CHARLES LILLIE et al., Plaintiffs and Appellants,v.CHANNEL VIEW CONDOMINIUM ASSOCIATION, Defendant and Respondent.
Court of Appeals of California, Second District, Division Four.
Filed February 23, 2011.
Domine/Adams, Jeffrey B. Domine, Jason M. Adams, and Ryan P. Sheahan for Plaintiffs and Appellants.
Lewis Brisbois Bisgaard & Smith and Jason J. Scupine for Defendant and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
Plaintiffs appeal the denial of their motion to compel arbitration. Finding no error, we affirm.
FACTUAL AND PROCEDURAL HISTORY
Plaintiffs Charles Lillie and Donna Trapp are the owners of unit 204 of the Channel View Terraces, a condominium complex located in Playa del Rey, California. They purchased unit 204 in December 2003. They assert that just prior to and just after the close of escrow, they discovered extensive mold in their unit caused by leaks in the water pipes, heating system, and windows, all of which are commonly owned by defendant Channel View Condominium Association (Channel View). Plaintiffs contend that they had Channel View's permission to remediate the leaks and remove mold, and on May 2, 2006, plaintiffs' contractor attempted to begin work. However, he was prevented from entering the property by two members of Channel View's board who contended that plaintiffs had not properly obtained approval to have work done in a "common area." Ultimately, Channel View refused to allow plaintiffs to renovate their unit and urged plaintiffs to move out.
The parties mediated their dispute in October 2006 before Attorney Robert Mann. At the conclusion of mediation, the parties executed a settlement agreement, dated October 11, 2006 (settlement agreement). Even after the purported settlement of their dispute, however, plaintiffs and Channel View continued to disagree about plaintiffs' right to renovate their unit, and on May 2, 2008, plaintiffs filed the present action asserting breach of fiduciary duty, breach of contract, negligence, nuisance, and declaratory and injunctive relief.
On February 5, 2010, plaintiffs filed a motion to compel arbitration, asserting that paragraph I of the settlement agreement was an agreement to arbitrate future disputes. In support, they submitted a heavily redacted copy of the settlement agreement "to preserve the confidentiality of the terms of the settlement." In their entirety, the unredacted portions are as follows:
"The parties to this Memorandum of Settlement are:
"1. Channel View Terraces, Inc., a California Mutual Benefit Association (hereinafter `HOA'); and
"2. Dr. Charles Lillie (hereinafter, `Lillie')[.]
"1. Lillie is the owner of Unit 204 at the HOA property, located at 6209 Pacific Avenue, Playa Del Rey, CA.
"2. Prior to the date hereof, various disagreements and disputes have arisen between HOA and Lillie with respect to repairs and improvements made or proposed to be made with respect to Unit 204[.]
"3. It is the intention of the parties to resolve those disputes through this Memorandum of Settlement.
"1. The above recitals are true and correct.
"2. The material and essential terms of the agreement of the parties are as follows:
"I. Each side shall bear all costs and expenses incurred by them prior to the date hereof. In the event of any dispute arising under or out of this agreement, the parties shall submit same to Robert S. Mann for binding decision on such procedural basis as he may determine to be appropriate.
"K. The HOA Board is authorized to enter into this agreement and this agreement shall bind future HOA Boards and the HOA membership. This agreement shall bind future owners of Unit 204 and to the extent necessary, the parties agree that a recordable document shall be prepared to effectuate this term of the settlement.
"Dated: October 11, 2006
Channel View opposed the motion to compel arbitration. It contended: (1) paragraph I was too vaguely worded to be enforceable; (2) the petition was barred by laches because plaintiffs filed it more than three years after the settlement agreement was executed and nearly two years after filing suit; (3) Mann was not neutral because he had served as mediator for the parties; (4) plaintiffs' breach of the settlement agreement precluded them from enforcing it; and (5) plaintiffs waived their right to arbitrate by filing the present suit in court.
The trial court denied the motion to compel. It said: "The Court finds that Plaintiffs have not met their initial burden to show the existence of a written agreement to arbitrate the controversy involved in this case. First, most of Plaintiffs' Exhibit 1 is redacted, so it is impossible to tell whether the dispute that was purportedly settled in the Memorandum of Settlement is the same as the dispute involved in this action. Second, as the Association argues in the opposition, the language of paragraph I does not clearly indicate that the parties agreed to resolve any future disputes through binding arbitration. The term `binding decision' does not necessarily mean the same thing as `binding arbitration,' and the language regarding `procedural basis as [Mr. Mann] may determine to be appropriate' is vague and ambiguous. It is unclear what types of procedures Mr. Mann was `authorized' to make binding decisions about. Further, the agreement does not clearly provide that the parties are giving up their right to pursue civil claims or to have a trial by jury. On this basis alone, the motion is denied.
". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
"Plaintiffs have previously taken steps inconsistent with an intent to invoke arbitration. They participated in multiple mediation sessions with Mr. Mann, and subsequently filed this civil action . . . almost 2 years [ago]. Plaintiffs admit that they have propounded discovery on the Association. Moreover, the parties have attempted to settle this matter by mediating with Mr. Mann. As the Association argues in the opposition, it would be inappropriate for Mr. Mann to now serve as the `neutral' arbitrator in this matter, because he has received confidential information from both sides.
"In addition, Plaintiffs have unreasonably delayed in seeking arbitration. This matter was filed in May 2008, but Plaintiffs did not request arbitration until 2-5-10. It appears to this Court that Plaintiffs are now attempting to rely on the `arbitration' provision in the Memorandum of Settlement only because the informal settlement efforts fell through.
"Plaintiffs' conduct has resulted in prejudice to Defendant in the form of Defendant's litigation preparation and discovery efforts. Further, as discussed above, Defendant has disclosed confidential information to Mr. Mann, and it would be inappropriate for him to serve as the neutral arbitrator in this matter."
Plaintiffs timely appealed from the order denying the petition to compel arbitration on May 6, 2010.
STANDARD OF REVIEW
An order denying a motion to compel arbitration is appealable pursuant to Code of Civil Procedure section 1294, subdivision (a). (Brodke v. Alphatec Spine Inc. (2008) 160 Cal.App.4th 1569, 1573-1574; Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, 1711.)
"`[T]here is no uniform standard of review for evaluating an order denying a motion to compel arbitration. [Citation.] If the court's order is based on a decision of fact, then we adopt a substantial evidence standard. [Citations.] Alternatively, if the court's denial rests solely on a decision of law, then a de novo standard of review is employed. [Citations.]' (Robertson v. Health Net of California, Inc. (2005) 132 Cal.App.4th 1419, 1425.)" (Laswell v. AG Seal Beach, LLC (2010) 189 Cal.App.4th 1399, 1406.)
Code of Civil Procedure section 1281.2 requires a court to order contractual arbitration in a proper case. It provides in part: "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 enumerated exceptions apply.
"The statutory provisions governing contractual arbitration `create a summary proceeding for resolving' petitions or motions to compel arbitration. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972.) `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.' (Ibid.) To satisfy the moving party's initial burden, the petition or motion must be `accompanied by prima facie evidence of a written agreement to arbitrate the controversy' in question. (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.) In ruling on the petition or motion, `the court must determine whether the parties entered into an enforceable agreement to arbitrate that reaches the dispute in question, construing the agreement to the limited extent necessary to make this determination.' (California Correctional Peace Officers Assn. v. State of California (2006) 142 Cal.App.4th 198, 204-205.)" (Molecular Analytical Systems v. Ciphergen Biosystems, Inc. (2010) 186 Cal.App.4th 696, 705-706 (Molecular Systems).)
Because the scope of arbitration is a matter of agreement between the parties, a party can be compelled to arbitrate only those issues it has agreed to arbitrate. (Molecular Systems, supra, 186 Cal.App.4th at p. 705.) Thus, "`the terms of the specific arbitration clause under consideration must reasonably cover the dispute as to which arbitration is requested.' (Bono v. David (2007) 147 Cal.App.4th 1055, 1063.) For that reason, `the contractual terms themselves must be carefully examined before the parties to the contract can be ordered to arbitration' by the court. (Ibid.)" (Molecular Systems, supra, at p. 705.)
In the present case, the purported arbitration clause is paragraph I of the settlement agreement. Paragraph I provides: "In the event of any dispute arising under or out of this agreement, the parties shall submit same to Robert S. Mann for binding decision on such procedural basis as he may determine to be appropriate." (Italics added.) Assuming without deciding that paragraph I is an agreement to arbitrate something, the disputes subject to arbitration are, by the plain language of paragraph I, those "arising under or out of this agreement." (Italics added.) In other words, the scope of the purported arbitration clause depends entirely on the scope of the settlement agreement.
Unfortunately, we cannot tell whether the present dispute arises "under or out of" the agreement because, as we have said, plaintiffs redacted nearly all of the terms of the settlement agreement, including all of its substantive terms. Further, the complaint neither refers to the settlement agreement nor alleges a breach of it. Accordingly, we cannot determine whether the present dispute arises under or out of the settlement agreement and, thus, is subject to mandatory arbitration.
The present case is analogous to Adajar v. RWR Homes, Inc. (2008) 160 Cal.App.4th 563, 566 (Adajar), a construction defect case. There, the homeowners sued the builder of their homes, alleging various construction defects. The builder petitioned to compel arbitration, arguing that a standard-form warranty application signed by the homeowners contained an arbitration clause. (Id. at p. 567.) That application said, in relevant part: "`By signing below, you [homeowner] acknowledge that you have viewed and received the video "Warranty Teamwork: You, Your Builder & HBW," you have read a sample copy of the Warranty Booklet, and CONSENT TO THE TERMS OF THESE DOCUMENTS INCLUDING THE BINDING ARBITRATION PROVISION contained herein.'" (Ibid.) However, the builder did not submit a copy of the video or the "sample copy of the Warranty Booklet"; instead, it submitted copies of two versions of a warranty booklet issued to buyers after the close of escrow. (Ibid.)
The court concluded that because the builder did not produce a copy of the video or the sample warranty booklet referred to in the application, the terms of arbitration to which the plaintiffs supposedly agreed could not be determined. Thus, the builder failed to prove the terms of an arbitration contract. It explained: "We may not simply infer the 2001 and 2002 warranty booklets issued to plaintiffs after the close of escrow were identical to the sample warranty booklet referred to in the applications, particularly since the 2001 and 2002 warranty booklets contain differences in their arbitration clauses. . . . Further, under the 2001 and 2002 warranty booklets, any claim or dispute between a homeowner and RWR [builder] would be subject to arbitration, whether or not it pertained to the warranties, but there is no suggestion the sample warranty booklet, to any extent it actually existed, included such a broad clause. Arbitration may not be compelled absent an agreement to submit the particular claims at issue to arbitration. [Citation.]" (Adajar, supra, 160 Cal.App.4th at p. 570.) The court concluded: "It was RWR's burden to prove an arbitration contract . . . and no arguable presumption arises as to plaintiffs' knowledge when RWR failed to submit the sample warranty booklet referred to in the application. Even if all parties agreed the application incorporated a sample warranty booklet, arbitration cannot be compelled because there is no evidence of its terms." (Id. at p. 571.)
As in Adajar, plaintiffs here failed to prove the terms of the asserted arbitration agreement because they did not provide the trial court with a copy of the entire settlement agreement, which was incorporated by reference into paragraph I. Accordingly, the trial court properly denied the petition to compel arbitration.1
The order denying the motion to compel arbitration is affirmed. Defendant shall recover its costs on appeal.
1. Having thus resolved the propriety of the denial of the motion to compel, we do not reach the rest of plaintiffs' appellate contentions.