Pristine Environments Inc. v. Signet Jewelers Ltd.

PRISTINE ENVIRONMENTS INC., Plaintiff and Respondent, v. SIGNET JEWELERS LIMITED et al., Defendants and Appellants.

D071394

COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA

October 30, 2017

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Super. Ct. No. 37-2016-00016348-CU-FR-CTL)

APPEAL from an order of the Superior Court of San Diego County, Judith F. Hayes, Judge. Reversed with directions.

Snell & Wilmer, Keith M. Gregory, Patrick W. Kelly and Todd E. Lundell for Defendants and Appellants.

Cappello & Noel, A. Barry Cappello, Lawrence J. Conlan and Wendy D. Welkom for Plaintiff and Respondent.

Signet Jewelers Limited, Signet Group Services US Inc. (collectively Signet), and Joseph Albanese (together Defendants) appeal from an order denying their motion to compel arbitration. Defendants contend the trial court erroneously determined that (1) court, not arbitration, is the appropriate forum for determining whether this action is within the scope of the parties' arbitration provision; and (2) the action is not arbitrable. We conclude the court correctly decided the first issue, but not the second, and therefore reverse with directions to grant Defendants' motion to compel arbitration.

FACTUAL AND PROCEDURAL BACKGROUND

A. The Contract for Repair and Maintenance Services

Signet operates approximately 3,500 retail jewelry stores, including Kay Jewelers and Zales, in the United States and elsewhere. Pristine Environments Inc. (Pristine) provides facility maintenance services to retail businesses.

In January 2015 Signet solicited proposals from several companies, including Pristine, to provide repair and maintenance services for all of Signet's United States stores. One of Signet's proposed terms, entitled "Governing Law," provided that the contract "shall be governed by and construed in accordance with the laws of the State of Ohio," and "any and all disputes arising under this Agreement . . . shall be determined through binding arbitration . . . ."

Signet awarded Pristine the contract. Signet and Pristine entered into a three-year "Master Services Agreement" (Agreement) under which Pristine was to provide repair and maintenance services for Signet's stores in exchange for approximately $10.5 million for fiscal year 2017 (and $5.74 million for the remainder of fiscal 2016).

Under the Agreement, Pristine agreed to operate a call center to process calls from Signet stores requesting repairs. Pristine contracted with local service providers to perform the requested services. Pristine also agreed to provide scheduled preventative maintenance. The Agreement contains the same governing law and arbitration provision as stated in the request for proposal.

B. Disputes Arise

Disputes quickly arose. In August 2015 Pristine complained it was receiving an unexpectedly high volume of service calls—about 300 calls per day instead of the 100 calls Signet forecasted during contract negotiations. In March 2016 Pristine stated it had incurred about $8.9 million in obligations to third-party vendors for completed work under the Agreement—while Signet's payments to Pristine under the Agreement were only $5.1 million. Pristine asserted that "call volumes have been far in excess of forecast every month to date." However, Signet's position was Pristine's problems were self-inflicted, stemming from Pristine's poor performance, and not the result of an excessive number of service calls. In March 2016 Pristine terminated its performance under the Agreement.

C. Arbitration

In March 2016 Signet served Pristine with a demand for arbitration. As amended in April 2016, the demand alleges, among other things, that Pristine caused an increased volume of repair service calls by (1) issuing multiple work orders for the same repair request; (2) performing incomplete repairs, resulting in several work orders for the same issue; (3) not performing preventative maintenance as agreed. Signet alleges it made all legally obligated payments to Pristine under the Agreement, and Pristine repudiated the Agreement.

D. Litigation

In May 2016 Pristine responded by filing a lawsuit against Signet and Albanese, a Signet officer. Pristine alleges that Defendants fraudulently induced Pristine to enter into the Agreement by misrepresenting the number of service calls Pristine could reasonably expect to receive. Pristine alleges causes of action for (1) fraudulent misrepresentation, (2) fraudulent nondisclosure, (3) violation of California unfair competition law, (4) declaratory relief, and (5) unjust enrichment.

Specifically, Pristine alleges that after receiving the request for proposal, it asked Signet to estimate the volume of repair service calls that it anticipated under the Agreement. Signet initially estimated 38,400 annual repair maintenance calls. Pristine alleges that relying on that estimate, it submitted a "preliminary proposal" to Signet for approximately $15 million.

Subsequently, however, in May 2015 Albanese told Pristine the correct volume was 27,500 calls annually. Based on that revised number, Pristine agreed to a $10,506,576 fee for fiscal year 2017. Pristine alleges this call volume estimate was "false when made" and, as a result, Pristine was fraudulently induced to enter into the Agreement "and undertake the scope of work pursuant to a drastically understated budget and call volume figure," allowing Signet "to obtain more than $15 million worth of services for approximately $10.5 million."

Pristine alleges that the Agreement "expressly incorporated as 'Target Goals & Measurables' the expected volume of 27,500" repair maintenance calls, and "had Pristine known the actual figures would be closer or more than the original figures provided in the [request for proposal], i.e., 38,400, it would never have executed the . . . [Agreement], or considered making any agreement with the limited budget of only $10.5 million."

Pristine further alleges that after it began performing under the Agreement, Signet "continued to misrepresent that the [call] volume would decrease in order to keep Pristine working for it . . . ." As a result, Pristine alleges that Signet "lulled Pristine into continuing to provide services by making false promises that matters of budget overrun would be addressed, and that payment would be forthcoming." Pristine alleges that Signet stopped paying after Pristine "had incurred substantial obligations to the vendors servicing [Signet's] locations . . . ." Pristine further alleges that it was "compelled to suspend services in order to mitigate the severe financial damages flowing from [Signet's] false representations of the word order volume and their refusal to pay for the services their stores were receiving."

E. Signet's First Motion to Compel Arbitration

Defendants filed a motion to compel arbitration based on the following provision in the Agreement:

"This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio without giving effect to the principles of conflicts of law thereof. Except as otherwise provided in this Section, any and all disputes arising under this Agreement that cannot otherwise be resolved as between the parties shall be determined through binding arbitration to be conducted as set forth in this Section and shall be generally conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association. . . .

"All disputes and/or claims subject to this Section shall be raised by notice to the other Party, which notice shall state with particularity the nature of the dispute and/or claim and the demand for relief, making specific reference by article number and title to the provisions of this Agreement alleged to have given rise to the dispute. . . .

"All disputes subject to this Section shall be heard by a panel of three (3) arbitrators . . . .

"The need for and scope of formal discovery will be determined by agreement of the Parties or, if the Parties are unable to agree, the Arbitration Panel. . . . In the event of a formal hearing, each Party shall only be allowed a maximum of eight (8) hours to present evidence and/or witnesses.

"All costs of the Arbitration and the Arbitration Panel shall be borne equally by both parties. Notwithstanding the agreement to arbitrate in this Section, claims within the monetary jurisdiction of Ohio's Municipal Courts, actions for specific performance or price, and/or actions for preliminary injunctive relief may be pursued by either Party . . . in a court of competent jurisdiction in Summit County, Ohio, or pursued in arbitration as set forth above."

Pristine opposed the motion, primarily on the grounds that the Agreement only requires arbitration of disputes "arising under the Agreement." (Italics added.) Pristine asserted that language limits arbitration to disputes about contract interpretation and performance, not Pristine's claim for fraudulent inducement. Pristine also asserted that the court, rather than the arbitrator, should determine whether its claims are arbitrable.

On August 5, 2016, the court issued a tentative ruling granting the motion to compel arbitration. After conducting a hearing the same day, the court took the matter under submission.

F. Amended Complaint

On August 24, 2016—while the matter was under submission—Pristine filed a first amended complaint (Complaint), making the motion to compel arbitration moot. The Complaint is identical to Pristine's original complaint, except it adds allegations that Pristine was fraudulently induced to enter into not only the Agreement as a whole, but also the arbitration provision in particular.

G. Second Motion to Compel Arbitration

Defendants filed a ...