Judge: Walter P. Schwarm, Case: 30-2022-01300500, Date: 2023-08-29 Tentative Ruling
Defendants’ (Deo Reposo Condos, LLC, Alzate Building Corporation, and Calvin Nguyen) Motion to Compel Arbitration (Motion), filed on 4-5-23 under ROA No. 22, is DENIED without prejudice.
Toal v. Tardif (2009) 178 Cal.App.4th 1208, 1219, provides, “In Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 58 Cal.Rptr.2d 875, 926 P.2d 1061 (Rosenthal), our Supreme Court set forth the procedure to be followed when a petitioner seeks to compel arbitration: ‘[W]hen a petition to compel arbitration is filed and accompanied by prima facie evidence of a written agreement to arbitrate the controversy, the court itself must determine whether the agreement exists and, if any defense to its enforcement is raised, whether it is enforceable. Because the existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance of the evidence. If the party opposing the petition raises a defense to enforcement—either fraud in the execution voiding the agreement, or a statutory defense of waiver or revocation [citation]—that party bears the burden of producing evidence of, and proving by a preponderance of the evidence, any fact necessary to the defense.’ [Citation.]” (Footnote 8 omitted.)
Jones v. Jacobson (2011) 195 Cal.App.4th 1, 15 (Jones), states, “We conclude that in such instances, the nonsignatory bears the burden to establish he or she is a party to the arbitration agreement/provision covering the dispute.” (Italics in Jones.) “As is now obvious, with limited exceptions only parties to an arbitration agreement can enforce it or be required to arbitrate. [Citation] . . . [¶] ‘. . . Even the strong public policy in favor or arbitration does not extend to those who are not parties to an arbitration agreement or who have not authorized anyone to act for them in executing such agreement.’ . . . [¶] ‘Exceptions in which an arbitration agreement may be enforced by or against nonsignatories include where a nonsignatory is a third party beneficiary of the agreement [citation] and when a nonsignatory and one of the parties to the agreement have a preexisting agency relationship that makes it equitable to impose the duty to arbitrate on either of them. [Citations.]’ [Citation.] (Id., at pp. 17-18.)
Rice v. Downs (2016) 248 Cal.App.4th 175, 185-186 (Rice), states, “ ‘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. . . . 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.” ’ [Citation.] The party opposing arbitration has the burden of demonstrating that an arbitration clause cannot be interpreted to require arbitration of the dispute. [Citation.] Nonetheless, this policy does not override ordinary principles of contract interpretation. ‘[T]he contractual terms themselves must be carefully examined before the parties to the contract can be ordered to arbitration: “Although ‘[t]he law favors contracts for arbitration of disputes between parties’ [citation], ‘ “there is no policy compelling persons to accept arbitration of controversies which they have not agreed to arbitrate. . . .” ’ [Citations.] In determining the scope of an arbitration clause, ‘[t]he court should attempt to give effect to the parties’ intentions, in light of the usual and ordinary meaning of the contractual language and the circumstances under which the agreement was made [citation].” ” ’ [Citation.] ‘[T]he terms of the specific arbitration clause under consideration must reasonably cover the dispute as to which arbitration is requested.’ [Citation.] [¶] The ordinary rules of contract interpretation apply to arbitration agreements. [Citation.] ‘The court should attempt to give effect to the parties’ intentions, in light of the usual and ordinary meaning of the contractual language and the circumstances under which the agreement was made (Civ.Code, §§ 1636, 1644, 1647).’ [Citation.] ‘The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.’ (Civ.Code, § 1641.) ‘ “A court must view the language in light of the instrument as a whole and not use a ‘disjointed, single-paragraph, strict construction approach’ [citation].” ’ [Citation.] An interpretation that leaves part of a contract as surplusage is to be avoided. [Citation.]”
Pinnacle Museum Tower Association v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 231-232 (Pinnacle), provides, “An owners association filed the instant construction defect action against a condominium developer, seeking recovery for damage to its property and damage to the separate interests of the condominium owners who compose its membership. In response, the developer filed a motion to compel arbitration, based on a clause in the recorded declaration of covenants, conditions, and restrictions providing that the association and the individual owners agree to resolve any construction dispute with the developer through binding arbitration in accordance with the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.). [¶] We granted review to determine whether the arbitration clause is binding on the association, and if so, whether it must be invalidated as unconscionable. As we shall explain, even though the association did not exist as an entity independent of the developer when the declaration was drafted and recorded, it is settled under the statutory and decisional law pertaining to common interest developments that the covenants and terms in the recorded declaration reflect written promises and agreements that are subject to enforcement against the association. We conclude that the arbitration clause binds the association and is not unconscionable.”
Defendants seek to enforce an arbitration provision contained in the “Declaration of Covenants, Conditions, Restrictions and Reservation of Easements for 117 Avenida Del Reposo” (CCRs) recorded on 8-1-16. The Motion states, “Plaintiff claims breaches of certain obligations identified in the CC&Rs, which Defendants executed and had recorded in the Office of the County Recorder for Orange County, as part of their role in the development of the Project. The CC&Rs established a common plan for the ownership of the Project and contain personal obligations and restrictions on the use of the Project as part of the common plan. (Complaint, ¶ 56.) As Plaintiff points out, the CC&Rs describe the Project and state that they are intended to bind all parties to the CC&Rs and all purchasers and their successors.” (Motion; 3:13-18.) Plaintiff’s (Del Reposo Association) Complaint, filed on 12-30-22 under ROA No. 2, attaches a copy of the CCRs. (Complaint, ¶ 18 and Exhibit A.)
Plaintiff’s Opposition to Defendants’ Motion for Order Compelling Arbitration and Dismiss or Stay Action (Opposition), filed on 8-16-23 under ROA No. 44, does not appear to dispute that the CCRs apply to the relationship between Plaintiff and Defendant—Del Reposo Condos, LLC. (Opposition; 6:6-11.) The Opposition states, “The ADR Provisions in the CC&Rs set forth a clear path for disputes with the LLC, which is mediation as the first required step, then judicial reference if the dispute remains unresolved, and finally binding arbitration if for any reason judicial reference procedures are legally unavailable, unenforceable, or if all necessary parties cannot be joined in the judicial reference. Defendants’ Motion improperly seeks to bypass the clear judicial reference requirement; indeed, their Motion fails to acknowledge the existence of this explicit ADR language at all – much less argue that any of the exceptions to judicial reference apply.” (Opposition; 7:25-8:3 (Emphasis in Opposition.).)
The issue is whether the alternative dispute provisions contained in the CCRs require the parties to proceed with judicial reference before proceeding with binding arbitration.
Article 12 of the CCRs provides the terms relevant to the dispute resolution procedures between Plaintiff and Defendant—Del Reposo Condos, LLC. (CCRs.) Further, paragraph 12 of the Complaint contains an agency allegation. Since Plaintiff alleges that Defendants—Alzate Building Corporation and Calvin Nguyen are agents of Defendant—Del Reposo Condos, LLC, they have authority to compel arbitration under Article 12 of the CCRs. Section 12.4 of the CCRs expressly includes Section 12.4 of the CC&R expressly includes “. . . any director, officer, partner, shareholder, member, employee, representative, contractor, subcontractor, design professional or agent . . . ” of the LLC as a “Declarant Party” in identifying the parties to a dispute.” (Complaint, ¶ 18 and Exhibit A.) Thus, the court finds that Defendants—Alzate Building Corporation and Calvin Nguyen have standing to bring this Motion even though they are not parties to the CCRs. (The court also that Defendants—Alzate Building Corporation and Calvin Nguyen have agreed to submit to all of the dispute resolution procedures in the CCRs because they have brought this Motion seeking to compel arbitration pursuant to the Article 12 of the CCRs.)
Section 12.4.4 of the CCRs states in part, “Judicial Reference. If a Dispute remains unresolved after the mediation required by Section 12.4.3 is completed then any of the Parties may file a lawsuit . . . All lawsuits regarding a Dispute must be resolved by general judicial reference pursuant to California Code of Civil Procedure Section 638 and 641 through 645.1, as modified by this Section 12.4.4. The Parties shall cooperate in good faith to ensure that all necessary and appropriate parties are included in the judicial reference proceeding. No party shall be required to participate in the judicial reference proceeding if all Parties against who such Party would have necessary or permissive cross-claims or counterclaims will not or cannot be joined in the judicial reference proceeding.” (Complaint, ¶ 18 and Exhibit A.)
As to arbitration, section 12.4.5 of the CCRs states in part, “Binding Arbitration. If for any reason the judicial reference procedures in Section 12.4.4 are legally unavailable, unenforceable at the time a Dispute would otherwise be referred to judicial reference, or if all necessary parties cannot be joined in the judicial reference proceeding described in Section 12.4.4, then such Dispute shall be submitted to neutral binding arbitration. . . .” (Complaint, ¶ 18 and Exhibit A.)
Based on the terms of the CCRs, the CCRs do not authorize the court to compel arbitration at this stage of the proceedings. The CCRs set forth the parties’ obligations as to the priority of the agreed upon alternative resolution procedures. First, the parties must the CCRs provide the parties to resolve the dispute within 90 days of written notice. (Complaint, ¶ 18 and Exhibit A; CCRs, §§ 12.4.1, 12.4.2, and 12.4.3.) If the parties do not resolve the dispute within 90 days of the written notice, then the CCRs allow a party to submit the dispute to mediation. (Complaint, ¶ 18 and Exhibit A; CCRs, § 12.4.3.) If mediation does not resolve the dispute, then the CCRs require the parties to resolve the dispute by judicial reference after the filing of a lawsuit. (Complaint, ¶ 18 and Exhibit A; CCRs, § 12.4.4.) Finally, if “. . . for any reason the judicial reference procedures in Section 12.4.4 are legally unavailable, unenforceable at the time a Dispute would otherwise be referred to judicial reference, or if all necessary parties cannot be joined in the judicial reference proceeding described in Section 12.4.4, then such Dispute shall be submitted to neutral binding arbitration. . . .” (Complaint, ¶ 18 and Exhibit A; CCRs, § 12.4.5.) The CCRs shows that the intent of the parties was to provide an order of priority as to the use of alternative dispute procedures to resolve disputes between the parties.
Here, Defendants have failed to demonstrate that the court should compel this dispute to arbitration under section 12.4.5 of the CCRs. Defendants have not provided the court with evidence that the judicial reference procedures are legally unavailable or unenforceable. (Alzate and Montes Declarations.) Defendants have also not presented evidence that there are necessary parties that cannot be joined to a judicial reference proceeding. (Alzate and Montes Declarations.)
The court recognizes that Defendants’ Reply in Support of Motion to Compel Arbitration (Reply), filed on 8-22-23 under ROA No. 47, states, “. . . Defendants have not been reasonably informed about the scope of the claimed defects, but because Defendants know that they did not perform all of the work at issue themselves, it is highly likely, if not certain, that Defendants will assert claims against parties that are not subject to the judicial reference provisions: namely subcontractors and materials suppliers. Thus, Defendants are not required to participate in judicial reference proceedings because Defendants would find themselves unable to add a necessary party.” (Reply; 5:2-8.) Based on the evidence at this stage of the proceedings, it is speculative for the court to determine whether other unnamed parties are or are not subject to joinder in judicial reference proceedings.
Therefore, the court DENIES Defendants’ (Deo Reposo Condos, LLC, Alzate Building Corporation, and Calvin Nguyen) Motion to Compel Arbitration, filed on 4-5-23 under ROA No. 22 without prejudice.
Plaintiff is to give notice.