Katie Carpenter v. Kathy Mora, et al

Case Number

23CV03391

Case Type

Hearing Date / Time

Wed, 04/03/2024 - 10:00

Nature of Proceedings

Defendants’ Petition to Compel Arbitration and Stay Proceedings

Tentative Ruling

For Plaintiff Katie Carpenter: John C. Carpenter and Alina S. Vulic

For Defendants Kathy Mora, Assad Mora, and The Assad and Kathy Mora Trust: R. Chris Kroes

                       

RULING

Defendants’ Petition to Compel Arbitration and Stay Action is granted. The action is ordered stayed pending the completion of arbitration.

Background

This action commenced on August 4, 2023, by the filing of the complaint by Plaintiff Katie Carpenter against Defendants Kathy Mora, Assad Mora, and The Assad and Kathy Mora Trust. The complaint alleges two causes of action as follows: (1) Negligence, and (2) Fraud and Deceit: Fraudulent Concealment; Negligent and Intentional Misrepresentation.

As alleged in the complaint:

Plaintiff purchased property located at 820 Cima Linda Lane, Santa Barbara, from Defendants. (Complaint, ¶¶ 10, 11.) As the result of “negligent misrepresentation and fraud associated with the nondisclosure and misrepresentations of material facts regarding the Subject Property,” Plaintiff sustained personal injuries. (Complaint, ¶ 11.) Defendants failed to disclose chronic drainage issues and flooding on the property and in the house, a chronically leaking pool, toxic mold and fungi growth, gas leaks, and the presence of asbestos in the HVAC system. (Complaint, ¶¶ 13, 14, 15, 16, 17, 18.)

Defendants had actual or constructive knowledge of the issues but misrepresented facts to Plaintiff with the intention of having Plaintiff rely upon the misrepresentations in order to effectuate the sale of the subject property. (Complaint, ¶ 19.)

In connection with the sale of the subject property, the parties executed a standard California Real Property Purchase Agreement (“RPA”) which contains an arbitration agreement. (Mora Dec., ¶ 2 & Exh. A.) [Note: both the Mora declaration and the petition to compel arbitration state that the arbitration agreement is at paragraph 31. The arbitration clause is contained in paragraph 22.)

Defendants now petition to compel arbitration pursuant to the arbitration clause and stay proceedings pending completion of arbitration. Plaintiff opposes the petition.

Analysis

Evidentiary Objections

Defendants object to the declaration of Plaintiff’s counsel Alina S. Vulic and to the declaration of Plaintiff.

“We recognize that it is very common for [attorneys] to include argument in their declarations (we know it is done all the time, and we do not want to single out the trial lawyers in this regard), but it is a sloppy practice which should stop. Even at its most benign, it is a practice that forces the trial and appellate Courts, and opposing counsel, to sort out the facts that are actually supported by oath from material that is nothing more than the statement of an opinion ostensibly under oath. More fundamentally, however, it makes a mockery of the requirement that declarations be supported by statements made under penalty of perjury. The proper place for argument is in points and authorities, not declarations.” (In re Marriage of Heggie (2002) 99 Cal.App.4th 28, 30, fn. 3.)

Vulic’s four-paragraph declaration, other than the first paragraph identifying herself, consists entirely of argument rather than facts she would have personal knowledge of. Defendants’ objection No. 1 is sustained based on lack of personal knowledge. [Note: the sustaining of the objection is largely meaningless because Plaintiff, as well as Kathy Mora, verified and attached a copy of the RPA to their declarations.] Objection No. 2 is sustained because it is an improper argument and purports to state a legal conclusion. Objection No. 3 is sustained because it is an improper argument and purports to state a legal conclusion.

While containing some legal conclusions, and personal opinions, Plaintiff’s declaration is mostly based on personal knowledge. The objections are overruled except: Objection No. 8 is sustained because it is a legal conclusion. Objection No. 9 is sustained because it is a legal conclusion.

Petition to Compel Arbitration and Stay Action

“[T]he Legislature has expressed a ‘strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution.’ [Citations.] Consequently, Courts will ‘indulge every intendment to give effect to such proceedings.’ [Citations.]” (Mancharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9.)

“Under both federal and California state law, arbitration is a matter of contract between the parties.” (Badie v. Bank of America (1998) 67 Cal.App.4th 779, 787.)

Arbitration agreements are valid and enforceable under both California and Federal Law. “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.)

“A written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (9 USCA § 2.)

“The burden of persuasion is always on the moving party to prove the existence of an arbitration agreement with the opposing party by a preponderance of the evidence.” (Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 164.)

“General principles of contract law determine whether the parties have entered a binding agreement to arbitrate.” (Craig v. Brown & Root, Inc. (2000) 84 Cal.App.4th 416, 420.) “The party seeking arbitration bears the burden of proving the existence of an arbitration agreement, and the party opposing arbitration bears the burden of proving any defense, such as unconscionability.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236.)

The arbitration clause reads, in pertinent part:

“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 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. Exclusions from this arbitration agreement are specified in paragraph 22C.”

“NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE ‘ARBITRATION OF DISPTUES’ 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 ARBITRATION UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.”

The arbitration agreement was initialed by the parties.

In the absence of a substantial relationship to interstate commerce “the language of the Agreement, not an analysis of interstate commerce, dictates the applicable law.” (Valencia v. Smyth (2010) 185 Cal.App.4th 153, 179.) The arbitration clause specifies that the agreement shall be governed by the Federal Arbitration Act (“FAA”) and therefore federal law must be utilized in ruling on the petition. The arbitration clause is mutual and binds both buyers and sellers.

The Court will find that Defendants have proven the existence of a valid arbitration agreement between the parties and have agreed that the FAA governs. “The FAA requires that Courts enforce arbitration agreements according to their terms.” (Prima Donna Development Corp. v. Wells Fargo Bank, N.A. (2019) 42 Cal.App.5th 22, 35 (Prima Donna).)

Plaintiff argues that the arbitration clause is unconscionable and does not apply to Plaintiff’s personal injury claims. “The burden of proving unconscionability rests upon the party asserting it.” (OTO, L.L.C. v. Kho (2019) 8 Cal.5th 111, 126.)

“In resolving a claim of unconscionability, a Court’s inquiry is whether the contract provision was unconscionable at the time it was made.” (Prima Donna, supra, 42 Cal.App.5th at p. 37.)

“The doctrine of unconscionability consists of procedural and substantive components. “ ‘ “The procedural element addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power. [Citations.] Substantive unconscionability pertains to the fairness of an agreement’s actual terms and to assessments of whether they are overly harsh or one-sided.’ ” [Citation.] [¶] Both procedural and substantive unconscionability must be shown for the defense to be established, but ‘ “they need not be present in the same degree.” ’ ” [Citation.]” (Id. at pp. 37-38.)

Arbitration clauses contained in RPA’s have never been found to be unconscionable under California law. In fact, the case law affirmatively holds that they are not unconscionable. “An arbitration clause is a contract of adhesion if “ ‘it lies within a standardized form drafted and imposed by a party with superior bargaining strength, leaving Plaintiffs with only the option of adhering to the contract or rejecting it.’ ” [Citation.] Because it was voluntary, the 2007 RPA arbitration clause was not adhesive. The arbitration clause required each party to indicate his or her acceptance by initialing the provision. In the absence of such an acceptance, the arbitration clause did not become a part of the agreement. Because the parties were not presented only with the option of adhering to the entire RPA or rejecting it, the clause was not adhesive. For a similar reason, we find unpersuasive Plaintiffs’ argument the arbitration clauses lacked mutuality.” (Laymon v. J. Rockcliff, Inc. (2017) 12 Cal.App.5th 812, 824 (Laymon).)

The same is true in the present case. The arbitration clause, by its express terms, was voluntary and is not a contract of adhesion. All parties to the sale initialed signifying that they accepted the terms of the arbitration clause. The arbitration clause is neither procedurally nor substantively unconscionable.

Clearly, the allegations of intentional misrepresentation, negligent misrepresentation, and fraud associated with nondisclosure in the sale of the home are covered under the arbitration clause. Plaintiff’s argument is, in essence, that personal injury claims are not encompassed by the arbitration agreement and that the agreement should only apply to contractual disputes.

“ ‘In determining whether an arbitration agreement applies to a specific dispute, the Court may examine only the agreement itself and the complaint filed by the party refusing arbitration. . . .’ ” (Id. at p. 819.)

“ ‘[T]he decision as to whether a contractual arbitration clause covers a particular dispute rests substantially on whether the clause in question is “broad” or “narrow.” ’ [Citation.] ‘A “broad” clause includes those using language such as “any claim arising from or related to this agreement.” ’ [citation] or ‘ “arising in connection with” the agreement’ [citation]. ‘It has long been the rule in California that a broadly worded arbitration clause . . . may extend to tort claims that may arise under or from the contractual relationship. “There is no requirement that the cause of action arising out of a contractual dispute must be itself contractual. At most, the requirement is that the dispute must arise out of the contract.” ’ ” (Rice v. Downs (2016) 248 Cal.App.4th 175, 186.) Here, the arbitration clause is “broad” and covers “any dispute or claim in Law or equity arising between them out of this Agreement or any resulting transaction.”

“The party opposing arbitration has the burden of demonstrating that an arbitration clause cannot be interpreted to require arbitration of the dispute. [Citation.] Nonetheless, this policy does not override ordinary principles of contract interpretation. ‘ “[T]he contractual terms themselves must be carefully examined before the parties to the contract can be ordered to arbitration: “ ‘Although ‘ “[t]he law favors contracts for arbitration of disputes between parties’ [citation], ‘ “ ‘there is no policy compelling persons to accept arbitration of controversies which they have not agreed to arbitrate. . . .” ’ ” [Citations.] In determining the scope of an arbitration clause, ‘ “[t]he Court should attempt to give effect to the parties’ intentions, in light of the usual and ordinary meaning of the contractual language and the circumstances under which the agreement was made [citation].’ ” ’ ” [Citation.] ‘ “[T]he terms of the specific arbitration clause under consideration must reasonably cover the dispute as to which arbitration is requested.” ’ [Citation.] [¶] ... ‘ “The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.” ’ [Citation.] “ ‘ “A Court must view the language in light of the instrument as a whole and not use a ‘ “disjointed, single-paragraph, strict construction approach” ’ [citation].” ’ ” [Citation.] An interpretation that leaves part of a contract as surplusage is to be avoided.’ ” (Laymon, supra. 12 Cal.App.5th at p. 820.)

Here, the complaint alleges: “PLAINTIFF sustained serious personal injuries as a result of DEFENDANTS, and each of their, negligence, negligent misrepresentation and fraud associated with the nondisclosure and misrepresentations of material facts regarding the Subject Property.” (Complaint, ¶ 11, italics added.) “At issue in this case are the fraudulent affirmative and negligent misrepresentations made by DEFENDANTS that have led to severe chronic illness and other injuries and emotional distress suffered by PLAINTIFF KATIE CARPENTER that was legally caused by DEFENDANTS’ and each of their conduct.” (Id. at ¶ 12, italics added.)

“ ‘A long line of California and federal cases holds that claims framed in tort are subject to contractual arbitration provisions when they arise out of the contractual relationship between the parties.’ ” [Citations.]” (Molecular Analytical Systems v. Ciphergen Biosystems, Inc. (2010) 186 Cal.App.4th 696, 712.)

By the express wording of the complaint, Plaintiff is affirmatively stating that her personal injuries arose out of the “negligence, negligent misrepresentation and fraud associated with the nondisclosure and misrepresentations of material facts regarding the Subject Property.”

Plaintiff’s personal injury claims are subject to the arbitration clause as they arose out of the purchase of the property.

To any extent that the arbitration is ambiguous as to whether the personal injury claims are included in its scope, the United States Supreme Court has “repeatedly held that ambiguities about the scope of an arbitration agreement must be resolved in favor of arbitration.” (Lamps Plus, Inc. v. Varela (2019) 587 U.S. 176, 189.)

“If any suit or proceeding be brought in any of the Courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the Court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.” (9 USCA § 3.)

The petition to compel arbitration will be granted and this action will be stayed pending the completion of arbitration.