Judge Thomas D. Long, Case 22STCV17035 2022-09-15 Tentative Ruling

On May 24, 2022, Montana Marketing & Sales, Inc. dba AAA Green Builders filed a Complaint against Rosa Saenz and Bertha Saenz alleging breach of contract and mechanics’ lien foreclosure, with an application for a stay of proceedings pending mandatory arbitration. “The parties and relevant individuals share a last name. For clarity, convenience, and in order to avoid confusion, we refer to them by their first names and intend no disrespect.” (Cruz v. Superior Court (2004) 120 Cal.App.4th 175, 188, fn. 13.)

On July 25, 2022, Rosa and Bertha filed a Cross-Complaint against AAA Green Builders alleging (1) cancellation of instruments, (2) fraud in the inducement, (3) recission of contract, (4) breach of contract, (5) damage to real property, and (6) unlawful, unfair, and fraudulent business practices.

On July 29, 2022, AAA Green Builders filed a motion to compel arbitration of the Complaint and Cross-Complaint and stay the proceedings.

When seeking to compel arbitration of a plaintiff’s claims, the moving party must allege the existence of an agreement to arbitrate. (Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 219.) The burden then shifts to the opposing party 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 movant has waived the right to compel arbitration or if there are grounds to revoke the arbitration agreement. (Ibid.; Code Civ. Proc., § 1281.2.)

AAA Green Builders provides a copy of the parties’ home improvement contract signed on December 13, 2021. (Motion, Ex. A.) The first page of the contract contains a box stating “ARBITRATION” and directing, “OWNER: Initial this box if you agree to arbitration. Review the ‘Arbitration of Disputes’ section attached.” Rose and Bertha initialed the box and signed the full contract below the box. The final page of the exhibit contains a separate page titled “ARBITRATION OF DISPUTES.” The Arbitration Agreement provides that “any dispute, or a claim arising out of or relating to this agreement, or the enforcement or interpretation hereof . . . shall be determined exclusively by binding arbitration . . . .” Rosa and Bertha signed the acknowledgment at the bottom of the page.

AAA Green Builders has met its initial burden of showing the existence of an arbitration agreement that covers the claims in this action, and Rosa and Bertha do not dispute the existence of the Arbitration Agreement.

Rosa and Bertha argue that AAA Green Builders illegally began construction during the Three-Day Notice to Cancel period, rendering the home improvement contract (containing the Arbitration Agreement) null and void. (Opposition at p. 5.) They also argue that the home improvement contract is void ab initio due to the lack of effective three-day cancellation notice, AAA Green Builders’ conduct invalidating the three-day cancellation clause, and the execution of the contract based on fraudulent promises. (Id. at p. 6.) Rosa and Bertha generally argue that there is no longer a contract between the parties and they have rescinded the contract. (Opposition at pp. 6-8.)

Rosa and Bertha cite no law supporting their proposition that AAA Green Builders beginning construction during the three-day cancellation window voids the contract. Moreover, they do not contend that they attempted to cancel the contract during that time period. The contract was signed on December 13, 2021. Rosa and Bertha emailed a Notice of Cancellation of the Home Improvement Contract on July 15, 2022—after this action was filed. (Opposition at p. 5; Rudoy Decl., Ex. B.) Accepting their argument about their belated attempt to rescind the contract would necessarily require determination of the validity of their rescission attempt and the substantive merits of the claims, including claims for cancellation of instruments and rescission of contract. It would also render meaningless the Arbitration Agreement’s provision for arbitration of claims arising out of or related to the enforcement of the contract.

Rosa and Bertha also argue that they were fraudulently induced to execute the home improvement contract, so the contract is null and void. (Opposition at pp. 8-9.) But “in the absence of indication of contrary intent, and where the arbitration clause is reasonably susceptible of such an interpretation, claims of fraud in the inducement of the contract (as distinguished from claims of fraud directed to the arbitration clause itself) will be deemed subject to arbitration.” (Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street (1983) 35 Cal.3d 312, 323 (Ericksen).) The alleged fraud in the Cross-Complaint is based on representations that Rosa and Bertha would qualify for a special state financing program for the project. (Cross-Complaint ¶ 38.) There are no allegations that the Arbitration Agreement was fraudulently induced, and the agreement states, “YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.” Thus, as in Ericksen, “the arbitration commitment is severable from the underlying agreement” and “the arbitration clause may reasonably be construed to encompass the fraud claim, [so] the entire dispute should be resolved through arbitration.” (Ericksen, supra, 35 Cal.3d at p. 314.) The parties may not “bypass the arbitral process, and invoke the jurisdiction of the courts, by asserting that the agreement itself was the product of fraud.” (Ibid.)

Because Defendant has shown the existence of an applicable arbitration agreement and Plaintiff has not shown waiver or grounds for rescission of the arbitration agreement, the motion to compel arbitration is GRANTED. (Code Civ. Proc., § 1281.2.)

The entire action is STAYED pending the arbitration. A Status Conference re: Arbitration is scheduled for 09/15/2023 at 8:30 AM in Department 48 at Stanley Mosk Courthouse (September 15, 2023). Five court days before, the parties are to file a joint report stating the name of their retained arbitrator and the status of arbitration.

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