Victrola 89, LLC v. Jaman Props. 8 LLC

46 Cal.App.5th 337

260 Cal.Rptr.3d 1

VICTROLA 89, LLC, Plaintiff and Respondent,

v.JAMAN PROPERTIES 8 LLC et al., Defendants and Appellants.

B295439

Court of Appeal, Second District, Division 4, California.

Filed March 11, 2020

Shoreline, Andrew S. Pauly and Andrew J. Haley, Santa Monica, for Defendants and Appellants.

June Babiracki Barlow, Neil Kalin and Jenny Li, Los Angeles, as Amicus Curiae for California Association of Realtors on behalf of Defendants and Appellants.

Shumener, Odson & Oh, Betty M. Shumener, Los Angeles, Staci M. Tomita, Los Angeles, Benjamin L. Hicks, Los Angeles, and Benjamin P. Sosnick for Plaintiff and Respondent.

MANELLA, P. J.

INTRODUCTION

After respondent Victrola 89, LLC (Victrola) purchased a house (the Property) from appellant Jaman Properties 8, LLC (JP8), Victrola filed suit against JP8, appellant Jaman Properties, Inc. (JP), and their principal, appellant Michael Manheim (collectively, the Jaman Parties), among others, regarding allegedly undisclosed and unrepaired defects in the Property. Based on the real estate purchase agreement (the Agreement) between Victrola and JP8, the Jaman Parties moved to compel arbitration under the Federal Arbitration Act (FAA).¹

The court denied the motion to compel arbitration, finding that the procedural provisions of the California Arbitration Act (CAA), rather than those of the FAA, applied to its ruling on the motion. Under section 1281.2, subdivision (c), of the CAA (Section 1281.2(c)), a court may refuse to compel arbitration if "[a] party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact." ( Code Civ. Proc., § 1281.2, subd. (c).) Because both the Jaman Parties and Victrola were parties to a pending court action (i.e., Victrola’s lawsuit) with third-party defendants not required to arbitrate, the court found "a possibility of conflicting rulings on a common issue of law or fact" and exercised its discretion under Section 1281.2(c) to decline to enforce the arbitration provision of the Agreement.

On appeal, the Jaman Parties contend the court erred in finding the FAA did not apply to their motion to compel arbitration. Victrola counters that: (1) the court correctly found the CAA, not the FAA, applied; (2) most of the claims Victrola brought are not covered by the Agreement’s arbitration clause; (3) Code of Civil Procedure section 1298.7 ( Section 1298.7 ) exempts Victrola from arbitrating its construction defect claims; (4) JP and Manheim are not entitled to enforce the arbitration provision of the Agreement because they are not parties to the Agreement; and (5) the Jaman Parties are estopped from asserting the application of the FAA.

As discussed below, we find: (1) the parties incorporated the procedural provisions of the FAA into the Agreement; thus the court could not look to Section 1281.2(c) to deny the Jaman Parties’ motion; (2) the Agreement’s arbitration clause encompasses all of Victrola’s claims against the Jaman Parties; (3) the FAA preempts Section 1298.7 in this instance; and (4) JP and Manheim have standing to enforce the arbitration provision. Because the trial court did not reach the claim of judicial estoppel, we remand to permit that court to adjudicate the issue. Accordingly, we vacate the trial court’s order denying the Jaman Parties’ motion, and remand for the court to determine whether the Jaman Parties are judicially estopped from claiming the FAA’s procedural provisions apply.

STATEMENT OF RELEVANT FACTS

On November 11, 2016, Matthew S. Barrett and Kathy K. Barrett made an offer to buy the Property.² The offer was made using a CAR form, and contained the following language under Paragraph 22.B:

"Arbitration of Disputes: The Parties agree that 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, shall be decided by neutral, binding arbitration. The Parties also agree to arbitrate any disputes or claims with Broker(s), who, in writing, agree to such arbitration prior to, or within a reasonable time after, the dispute or claim is presented to the Broker. The arbitrator shall be a retired judge or justice, or an attorney with at least 5 years of residential real estate Law experience, unless the parties mutually agree to a different arbitrator. The Parties shall have the right to discovery in accordance with Code of Civil Procedure § 1283.05. In all other respects, the arbitration shall be conducted in accordance with Title 9 of Part 3 of the Code of Civil Procedure. Judgment upon the award of the arbitrator(s) may be entered into any court having jurisdiction. Enforcement of this agreement to arbitrate shall be governed by the Federal Arbitration Act. ..." (Bolding added.)

" ‘NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED

IN THE ‘ARBITRATION OF DISPUTES’ PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL.

BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE ‘ARBITRATION OF DISPUTES’ PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.’ "

Additionally, paragraph 29 of the Agreement stated: "Except as otherwise specified, this Agreement shall be interpreted and disputes shall be resolved in accordance with the Laws of the State of California."

After Victrola’s initial offer, JP8 and Victrola each made two counteroffers, culminating in an agreement executed on January 7, 2017, for the Barretts or their designee to purchase the Property. Each of the counteroffers incorporated the previous offer or counteroffer. Escrow closed on February 17, 2017.

On August 8, 2018, Victrola filed a complaint against JP8, JP, Manheim, T. Engineering Group, Inc., Harris–Anderson, and Harms Concrete Construction, Inc. The gravamen of the complaint was that JP8 and its affiliates, principals, and contractors, deceived Victrola about both the initial condition of the Property and the repairs of the Property’s defects.

On November 1, 2018, the Jaman Parties moved to compel arbitration and stay the action. According to the notice of motion, the motion was "brought under the Federal Arbitration Act (‘FAA’ ), 9 U.S.C. §§ 3 - 4." In the memorandum of points and authorities accompanying the motion, when arguing the court should stay the action as to any claims or parties not subject to arbitration, the Jaman Parties relied on section 1281.4 of the Code of Civil Procedure ( Section 1281.4 ) (i.e., a section of the CAA), as well as Twentieth Century Fox Film Corp. v. Superior Court (2000) 79 Cal.App.4th 188, 93 Cal.Rptr.2d 896 ( Twentieth Century Fox ), a case interpreting Section 1281.4. ( Twentieth Century Fox , supra , at 192, 93 Cal.Rptr.2d 896.)

On January 18, 2019, the court denied the motion, finding the CAA, not the FAA, applied. Specifically, the court found that "the question is not whether the Federal Arbitration Act (‘FAA’) ‘applies’ to this Agreement, but rather, whether the parties expressly incorporated the FAA’s procedural provisions into the Agreement. If the parties did not, the Court is not precluded from exercising its discretion under CCP § 1281.2(c), because § 1281.2 is not preempted by the FAA." The court relied principally on Valencia v. Smyth (2010) 185 Cal.App.4th 153, 110 Cal.Rptr.3d 180. There, the court held the parties had agreed to be bound by the CAA, notwithstanding language in the arbitration agreement that "Interpretation of this agreement to arbitrate shall be governed by the Federal Arbitration Act." ( Valencia v. Smyth , supra , 185 Cal.App.4th at 159, 110 Cal.Rptr.3d 180, emphasis added.) Recognizing the provision in the instant agreement stated " ‘Enforcement of this agreement [to arbitrate] shall be governed by the Federal Arbitration Act’ " (emphasis added), the court characterized the change in wording as "a distinction without a difference." It concluded the CAA applied, and it was thus free to determine under Section 1281.2(c) whether to decline to compel arbitration. The court found that because the other defendants named in Victrola’s complaint had not agreed to arbitrate, there was "a possibility of conflicting rulings on a common issue of law or fact regarding the Jaman Defendants’ liability ...." The court then exercised its discretion under Section 1281.2(c) to decline to enforce the arbitration agreement between Victrola and the Jaman Parties.

On January 24, 2019, the Jaman Parties appealed the court’s denial of their motion. The Jaman Parties do not argue the trial court abused its discretion in its application of Section 1281.2(c), only that the court erred in applying the section in the first place.

DISCUSSION

A. The FAA Governs Whether the Agreement’s Arbitration Provision Should Be Enforced

"In accordance with choice-of-law principles, the parties may limit the trial court’s authority to stay or deny arbitration under the CAA by adopting the more restrictive procedural provisions of the FAA." ( Valencia v. Smyth , supra , 185 Cal.App.4th at 157, 110 Cal.Rptr.3d 180.) "[T]he FAA’s procedural provisions ( 9 U.S.C. §§ 3, 4, 10, 11 ) do not apply unless the contract contains a choice-of-law clause expressly incorporating them." ( Id. at 174, 110 Cal.Rptr.3d 180.) "[T]he question is not whether the parties adopted the CAA ’s procedural provisions: The state’s procedural statutes ( §§ 1281.2, 1290.2 ) apply by default because Congress...