Judge: Teresa A. Beaudet, Case: 24STCV02535, Date: 2024-07-30 Tentative Ruling

Case Number: 24STCV02535    Hearing Date: July 30, 2024    Dept: 50

Superior Court of California

County of Los Angeles

Department 50

Background

Plaintiff 245 Los Robles, LLC (“Plaintiff”) filed this action on January 31, 2024 against Defendants Firstservice Residential California, LLC (“FSR”) and 388 Owners Association (the “Association”) (jointly, “Defendants”). The Complaint alleges causes of action for (1) professional negligence, (2) negligence, (3) negligent interference with prospective economic advantage, (4) intentional interference with prospective economic advantage, (5) breach of fiduciary duty, and (6) civil conspiracy.[1]

In the Complaint, Plaintiff alleges that it developed the condominium project at the property located at 388 Cordova St., Pasadena CA 91101 (the “Property”). (Compl., ¶¶ 3, 13.) “In 2019, Plaintiff executed the Declaration of Covenants, Conditions and Restrictions of 388…which outlined the powers and obligations of the HOA Board, a homeowners association made up of owners of condominiums located at the Property with respect to units constructed as part of Phase 1 of the Property.” (Compl., ¶ 14.) “Between April and May of 2021, the HOA Board, acting on behalf of the 388 Owners Association, executed a contract with Defendant FSR to provide property management services for the Property. Under the contract, FSR was to manage all aspects of the Property and coordinate the HOA’s duties.” (Compl., ¶ 16.)

Plaintiff alleges that “[i]n July 2023, Plaintiff contacted Defendants with a simple request for their assistance in responding to a routine Deficiency Notice (‘Notice’) issued by the California Department of Real Estate (‘DRE’).” (Compl., ¶ 1.) “This Notice required that Plaintiff respond to particular deficiencies identified by the Notice before it could obtain regulatory approval of Phase 2 which would allow Plaintiff to sell Phase 2 units.” (Compl., ¶ 18.)

“Plaintiff made it clear then that it could not move forward with selling commercial and residential units of a completed construction project (‘Phase 2’ or the ‘Project’) worth millions of dollars until FSR provided the information necessary to respond to the Notice.” (Compl., ¶ 1.)

Plaintiff alleges that “[w]hile Defendants initially agreed to timely provide the necessary information and documents such that Plaintiff could respond to the DRE, Plaintiff’s communications with FSR and the [Association, acting through its Board of Directors] quickly devolved into an inexcusable pattern of delay or simple non-responsiveness on Defendants’ part. Worse yet, FSR’s routinely late responses only generated more questions: FSR’s records were revealed to be error-ridden, confusing to FSR’s own employees, and incomplete.” (Compl., ¶ 1.)

Plaintiff alleges that “FSR’s routinely late, incorrect and regularly insufficient responses and refusal to provide the necessary information as well as the [Association, acting through its Board of Directors’] refusal to make any efforts to further FSR’s provision of said information were borne of their conspiracy to deny Plaintiff the ability to obtain its Final Public Report (‘White Report’) approving Phase 2 (the ‘Conspiracy’).” (Compl., ¶ 3.) Plaintiff alleges that “[t]he HOA Board’s participation in this Conspiracy was motivated by a grudge that the then Treasurer of the HOA, who was also a HOA Board member for most of the relevant events, held against Plaintiff. FSR sought to delay final approval of Phase 2 in order to retain its position as property manager over [the Property] despite FSR’s manifest incompetence and gross mismanagement in that role. FSR was aware that once Plaintiff obtained final approval of Phase 2, Plaintiff would have significantly increased voting power in the [Association, acting through its Board of Directors] by virtue of its ownership of the Phase 2 units, and thus Plaintiff would seek to terminate FSR’s contract. Moreover, FSR was aware that its cooperation with Plaintiff could spotlight both FSR’s pervasively flawed record-keeping and the degree to which FSR’s mismanagement had financially hobbled the Property and damaged the Property’s owners. Thus, it was in FSR’s own interest to wrongfully delay and prevent any response to the Notice.” (Compl., ¶ 3.)

            The Association now moves for “an order compelling the parties to arbitrate the claims subject of the above-captioned action and staying the above-captioned action’s proceedings until completion of the arbitration proceedings.” Firstservice Residential of California, LLC joins in the motion. The motion is unopposed. 

Legal 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. Securities Corp. (1996) 14 Cal.4th 394, 413-414.)   

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.)

“California has a strong public policy in favor of arbitration and any doubts regarding the arbitrability of a dispute are resolved in favor of arbitration.” (Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 686.) “This strong policy has resulted in the general rule that arbitration should be upheld unless it can be said with assurance that an arbitration clause is not susceptible to an interpretation covering the asserted dispute.” (Ibid. [internal quotations omitted].) This is in accord with the liberal federal policy favoring arbitration agreements under the Federal Arbitration Act (“FAA”), which governs all agreements to arbitrate in contracts “involving interstate commerce.” (9 U.S.C. § 2, et seq.; Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1247.)

            Discussion

A.    Existence of Arbitration Agreement

The Association attaches as Exhibit 1 to the motion the “Declaration of Covenants, Conditions and Restrictions of 388” (the “CC&R”). As an initial matter, the Association does not appear to provide any declaration authenticating the CC&R. However, the Court notes that “in 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 [internal quotations omitted].) In Espejo, the Court of Appeal noted that “the Condee 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.” (Ibid., citing Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218.)

The Association notes that the CC&R was recorded on July 18, 2019. (Mot., Ex. 1.) Article I, Section 6 of the CC&R defines the “Association” as “388 Owners Association.” (Mot., Ex. 1, p. 2.) In addition, Article I, Section 21 defines “Declarant” as “245 Los Robles, LLC.” (Mot., Ex. 1, p. 4.) Article XXIX of the CC&R governs the “Resolution of Disputes.” (Mot., Ex. 1, p. 64.) Section 1 of Article XXIX provides as follows:

“Section 1.      Disputes.  IF ANY DISPUTE SHOULD ARISE BETWEEN THE ASSOCIATION AND/OR AN OWNER OR OWNERS ON THE ONE PART (‘CLAIMANT’) AND THE DECLARANT, OR ANY OFFICER, DIRECTOR, MANAGER, SHAREHOLDER, PARTNER, MEMBER, EMPLOYER, CONTRACTOR, SUBCONTRACTOR, MATERIAL SUPPLIER, DESIGN PROFESSIONALS, PROPERTY MANAGER, EMPLOYEE, OR AGENT OF THE DECLARANT ON THE OTHER PART (HEREAFTER COLLECTIVELY THE ‘DECLARANT GROUP’) WHETHER THE DISPUTE ARISES UNDER THE DECLARATION OF ANY OTHER GOVERNING DOCUMENT, OR RELATING TO ANY CLAIM OF DEFECTS IN CONSTRUCTION OF THE PROJECT OR ANY INDIVIDUAL, OR GROUP OF INDIVIDUAL CONDOMINIUMS, OR FOR BREACH OF ALLEGED DUTY OF GOOD FAITH AND FAIR DEALING, NEGLIGENT MISREPRESENTATION, LATENT OR PATENT DEFECTS, NEGLIGENCE, NON-DISCLOSURE, FRAUD, BREACH OF CONTRACT, OR OTHERWISE (A ‘DISPUTE’), THE DISPUTE SHALL BE RESOLVED IN THE MANNER PROVIDED IN THIS ARTICLE XXIX WHICH PROVIDES FOR MEDIATION, ARBITRATION AND WAIVERS OF THE RIGHT TO LITIGATE AND A JURY TRIAL.” (Mot., Ex. 1, p. 64.)

As noted by the Association, Section 4(G) of Article XXIX concerns “Initiation of Arbitration,” and provides that “[i]f the Claim is not resolved through mediation, either party may initiate arbitration proceedings as provided in Section 5 of this Article XXIX below.” (Mot., Ex. 1, p. 67.) Section 5 of Article XXIX concerns “Mandatory Binding Arbitration” and provides as follows:

“Section 5.      Mandatory Binding Arbitration.     Before any Claimant institutes arbitration proceedings as provided in this Section 5, the Claimant shall follow the procedures set forth in Sections, 2, 3 and 4 of this Article XXIX (if the Claim involves a Construction Defect Claim) and if the Dispute involves non-construction defect Claims, Owner shall follow the procedures set forth in Section 4 of this Article XXIX. The mandatory arbitration procedures below shall apply to all Claims between Declarant and a Claimant and all Claims between Declarant and Association which are not resolved through such procedures (except Claims under any Limited Warranty which are governed by the Limited Warranty.) In order to effectuate the obligation to resolve all post-closing Claims by binding arbitration, Declarant or any Owner may petition the Superior Court of the County to order that the Claims be resolved by arbitration pursuant to the provisions set forth in this Section 5 and the court shall order Declarant, and the Claimant to arbitrate the Claims and all controversies related to the Claim even if Declarant or the Claimant join their claims with other claimants utilizing different dispute resolution procedures.” (Mot, Ex. 1, p. 67, emphasis added.)  

Section 4 of Article XXIX concerns “Mediation,” and provides as follows:

“Section 4.      Mediation.       After complying with the non-adversarial procedures set forth in Sections 1 and 2 of this Article XXIX above, if applicable, Declarant and Claimant shall, in good faith, attempt to resolve any Claim by mediation in accordance with this Section 4. If a Claimant and Declarant are unable to resolve a Construction Defect Claim by the procedures set forth in Sections 1 and 2 of this Article XXIX above, as applicable, or if Claimant and Declarant are unable to resolve any other Claim, the parties also agree to submit the matter to mediation in accordance with the procedures set forth below. The mediation shall be conducted by a single mediator employed or engaged by Judicial Arbitration and Mediation Services (“JAMS”) pursuant to its then current rules (“JAMS Rules”). The mediation shall be held in the County or such other place as is mutually acceptable to the parties. Declarant shall have the right to include other persons or entities, including insurance carrier representatives in the mediation proceedings. The mediation shall be conducted in accordance with the procedures set forth below.”  (Mot, Ex. 1, p. 66.)

As an initial matter, in the “Conclusion” section of the instant motion, the Association asserts that the Court should “compel Plaintiff’s claims against it to mediation and, if necessary, binding arbitration pursuant to the terms of the Declaration of Covenants, Conditions and Restrictions of 388, and stay the proceedings pending the outcome of that mediation and arbitration, if necessary.” (Mot. at p. 10:15-18, emphasis added.) However, the Association’s notice of motion does not state that the Association moves to compel Plaintiff’s claims against it to mediation. Rather, as set forth above, the Association moves “for an order compelling the parties to arbitrate the claims subject of the above-captioned action and staying the above-captioned action’s proceedings until completion of the arbitration proceedings.” (Mot. at p. 2:5-7, emphasis added.) The Court notes that “¿[a] notice of motion must state in the opening paragraph the nature of the order being sought and the grounds for issuance of the order.¿” (¿Cal. Rules of Court, rule 3.1110, subd¿. (a).)[2]

In addition, as set forth above, Section 5 of Article XXIX provides, inter alia, that “[b]efore any Claimant institutes arbitration proceedings as provided in this Section 5, the Claimant shall follow the procedures set forth in Sections, 2, 3 and 4 of this Article XXIX (if the Claim involves a Construction Defect Claim) and if the Dispute involves non-construction defect Claims, Owner shall follow the procedures set forth in Section 4 of this Article XXIX. The mandatory arbitration procedures below shall apply to all Claims between Declarant and a Claimant and all Claims between Declarant and Association which are not resolved through such procedures (except Claims under any Limited Warranty which are governed by the Limited Warranty.)…” (Mot, Ex. 1, p. 67, emphasis added.) In addition, as discussed, Section 4(G) of Article XXIX provides that “[i]f the Claim is not resolved through mediation, either party may initiate arbitration proceedings as provided in Section 5 of this Article XXIX below.” (Mot, Ex. 1, p. 67.) Here, the Association does not appear to provide any evidence that Plaintiff’s claims against the Association were not resolved through the mediation procedures set forth in Section 4 of Article XXIX of the CC&R.

In light of the foregoing, the Court does not find that the Association has shown that the Section 5 “Mandatory Binding Arbitration” provision of the CC&R applies to Plaintiff’s claims in this action such that the Court should compel arbitration. 

Conclusion

Based on the foregoing, the Association’s motion to compel arbitration is denied without prejudice.

The Association is ordered to provide notice of this Order.

DATED:  July 30, 2024                                 

________________________________

Hon. Teresa A. Beaudet

Judge, Los Angeles Superior Court