Motion by Defendant CalAtlantic Group, LLC, formerly known as Standard Pacific Corp. (?Standard Pacific?), to Compel Arbitration and Stay Action
Opposition 2/1/17
Reply 2/7/17
Tentative:? Grant as to plaintiffs? claims against Standard Pacific only, pursuant to the alternative/secondary JAMS arbitration provisions.? Arbitration provisions in the Home Builder’s Limited Warranty are procedurally and substantively unconscionable and not enforceable.? Stay plaintiffs’ claims against Mr. Waddell pending completion of arbitration.
Defendant met its burden of establishing the right to arbitrate this dispute as to plaintiffs. (Code of Civ. Proc. ? 1281.2.)? Section 12 of the Purchase Contract and Escrow Instructions signed and initialed by plaintiffs states as follows (bold in original):
DISPUTE RESOLUTION. ANY DISPUTES OR CLAIMS OR CONTROVERSIES OF ANY TYPE BETWEEN BUYER (OR ANY REPRESENTATIVE OF BUYER ACTING WITH RESPECT TO BUYER’S RIGHTS, INCLUDING ANY HOMEOWNERS’ ASSOCIATION) AND SELLER (OR ANY OTHER PARTIES INCLUDED WITHIN THE DEFINITION OF “SELLER” CONTAINED IN THE DISPUTE RESOLUTION AGREEMENT ADDENDUM TO THIS CONTRACT “ADR ADDENDUM?)) ARISING OUT OF OR RELATING TO THIS CONTRACT, THE PROPERTY, OR ANY OTHER MATTER AS DESCRIBED IN THE ADR ADDENDUM, SHALL BE RESOLVED PURSUANT TO THE PROCEDURES SPECIFIED IN THE ADR ADDENDUM. UNDER THE ADR ADDENDUM, BUYER AGREES, AMONG OTHER THINGS, TO SUBMIT SUCH DISPUTES OR CLAIMS OR CONTROVERSIES TO BINDING ARBITRATION AND TO WAIVE ANY AND ALL RIGHTS TO A JURY TRIAL. BUYER AND SELLER EACH ACKNOWLEDGE THAT THEY HAVE READ, UNDERSTAND AND AGREE TO THE TERMS OF THIS PARAGRAPH.
Section 13 of the Purchase Contract provides, in pertinent part:
LIMITED CONTRACTUAL WARRANTY AND WARRANTY DISCLAIMERS. Buyer has reviewed, understands and agrees to be bound by the terms of the Home Builder’s Limited Warranty (?Limited Warranty”) in substantially the form of Exhibit “E” to this Contract . . . Nothing in the Limited Warranty or any other document provided by Seller diminishes any rights or obligations Buyer or Seller may have under California Civil Code Sections 895 through 945.5 (the ?Fix It Law”), a copy of which Buyer acknowledges receiving as Exhibit “J.? The Limited Warranty does not constitute an “enhanced protection agreement” under California Civil Code Section 901 or alternative nonadversarial contractual provisions. The Limited Warranty provides Buyer with separate contractual rights from the rights provided in the Fix It Law.? Seller’s election to provide and be subject to the Limited Warranty is in consideration of Buyer’s and Seller’s agreement to the dispute resolution procedures and waiver of jury trial set forth in the Dispute Resolution Agreement Addendum.
The ?Dispute Resolution Agreement Addendum? attached to the Purchase Contract is signed and initialed by plaintiffs and provides for arbitration pursuant to the terms of the Home Builder?s Limited Warranty or, to the extent a court finds it unenforceable, through JAMS pursuant to its standard arbitration procedures, or a judicial reference.
The home builder’s limited warranty, a sample of which is attached as Exhibit ?E? to the Purchase Contract, contains Section VIII entitled ?Binding Arbitration Procedure.? It provides all disputes will be resolved through binding arbitration. ?The arbitration shall be conducted by Construction Arbitration Services, Inc., or such other reputable arbitration service that PWC shall select, at its sole discretion, at the time the request for arbitration is submitted.? PWC refers to Professional Warranty Services Corporation, whom Standard Pacific hired to administer the warranty.? ?The rules and procedures of the designated arbitration organization, that are in effect at the time the request for arbitration is submitted, will be followed. A copy of the applicable rules and procedures will be delivered to YOU upon request.? The warranty further provides that ?[e]ach party shall bear its own attorney’s fees and costs (including expert costs) for the arbitration.?? ?[I]f the arbitrator finds US responsible for a CONSTRUCTION DEFECT, the arbitrator will determine the scope of any repair or replacement, OUR cost of any such repair or replacement, and the diminution in fair market value, if any, caused by such CONSTRUCTION DEFECT. Based upon the arbitrator’s decision, WE shall choose whether WE shall (1) repair, replace the CONSTRUCTION DEFECT, (2) pay to YOU the actual amount it would cost US to repair or replace the CONSTRUCTION DEFECT or (3) PAY to YOU an amount equal to the diminution in fair market value caused by the CONSTRUCTION DEFECT. The decision to repair, replace, or make payment to YOU is at OUR or OUR authorized representative’s sole option.?
In their opposition, plaintiffs do not dispute their claims are subject to arbitration pursuant to the CC&Rs and the Purchase Contract they executed, or that the limited warranty was issued to them.? Rather, plaintiffs contend the arbitration procedures pursuant to the home builder?s limited warranty are unconscionable.? The court agrees. The arbitration provision as to plaintiff?s remedies, should they prove a defect, is one-sided in favor of defendant, limits plaintiff?s remedies and gives defendant the sole decision to repair, replace, or to make payment to plaintiffs in an amount equal to diminution in value.? Further, plaintiff is prohibited from recovering fees, including expert fees, if they prevail.? While the level of procedural unconscionability is minimal, it is present due to the adhesive nature of the agreement.? The substantive unconscionability is significant in that it goes directly to the mutuality of the agreement and includes limitations on plaintiffs? remedies that the parties agree would not be applicable in a court proceeding.? Defendant does not dispute the limited warranty has language limiting defendant?s liability.? Rather, defendant contends other language in the limited warranty contradicts this language and states that ?[n]otwithstanding the foregoing, nothing in this LIMITED WARRANTY shall diminish any rights, obligations, or remedies that YOU or WE may have under California Civil Code Sections 895 through 945.5 or under any procedures adopted in place of California Civil Code sections 910 through 938.?
Defendant?s argument really goes to whether this court should strike out the more specific limitation of remedies provisions, leaving in the language that plaintiff?s remedies are not limited.? This court will not do so.? First, that is not the only provision that makes the home warranty arbitration agreement unconscionable.? Plaintiff also raised the issue in the opposition that arbitration under the home warranty would be extremely expensive, and defendant did not provide any evidence in reply to dispute this contention.? Further, the ?Dispute Resolution Agreement Addendum? provides the parties are to comply with the alternative arbitration procedures (JAMS or a judicial reference) ?to the extent any of the dispute resolution or arbitration procedures and provisions specified in the home warranty are determined to be unenforceable in whole or in material part preventing their use. . . .?? The limitation on defendant?s liability is a material part of the agreement, so the secondary provisions apply.
Plaintiffs do not argue that the alternative provisions for JAMS arbitration in Section 4(b) of the ?Dispute Resolution Agreement Addendum? are unconscionable.
Defendant Waddell
Plaintiff named Mr. Waddell as a defendant in this action, and Standard Pacific has not filed a cross-complaint.? Standard Pacific has established it can compel Mr. Waddell to participate in arbitration as to plaintiff?s claims against Standard Pacific (see Section 26(c) of Consultant Agreement attached as Exhibit I to Compendium of Exhibits), but has not shown plaintiffs must arbitrate their claims as to Mr. Waddell.
Mr. Waddell filed a ?response? to the motion indicating that, while he is willing to participate in arbitration, it would be unjust to require him to contribute to the cost of it because there is no evidence of liability on his part.? Here, the arbitration agreement between Mr. Waddell and defendant specifically provided the parties are to share equally in the costs of arbitration unless the arbitrator provides otherwise, and Mr. Waddell did not offer any evidence of inability to pay.