Litchfield Builders vs DS Infinity Holding Corp et al

Case Number

23CV02329

Case Type

Hearing Date / Time

Fri, 11/03/2023 - 10:00

Nature of Proceedings

CMC; Petition Compelling Binding Arbitration and Stay

Tentative Ruling

Litchfield Builders v. DS Infinity Holdings Corp., et al. 

Case No. 23CV02329

           

Hearing Date:  November 3, 2023                                                      

HEARING:              Petition (Motion) of Plaintiff to Compel Arbitration

ATTORNEYS:        For Plaintiff and Cross-Defendant Litchfield Builders and Cross-Defendants Stephan Litchfield and Tara Fergusson: Mark T. Coffin, Scott A. Jaske, Mark T. Coffin, PC

                             For Defendants and Cross-Complainants DS Infinity Holding Corp. and Daniel Starr: Lawrence J. Conlan, G. Michael Brelje, and Andrew J. Dickerson, Cappello & Noel LLP  

                                   

TENTATIVE RULING:

The petition (motion) of plaintiff and cross-defendant Litchfield Builders and cross-defendants Stephan Litchfield and Tara Fergusson is granted in part and denied in part. The motion is granted to order to arbitration all claims in the first amended complaint of plaintiff Litchfield Builders against defendants DS Infinity Holding Corp. and Daniel Starr, and the claims of the first, second, third, fifth, sixth, and seventh causes of action of the cross-complaint of DS Infinity Holding Corp. and Daniel Starr against cross-defendants Litchfield Builders, Stephan Litchfield and Tara Fergusson. The motion is denied as to all other claims in the first amended complaint or in the cross-complaint against any other party, and is denied as to the claims of the fourth cause of action (defamation) of the cross-complaint. This action is stayed in its entirety pending disposition of the arbitration or further order of the court, except any party who has not yet appeared may file a responsive pleading. The parties shall promptly meet and confer regarding the appointment of an arbitrator; if the parties cannot agree, any party may make a motion for the appointment of an arbitrator pursuant to Code of Civil Procedure section 1281.6.

The court orders the hearing on the demurrer, now set for December 1, 2023, off calendar to be reset, if necessary, following completion of the arbitration.

Background:

This action involves construction at 1741 Glen Oaks in Montecito (the Property). There is no dispute that the Property was owned by defendant and cross-complainant DS Infinity Holding Corp. (DSI) whose principal is defendant and cross-complainant Daniel Starr (Starr). The construction at issue (the Project) was pursuant to a contract (the Contract) with plaintiff and cross-defendant Litchfield Builders, a corporation whose principal is cross-defendant Stephan Litchfield (Litchfield).

Litchfield Builders contends that it is owed $518,706.29 for work and materials provided for the Project and additional other damages for a total of $812,971.30. (E.g., First Amended Complaint [FAC], ¶¶ 27, 36.) DSI and Starr contend that DSI was fraudulently induced to enter into the construction contract and that Litchfield Builders failed to perform the construction to applicable standards, causing substantial damage. (E.g., Cross-complaint, ¶¶ 3-4.)

The Contract contains the following provision in section 10.10:

“Dispute Resolution: If the parties hereto are unable to promptly resolve any dispute or claim arising out of this Contract, the written orders of Contractor or Owner will be followed and the work will continue without interruption. After the completion of the work, any unresolved dispute shall be mediated within 30 days of written demand, unless the parties agree otherwise. The parties will mutually select a mediator. If the dispute is not resolved at mediation, then the parties agree to binding arbitration before any recognized alternative dispute resolution service provide, for example www.adrservices.com or www.arc4adr.com as the parties may agree, using an arbitrator with at least 10 years of construction law experience. The California Evidence Code shall be controlling as to the admission of evidence. Judgment upon award may be entered in any court having jurisdiction. Each side will bear its own fees and costs at mediation, but the prevailing party at arbitration shall be entitled to reasonable attorney fees and costs, including expert fees. The prevailing party shall be defined as the party who obtains a better monetary result, exclusive of fees and costs, than what was last offered at mediation. Venue for all disputes will be Santa Barbara County and any mediation or arbitration will occur in the City of Santa Barbara, unless agreed otherwise. Each party may elect to appear via a remote appearance software, such as Zoom.

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 Business and Professions Code or other applicable laws. Your agreement to this arbitration provision is voluntary.

We have read and understand the foregoing and agree to submit disputes arising out of the matters included in the ‘arbitration of disputes’ provision to neutral arbitration.” (FAC, ¶ 14 & exhibit A, p. 19, capitalization and emphasis altered; accord, Cross-complaint, ¶ 20 & exhibit A, p. 35; Jaske decl., ¶ 2 & exhibit A.) The parties to the contract initialed below the last quoted sentence where indicated. (FAC, ¶ 14, exhibit A, p. 19.)

On February 16, 2023, then-counsel for DSI, attorney Martin Horwitz, sent an email to counsel for Litchfield Builders, attorney Scott Jaske, demanding arbitration of the parties’ respective disputes. (Jaske decl., ¶ 3 & exhibit B.)

On May 17, 2023, counsel for Litchfield Builders attempted to initiate arbitration with the American Arbitration Association (AAA), but because the arbitration provision does not specify the AAA as the arbitrator, the AAA required a stipulation of the parties to use AAA. (Jaske decl., ¶¶ 4-5 & exhibits C, D.) On May 24, the AAA request for a stipulation was forwarded by email to Horowitz with the statement that unless DSI was willing to agree to use AAA, the AAA arbitration would be cancelled but asked for alternatives for arbitrators. (Jaske decl., ¶ 6 & exhibit E.) Horowitz responded by email that the agreement provides for two different ADR providers, stating that he had no preference and asking for a list of three to five arbitrators from those providers from which to choose. (Jaske decl., ¶ 7 & exhibit F.)

On May 30, 2023, Litchfield Builders filed its original complaint in this action asserting five causes of action: (1) foreclosure of mechanic’s lien; (2) breach of contract; (3) quantum meruit and unjust enrichment; (4) petition for arbitration and stay of proceedings; and (5) declaratory relief.

On June 6, 2023, Jaske emailed a list of four proposed arbitrators with their resumes, requesting a response by June 13. (Jaske decl., ¶ 9 & exhibit H.)

On June 12, 2023, new counsel for DSI and Starr, attorney Lawrence Conlan, sent an email acknowledging the list of proposed arbitrators provided to prior counsel and stating that they will need additional time to respond. (Jaske decl., ¶ 10 & exhibit I.)

On June 16, 2023, counsel for Litchfield Builders, attorney Mark Coffin, sent an email to Conlan following up about service of the complaint and the proposed arbitrators. (Jaske decl., ¶ 11 & exhibit J.) Conlan responded that day to issues about service and that they would consider the list of arbitrators. (Jaske decl., ¶ 12 & exhibit K.)

On June 21, 2023, DSI and Starr filed their cross-complaint asserting seven causes of action: (1) fraudulent inducement; (2) fraudulent nondisclosure; (3) civil extortion; (4) defamation; (5) negligence; (6) breach of contract; and (7) violations of Business and Professions Code section 7031. The cross-complaint is asserted against plaintiff and cross-defendant Litchfield Builders and against cross-defendants Stephen Litchfield and Tara Fergusson.

On July 3, 2023, Jaske sent an email to Conlan again following up with respect to the proposed arbitrators and requesting a response by July 7. (Jaske decl., ¶ 13 & exhibit L.) On July 7, Coffin sent a follow up email to Conlan stating that no response had been received and that a petition to compel arbitration would be required. (Jaske decl., ¶ 14 & exhibit M.) Later that day, Conlan replied to that email  stated that DSI and Starr were not willing to agree to arbitration. (Jaske decl., ¶ 15 & exhibit N.)

On July 21, 2023, Litchfield Builders, Litchfield, and Fergusson filed their petition to compel arbitration and stay proceedings. The petition was originally noticed for hearing on September 29.

On July 25, 2023, DSI and Starr filed amendments to their cross-complaint identifying CVIS Corporation as Roe 1 and Javier Jaramillo as Roe 2.

On July 27, 2023, Conlon received plaintiff and cross-defendants’ notice of site inspection to inspect the Property on Friday, September 1. (Conlon decl., ¶ 4 & exhibit C.)

On July 28, 2023, plaintiff and cross-defendants filed their ex parte application for protective order or alternatively to shorten time for hearing of a motion for protective order to postpone a deposition until after the hearing on the petition to compel arbitration.

On July 31, 2023, the court heard and denied the ex parte application for protective order. Also on July 31, DSI and Starr filed their opposition to the petition to compel arbitration and stay proceedings. DSI and Starr concurrently filed their answer to plaintiff’s complaint, generally denying the allegations thereof and asserting 39 affirmative defenses.

On August 17, 2023, DSI and Starr filed an amended answer to the complaint, generally denying the allegations thereof and asserting 34 affirmative defenses.

On September 5, 2023, cross-defendants filed their demurrer to the first three causes of action of the cross-complaint. The demurrer is set for hearing on December 1.

On September 12, 2023, the court rescheduled the hearing on the petition to compel arbitration and stay proceedings to this hearing date.

On September 25, 2023, upon stipulation of the parties and order of the court, Litchfield Builders filed its FAC, asserting five causes of action: (1) recovery on mechanic’s lien release bond; (2) breach of contract; (3) quantum meruit and unjust enrichment; (4) petition for arbitration and stay of proceedings; and (5) declaratory relief. The FAC also added Lexington National Insurance Corporation, who is alleged to be the surety for the mechanic’s lien release bond, as a defendant.

On October 26, 2023, plaintiffs filed their reply, including a reply declaration of counsel for plaintiffs, Mark Coffin.

On October 27, 2023, DSI and Starr filed their answer to the FAC, generally denying the allegations thereof and asserting 34 affirmative defenses.

On October 31, 2023, DSI and Starr filed a supplemental declaration of their counsel, Lawrence J. Conlan.

Analysis:

(1)       Procedural Matters

This matter was originally set for hearing on September 29, 2023, but was continued by the court to this hearing of November 3. On October 26, concurrently with their reply, plaintiffs filed an additional declaration of counsel.

“The general rule of motion practice, which applies here, is that new evidence is not permitted with reply papers. This principle is most prominent in the context of summary judgment motions, which is not surprising, given that it is a common evidentiary motion. ‘[T]he inclusion of additional evidentiary matter with the reply should only be allowed in the exceptional case …’ and if permitted, the other party should be given the opportunity to respond. [Citations.]” (Jay v. Mahaffey (2013) 218 Cal.App.4th 1522, 1537-1538.)

Plaintiff’s reply declaration merely explains why the FAC was made necessary, in particular, exchanging a claim for foreclosure of a mechanic’s lien to a claim for recovery on a substitute mechanic’s lien release bond. In the context of this motion, this additional information is superfluous and the new evidence will be disregarded by the court.

On October 31, 2023, three court days before the hearing on this motion, counsel for opposing parties filed a supplemental declaration in support of their opposition. The declaration discusses additional litigation activities of the parties from July 27, 2023, through October 17, 2023. The October 17 item was defendants’ own actions in response to the plaintiff and cross-defendants. The litigation activity immediately earlier than that as noted in the supplemental declaration was on September 27. Since the court had already continued the hearing on this matter to November 3, there is no reason why this information could not have been presented to the court in a timely manner consistent with a further opposition to the motion, i.e., within nine court days of the hearing (see Code Civ. Proc., § 1005, subd. (b)), which would have given plaintiff adequate time to respond to the supplemental declaration by its reply. Instead, the supplemental evidence was filed after the reply so as to deprive plaintiff of an opportunity to respond to the declaration with its late-presented evidence and additional argument. The court will disregard the supplemental declaration as improper surreply evidence and as untimely opposition evidence and argument.

(2)       Arbitration

“A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” (Code Civ. Proc., § 1281.)

“On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that 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 rescission of the agreement.

            “(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.” (Code Civ. Proc., § 1281.2, subds. (a)-(c).)

“The petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence, and a party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense.” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972 (Engalla).)

Litchfield Builders has presented evidence of the existence of a contract between Litchfield Builders and DSI which contains an arbitration provision. There is no dispute that the parties entered into the contract containing the arbitration provision. (E.g., FAC, ¶ 14 & exhibit A; Cross-complaint, ¶ 20 & exhibit A.) In opposition, defendants argue that the arbitration provision is narrow and does not include certain cross-complainants’ fraud, civil extortion, and defamation claims, that the arbitration sought by Litchfield Builders includes non-signatories to the arbitration agreement, and that Litchfield Builders has waived its right to arbitration by taking inconsistent actions. On the basis of these arguments, defendants assert that the petition for arbitration should be denied.

Defendants allege in their cross-complaint that the Contract was entered into as a result of fraudulent inducement and coercion. (Cross-complaint, ¶¶ 66, 78.) “In order to defeat a petition to compel arbitration, the parties opposing a petition to compel must show that the asserted fraud claim goes specifically ‘to the “making” of the agreement to arbitrate,’ rather than to the making of the contract in general. [Citation.]” (Engalla, supra, 15 Cal.4th at p. 973.) There are no allegations made, and no evidence presented, that the alleged fraud went specifically to the making of the agreement to arbitrate or otherwise so permeated the agreement as to make the arbitration provision separately unenforceable. Indeed, in the initial stages of this dispute, defendants themselves demanded arbitration under the same provision. Thus, the fraud allegations do not negate the effectiveness of the arbitration agreement.

Before addressing the scope of arbitration and defendants’ arguments about discretionary denial of the motion to compel arbitration, defendants argue that Litchfield Builders has waived its right to compel arbitration.

“Although a court may deny a petition to compel arbitration on the ground of waiver (§ 1281.2, subd. (a)), waivers are not to be lightly inferred and the party seeking to establish a waiver bears a heavy burden of proof.” (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1195 (St. Agnes).)

“ ‘In determining waiver, a court can consider “(1) whether the party’s actions are inconsistent with the right to arbitrate; (2) whether ‘the litigation machinery has been substantially invoked’ and the parties ‘were well into preparation of a lawsuit’ before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) ‘whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place’; and (6) whether the delay ‘affected, misled, or prejudiced’ the opposing party.” ’ [Citation.]” (St. Agnes, supra, 31 Cal.4th at p. 1196.)

“[W]hile ‘ “[w]aiver does not occur by mere participation in litigation” ’ if there has been no judicial litigation of the merits of arbitrable issues, ‘ “ ‘waiver could occur prior to a judgment on the merits if prejudice could be demonstrated.’ ” ’ [citation].” (St. Agnes, supra, 31 Cal.4th at p. 1203.) “Because merely participating in litigation, by itself, does not result in a waiver, courts will not find prejudice where the party opposing arbitration shows only that it incurred court costs and legal expenses.” (Ibid.) “Prejudice typically is found only where the petitioning party’s conduct has substantially undermined this important public policy or substantially impaired the other side’s ability to take advantage of the benefits and efficiencies of arbitration.” (Id. at p. 1204.) “For example, courts have found prejudice where the petitioning party used the judicial discovery processes to gain information about the other side’s case that could not have been gained in arbitration [citations]; where a party unduly delayed and waited until the eve of trial to seek arbitration [citation]; or where the lengthy nature of the delays associated with the petitioning party’s attempts to litigate resulted in lost evidence [citation].” (Ibid.)

Defendants have not met their burden to show that any of these factors, alone or in combination, establish waiver of the right to arbitration. The evidence shows that initially defendants not only agreed to arbitrate the disputes among them, but demanded arbitration. Litchfield Builders pressed for that arbitration and it was defendants who delayed and ultimately changed their position to opposing arbitration. Litigation was commenced separately from a petition to arbitrate because the commencement of litigation was legally necessary to seek remedies based upon a mechanic’s lien. (See Code Civ. Proc., § 1281.5.) The only litigation activity pointed out by defendants in their opposition papers is the service on July 27, 2023, of a notice of site inspection of the Property to be conducted on September 1, 2023. (Conlon decl., ¶ 4 & exhibit C.) There is no evidence presented in the opposition papers that by this notice any information was gathered about the other side’s case that could not have been gained in arbitration. Based upon a review of all of the evidence presented by the parties in connection with this motion (disregarding improper reply and surreply evidence as discussed above), the court finds that defendants have not shown prejudice by the conduct of the plaintiff and cross-defendants. More generally, the court finds on the evidence presented that defendants have failed to meet their burden to establish waiver of the right to arbitrate.

Plaintiff and cross-defendants seek to compel arbitration as to all claims by and against them as to defendants and cross-complainants. Defendants point out that the arbitration clause is narrow—referring only to “any dispute or claim arising out of this Contract”—and cannot be required of non-signatories, including specifically Starr, Fergusson, and Litchfield. Defendants also point out that two other cross-defendants have since been identified having previously been sued under fictitious names, i.e., CVIS Corporation dba Cabrera Painting (Roe 1) and Javier Jaramillo dba Jaramillo’s Tile (Roe 2). These two former-Roe cross-defendants are not discussed in the motion as subject to arbitration and have not been served with the motion to compel arbitration.

The Contract on its face is for construction of the Project at the Property. All of plaintiff’s claims against DSI are, on their face, claims arising out of the Contract. Defendants argue that because Starr is not individually a signatory to the Contract (Starr signed only in a representative capacity), the arbitration provision cannot be applied to him individually. “Whether a third party is bound by an arbitration agreement presents a question of law. [Citation.] ‘[P]arties can only be compelled to arbitrate when they have agreed to do so.’ [Citation.]” (Williams v. Atria Las Posas (2018) 24 Cal.App.5th 1048, 1053.) The court notes that the cross-complaint is brought by both DSI and Starr (Cross-complaint, at p. 2, ll. 1-2, defining “Cross-Complainants”) and that sixth cause of action for breach of the Contract is asserted by all cross-complainants against Litchfield Builders (Cross-complaint, at ¶¶ 92-95). Thus, the cross-complaint includes a claim by Starr against Litchfield Builders for breach of the Contract containing the arbitration provision.

“A nonsignatory plaintiff may be estopped from refusing to arbitrate when he or she asserts claims that are ‘dependent upon, or inextricably intertwined with’ the underlying contractual obligations of the agreement containing the arbitration clause. [Citation.] ‘The focus is on the nature of the claims asserted .... That the claims are cast in tort rather than contract does not avoid the arbitration clause.’  [Citation.] Rather, ‘ “[t]he plaintiff’s actual dependence on the underlying contract in making out the claim against the nonsignatory ... is ... always the sine qua non of an appropriate situation for applying equitable estoppel.” ’ [Citation.] ‘[E]ven if a plaintiff’s claims “touch matters” relating to the arbitration agreement, “the claims are not arbitrable unless the plaintiff relies on the agreement to establish its cause of action.” ’ [Citation.] ‘The fundamental point’ is that a party is ‘not entitled to make use of [a contract containing an arbitration clause] as long as it worked to [his or] her advantage, then attempt to avoid its application in defining the forum in which [his or] her dispute ... should be resolved.’ [Citation.]” (Jensen v. U-Haul Co. of California (2017) 18 Cal.App.5th 295, 306, emphasis altered.)

Here, both DSI and Starr seeks to enforce the Contract against Litchfield by their cross-complaint. Starr is consequently estopped from asserting that the arbitration provision in the Contract is inapplicable to him as a non-signatory. Thus, all claims asserted by Litchfield Builders against DSI and Starr in the FAC are arbitrable claims. With respect to the claims asserted by DSI and Starr, there are seven causes of action asserted in the cross-complaint: (1) fraudulent inducement; (2) fraudulent nondisclosure; (3) civil extortion; (4) defamation; (5) negligence; (6) breach of contract; and (7) violations of Business and Professions Code section 7031. All of these are asserted against Litchfield Builders and the former-Roe defendants. The first, third, fourth, and seventh causes of action are also asserted against Litchfield. The second cause of action is the only cause of action asserted against all cross-defendants, including Fergusson.

The arbitration provision here is not the usually broad form of “arising out of or related to” but instead is limited to “any dispute or claim arising out of this Contract.” In EFund Capital Partners v. Pless (2007) 150 Cal.App.4th 1311, 1322 (Efund), the court interpreted the phrase “Any dispute or other disagreement arising from or out of this Consulting Agreement” in an arbitration provision as being very broad and including tort causes of action. On the other hand, in Rice v. Downs (2016) 248 Cal.App.4th 175, 180, 187-191, distinguishing Efund, the court interpreted the phrase “any controversy between the parties arising out of this Agreement” in an arbitration provision as being narrow and excluding tort causes of action not arising from the agreement. Defendants, as the parties opposing arbitration, have the burden to demonstrate that the arbitration provision cannot be interpreted to require arbitration of the dispute. (Dryer v. Los Angeles Rams (1985) 40 Cal.3d 406, 414; Bigler v. Harker School (2013) 213 Cal.App.4th 727, 738.)

Under even the narrow interpretation of the arbitration agreement, all of the causes of action of the cross-complaint except the fourth (defamation) fall within the scope of “arising out of” the Contract. The sixth cause of action is for breach of contract and falls expressly within the scope of the arbitration agreement. The first cause of action for fraudulent inducement and the third cause of action for civil extortion involve the formation of the Contract. (E.g., Cross-complaint, ¶¶ 66, 78.) As such, these claims for affirmative relief also are defenses to enforcement of the Contract as sought in FAC. (E.g., Answer to FAC, affirmative defenses 1, 2, 6.) The second cause of action for fraudulent concealment and the fifth cause of action for negligence relate to claims arising from the performance of the Contract. (E.g., Cross-complaint, ¶¶ 70, 90.) Similarly, these claims are also asserted as affirmative defenses to enforcement of the Contract. (E.g., Answer to FAC, affirmative defenses 2, 4, 8.)

The seventh cause of action is for violation of Business and Professions Code section 7031. “Except as provided in subdivision (e), a person who utilizes the services of an unlicensed contractor may bring an action in any court of competent jurisdiction in this state to recover all compensation paid to the unlicensed contractor for performance of any act or contract.” (Bus. & Prof. Code, § 7031, subd. (b).) “The judicial doctrine of substantial compliance shall not apply under this section where the person who engaged in the business or acted in the capacity of a contractor has never been a duly licensed contractor in this state. However, notwithstanding subdivision (b) of Section 143, the court may determine that there has been substantial compliance with licensure requirements under this section if it is shown at an evidentiary hearing that the person who engaged in the business or acted in the capacity of a contractor (1) had been duly licensed as a contractor in this state prior to the performance of the act or contract, (2) acted reasonably and in good faith to maintain proper licensure, and (3) acted promptly and in good faith to remedy the failure to comply with the licensure requirements upon learning of the failure.” (Bus. & Prof. Code, § 7031.)

In asserting this cause of action, defendants do not allege that Litchfield Builders itself was not licensed. Instead, defendants allege that Litchfield Builders hired unlicensed subcontractors and allowed them to work at the Property while unlicensed. (Cross-complaint, ¶¶ 97-98.) The claim against Litchfield Builders is that the invoices provided by the unlicensed subcontractors were incorporated into the bills presented by Litchfield Builders. (Cross-complaint, ¶ 99.) Thus, this claim arises out of the payment to Litchfield Builders under the Contract and is also within the scope of the arbitration provision. This claim, too, is asserted as an affirmative defense to enforcement of the Contract by Litchfield Builders. (E.g. Answer to FAC, affirmative defense 3.)

The remaining cause of action, the fourth cause of action for defamation, is different. As alleged in the cross-complaint, this cause of action is based upon statements made by Litchfield and Litchfield Builders harming defendants’ reputation in the construction industry. (Cross-complaint, ¶¶ 81-86.) Although the underlying subject matter upon which the statements were made relate to the performance or nonperformance under the Contract, the statements themselves have nothing to do with Contract or the performance or nonperformance of the Contract by either party. Under a fair reading of the arbitration provision, the alleged defamation is not a dispute “arising out of” the Contract.  The defamation claim therefore is not an arbitrable claim.

The court therefore concludes that all of the claims as between Litchfield Builders and DSI and Starr, except the defamation claim of the cross-complaint are subject to arbitration. With respect to DSI and Starr’s claims against Litchfield and Fergusson (other than the defamation claim), Fergusson is not a signatory to the Contract and Litchfield is only a signatory in his capacity as the principal for Litchfield Builders. This is similar to but different from the situation discussed above where Litchfield Builders (a signatory) sought to compel Starr (a nonsignatory to arbitrate).

“[A] nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are ‘intimately founded in and intertwined’ with the underlying contract obligations.’ [Citations.] … That the claims are cast in tort rather than contract does not avoid the arbitration clause.” (Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 271–272.) Fergusson is a cross-defendant only as to the second cause of action for fraudulent concealment. As discussed above, the fraudulent concealment claim relates to the performance of the contract, including specifically allegations of “over-billing DSI for incomplete, defective, and unperformed work” under the Contract. The claim against Fergusson is thus intimately founded in and intertwined with performance under the Contract. The claim against Fergusson is therefore arbitrable. With respect to the claims against Litchfield individually, the basis for liability of Litchfield Builders relies heavily upon allegations that Litchfield was the individual acting on behalf of Litchfield Builders. (E.g. Cross-complaint, ¶¶ 63 [false representations], 70 [concealments], 76 [threats], 102 [Litchfield’s conduct].) As discussed above, even under the narrow interpretation of the arbitration provision, this conduct “arises out of” the Contract. To the same extent that these claims as against Litchfield Builders are within the scope of the arbitration provision, these claims against Litchfield individually are intimately founded in and intertwined with the underlying Contract obligations. Consequently, the claims against Litchfield are similarly arbitrable.

To summarize to this point, the court finds that all of the claims of the FAC and of the cross-complaint as among the moving and responding parties to this motion, except for the defamation claim, are within the scope of the arbitration provision and arbitration may be compelled as to these claims. The remaining issues relate to whether non-arbitrable claims (including those against parties not now before the court) affect the determination of whether to order arbitration.

“If the court determines that there are other issues between the petitioner and the respondent which are not subject to arbitration and which are the subject of a pending action or special proceeding between the petitioner and the respondent and that a determination of such issues may make the arbitration unnecessary, the court may delay its order to arbitrate until the determination of such other issues or until such earlier time as the court specifies.” (Code Civ. Proc., § 1281.2, 2d par. foll. subd. (d).) As between the plaintiff/ cross-defendants and defendants/ cross-complainants, the only issue not subject to arbitration is the defamation action. Determination of the defamation action would not make the arbitration unnecessary. Instead, the defamation action is, in an evidentiary sense, derivative of much of the other claims as between these parties. The court would not therefore exercise its discretion to delay its order to arbitrate until the determination of those other issues.

There are two sets of third party claims that potentially affect this analysis. (These are referred to as “third party” claims in the sense that they are claims against parties other than the moving or responding parties to this motion.) The first is the plaintiff’s claim in the FAC against defendant Lexington National Insurance Corporation. The second are cross-complainants’ claims against cross-defendants CVIS Corporation (former Roe 1) and Jaramillo (former Roe 2).

Subdivision (c) of section 1281.2 provides a further exception to arbitration if the court determines that “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.”

“If the court determines that a party to the arbitration is also a party to litigation in a pending court action or special proceeding with a third party as set forth under subdivision (c), the court (1) may refuse to enforce the arbitration agreement and may order intervention or 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.” (Code Civ. Proc., § 1281.2, 3d par. foll. subd. (d).)

The court finds that these third party claims are by their nature not sufficient to deny arbitration of arbitrable claims as between the moving plaintiff and cross-defendants and the responding defendants and cross-complainants. The court will therefore grant the motion as to the arbitratable claims and stay the remainder of the action pending disposition of the arbitration