products liability, (6) breach of implied warranty of merchantability, and (7) breach of implied warranty of fitness for a particular purpose.

On August 30, 2022, KCS filed a Cross-Complaint in this action against 5959 and Johnson Diversified, Inc., dba Plumbing Solutions (“Plumbing Solutions”). KCS filed the operative First Amended Cross-Complaint in this action on September 16, 2022, asserting causes of action for (1) breach of contract, (2) negligence, (3) breach of contract third party beneficiary, (4) express indemnification, (5) implied indemnification, (6) declaratory relief, (7) strict product liability, (8) breach of express/implied warranty of merchantability, (9) breach of express/implied warranty of fitness for a particular purpose, (10) strict product liability - failure to warn, and (11) negligence - duty to warn.

On July 5, 2023, Kohler filed a Cross-Complaint in this action against KCS and Plumbing Solutions, asserting causes of action for (1) indemnification, (2) apportionment of fault, (3) declaratory relief, and (4) express indemnity.

On July 10, 2023, Plumbing Solutions filed a Cross-Complaint in this action against Ferguson Enterprises, LLC (“Ferguson”) and Kohler, asserting causes of action for (1) express contractual indemnity, (2) express contractual defense, (3) implied contractual indemnity, (4) implied equitable indemnity, (5) breach of contract, (6) negligence, (7) strict liability, (8) contribution, (9) breach of express warranty, (10) breach of implied warranties, (11) declaratory relief re: duty to indemnify, and (12) declaratory relief re: duty to defend.

On August 11, 2023, Ferguson filed a Cross-Complaint in this action against Kohler and Plumbing Solutions, asserting causes of action for (1) implied indemnity, (2) comparative equitable indemnity/apportionment, (3) declaratory relief, and (4) express indemnity.

On May 4, 2022, Land Mark Electric, Inc. (“LME”) filed a Complaint entitled Land Mark Electric, Inc. v. KCS West, Inc., et al., Case No. 22TRCV00350, against KCS, 5959, and Hudson Insurance Company. LME filed the operative Second Amended Complaint (“SAC”) in Case No. 22TRCV00350 on September 16, 2022 against KCS, 5959, and Harco National Insurance Company, asserting twelve causes of action.

On July 28, 2022, Plumbing Solutions filed a Complaint entitled Johnson Diversified, Inc., doing business as Plumbing Solutions v. 5959, LLC, et al., Case No. 22TRCV00639, against 5959 and KCS. Plumbing Solutions filed the operative First Amended Complaint (“FAC”) in Case No. 22TRCV00639 on October 11, 2022 against 5959, KCS, and Harco National Insurance Company. The FAC alleges causes of action for (1) breach of contract, (2) common counts, (3) wrongful withholding of payment, (4) enforcement of stop notice, and (5) claim on bond to release mechanic’s lien.

As set forth in the Court’s March 6, 2023 Order in the instant action, the Court granted the motion to consolidate filed by KCS on January 25, 2023. The Court’s March 6, 2023 minute order provides, inter alia, “[t]he Court orders the following cases, 22STCV13462, 22TRCV00350, and…22TRCV00639, consolidated and assigned to Department 50 in Stanley Mosk Courthouse for all purposes. The Court designates 22STCV13462 as the lead case.”

5959 now moves “for an order to enforce the judicial reference provisions in the Contracts in this matter.” KCS opposes.

On May 11, 2023, the Court issued an Order continuing the hearing on 5959’s motion to enforce judicial reference provisions to August 3, 2023. The hearing was then continued to October 3, 2023. The Court’s May 11, 2023 Order provides, inter alia, that the parties may file and serve supplemental briefing in advance of the continued hearing date, no later than 5 court days before the hearing, that addresses the impact of any newly added parties on the motion. On September 19, 2023, Ferguson and Kohler filed oppositions to 5959’s instant motion. On September 25, 2023, 5959 filed a supplemental brief in support of the motion, and on September 26, 2023, KCS filed a response to 5959’s supplemental brief.

Code of Civil Procedure section 638 provides in pertinent part as follows: “[a] referee may be appointed upon the agreement of the parties filed with the clerk, or judge, or entered in the minutes, or upon the motion of a party to a written contract or lease that provides that any controversy arising therefrom shall be heard by a referee if the court finds a reference agreement exists between the parties:

(a) To hear and determine any or all of the issues in an action or proceeding, whether of fact or of law, and to report a statement of decision.

(b) To ascertain a fact necessary to enable the court to determine an action or proceeding.”

As set forth in the Court’s May 11, 2023 Order on 5959’s instant motion, in Case No. 22STCV13462, KCS alleges in its Complaint that “[o]n or about March 29, 2018, [KCS] and 5959 LLC entered into a written contract (‘Contact’) in which [KCS] agreed to act as the general contractor for the renovation and rehabilitation of an existing office building located at the Property into a hotel building (the ‘Project’).” (KCS Compl., ¶ 7.) KCS attaches as Exhibit A to its Complaint “[a] true and correct copy of the Contract without its voluminous exhibits.” (KCS Compl., ¶ 7, Ex. A.) In the instant motion, 5959 notes that Section 13.2 of the contract attached to KCS’s Complaint provides as follows:

For any Claim subject to, but not resolved by mediation pursuant to Section 15.3 of

AIA Document A201-2007, the method of binding dispute resolution shall be as follows:

(Check the appropriate box. If the Owner and Contractors do not select a method of binding dispute resolution below, or do not subsequently agree in writing to a binding dispute resolution method other than litigation, Claims will be resolved by litigation in

5959 thus states that “[t]he Prime Contract, upon which KCS has based its claims in its Complaint, expressly provides for judicial reference.” (Mot. at p. 5:5-6.) 5959 contends that judicial reference should accordingly be compelled in this action.

5959 also asserts that “[t]he Court’s order compelling judicial reference should also extend to the claims of KCS’ subcontractors, LME and Plumbing Solutions – both of whom have sued 5959, in addition to KCS, for damages – because the subcontracts expressly incorporate the dispute resolution provisions in the Contract.” (Mot. at pp. 5:27-6:2.)[1] In support of the instant motion, 5959 submits the Declaration of its counsel, Ted R. Gropman. Mr. Gropman attaches as Exhibit 4 to his Declaration a copy of the subcontract agreement between Plumbing Solutions and KCS. (Gropman Decl., ¶ 5, Ex. 4.) 5959 notes that Section 11.4 of the subcontract agreement provides as follows:

“11.4 Joinder. Subcontractor acknowledges that the Project is being constructed in accordance with the Contract and the Contract Documents. To the extent that there is a conflict between the provisions set forth in this Article 11 and the dispute resolution procedures set forth in the Contract, the dispute resolution procedures in the Contract will govern. Subcontractor consents to joinder of Owner, Architect and other design professionals, other subcontractors and suppliers and any other party that Contractor deems necessary to resolve claims filed by or against Contractor that arise out of similar facts, issues or incidents and are related to the Project to prevent inconsistent dispute resolution awards or judgments. Subcontractor agrees to be bound by the decision of any court, arbitration panel or other tribunal to the full extent to which Contractor is bound.”

5959 contends that “because…Plumbing Solutions expressly agreed to (1) follow the dispute resolution provisions in the Prime Contract; (2) consent to joinder for claims filed ‘by or against Contractor’ to prevent inconsistent dispute resolution awards; and (3) be bound to such dispute resolution awards…Plumbing Solutions agreed to have their claims resolved by judicial reference.” (Mot. at p. 6:13-18.)

As discussed in the Court’s May 11, 2023 Order, KCS contends in its opposition that “[t]he issue of judicial reference should be determined once Kohler and Ferguson have appeared in the lawsuit and…are provided an opportunity to weigh in on the issue. Without the inclusion of Kohler and Ferguson in this matter, it would be inequitable and unfair to force half of the case to proceed via judicial reference while the balance remains in litigation.” (Opp’n at p. 5:21-25.) As set forth above, on July 5, 2023, Kohler filed a Cross-Complaint in this action, and on August 11, 2023, Ferguson filed a Cross-Complaint in this action. In addition, as set forth above, Kohler and Ferguson each filed oppositions to the instant motion.

As also discussed in the Court’s May 11, 2023 Order, KCS asserts that the Court has discretion regarding the enforcement of 5959’s motion to compel judicial reference. KCS cites to Tarrant Bell Property, LLC v. Superior Court (2011) 51 Cal.4th 538, 540, where the California Supreme Court noted that it “granted review…to decide whether, under Code of Civil Procedure section 638, a trial court has discretion to refuse to enforce a predispute agreement providing that, in the event of dispute, a referee may hear and decide certain contested issues. The Court of Appeal held that a trial court has such discretion and that the trial court here properly exercised that discretion on the facts of this case. We agree with the Court of Appeal’s holding and affirm its judgment.”

In Tarrant, “120 current and former lessees and residents of a mobilehome park in California (real parties in interest) sued the park’s current and former owners (defendants) for failing properly to maintain the park’s common areas and facilities and for otherwise subjecting park residents to substandard living conditions. The lease agreements between defendants and about 100 of the real parties in interest provide (1) the parties will submit to arbitration any tenancy dispute (with certain exceptions for actions by the owner), including claims regarding maintenance, condition, nature, or extent of the facilities, improvements, services, and utilities provided to the space, park, or common areas of the park; and (2) ‘[i]f these arbitration provisions are held unenforceable for any reason … all arbitrable issues in any judicial proceeding will be subject to and referred on motion by any party or the court for hearing and decision by a referee (a retired judge or other person appointed by the court) as provided by California law, including’ section 638.” (Tarrant Bell Property, LLC v. Superior Court, supra, 51 Cal.4th at p. 540.) “The trial court agreed with real parties in interest and refused to compel arbitration or appoint a referee under section 638. Regarding the latter determination, it first noted the possibility of inconsistent judgments were it to order reference only as to real parties in interest who had signed a predispute reference agreement, but, citing Greenbriar Homes Communities, Inc. v. Superior Court (2004) 117 Cal.App.4th 337…found that that circumstance was not a proper basis for denying a motion for general reference. Nevertheless, as a matter of discretion, the court refused to appoint a referee, reasoning: [I]n this case the purposes of section 638 would not be promoted by a general Reference of some claims and not others….Ordering two groups of real parties in interest to try their cases in separate but parallel proceedings would not reduce the burdens on this court or the parties, result in any cost savings, streamline the proceedings, or achieve efficiencies of any kind. The parties would be required to conduct the same discovery, litigate[,] and ultimately try the same issues in separate but parallel forums. A general reference would thus result in a duplication of effort, increased costs, and potentially, delays in resolution. Moreover, it would not reduce any burden on this Court, which would almost certainly have to hear, and decide, all of the same issues.” (Id at p. 541 [internal quotations omitted].) The California Supreme Court found that certain legislative history confirmed “the Court of Appeal’s conclusion that the trial court, in refusing to enforce the predispute reference agreements, did not abuse its discretion in considering the risk of inconsistent rulings and considerations of judicial economy.” (Id. at p. 544.)

In the reply, 5959 notes that KCS does not dispute that it agreed to use judicial reference as the dispute resolution method under the terms of KCS’s contract with 5959. In addition, 5959 notes that KCS does not dispute 5959’s position that KCS’s subcontract with Plumbing Solutions incorporates the dispute resolution provisions in the contract between KCS and 5959.

In addition, 5959 argues in the reply that even if Kohler and Ferguson are ultimately added as parties, there is no potential for litigating in separate forums or conflicting rulings, due to the “Joinder” provision in the Plumbing Solutions subcontract. As set forth above, this provision provides as follows:

5959 asserts that accordingly, “for the same reason that Plumbing Solutions…[is] subject to the judicial reference provision, so are Ferguson and Kohler.” (Reply at p. 5:11-13.)

In its opposition to the instant motion, Ferguson asserts that “no proposed Order on FERGUSON was served that specifically identifies the relief sought by 5959, LLC in its Motion to Enforce.” (Ferguson Opp’n at p. 2:18-19.) Kohler also asserts in its opposition that “[t]he Motion to Enforce is vague as to whether it seeks to submit the entire action to judicial reference, or just the disputes between the signatories to the subject contracts – (1) 5959, LLC; (2) KCS West, Inc.; (3) Landmark Electric, Inc.; and (4) Johnson Diversified dba Plumbing Solutions.” (Kohler Opp’n at p. 1:23-26.)

The Court notes that 5959’s notice of motion states that 5959 moves “for an Order to Enforce the Judicial Reference Provisions in the Contracts in this matter.” (Mot. at p. 2:5-6.) The Conclusion section of the motion states that “5959 respectfully requests that that the Court issue an Order Enforcing the Judicial Reference Provisions in the Contracts and Compelling Judicial Reference pursuant to California Code of Civil Procedure Section 638, and appoint a Referee in accordance with the Contract, the subcontracts and Section 640(b) of the California Code of Civil Procedure.” (Mot. at p. 7:17-20.) The Court agrees with Kohler and Ferguson that the instant motion is vague as to whether it seeks to submit the entire action to judicial reference, or just 5959, KCS, and Plumbing Solutions. In addition, in its supplemental brief in support of the motion, 5959 states that it “requests that that the Court issue an Order enforcing the judicial reference provisions in the Contracts and compelling judicial reference as to at least 5959, KCS and Plumbing Solutions pursuant to California Code of Civil Procedure Section 638…” (5959’s Supplemental Brief at p. 5:11-14.)

In its opposition to the instant motion, Ferguson also asserts that “there are no grounds to compel Ferguson…to participate in a judicial reference proceeding.” (Ferguson Opp’n at p. 2:4-7.) Ferguson asserts that “[t]he argument contained in plaintiff’s Motion is directed at those with contractual obligations, but there is no argument or authority presented that FERGUSON, a product supplier, can be compelled to participate in judicial reference as there are simply no such grounds in contract or law.” (Id. at p. 2:14-17.) Ferguson also cites to Tarrant, and asserts that “[s]ending only certain parties to a judicial reference could result in inconsistent rulings and would result in duplicative litigation.” (Id. at p. 3:3-4.)

Kohler also argues in its opposition that there is no legal basis for Kohler to be compelled to participate in the contemplated judicial reference proceeding. Kohler asserts that it is “not a party to any of the subject contracts (neither, for that matter, is the recently named Cross-Defendant Ferguson Enterprises, LLC). Kohler is merely a product manufacturer who manufactured a product (Kohler K-9177 Bellwether shower pans), which it then sold to a distributor (Ferguson), who in turn sold that product to customer (Johnson Diversified) who apparently chose to install that product at a construction project.” (Kohler Opp’n p. 2:23-27.) Kohler also cites to Tarrant, and asserts that the risk of inconsistent rulings and considerations of judicial economy “weigh strongly against submitting the disputes between the construction entities to a judicial reference proceeding.” (Id. at p. 4:13-14.)

In its supplemental brief, 5959 reiterates its assertion that Ferguson and Kohler are subject to the judicial reference provision pursuant to the joinder provision in Plumbing Solutions’ subcontract. However, as set forth above, pursuant to Code of Civil Procedure section 638, “[a] referee may be appointed upon the agreement of the parties filed with the clerk, or judge, or entered in the minutes, or upon the motion of a party to a written contract or lease that provides that any controversy arising therefrom shall be heard by a referee if the court finds a reference agreement exists between the parties: (a) To hear and determine any or all of the issues in an action or proceeding, whether of fact or of law, and to report a statement of decision. (b) To ascertain a fact necessary to enable the court to determine an action or proceeding.” (Underline added.) 5959 does not appear to argue that Kohler and Ferguson are parties to the subject contract and subcontract referenced above.

In its response to 5959’s supplemental brief, KCS states that it “agrees with Kohler and Ferguson that they cannot be compelled to participate in judicial reference, as neither is a party to the judicial reference provision. The language of C.C.P. § 638 makes it clear that Kohler and Ferguson could agree to participate in a judicial reference, or, alternatively, can be ordered to do so on a motion by a party if, and only if, Kohler and Ferguson are parties to a contract that contains a provision requiring disputes to be resolved by judicial reference.” (KCS’s Response at pp. 2:25-3:5.) The Court agrees that 5959 has not shown that Ferguson and Kohler are parties to a contract that contains a provision requiring disputes to be resolved by judicial reference.

5959 also asserts that “even if Kohler and Ferguson are not joined…there is no prejudice in having two forums or risk of inconsistent rulings. Instead, as articulated by the O’Donoghue court, having two forums will likely lead to settlement which would be beneficial to all parties.” (5959’s Supplemental Brief at p. 4:25-28.) In O'Donoghue v. Superior Court (2013) 219 Cal.App.4th 245, 248-250, the Court noted that “[i]n a commercial real estate transaction, Paraic O’Donoghue, Tony Manning, Enda G. Quigley, Sean Murphy, Daniel Walsh, and Christopher Flood (collectively defendants) each signed a separate personal continuing guaranty in favor of a lender. The guaranty agreements (agreements) contained a provision authorizing dispute resolution through judicial reference…In its action to enforce the agreements, Performing Arts, LLC (plaintiff), moved for appointment of a referee pursuant to the judicial reference provision…in the agreements; the trial court granted the motion and appointed a referee. Defendants [sought] writ relief from the order granting plaintiff’s motion to compel judicial reference.” (Internal citation omitted.) The Court of Appeal denied the petition for writ of mandate/prohibition. (Id. at p. 250.)

The Cout of Appeal in O’Donoghue noted, inter alia, that “Defendants’ final argument is the court abused its discretion by granting the reference motion because ordering reference would cause duplicative parallel proceedings, create a risk of inconsistent rulings, and would not promote judicial economy. Defendants rely on Tarrant Bell, where the California Supreme Court held ‘a trial court has discretion to refuse to enforce a predispute agreement providing that, in the event of dispute, a referee may hear and decide certain contested issues’ (Tarrant Bell, supra, 51 Cal.4th at p. 540) and determined the trial court ‘acted well within its discretion in basing its refusal to appoint a referee on the risk of inconsistent rulings and considerations of judicial economy’…” (O'Donoghue v. Superior Court, supra, 219 Cal.App.4th at pp. 265-266.) The O’Donoghue Court noted that “[d]efense counsel repeatedly argued having dual tracks was a basis to deny the motion under Tarrant Bell. In response, the court stated, ‘I don’t see it as a detriment here. If anything, I see the other side of it that might be a good idea.’ When defense counsel began to discuss the ‘consequences of a dual track action,’ the court responded, ‘[w]e have that all the time’ and said, ‘I know exactly what you mean. Sure. It settles—that’s often very helpful.’ The court then stated the presence of indemnity claims in the court litigation was not ‘a drawback.’ These comments suggest the court considered—and rejected—defense counsel’s Tarrant Bell arguments. On this record, we cannot conclude the court failed to exercise its discretion.” (Id. at p. 268.)

As noted by KCS West, the Court of Appeal in O'Donoghue also found that “[t]here may have been sound reasons to deny the reference motion. Requiring defendants to defend plaintiff’s complaint before the referee but litigate their cross-complaints in court could force the parties…‘to conduct the same discovery, litigate[,] and ultimately try the same issues in separate but parallel forums’… (Tarrant Bell, supra, 51 Cal.4th at p. 541) because the defenses asserted by defendants in response to the complaint are based on identical facts as their cross-claims against Cassidy and Centrix. In addition, requiring reference could create a risk of inconsistent rulings because Cassidy is not subject to the reference order, raising issues of collateral estoppel as the reference and trial court actions proceed at different times. That another court might reasonably have reached a different result on this issue, however, does not demonstrate an abuse of discretion. An abuse of discretion may be found only if…no judge could have reasonably reached the challenged result…[A]s long as there exists…a reasonable or even fairly debatable justification, under the law, for the action taken, such action will not be … set aside…We cannot conclude there is an abuse of discretion here.” (O'Donoghue v. Superior Court, supra, 219 Cal.App.4th at pp. 268-269.)

In its response to 5959’s supplemental brief, KCS asserts that “[o]rdering judicial reference between 5959, KCS West, and Plumbing Solutions while leaving Kohler and Ferguson (both necessary parties to the underlying claim) as part of the dispute to be resolved in Court would prevent resolution of the entire matter in one venue and risk inconsistent rulings. And without Kohler in particular—determined to be a ‘necessary party’ by the Court—a judicial reference proceeding could not possibly accord full relief to the parties, and would be a waste of the parties’ time and resources.” (KCS’s Response to Supplemental Brief at p. 3:6-11.) KCS asserts that “[i]f only 5959, KCS West, and Plumbing Solutions were ordered to participate in judicial reference, and Kohler and Ferguson remained in Court, the issue of whether Kohler’s product is at the heart of a manufacturing defect cannot be fully and completely adjudicated. It would be grossly inefficient (if not impossible) to try KCS West’s claims in judicial reference without Kohler’s participation.” (Id. at p. 5:19-24.) KCS notes that on May 11, 2023, the Court issued an Order granting KCS’s motion to compel joinder. The May 11, 2023 Order provides, inter alia, that “[b]ased on the foregoing, the Court finds that KCS has shown that in the absence of Kohler, ‘complete relief cannot be accorded among those already parties.¿’ (¿Code Civ. Proc., § 389, subd. (a)¿.)” (May 11, 2023 Order at p. 8:13-15.)

Based on a consideration of the foregoing, the Court finds that KCS has the better argument that 5959’s motion should be denied. The Court does not find that 5959 has demonstrated that a “reference agreement exists between” 5959 and Ferguson or Kohler. (Code Civ. Proc., § 638.) The Court agrees with KCS that there is a risk of inconsistent rulings if only some parties are sent to judicial reference and others remain in Court. KCS also raises the argument, as discussed above, that without Kohler, a judicial reference proceeding may not accord full relief to the parties.

Based on the foregoing, 5959’s motion to enforce judicial reference provisions is denied.

[1]In its supplemental brief in support of the motion, 5959 indicates that “5959’s Motion originally sought to enforce the judicial reference provisions against KCS’ additional subcontractor Landmark Electric, Inc. (“LME”) but following entry of its request for dismissal, LME is no longer a party in the consolidated action.” (5959’s Supplemental Brief, p. 3, fn. 1.)

KCS WEST, INC., Plaintiff, vs. 5959 LLC, et al., Defendants.	Case No.:	22STCV13462 [c/w 22TRCV00350; 22TRCV00639]
	Hearing Date:	October 3, 2023
	Hearing Time:	10:00 a.m.
	TENTATIVE RULING RE: MOTION TO ENFORCE JUDICIAL REFERENCE PROVISIONS IN CONTRACTS
AND RELATED CROSS-ACTION

Superior Court of California

County of Los Angeles

Department 50