Opinion
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of San Diego County, Super. Ct. No. 37-2010-00083377-CU-BC-CTL, William R. Nevitt, Jr., Judge.
AARON, J.
I.
INTRODUCTION
Carlos S. Bardmess and his wife, Sandra L. Bardmess (the Bardmesses), entered into an agreement with Bosa Development California II, Inc. (Bosa), to purchase a condominium. The agreement required the Bardmesses to make scheduled deposits toward the condominium's purchase price into an escrow account, and to deposit the balance of the purchase price into the account by the closing date. The agreement contains a liquidated damages provision that would permit Bosa to keep the deposits if the Bardmesses defaulted on their obligations under the agreement prior to closing. The agreement also contains an arbitration provision that states that the Bardmesses and Bosa agree "that the controversy, and the disposition of the funds deposited into the escrow by [the Bardmesses] shall be settled by arbitration...." The arbitration provision also indicates that disputes subject to arbitration under the agreement include "whether a default has occurred, " and "the amount of liquidated damages." In addition, a notice directly below the arbitration provision in the agreement states that any dispute "arising out of" matters included in the arbitration provision is also subject to arbitration.
The Bardmesses made two deposits into the escrow account toward the purchase price, but failed to deposit the remainder of the purchase price into the account by the closing date. The escrow holder subsequently remitted the Bardmesses' deposits to Bosa. The Bardmesses then filed this action against Bosa; the Bardmesses' real estate agent, Sharon Tentilucci; and Tentilucci's broker, Austin McBride Corporation, doing business as Re/Max Real Estate Consultants (Re/Max). In their complaint, the Bardmesses claimed that the agreement's liquidated damages provision was invalid, and requested that the court order Bosa to refund their deposits. Bosa filed a motion to compel arbitration, citing the arbitration provision discussed above. The Bardmesses filed an opposition in which they claimed that arbitration under the agreement was subject to a "precondition, " namely, that the Buyer have timely sent the escrow holder a written notice objecting to the disbursement of the Buyer's deposits. The Bardmesses further contended that because they had not sent such a notice to the escrow holder, the arbitration clause did not encompass their claims in this action. The trial court denied Bosa's motion to compel arbitration, ruling that the Bardmesses were correct in their assertion that the scope of the arbitration provision did not encompass their claims. Bosa appeals, and we reverse.
Tentilucci and Re/Max are not parties to this appeal.
II.
FACTUAL AND PROCEDURAL BACKGROUND
A. The Bardmesses enter into an agreement with Bosa to purchase a condominium
Bosa is the developer of a high-rise residential condominium project called "The Electra, " in San Diego. In March 2005, the Bardmesses entered into an agreement (the Purchase Agreement) with Bosa to purchase a condominium at The Electra for $852,100. As of March 2005, The Electra was still in the early stages of development.
B. The Purchase Agreement
1. The deposit provisions
The Purchase Agreement provided a target closing date of December 31, 2007, and required that the Bardmesses make two separate deposits totaling 15 percent of the purchase price, or $127,815, into an escrow account prior to closing.
2. Default and pre-closing dispute provisions
Section 7 of the Purchase Agreement is entitled "Default and Pre-Closing Disputes, " and contains provisions pertaining to liquidated damages; default notification and the disbursement of liquidated damages; and the arbitration of pre-closing disputes.
a. The liquidated damages provision
Section 7.2 of the Purchase Agreement provides that, in the event of a pre-closing default or breach by the Bardmesses, Bosa is entitled to retain the two deposits as liquidated damages.
"[I]n the event of a default or breach of this agreement by Buyer, Seller shall be entitled to retain an amount equal to the aggregate deposits made by Buyer hereunder, including options and extras, as liquidated damages ('Liquidated Damages')."
The Purchase Agreement also states that the liquidated damages provision is subject to Civil Code 1675, subdivision (d), and notes that the statute provides:
" 'If the amount actually paid pursuant to the liquidated damages provision exceeds three percent (3%) of the purchase price, the provision is invalid unless the party seeking to uphold the provision establishes that the amount actually paid is reasonable as liquidated damages.' "
b. Default notification and liquidated damages disbursement
Sections 7.2.1 and 7.2.2 of the Purchase Agreement describe the notice that Bosa must provide the Bardmesses in order to recover liquidated damages, the manner by which the escrow holder is to determine whether to disburse the Bardmesses' deposits to Bosa as liquidated damages, and the manner by which the Bardmesses may object to such a disbursement. Those sections provide in relevant part:
"7.2.1 Seller shall give written notice (the 'Seller's Notice') by registered or certified mail... to Escrow Holder and to Buyer that Buyer is in default under the Agreement and that Escrow Holder disburse from [sic] Buyer's deposit(s) to Seller unless, within twenty (20) calendar days of receipt of the Seller's Notice, Buyer notifies Escrow Holder and Seller in writing that Buyer objects to the disbursement of Liquidated Damages to Seller (the 'Buyer's Notice')....
"7.2.2 If Buyer fails to give Buyer's Notice within the time required: (A) Escrow Holder shall promptly remit the Liquidated Damages amount to Seller and any remaining damages to Buyer, and (B) the rights and duties under the agreement shall terminate, including any duty by Seller to sell the [condominium] to Buyer."
c. Arbitration of pre-closing disputes
Section 7.3 of the Purchase Agreement is entitled "Arbitration of Pre-closing Disputes, " and contains an arbitration provision that provides:
"If Buyer gives written notice to Escrow Holder in compliance with section 7.2.1 above, then a disbursement of the deposits to Seller as Liquidated Damages shall be made only pursuant to the determination by a court of law that Buyer has defaulted under this agreement; provided, however, that by initialing in the space provided below Buyer and Seller agree that the controversy, and the disposition of the funds deposited into the escrow by Buyer shall be settled by arbitrationin accordance with the commercial arbitration rules of the American Arbitration Association and subject to the following terms: (A) the fee to initiate the arbitration shall be borne by the Seller; provided, however, that the costs of the arbitration shall be borne as determined by the arbitrator; (B) the arbitrator shall be neutral and impartial and shall be appointed within thirty (30) days after Buyer gives written notice to Escrow Holder in compliance with 7.2.1 above; (C) the arbitration shall be conducted in the county in which the property is located, unless the parties agree to another location; and (D) the arbitrator shall be authorized to provide all recognized remedies available in law or equity for any cause of action that is the basis of the arbitration. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. If the dispute subject to the arbitration is whether a default has occurred under this agreement and there is a determination by the arbitrator that a default has occurred, escrow shall be cancelled and the rights and duties under this agreement shall automatically terminate, including any duty by Seller to sell the property to Buyer or obligation of Buyer to purchase the property from Seller. Upon a determination of Buyer's default, the amount claimed as liquidated damages shall be disbursed as provided above, and any remaining deposit shall be disbursed to Buyer; provided, however, that if the arbitrator determines that any dispute raised by Buyer as to the amount of Liquidated Damages claimed by Seller cannot be determined at the same time as the dispute regarding Buyer's default, the dispute as to the amount of Liquidated Damages shall be resolved by a subsequent arbitration in the same manner as described herein."
Immediately thereafter, also in section 7.3, the Purchase Agreement states:
"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 such 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 California Arbitration Act and the Federal Arbitration Act. 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. (Code of Civil Procedure section 1298.)"
3. Post-closing arbitration procedures
The Purchase Agreement also contains a separate section governing post-closing disputes. These provisions state that any such disputes are subject to nonbinding mediation and, if unsuccessful, to arbitration conducted by Judicial Arbitration and Mediation Services.
No post-closing disputes are at issue in this appeal.
C. The parties' acts pursuant to the Purchase Agreement
On March 11, 2005, the Bardmesses made their first deposit of $85,210, and on February 1, 2006, they made a second deposit of $42,605. On December 5, 2007, Bosa notified the Bardmesses that the closing date would be January 8, 2008.
As of January 8, the closing date, the Bardmesses had not deposited the remainder of the purchase price into escrow as required by the Purchase Agreement. On January 28, Bosa sent a "Seller's Notice" to the Bardmesses and the escrow holder. The notice informed the Bardmesses that they were in default for failing to deposit all of the required funds into escrow, stated that the Bardmesses had 20 days to cure the default, and instructed the escrow holder to disburse the deposits held in escrow to Bosa unless, within 20 days of receipt of the Seller's Notice, the Bardmesses objected in writing to the disbursement.
The Bardmesses did not provide the additional funds to close escrow and did not object to disbursement of the deposits. The escrow holder remitted the Bardmesses' deposits to Bosa.
D. The Bardmesses' complaint
In January 2010, the Bardmesses filed a complaint that contained six causes of action against Bosa, Tentilucci, and Re/Max. In the first cause of action, statutory right to deposit (Civ. Code, § 1675 et seq.) against Bosa, the Bardmesses alleged that the liquidated damages provision in the Purchase Agreement was invalid, and that Bosa was required to refund the Bardmesses' deposits. In the second cause of action, breach of contract against Bosa, the Bardmesses alleged that Bosa had breached the Purchase Agreement by retaining their deposits in light of the invalid liquidated damages provision. In the third cause of action, rescission of contract for invalidity and uncertainty against Bosa, the Bardmesses alleged that the Purchase Agreement was invalid in light of the invalid liquidated damages provision, and that the Bardmesses were entitled to the return of their deposits. In their fourth cause of action, breach of fiduciary duty against Bosa, Tentilucci and Re/Max, the Bardmesses alleged that Tentilucci and Re/Max had breached fiduciary duties owed to the Bardmesses by failing to advise them to object to Bosa's demand for the deposits, among other actions. In that same cause of action, the Bardmesses also alleged that Bosa had "participated in the wrongdoing by Tentilucci and Re/Max." The fifth cause of action sought a declaration as to which party was entitled to the Bardmesses' deposits. Finally, the sixth cause of action for unjust enrichment alleged that all of the defendants had "improperly taken [the Bardmesses'] deposits for themselves."
E. Bosa's motion to compel arbitration
In March 2010, Bosa filed a motion to compel arbitration. In a supporting brief, Bosa cited the Purchase Agreement's arbitration provision, described the Bardmesses' claims, and contended that "the claims alleged in [the Bardmesses'] complaint fall directly within the scope of the arbitration agreement." Specifically, Bosa argued that the pre-closing dispute arbitration provision "encompasses all disputes that arise out of treatment of the [Bardmesses'] deposits, " and maintained that the Bardmesses' claims all related to whether Bosa was required to return the deposits.
The Bardmesses filed an opposition to the motion to compel in which they argued that arbitration was not required because two "preconditions" to arbitration had not been fulfilled. Specifically, the Bardmesses argued:
"A careful reading of section 7.3 [of the Purchase Agreement] reveals that there are two pre-conditions to arbitration of pre-closing disputes[:] 1) Buyer must have given written notice to [the] Escrow Holder [of its objection to the disbursement of the deposits] and 2) such notice must be given prior to disbursement by Escrow Holder.... "[¶]... [¶]
"In the present case, [the Bardmesses] failed to deliver notice to Escrow Holder... and [the] Escrow [Holder] actually disbursed the funds to Bosa. The present action was brought long after such disbursement was effectuated. The [Purchase Agreement] fails to specify that arbitration is required in such an action."
On June 4, 2010, the trial court held a hearing on Bosa's motion to compel arbitration. At the conclusion of the hearing, the court denied the motion. In its written order, the court stated, "[The Bardmesses'] argument is persuasive that the scope of the arbitration provision upon which Bosa relies (§ 7.3) does not encompass the claims made by [the Bardmesses'] in their complaint."
Bosa timely filed an appeal from the trial court's order denying its motion to compel arbitration. (See Code Civ. Proc., § 1294 [an order denying a motion to compel arbitration is appealable].)
III.
DISCUSSION
The trial court erred in denying Bosa's motion to compel arbitration
Bosa claims that the trial court erred in concluding that the Bardmesses' claims are not within the scope of the arbitration provision.
A. Standard of review
" ' " 'Whether an arbitration agreement applies to a controversy is a question of law to which the appellate court applies its independent judgment where no conflicting extrinsic evidence in aid of interpretation was introduced in the trial court.' " ' " (Franco v. Athens Disposal Co., Inc. (2009) 171 Cal.App.4th 1277, 1287, citations omitted.) In this case, the parties have not pointed to any relevant conflicting extrinsic evidence. Accordingly, we exercise our independent judgment in considering Bosa's claim.
B. Governing law
"[S]tate contract rules generally govern the construction of arbitration agreements." (Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 384.) "The rules of construction generally applicable to contracts govern the interpretation of... arbitration provisions... that is, we interpret the words in their ordinary sense, according to the plain meaning a layperson would attach to them." (Gravillis v. Coldwell Banker Residential Brokerage Co. (2006) 143 Cal.App.4th 761, 774-775.) " 'The 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.]" (Vianna v. Doctors' Management Co. (1994) 27 Cal.App.4th 1186, 1189.)
In addition to employing the ordinary rules of contract interpretation, "[i]n determining whether a matter is subject to arbitration, courts apply the presumption in favor of arbitration...." (Amalgamated Transit Union Local 1277 v. Los Angeles County Metropolitan Transportation Authority (2003) 107 Cal.App.4th 673, 684.) "Because California has a ' "strong public policy in favor of arbitration" ' [citation], '... arbitration agreements should be liberally interpreted, and arbitration should be ordered unless the agreement clearly does not apply to the dispute in question.' [Citation.] 'Doubts as to whether an arbitration clause applies to a particular dispute are to be resolved in favor of sending the parties to arbitration.' [Citation.]" (Vianna v. Doctors' Management Co., supra, 27 Cal.App.4th at p. 1189.) "However, '[t]here is no public policy favoring arbitration of disputes which the parties have not agreed to arbitrate. [Citation.]' [Citation.]" (In re Tobacco Cases I (2004) 124 Cal.App.4th 1095, 1103-1104.)
C. Application
The key language of the arbitration provision at issue in this appeal is the following:
"If Buyer gives written notice to Escrow Holder in compliance with section 7.2.1 above, then a disbursement of the deposits to Seller as Liquidated Damages shall be made only pursuant to the determination by a court of law that Buyer has defaulted under this agreement; provided, however, that by initialing in the space provided below Buyer and Seller agree that the controversy, and the disposition of the funds deposited into the escrow by Buyer shall be settled by arbitration...."
The Bardmesses contend that this portion of the arbitration provision demonstrates that arbitration is required only if a Buyer objects to the disbursement of the escrow proceeds in the manner specified in section 7.2.1. In the Bardmesses' view, the timely provision of a "Buyer's Notice" pursuant to section 7.2.1 is a "pre-condition[]" to arbitration. We disagree. The arbitration provision does not state that before a dispute will be subject to arbitration, a Buyer's Notice must be given. Rather, the provision is most reasonably interpreted as stating that if the Buyer properly serves a Buyer's Notice, the escrow holder may disburse the funds as liquidated damages only pursuant to a judicial determination, unless the parties have initialed the arbitration provision, in which case, the disposition of the funds deposited into escrow shall be made pursuant to the order of the arbitrator. We therefore reject the Bardmesses' contention that the fact that the arbitration provision refers to the provision of a Buyer's Notice demonstrates that the arbitration provision applies only in cases in which such a notice has been given. We also reject the Bardmesses' contention that there "is no reasonable way to read the arbitration clause, " as applying to disputes in which the Buyer has not provided a Buyer's Notice.
Our interpretation is consistent with the broadly worded arbitration provision, which is entitled "Arbitration of Pre-closing Disputes, " and states that disputes that shall be settled by arbitration include "disposition of the funds deposited into the escrow, " "whether a default has occurred, " and "the amount of liquidated damages...." Further, the Purchase Agreement contains a notice that states that any dispute "arising out of" matters included in the arbitration provision are themselves subject to arbitration. In addition, in their brief, the Bardmesses do not present any reason, and we can conceive of none, as to why the parties would have intended to condition arbitration upon the Buyer providing a Buyer's Notice. (See EFund Capital Partners v. Pless (2007) 150 Cal.App.4th 1311, 1321 [in interpreting arbitration provision courts apply the ordinary rules of contract interpretation, including that " ' " 'language in a contract must be interpreted as a whole, and in the circumstances of the case' " ' " (citations omitted)].)
The Bardmesses do contend:
We are not persuaded by the Bardmesses' contention that provision of a Buyer's Notice is a precondition to arbitration because the arbitration provision mandates the appointment of an arbitrator "within thirty (30) days after Buyer gives written notice to Escrow Holder in compliance with 7.2.1 above...." The arbitration provision in the Purchase Agreement provides that the arbitration will be conducted pursuant to the commercial arbitration rules of the American Arbitration Association (AAA), subject to four additional procedural terms, including the arbitrator appointment clause mentioned above. Rather than demonstrating that the provision of a Buyer's Notice is a precondition to arbitration, the arbitration provision is more reasonably interpreted as specifying the manner by which an arbitrator is to be appointed if a Buyer's Notice is in fact provided. In the absence of the provision of a Buyer's Notice, the arbitration provision may reasonably be interpreted as providing that the arbitration shall be conducted "in accordance with the commercial arbitration rules of the [AAA], " which themselves specify the manner by which an arbitrator is to be appointed.
The additional terms are: "(A) the fee to initiate the arbitration shall be borne by the Seller; provided however that the costs of the arbitration shall be borne as determined by the arbitrator; (B) the arbitrator shall be neutral and impartial and shall be appointed within thirty (30) days after Buyer gives written notice to Escrow Holder in compliance with Section 7.2.1 above; (C) the arbitration shall be conducted in the county in which the property is located, unless the parties agree to another location; and (D) the arbitrator shall be authorized to provide all recognized remedies available in law or equity for any cause of action that is the basis of the arbitration."
We grant Bosa's unopposed request that we take judicial notice of the AAA's Commercial Arbitration Rules and Mediation Procedures. (See Evid. Code, § 452, subd. (h) [permitting judicial notice to be taken of "[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy"]; Evid. Code, § 459, subd. (a) ["reviewing court may take judicial notice of any matter specified in Section 452"]; Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 719, fn. 4 ["We may properly take judicial notice of the AAA's rules in resolving this dispute."].)
The Bardmesses' also argue that "public policy must yield to the parties' contractual intent, " and that even a broadly stated arbitration provision may fail to encompass a particular claim. We have no quarrel with either contention. However, in this case, for the reasons stated above and interpreting the agreement as a whole, the parties' contractual intent and the text of the arbitration provision demonstrate that the Bardmesses' claims fall within the scope of that provision. Finally, the Bardmesses "go so far as to argue that where [the] inviolate right [to a jury trial] is concerned..., any doubt should be construed in favor of protecting that right." We reject this contention in light of well-settled law that " 'doubts as to the scope of an agreement to arbitrate are to be resolved in favor of arbitration.' [Citation.]" (Molecular Analytical Systems v. Ciphergen Biosystems, Inc. (2010) 186 Cal.App.4th 696, 705.)
Accordingly, we conclude that the trial court erred in holding that the Bardmesses' claims are not within the scope of the arbitration provision and in denying Bosa's motion to compel arbitration.
IV.
DISPOSITION
The order denying Bosa's motion to compel arbitration is reversed. Bosa is entitled to recover its costs on appeal.
WE CONCUR: HUFFMAN, Acting P. J.NARES, J.
"Buyer may... have decided, hypothetically, to take its lumps for what it perceived as its own default and to sit and wait for the remainder of its money since even the contract itself states that the liquidated damages provision is subject to California Civil Code section 1675[, subdivision] (d) limiting liquidated damages to 3% of the purchase price.... In such a scenario it is not the 'whim' of the Buyer that results in no notice being given but is instead the honesty of a party who has agreed it has defaulted under the contract."
While it is certainly possible that a Buyer could hope that Bosa would return its deposits voluntarily, this does not explain why the parties would intend that a party "who has agreed it has defaulted under the contract, " and who is willing to "take its lumps, " to litigate rather arbitrate.
At oral argument, the Bardmesses' attorney suggested that Bosa and the Bardmesses may have intended for the arbitration provision to require the buyer to provide a Buyer's Notice as a precondition to arbitration in order to ensure that the escrow holder would not have to become involved in litigation over the deposit. However, the fact that an addendum to the Purchase Agreement entitled "Escrow General Provisions" gives the escrow holder the right "to file an action in interpleader requiring the parties to litigate their claims/rights, " undermines this suggestion. (Italics added.)
Bosa cannot be faulted for failing to request that the trial court take judicial notice of the AAA rules. The Bardmesses did not raise any contention with respect to the Purchase Agreement's arbitrator appointment clause in their opposition to the motion to compel, and it was not until the hearing on the motion to compel that the trial court suggested the possible relevance of the arbitrator appointment clause.