Petition to Compel Arbitration (Judge Ralph C. Hofer)


Case Number: EC064527??? Hearing Date: June 17, 2016??? Dept: NCD

TENTATIVE RULING
Calendar: 7
Date: 6/17/16
Case No.: EC 064527
Case Name: California Structural Concepts, Inc. v. Pacific Empire Builders, Inc. et al.

PETITION TO COMPEL ARBITRATION

MP: Defendant Pacific Empire Builders, Inc.
RP: Plaintiff California Structural Concepts, Inc.

RULING:
The court in its discretion has considered the untimely opposition, despite it being filed more than three months late. See CCP ? 1290.6.

Petition to Compel Arbitration (CCP 1281.2); Motion to Stay the Action Herein (CCP 1281.4) is GRANTED.

The court finds that an agreement to arbitrate the controversy exists (Exhibit A to the First Amended Complaint, Section 8), that it applies to this matter, and that plaintiff in opposition has failed to establish that there has been any waiver of the right to compel arbitration, and that there is no showing that the agreement has been revoked or that grounds exist for revocation of the agreement.

Demurrer of Defendant Wilson/Maryland Mixed Use, LLC (?Wilson /Maryland?) set for June 17, 2016 is accordingly STAYED.
The entire action is stayed as to all parties, including Defendant Wilson/Maryland such that Wilson/Maryland may not proceed in this action until the arbitration is concluded, at which time Wilson/Maryland and the defendant surety bond, if it is ever named as a defendant, would have to file a motion to lift the stay before proceeding further in this action.

(Or, if petition denied, Demurrer should be continued for failure to meet and confer)

FACTUAL BACKGROUND:
Plaintiff California Structural Concepts alleges defendant Pacific Empire Builders (?PEB?) and defendant Wilson/Maryland Mixed Use, LLC entered into an agreement whereby PEB agreed to act as general contractor for a construction project in Glendale. Plaintiff and PEB then entered into a subcontract agreement wherein plaintiff agreed to provide materials, labor and services associated with structural concrete, masonry and reinforcing on the project in exchange for payment. Plaintiff alleges that it began performing work on the project, and that PEB failed to adequately coordinate the work of the subcontractors, blamed plaintiff for the delays, demanded accelerated performance without compensation and directed plaintiff to perform extra-contractual work and refused to execute appropriate change orders. Plaintiff alleges that PEB also refused to participate in the expedited mediation and arbitration process set forth in the contract. Plaintiff alleges that after plaintiff sought to institute expedited dispute resolution procedures, PEB had plaintiff replaced on the project, falsely claiming that plaintiff had caused delay, and that PEB has failed to fully pay for plaintiff?s work.

The complaint alleges causes of action for enforcement of mechanics lien release bond, breach of contract, breach of implied warranty of good faith and fair dealing, open book account and unjust enrichment.

The file shows that this petition was originally set to be heard on March 25, 2016. On March 16, 2016, the matter was advanced and continued to this date. Untimely opposition has been filed.

ANALYSIS:
Procedural
Under CCP ? 1290.6, a response to a petition to compel arbitration ?shall be served and filed within 10 days of the service of the petition.?

Here, the petition was served by mail on February 8, 2016. Adding an additional five days for service by mail, opposition was therefore due by February 23, 2016, several months ago. The opposition was filed and served on June 6, 2016, so was over three months late. The court could disregard the untimely opposition, and grant the petition on the ground no timely opposition was filed, but instead has allowed for the filing of the untimely opposition and has duly considered it.

Substantive
CCP ? 1282.2 , governing orders to arbitrate controversies, provides:
?On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that:
(a) The right to compel arbitration has been waived by the petitioner; or
(b) Grounds exist for the revocation of the agreement.?

There is a strong public policy in favor of arbitration of disputes and any doubts concerning the scope of arbitrable disputes should be resolved in favor of arbitration. Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9. Arbitration agreements should be liberally interpreted, and arbitration should be ordered unless the agreement clearly does not apply to the dispute in question. Vianna v. Doctors? Management Co. (1994) 27 Cal.App.4th 1186, 1189.

In this case, petitioner has alleged the existence of a written arbitration agreement, and has submitted a declaration stating that a true and correct copy is attached, but no attachment has been filed with the court. [See Mahoney Decl., para. 2]. However, the reference appears to be to a Subcontract Agreement attached to the operative complaint, the First Amended Complaint, as Exhibit A. The Subcontract Agreement includes an arbitration provision at Section 8. [Ex. A]. The provision provides for mediation (which the court is not authorized to compel) and then provides if the subcontractor fails to attend or participate, or if the parties are unable to resolve the dispute, the mediator shall deem the mediation to have ended and shall then act as an arbitrator, ?to resolve the dispute by making a binding decision.? This process is to apply to ?all claims and/or disputes all under or pertaining to this Subcontract?? [Ex. A, Section 8]. The opposition does not dispute that both parties executed this Subcontract and agreed to the Mediation/Arbitration provision, but attaches a copy of the agreement to the opposition. (The copy attached to the opposition is much less legible than the copy attached to the pleading). The existence of the agreement appears supported by substantial evidence.

The opposition argues that the arbitration provision relied upon is inapplicable, as it applies by its own terms only to disputes arising ?during the course of construction,? and that PEB?s actions in refusing to submit to the alternative dispute resolution process during the course of construction constitutes a waiver of any right to invoke the arbitration provision.

California Structural Concepts argues that since it has brought this action, not during construction, but after it was removed from the project, the arbitration provision does not apply.

The provision is entitled ?USE OF MEDIATION/ARBITRATION DURING CONSTRUCTION TO RESOLVE DISPUTES,? and begins by stating:
?The parties to this Subcontract acknowledge and agree that disputes may arise during the course of construction with regard to various issues, among them, the cost of changes to the Work, errors, ambiguities or omissions in the Plans, and the general progress of construction. The parties acknowledge and agree that it would be in their best interest to resolve those disputes as rapidly as possible during construction to avoid delay and additional expense and for this reason the parties agree to use the services of a mediator/arbitrator, as discussed in this section.?
[Ex. A, Section A].

The paragraph goes on, however, to state a very broad agreement: ?Thus, all claims and/or disputes all under or pertaining to this Subcontract shall be resolved by the pre-mediation, and if necessary, the mediation and arbitration provisions of Section 8 of this subcontract.? Id.

The process then appears quite general, and also appears to expressly contemplate disputes which continue beyond when the subcontractor is no longer performing work on the project. The provision provides, for example, that ?The Mediator, when acting as Arbitrator, shall have the jurisdiction to award Contractor consequential damages, including, but not limited to all costs incurred by Owner or Contractor to replace Subcontractor and for delay and disruption in the completion of the Work. The parties waive the right to a jury trial and the right to appeal the award of the arbitrator.? [Ex. A, Section 8, p. 8].

The section also states:
?Under no circumstances shall Subcontractor stop performing the Work during mediation and arbitration of disputes under this section, including but not limited to disputes regarding change orders (whether for additional sums or time). In the event that Subcontractor stops performing work, they shall be liable to Contractor and Owner for the full amount of all damages caused by such cessation of the Work, including the actual cost to have the Work performed by others plus an additional 20% to cover Contractor?s administrative time, plus damages occasioned by the delay, if any, in the completion of the Project.?

The section also expressly prohibits the parties from permitting third parties to dilute this right to arbitration:
?Neither party to this Subcontract shall enter into any contract or purchase order with a third party with regard to the Project that directly or indirectly gives that third party the right to resolve any dispute regarding the Project in a manner that is different from the dispute resolution procedures required in this section.?

Moreover, as argued in the petition, the Subcontract Agreement at section 26.4 expressly states that post termination, after meet and confer, the ?mediator/arbitrator shall determine such damages,? and that ?the dispute shall not be submitted to the mediator/arbitrator until the earlier of the Contractor?s determination of the actual amount of the damages or substantial completion of the Project.? [Ex. A, para. 26.4, p. 20].

It appears from the provision itself that it was intended to apply broadly to disputes during construction as well as disputes once a subcontractor has stopped work, and the court should find that it applies to this dispute.

Plaintiff also argues that PEB has waived its right to enforce the arbitration provision.

In order to avoid arbitration on the ground of waiver, a respondent must satisfy a heavy burden of proof that petitioner waived its right to arbitration. The court will apply three factors, including whether the party:
(1) has previously taken steps inconsistent with an intent to invoke arbitration;
(2) has unreasonably delayed seeking arbitration;
(3) has acted in bad faith or engaged in willful misconduct.
Keating v. The Superior Court of Alameda County (1982) 31 Cal.3d 584, 604-5, reversed in part on other grounds, Southland Corp. v. Keating (1984) 465 U.S. 1.

Additionally, the court must make a finding that the party asserting there has been a waiver has suffered prejudice. Id.

?The question of waiver is one of fact, and an appellate court?s function is to review a trial court?s findings regarding waiver to determine whether these are supported by substantial evidence.? Berman v. Health Net (2000) 80 Cal.App.4th 1359.

In Berman, the Second District affirmed the trial court?s denial of a petition to compel arbitration on the ground of waiver, holding that the respondent had waived the right to compel arbitration by engaging in substantial discovery, by which it had discovered information about respondent?s action and theories which it would not have been able to discover in arbitration. The court suggested that the prejudice which must be shown to establish a waiver is prejudice which deprives one side of the advantages of arbitration. See Berman, at 1367.

Here, plaintiff argues that it invoked the dispute resolution procedure outlined in Section 8 of the Subcontract Agreement by filing a Notice of Claim on December 11, 2015. [Horne Decl., para. 7, Ex. B]. Thereafter, when the claim was not approved, plaintiff indicates that it requested that PEB participate in mediation, which PEB agreed to do, but requested the mediation be set on a different date to accommodate counsel?s vacation. When the mediator?s availability was provided with the accommodations made for counsel, PEB refused to agree to mediation until conditions were met, such as a demonstration that the subcontractor was ?maximizing its efforts to recover the delay.? [Bartuska Decl., paras. 2, 4, 5, Exs. A, C, E]. On December 18, 2015, counsel for plaintiff sent an e-mail to confirm that PEB would agree to mediation. [Bartuska Decl., para. 6, Ex. E]. When no response was received, this action was filed on December 30, 2015. [Bartuska Decl., para. 9].

The argument seems to be that defendant has accordingly engaged in conduct amounting to a failure to proceed to arbitration in the manner and at the time provided in the arbitration agreement. As an initial matter, it is not clear that any of this conduct involves a failure to comply with the provisions governing the arbitration of disputes?only with the preliminary provisions concerning mediation. Section 8 provides that where the parties cannot agree, ?any such Party may contact the Mediator,? and that the Mediator shall convene mediation, and ?acting as Arbitrator?, may enter a default award against a party not appearing.

There are no time deadlines or processes involving the arbitration process which have allegedly not been followed here. Case law recognizes a waiver can arise where there is a clear failure to comply with an express requirement that a demand for arbitration be made by a stated deadline. See Platt Pacific, Inc. v. Andelson (1993) 6 Cal.4th 307 (“When, as here, the parties have agreed that a demand for arbitration must be made within a certain time, that demand is a condition precedent that must be performed before the contractual duty to submit the dispute to arbitration arises.).

This is not the case here. Plaintiff relies on Grunwald-Marx, Inc. v. Los Angeles Joint Board, Amalgamated Clothing Workers (1961) 192 Cal.App.2d 268, in which the Second District found that the trial court?s determination that a party was in default in not proceeding to arbitrate was supported by substantial evidence, where there was a failure to name an arbiter despite demand, and refusal over many months to submit the matter to arbitration, including an express refusal, which the court characterized as an ?unequivcal repudiation of the arbitration clause.? Grunwald-Marx, at 281.

This case does not involve such an express refusal, or the kind of conduct which can be construed as so inconsistent with the intent to arbitrate (rather than promptly mediate) such that a waiver should be found. Moreover, there is no argument establishing that plaintiff has been prejudiced by PEB?s conduct, as the delay was only a matter of weeks and it does not appear that either party has so far invoked the litigation process to obtain information or advantage which would not be available to the parties in arbitration.

Petitioner also seeks a stay of this matter until the arbitration is completed. CCP section 1281.2(c) provides that on appropriate petition of a party to an arbitration agreement to arbitrate, alleging the existence of an agreement to arbitrate and a refusal to arbitrate, the court shall order arbitration “unless it determines that…”
“(c) 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.”

Under this section, where the court makes this determination, it has specified options:
“If the court determines that a party to the arbitration is also a party to the litigation in a pending court action or special proceeding with a third party as set forth under subdivision (c) herein, the court (1) may refuse to enforce the arbitration agreement and may order intervention of joinder of all parties in a single action or special proceeding; (2) may order intervention or joinder as to all or only certain issues; (3) may order arbitration among the parties who have agreed to arbitration and stay the pending court action or special proceeding pending the outcome of the arbitration proceeding; or (4) may stay arbitration pending the outcome of the court action or special proceeding.”

The standard of review of such determination is “abuse of discretion, which looks to see whether the trial court exceeded the bounds of reason.” Mercury Ins. Group v. Superior Court (1998) 19 Cal.4th 332, 349 (internal citation, quotations omitted).

The issue here is that defendant Wilson/Maryland Mixed Use and defendant surety are evidently not bound by an arbitration agreement. The FAC seeks against those parties the enforcement of a mechanics lien release bond in the first cause of action of the FAC.

However, the opposition does not argue that a stay should not be issued, and counsel for PEB is also counsel for defendant Wilson/Maryland Mixed Use, which has not opposed this petition, but has a demurrer pending this date.

The other defendants may later request that the stay be lifted and another order entered if they object to the stay, but in the absence of opposition to the request, it makes the most sense to stay this action pending the outcome of the arbitration proceeding. The stay will be granted.