Judge Thomas D. Long, Case Number: 23STCV29817, Date: 2024-06-25 Tentative Ruling

On December 6, 2023, Plaintiffs Derek Andersen and Connie Andersen filed this action. On February 1, 2024, they filed a first amended complaint (“FAC”) against Defendants Ryan Elmore, Elmoro Holdings LLC, Bret Lewis, Noble Realty Brokerage Inc., Professional Foundation Repair & Construction Inc.

On May 14, 2024, Plaintiffs filed a motion to compel arbitration with Ryan Elmore and Elmoro Holdings LLC (“Defendants”).

Plaintiffs’ request for judicial notice is denied as irrelevant. Furthermore, the Court generally will not consider new evidence submitted with a reply.¿¿(See¿Jay v. Mahaffey¿(2013) 218 Cal.App.4th 1522, 1537-1538 (Jay).)

Plaintiffs’ objections to the Declaration of Ryan Elmore are sustained as argumentative.

When seeking to compel arbitration, the moving party 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 opponent 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.) 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.)

Plaintiffs provide a copy of their California Residential Purchase Agreement and Joint Escrow Instructions, which contains an arbitration clause. (D. Andersen Decl., Ex. 1.) Through the Arbitration Agreement, the parties agreed to arbitrate (under the FAA) “any dispute or claim in Law or equity arising between them out of this Agreement or any resulting transaction, which is not settled through mediation.” The full Residential Purchase Agreement is signed by Plaintiffs as Buyers and by Ryan Elmore as Legally Authorized Signer for Elmoro Holdings LLC. Plaintiffs have satisfied their burden of showing the existence of an agreement to arbitrate.

In opposition, Defendants do not contest the existence of this Arbitration Agreement or its applicability to Plaintiffs’ claims. Instead, they argue that Plaintiffs have waived their right to compel arbitration and that Ryan Elmore cannot be ordered to arbitration.

Defendants argue that Plaintiffs have waived their right to compel arbitration by filing this action in court. (Opposition at pp. 8-11.)

“‘In determining waiver, a court can consider “(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.” ’ [Citation.]” (St. Agnes Med. Ctr. v. PacifiCare of Cal. (2003) 31 Cal.4th 1187, 1196 (St. Agnes).) Recently, the United States Supreme Court resolved a circuit split and “held that under the FAA, courts may not ‘condition a waiver of the right to arbitrate on a showing of prejudice.’” (Davis v. Shiekh Shoes, LLC (2022) 84 Cal.App.5th 956, 965 (Davis), quoting Morgan v. Sundance, Inc. (2022) 142 S.Ct. 1708, 1713 (Morgan).) Accordingly, the St. Agnes factors “‘minus the prejudice requirement’ are unaffected by Morgan and remain proper considerations in the waiver inquiry.” (Davis, supra, 84 Cal.App.5th at p. 966.)

Contrary to Defendants’ contention (Opposition at p. 10), Plaintiffs have not actively and tactically litigated the merits of the case or manipulated their right to arbitration. The parties did participate in mediation before Plaintiffs filed this action, but that was in accordance with agreement to arbitrate disputes that are “not settled through mediation.” (See Opposition at p. 11.) Additionally, the Arbitration Agreement permits the filing of a court action before proceeding to arbitration: it states that “the filing of a court action to preserve a statute of limitations” is not a waiver or violation of the mediation and arbitration provisions.

Plaintiffs filed their FAC before any defendant appeared in this action. After filing their FAC, Plaintiffs substituted counsel and moved to compel arbitration. Plaintiffs’ April 10, 2024 Case Management Statement indicated that they are willing to participate in mediation and binding private arbitration. When Plaintiffs posted jury fees on April 23, 2024, their notice included, “By posting jury fees, Plaintiffs do not intend to and do not waive any right of arbitration they have pursuant to a written agreement to arbitrate with certain named defendants.” Importantly, Plaintiffs are seeking arbitration only as to Elmore and Elmoro Holdings; they may still proceed to a jury trial as to all other defendants.

The Court concludes that Plaintiffs have not waived their right to compel arbitration.

C. Ryan Elmore is Not a Party to the Arbitration Agreement and Cannot Be Compelled to Arbitration Individually.

The Residential Purchase Agreement identifies Ryan Elmore as the authorized signer for the Entity Seller, and “This Agreement is being Signed by a Legally Authorized Signer in a representative capacity and not in an individual capacity.” (D. Andersen Decl., Ex. 1 at p. 15, ¶ 33(B)(2); see id. at p. 14, ¶ 28.) Accordingly, on its face, the Arbitration Agreement does not bind Ryan Elmore, who was not a party to the contract and did not sign it in his individual capacity. Although Plaintiffs have alleged the existence of an arbitration agreement, it does not apply to their claims against Ryan Elmore unless an exception applies.

Plaintiffs argue that Elmoro Holdings is the alleged alter ego of Ryan Elmore, so Ryan Elmore should also be compelled to arbitration. (Reply at p. 5; see FAC ¶¶ 112-116.) A nonsignatory of an arbitration agreement may be bound by the agreement under ordinary contract and agency principles, including “‘1) incorporation by reference; 2) assumption; 3) agency; 4) veil-piercing/alter ego; and 5) estoppel.’ [Citation.] In addition, nonsignatories can enforce arbitration agreements as third party beneficiaries. [Citation.]” (Comer v. Micor, Inc. (9th Cir. 2006) 436 F.3d 1098, 1101.)

When a nonsignatory is sued on the ground that they are the alter ego of a signatory, that nonsignatory is entitled to the benefit of the arbitration provision and may compel arbitration. (Rowe v. Exline (2007) 153 Cal.App.4th 1276, 1285.) That is not the case here. Ryan Elmore is not seeking to enforce the Arbitration Agreement against Plaintiffs due to their allegations of him being an alter ego. Instead, Plaintiffs are seeking to enforce the agreement against a nonsignatory based solely on their allegations that he is an alter ego of a signatory.

Plaintiffs’ cited cases involve the doctrine of alter ego generally, but not in the context of compelling a nonsignatory to arbitration on this basis. (Reply at pp. 5-8.) The exception is Borelli v. Black Diamond Aggregates, Inc. (E.D. Cal., Mar. 21, 2017, No. 214CV02093KJMKJN) 2017 WL 1063564, (See Reply at pp. 7-8.) This federal, unpublished, and out-of-district authority has only persuasive, not precedential, value—and the Court does not find it to be persuasive. (See City of Hawthorne ex rel. Wohlner v. H&C Disposal Co. (2003) 109 Cal.App.4th 1668, 1678, fn. 5.)

Furthermore, Plaintiffs’ argument for alter ego liability relies on evidence submitted only with its reply. In its moving papers, Plaintiffs did not present any argument about Ryan Elmore being bound to the Arbitration Agreement as an alter ego, despite this being their alleged basis for liability. (See FAC ¶¶ 112-116.) Although Plaintiffs’ initial burden is merely to allege the existence of an agreement to arbitrate, that includes alleging that the there is an agreement to arbitrate “that controversy” and that “a party to the agreement refuses to arbitrate that controversy.” (Code Civ. Proc., § 1281.2.) Knowing that Ryan Elmore was not personally a party to the Residential Purchase Agreement with the Arbitration Agreement and that the Arbitration Agreement does not facially cover Plaintiffs’ controversy with him, Plaintiffs should have also submitted their alter ego argument and evidence with its initial motion. The Court will not consider this argument and evidence for the first time with the reply. (See¿Jay, supra, 218 Cal.App.4th at pp. 1537-1538.)

Accordingly, the motion is denied as to Ryan Elmore. The motion is granted as to Elmoro Holdings LLC.

All of Plaintiffs’ claims relate to the alleged breach of the Residential Purchase Agreement. The two cross-complaints seek indemnity and contribution. Accordingly, the case against Elmoro Holdings LLC cannot be severed from the remainder of the action, and the entire action must be stayed while Plaintiffs and Elmoro Holdings LLC arbitrate their claims. (Code Civ. Proc., § 1281.4.)

Plaintiffs’ motion to compel arbitration is GRANTED IN PART. The case against Defendant Elmoro Holdings LLC is ordered to arbitration.

A Status Conference re: Arbitration is scheduled for June 26, 2025 at 8:30 a.m. in Department 48 at Stanley Mosk Courthouse. 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. If all parties in the case submit on the tentative ruling, no appearances before the Court are required unless a companion hearing (for example, a Case Management Conference) is also on calendar.

Hon. Thomas D. Long

Judge of the Superior Court