Judge Thomas D. Long, Case 22STCV05295 2023-02-16 Tentative Ruling

On August 23, 2022, Plaintiff TL Veterans Construction, Inc. filed a third amended complaint (“TAC”) against Defendants Eun Hee Song, JNH Roofing, Inc. (“JNH”), Sean Soon Wook Lee, Jay Hahm, Restoration Unlimited Group, Inc. (“RUG”), State National Insurance Company, Inc. (“State National”), RK All Insurance Services, and Rian Kang, alleging (1) breach of contract, (2) express indemnify, (3) fraud: intentional misrepresentation, (4) negligent misrepresentation, (5) negligence, (6) intentional misrepresentation, (7) bad faith breach of contract, (8) negligent misrepresentation, (9) contribution, and (10) equitable indemnity.

On December 1, 2022, the Court sustained Lee’s demurrer without leave to amend and dismissed the action against him without prejudice. The Court also sustained State National’s demurrer to the eighth cause of action and granted its motion to strike the eighth cause of action. With this, the Court also dismissed RK All Insurance Services and Rian Kang.

On September 26, 2022, JNH, Song, and Hahm (collectively, “Defendants”) filed a motion to compel arbitration and stay the action pending the completion of arbitration.

When seeking to compel arbitration of a plaintiff’s claims, the defendant must allege the existence of an agreement to arbitrate. (Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 219 (Condee).) The burden then shifts to the plaintiff to prove the falsity of the agreement. (Ibid.) After the Court determines that an agreement to arbitrate exists, it then considers objections to its enforceability. (Ibid.)

The Court must grant a petition to compel arbitration unless the defendant has waived the right to compel arbitration or if there are grounds to revoke the arbitration agreement. (Ibid.; Code Civ. Proc., § 1281.2.) Under California law and the Federal Arbitration Act (“FAA”), an arbitration agreement may be invalid based upon grounds applicable to any contract, including unconscionability, fraud, duress, and public policy. (Sanchez v. Western Pizza Enterprises, Inc. (2009) 172 Cal.App.4th 154, 165-166.)

Defendants contend that on December 22, 2020, Plaintiff and JNH entered into a subcontract. (Motion at p. 2.) Defendants provides a copy of the signed subcontract, which contains an arbitration agreement. (Hahm Decl., Ex. 1, § 32(b) [“Arbitration Agreement”].) The Arbitration Agreement governs “any claim subject to, but not resolved by, mediation.” The claims subject to mediation are “[a]ny claim arising out of or related to this Subcontract.” (Hahm Decl., Ex. 1, § 32(a)(1).) Plaintiff’s claims against Defendants arise from misrepresentations made in the inducement of the subcontract, as well as negligent performance and breach of the subcontract. Defendants have satisfied their initial burden. (See Condee, supra, 88 Cal.App.4th at p. 219.)

Plaintiff argues that Song and Hahm cannot compel arbitration of the claims against them because they are not signatories to the contract and the claims of misrepresentation are not founded in the contract. (Opposition at pp. 1-2.)

Generally, only a party to an arbitration agreement may enforce the agreement, but the doctrine of equitable estoppel is an exception that allows a non-signatory to enforce an agreement. The doctrine applies in either of two circumstances: (1) when the signatory must rely on the terms of the written agreement containing the arbitration clause in asserting its claims against the nonsignatory; or (2) when the signatory alleges “substantially interdependent and concerted misconduct” by the nonsignatory and a signatory and the alleged misconduct is “founded in or intimately connected with the obligations of the underlying agreement.” (Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 218-219.) Also, when a plaintiff names a defendant as an alter ego of the signatory company, the individual defendant is entitled to compel arbitration. (Rowe v. Exline (2007) 153 Cal.App.4th 1276, 1285 [“By suing [non-signatory defendants] for breach of the Agreement on the ground that they are [the company’s] alter egos . . . [defendants] are ‘entitled to the benefit of the arbitration provisions’”].)

“The agency exception is another exception to the general rule that only a party to an arbitration agreement may enforce it. [Citation.] The exception applies, and a defendant may enforce the arbitration agreement, ‘when a plaintiff alleges a defendant acted as an agent of a party to an arbitration agreement. . . .’ [Citation.]” (Garcia v. Pexco, LLC (2017) 11 Cal.App.5th 782, 788 [217 Cal.Rptr.3d 793, 788.) When a complaint refers to the defendants as agents of each other and “every cause of action allege[s] identical claims against ‘All Defendants’ without any distinction,” the agency exception applies. (Ibid.) Likewise, by suing [non-signatory defendants] for breach of the Agreement on the ground that they are [the company’s] alter egos . . . [defendants] are ‘entitled to the benefit of the arbitration provisions.’” (Rowe v. Exline (2007) 153 Cal.App.4th 1276, 1285.)

All of Plaintiff’s causes of action against JNH are also brought against Song and Hahm. Plaintiff alleges that they had the same knowledge and duty, and within the causes of action, Plaintiff alleges that “Defendants,” without distinction, engaged in wrongful conduct. (E.g., TAC ¶¶ 14, 32, 39, 43, 52, 60-61, 65.) These allegations are intertwined with JNH’s conduct and alleged wrongdoing, and they are founded in the subcontracting relationship with JNH. Additionally, Plaintiff alleges that JNH is the alter ego of Song and Hahm, and all defendants are agents of each other. (TAC ¶¶ 10-11.) Therefore, Song and Hahm, under equitable estoppel and the agency exception, can compel arbitration.

In sum, Defendants have shown the existence of an applicable arbitration agreement, and Plaintiff has not shown waiver or grounds for rescission. (See Code Civ. Proc., § 1281.2.)

Plaintiff argues that “[t]here are too many related causes of action and third parties to be able to separately arbitrate the claims against JNH,” and “[t]he danger of conflicting results requires that all parties litigate the matter.” (Opposition at p. 3.) Specifically, Plaintiff contends that the claims against State National “obviously relate to the work on the roof of the project.” (Id. at p. 2.)

A court must grant a motion to compel arbitration unless a party to the arbitration agreement is also a party to a pending court action with a third party arising out of the same transaction and there is a possibility of conflicting rulings on a common issue of law or fact. (Code Civ. Proc., § 1281.2, subd. (c).)

Defendant Sean Soon Wook Lee has been dismissed. The only claim brought against Defendants RK All Insurance Services and Rian Kang is the eighth cause of action, which the Court ordered stricken on December 1, 2022 because it was improperly added without leave of court. Accordingly, RK All Insurance Services and Rian Kang were also dismissed from this action. With these dismissals, only two non-moving defendants remain: State National and RUG.

The only claim against State National is the seventh cause of action for bad faith breach of contract. Plaintiff alleges that it was covered as an additional named insured for the project, but State National wrongfully denied coverage for the project. (TAC ¶¶ 18, 77-79.) This is independent from the claims against the moving Defendants, which allege that Defendants breached the subcontract, negligently performed under the subcontract, and misrepresented their insured status. Despite contending that “[t]he possibility for conflicting rulings and verdicts is manifest,” Plaintiff also acknowledges that the State National claims “are independent of claims against JNH, since they are by Plaintiff as an insured and not as a claimant against JNH.” (Opposition at p. 2.)

The only claim against RUG is the tenth cause of action for equitable indemnity. Plaintiff alleges that after the water leakage, the project owner retained RUG to perform restoration, but RUG negligently performed its work of securing and restoring damage to the work site. (TAC ¶¶ 29, 94.) This too is independent from the claims against the moving Defendants, alleging wrongdoing occurring after the Defendants’ work and arising from a separate transaction.

Plaintiff has not shown that the section 1281.2, subdivision (c) exception applies here. The motion to compel arbitration is therefore granted.

Defendants seek a stay of the entire action pending arbitration because “resolution of [Plaintiff’s] breach of contract and negligence claims against JNH (among others) may very well moot the claims against the other Defendants.” (Motion at p. 14.)

As discussed above, the claim against RUG arises from a separate transaction and harm not involving the moving Defendants. The claim against State National is based on Plaintiff being an additional named insured under the policy and State National wrongfully denying coverage on the grounds that the work on the project was for a hospital. Defendants seemingly acknowledge the disparity between the claims against them and the non-moving defendants. Defendants assert that Plaintiff is “lumping in claims against non-signatories in this action that are only generally or tangentially related to the primary claims against [Plaintiff].” (Reply at p. 6.)

Because these claims are able to be separated, the action is ordered stayed as to only the moving Defendants. (Code Civ. Proc., § 1281.4.)

The motion to compel arbitration is GRANTED. The case against Eun Hee Song, JNH Roofing, Inc., and Jay Hahm is STAYED pending the completion of arbitration. The case against Restoration Unlimited Group, Inc. and State National Insurance Company, Inc. is not stayed.

A Status Conference re: Arbitration is scheduled for August 17, 2023 at 8:30 a.m. in Department 48 at Stanley Mosk Courthouse. Five court days before, the parties are to file a joint report regarding the status of arbitration, including the name of the retained arbitrator.

On September 29, 2022, RUG filed a demurrer to the TAC. A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context, accepting the alleged facts as true. (Nolte v. Cedars-Sinai Medical Center (2015) 236 Cal.App.4th 1401, 1406.)

The TAC’s sole cause of action against RUG is the tenth cause of action for equitable indemnity. “A right of equitable indemnity can arise only if the prospective indemnitor and indemnitee are mutually liable to another person for the same injury.” (Fremont Reorganizing Corp. v. Faigin (2011) 198 Cal.App.4th 1153, 1177.) Equitable indemnity “applies only among defendants who are jointly and severally liable to the plaintiff. [Citation.] [J]oint and several liability in the context of equitable indemnity is fairly expansive. We agree it is not limited to ‘the old common term “joint tortfeasor” . . . .’ It can apply to acts that are concurrent or successive, joint or several, as long as they create a detriment caused by several actors.” (BFGC Architects Planners, Inc. v. Forcum/Mackey Construction, Inc. (2004) 119 Cal.App.4th 848, 852.)

The TAC alleges that Plaintiff entered into a construction contract with California Department of General Services (“DGS”) for replacement of a roof. (TAC ¶ 12.) DGS claimed that rain repeatedly leaked into the building, causing substantial damage. (TAC ¶¶ 21, 25.) After the water leakage, DGS retained RUG for restoration. (TAC ¶ 29.) During that work, “RUG demolished substantial portion of the walls and ceilings constructed with wire lath and plaster where no mold was found and rebuilt the wall and ceiling, causing the alleged cost for over $2,000,000, which is a part of the claim by the project owner DGS.” (TAC ¶ 29.) The tenth cause of action alleges that RUG negligently secured and restored the work site, causing damage to DGS and for which DGS is seeking recovery from Plaintiff. (TAC ¶¶ 94-95.) Plaintiff seeks equitable indemnity for the portion of damage attributed to RUG’s negligence. (TAC ¶ 96.)

RUG argues that these allegations “are tantamount to no more than speculating that ‘RUG allegedly breached its contract with DGS,’” and Plaintiff lacks standing to bring a claim based on RUG’s alleged breach of contract with DGS. (Demurrer at p. 9.) But Plaintiff’s cause of action is not based on a breach of contract. Plaintiff alleges that over $2 million of DGS’s claim against Plaintiff was incurred due to RUG’s negligent restoration, and RUG is therefore a joint tortfeaser in causing a portion of the harm suffered by DGS. This sufficiently alleges the basis for equitable indemnity.

Parties who intend to submit on this tentative must send an email to the Court at SMCDEPT48@lacourt.org indicating intention to submit. Parties intending to appear are encouraged to appear remotely and should be prepared to comply with Dept. 48’s new requirement that those attending court in person wear a surgical or N95 or KN95 mask.

Hon. Thomas D. Long

Judge of the Superior Court