Opinion
A150986
07-12-2018
RENEE CAZARES et al., Plaintiffs and Respondents, v. BECKSTOFFER VINEYARDS XX, LP, Defendant and Appellant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Napa County Super. Ct. No. 16CV000228)
The trial court granted in part a petition to compel arbitration and ordered arbitration of one of the five causes of action in plaintiffs' complaint. Defendant appeals, asserting that under the parties' contract the determination of arbitrability was for the arbitrator, not the trial court. We agree, and we reverse.
BACKGROUND
The Parties, the Relationship, and the Factual Setting
On July 1, 1999, plaintiffs Renee Cazares and Jose Cazares (plaintiffs) entered into a commercial lease with Robert Blevans and Roger Lewis (owners) for the "First Floor Restaurant Space of the Two Story Building Known As [the property on] Coombs Street, Napa, California," commonly known as the property on First Street (the premises). The lease began on July 1, 1999, and was for a term of five years, with options to renew, and under its most recent extension the lease was to expire January 31, 2016.
Pertinent to the issue here, paragraph 49 of the lease, entitled "Mediation and Arbitration of Disputes," said that an "Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties . . . arising out of this Lease [is] attached to this Lease." The attached addendum provided in paragraph 54 as follows:
"54.0 ARBITRATION
"54.1 In the event a dispute arises between Lessor and Lessee regarding the lease, which dispute is in excess of the jurisdictional limit of the small claims court, any such dispute shall be resolved by binding arbitration in accordance with the commercial arbitration rules of the American Arbitration Association, and any judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction hereof. AS A RESULT OF THIS PROVISION, NEITHER PARTY SHALL BE ENTITLED TO HAVE A JUDGE OR A JURY DECIDE THE DISPUTE, AND EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY ON SUCH CLAIM."
On the last page of the lease, above the signature lines, is the following representation: "LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES."
Plaintiffs occupied the premises and developed what they describe as a "successful and popular sushi restaurant under the DBA Sushi Mambo."
In April 2014, the owners sold the building to defendant Beckstoffer Vineyards XX, LP (Beckstoffer), which assumed the lease.
On August 24, 2014, a magnitude 6.0 earthquake struck downtown Napa, causing damage to the building, thus implicating paragraph 9 of the lease.
Paragraph 9, entitled "Damage or Destruction," has eight subparts, including definitions of "Premises Partial Damage" and "Premises Total Destruction." The subparts in essence distinguish between partial damage and total destruction, describing the former as damage that can reasonably be repaired in less than six months, the latter as damage that will reasonably require more than six months to repair. Paragraph 9.1 provides that the landlord must notify the tenant within 30 days of an event whether partial damage or total destruction has occurred. And paragraph 9.4 provides that if there is "Total Destruction," the lease terminates of its own accord 60 days following the event.
By letter dated September 10, 2014, Beckstoffer notified plaintiffs that earthquake repairs would take more than six months to complete. And, the letter went on, pursuant to the total destruction provision, the lease would terminate on October 23, 2014, 60 days after the earthquake. Beckstoffer asked plaintiffs to remove their trade fixtures and personal property from the premises, subject to the Napa city rules for entering damaged buildings.
The Proceedings Below
On April 12, 2016, plaintiffs filed a complaint against Beckstoffer. The original complaint was missing some pages, and on June 1 plaintiffs filed an amended complaint. On July 5, Beckstoffer filed a demurrer. Despite full briefing, ruling on the demurrer was postponed by the court, which finally overruled the demurrer on September 20. Thereafter, by stipulation on October 31, plaintiffs filed a second amended complaint, the operative complaint here, which alleged five causes of action: (1) breach of contract; (2) fraud and deceit; (3) trespass to real property; (4) trespass to personal property; and (5) conversion.
On December 9, 2016, Beckstoffer filed a petition to compel arbitration. Pointing to the language in paragraph 54.1 of the lease referring to binding arbitration "in accordance with the commercial arbitration rules of the American Arbitration Association," (AAA) Beckstoffer's petition relied on the AAA rules in effect on July 1, 1999, when the parties signed the lease, specifically rule R-8(a), which provides that the "arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement."
The same language, renumbered as rule-7(a), is continued in the AAA rules applicable in 2014, the time the dispute underlying this action arose, with the addition of this explicit reference to arbitrability: "The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim."
Plaintiffs filed opposition to the petition, which included a declaration of Renee Cazares who testified that the AAA rules were not attached to the lease when they signed it, she had never seen the rules, and she did not know whether those rules provided for the arbitrator to determine arbitrability.
Plaintiffs' opposition also claimed that it was for the court, not the arbitrator, to decide which claims were subject to arbitration, arguing as follows: "Defendant's analysis is fatally flawed, because paragraph 7 (previously paragraph 8[a]) of the Commercial Arbitration Rules for the American Arbitration Association, upon which Defendant relies, did not exist at the time Plaintiffs and Defendant's predecessor in interest entered into the Lease." Plaintiffs' opposition also argued waiver of the right to arbitrate, based on Beckstoffer's delay in seeking arbitration and its conduct and participation in the litigation process.
Beckstoffer filed a reply, which included a declaration from its attorney, which declaration had appended to it several exhibits, including three versions of the AAA rules. And the reply began with this statement, based on those rules: "The AAA Commercial Arbitration Rule 8 granting arbitrators the power to decide their own jurisdiction came into effect on January 1, 1999, six months before plaintiffs signed the lease. [Citation.] Moreover, the arbitrability rule in effect on January 1, 1999 is repeated verbatim in the September 1, 2000 version of the rules as well as the October 1, 2013 rules, which are currently in effect. [Citation.]" (Fn. omitted.)
The motion came on for hearing on January 25, 2017, at the conclusion of which the court took the matter under submission.
On January 30, 2017, the court entered its order granting in part and denying in part Beckstoffer's petition, and also staying the arbitration. Beckstoffer objected to the order on the ground that it did not adequately explain the basis on which it stayed the arbitration.
On February 22, the trial court entered its amended order that in pertinent part held as follows: "Defendant's Petition to Compel Arbitration is GRANTED IN PART and DENIED IN PART. Plaintiffs are correct that the court is to determine the scope and enforceability of the arbitration provision because the mere reference to the Commercial Arbitration Rules does not constitute clear and unmistakable evidence that the parties intended to delegate that determination to the arbitrator. (Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 790 . . . . [(Ajamian).])" Then, after brief quotation from Ajamian and another case, the trial court went on:
"At the hearing, Defendant argued that Ajamian was distinguishable because in that case, the issue was whether the arbitration provision was unconscionable, an argument that is not being made in this case. However, the analysis in Ajamian as to whether the arbitrator or court should make the unconscionability determination is applicable here because it involves a similar question of threshold enforceability.
"Defendant urges the court to follow the analysis of the Court of Appeal for the Second Appellate District in Dream Theater, Inc. v. Dream Theater (2004) 124 Cal.App.4th 547 [(Dream Theater)] and the Court of Appeal for the Fourth Appellate District in Rodriguez v. American Technologies, Inc. (2006) 136 Cal.App.4th 1110 [(Rodriguez)] to find that simple incorporation of the Commercial Arbitration Rules was sufficient to delegate threshold scope and enforceability determinations to the arbitrator. However, the court is more inclined to follow the Court of Appeal for the First Appellate District's analysis in Ajamian. As the record before the court does not contain clear and unmistakable proof that the parties agreed to have the arbitrator determine enforceability issues, the court will make that determination."
The trial court then went on to determine that the arbitration provision was "narrow," and then held that "Under the narrow arbitration provision in the Lease, only the Breach of Contract claim is subject to arbitration."
Finally, the trial court addressed plaintiffs' argument of waiver, and concluded as follows: "Defendant has taken actions that are inconsistent with the right to arbitrate, including filing a demurrer seven months ago and conducting discovery since that time. (See St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196 [(St. Agnes).)] However, the Court does not find Defendant has done enough to waive its right to demand arbitration; the trial date is not imminent and the case is still in the pleading and discovery stage. (Burton v. Cruise (2010) 190 Cal.App.4th 939, 945 ["We recognize that waiver is not to be lightly inferred and the party seeking to establish it bears a 'heavy burden of proof,' with all doubts resolved in favor of arbitration.'][.)]"
On April 5 Beckstoffer filed its notice of appeal.
DISCUSSION
Standard of Review
The language of the arbitration provision is not in dispute, and thus our review is de novo. (Molecular Analytical Systems v. Ciphergen Biosystems, Inc. (2010) 186 Cal.App.4th 696, 707, and numerous cases there collected; Greenspan v. LADT, LLC (2010) 185 Cal.App.4th 1413, 1437 (Greenspan).)
The Arbitrator is to Determine Arbitrability
Code of Civil Procedure section 1281.2 provides in pertinent part as follows: "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 it determines that one of four enumerated circumstances exists.
So, in ruling on a petition to compel arbitration, a court must make two threshold determinations: first, whether an enforceable agreement to arbitrate exists; and second, whether that agreement encompasses the dispute that has arisen between the parties. (Code Civ. Proc., § 1281.2.) And the second question, the question of arbitrability, is to be decided by the court unless the parties have clearly and unmistakably delegated that issue to the arbitrator. (AT&T Technologies v. Communications Workers (1986) 475 U.S. 643, 649.)
Two published California cases have held that provisions like that here, referring to arbitration in accordance with the AAA rules, demonstrate that the parties agreed to have the arbitrator determine arbitrability: Dream Theater, supra, 124 Cal.App.4th 547 and Rodriguez, supra, 136 Cal.App.4th 1110. These cases are on point.
Dream Theater involved a contract that stated that arbitration would be conducted in accordance with the AAA rules, which rules provided that the arbitrator " 'shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.' " (Dream Theater, supra, 124 Cal.App.4th at p. 550.) In discussing the issue of arbitrability, the Court of Appeal explained: "It is difficult to imagine how parties could state any more comprehensively than they did in the Contract the intent to avoid litigation at every step of the dispute resolution process. The Contract provides that if a contested claim is not settled within the contractual deadline, then it must be submitted to binding arbitration in accordance with the AAA Commercial Arbitration Rules. These rules specify that the arbitrator will decide disputes over the scope of the arbitration agreement. We conclude that the parties' agreement to arbitrate according to this rule is clear and unmistakable evidence of the intent that the arbitrator will decide whether a Contested Claim is arbitrable." (Id. at p. 557.)
Rodriguez was similar, its analysis equally succinct: "Although the scope of an arbitration clause is generally a question for judicial determination, the parties may, by clear and unmistakable agreement, elect to have the arbitrator, rather than the court, decide which grievances are arbitrable. (AT&T Technologies v. Communications Workers[, supra,] 475 U.S. [at p.] 649.) Here, the parties clearly and unmistakably agreed to have the arbitrator determine the scope of the arbitration clause. The contract mandates arbitration in accordance with the American Arbitration Association's Construction Industry Rules. Rule 8(a) of those rules specifies the 'arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.' (Italics added.) By incorporating rule 8(a) into their agreement, the parties clearly evidenced their intention to accord the arbitrator the authority to determine issues of arbitrability. (See Shaw Group Inc. v. Triplefine Intern. Corp. (2d Cir. 2003) 322 F.3d 115, 124-125.) Thus, any issues concerning the scope of the arbitration clause should be determined by the arbitrator in the arbitration proceeding." (Rodriguez, supra, 136 Cal.App.4th at p. 1123.)
Two more recent cases, though dealing with the rules of organizations other than AAA, are also persuasive. The first is Greenspan, supra, 185 Cal.App.4th 1413 which, after citing and discussing Dream Theater and Rodriguez, went on at length to discuss numerous federal cases. Following all that, the court concluded as follows: "In the present action, JAMS Rule 11 authorized the arbitrator to make the final decision regarding what issues were arbitrable. Rule 11 was contained in JAMS Rules, effective March 26, 2007, and in the former rules, dating back to February 2005; it was in existence when the parties agreed to use JAMS Comprehensive Arbitration Rules & Procedures." (Greenspan, supra, at pp. 1442-1443.)
The most recent case is Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, where the court in part held that the trial court erred in deciding issues reserved for the arbitrator. After quoting the arbitration provision, the court noted as follows: "This is not the only evidence of the parties' intent to contractually delegate issues of arbitrability to a decision maker other than the court. An arbitration provision's reference to, or incorporation of, arbitration rules that give the arbitrator the power or responsibility to decide issues of arbitrability may constitute clear and unmistakable evidence the parties intended the arbitrator to decide those issues. (See Rodriguez[, supra,] 136 Cal.App.4th [at p.] 1123 [contract mandated arbitration in accordance with [AAA] construction arbitration rules that specify arbitrator's authority to determine the scope of the clause]; Dream Theater, supra, 124 Cal.App.4th at p. 557 [incorporation of AAA commercial arbitration rules which specified the arbitrator will decide issues over the scope of the arbitration agreement]; Brennan v. Opus Bank (9th Cir. 2015) 796 F.3d 1125, 1130 [incorporation of AAA arbitration rules]; Shaw Group, Inc. v. Triplefine Internat. Corp. (2d Cir. 2003) 322 F.3d 115, 118, 122 [implied incorporation of provision from International Chamber of Commerce rules].)" (Aanderud v. Superior Court, supra, at pp. 892-893.)
As quoted, the trial court noted Dream Theater and Rodriguez, but said it would rely on a case from this district, Ajamian, supra, 203 Cal.App.4th 771. Plaintiffs rely on Ajamian and one other case, Gilbert Street Developers, LLC v. La Quinta Homes, LLC (2009) 174 Cal.App.4th 1185 (Gilbert), asserting that these two cases "establish that the Court—and not the arbitrator—determines the issue of arbitrability in this case because the parties did not agree that an arbitrator should determine arbitrability." We disagree, as neither case helps plaintiffs. To the contrary, there is language in each case that harms them.
Discussing the cases in chronological order, Gilbert affirmed the denial of a petition to compel arbitration based on the determination that AAA rule R-8(a) was not in existence at the time of the parties' agreement, and thus could not apply. (Gilbert, supra, 174 Cal.App.4th at pp. 1187-1188.) Whatever the state of the record in Gilbert, the record here demonstrates that the factual underpinning of Gilbert is not applicable here, not in light of the evidence here that rule R-8(a) was in fact in the AAA rules in 1999. In short, Gilbert was based on a fact—perhaps more accurately a mistake of fact—not present here.
Despite this, plaintiffs continue to assert that "The AAA rules in existence as of July 1, 1999 did not provide that the arbitrator had jurisdiction to determine jurisdiction over the case. [¶] [']At the time the agreement was signed in 1998, and at the time Prince Properties became a member in 1999, the American Arbitration Association had no rule providing that arbitrators had jurisdiction to rule on their own jurisdiction. However, in September 2000, American Arbitration Association adopted a new rule, R-8(a), that provided arbitrators could rule on their own jurisdiction.['] Gilbert Street Developers, LLC v. La Quinta Homes, LLC [(2009)] 174 Cal.App.4th 1185, 1187."
Beckstoffer's reply brief calls plaintiffs on this, saying, "Plaintiffs' justification of the lower court's decision to decide arbitrability is a bluff. It is based on a misstatement of the record. Plaintiffs assert that the AAA rule authorizing arbitrators to determine the scope of an arbitration clause did not exist when plaintiffs and defendant signed their lease. The record contradicts their claim. The rule did exist at that time; plaintiffs know the rule existed; and it is disconcerting for them to represent otherwise to the Court." We agree with this criticism, in light of the record here. Specifically:
Counsel for Beckstoffer filed a declaration, not objected to by plaintiffs, that provided in pertinent part as follows: "On January 13, 2017, I telephoned Julie Collins, Customer Service Supervisor at the American Arbitration Association, and asked her for copies of the AAA Commercial Arbitration Rules which were in effect on January 1, 1999. I also asked for copies of the AAA Commercial Arbitration Rules that took effect on September 1, 2000. Ms. Collins e-mailed me copies of both versions within a half hour."
Those rules were in fact attached to counsel's declaration, entitled "Commercial Dispute Resolution Procedures (Including Mediation and Arbitration Rules)," with the first version: "As Amended and Effective on January 1, 1999."
In any event, language in Gilbert undermines plaintiffs' position here. Referring to Rodriguez and Dream Theater, the Gilbert court emphasized that rule R-8(a) existed when the contracts in those cases were signed (Gilbert, supra, 174 Cal.App.4th at p. 1193): "At least in those cases," the court noted, "the parties could go look up the AAA rules to which they were agreeing beforehand, and see that, yes, they were conferring on arbitrators the power to decide if a dispute was arbitrable in the first place."
Ajamian, supra, 203 Cal.App.4th 771, the case from our district heavily relied on by the trial court, is cited by plaintiffs for the proposition that the mere incorporation of AAA rules does not constitute clear and unmistakable evidence of the parties' intent to arbitrate arbitrability. Ajamian says no such thing.
Ajamian has an exhaustive—and comprehensive—discussion of various issues related to arbitration, including the issue of "Who Should Decide Whether the Arbitration Agreement Is Unconscionable?" (Ajamian, supra, 203 Cal.App.4th at p. 781.) And, the court concludes, there it should be the trial court. Under the subheading, "Delegation Under AAA Rules," the court began as follows: "Appellants next contend there was clear and unmistakable evidence of the parties' intent to arbitrate the enforceability of the arbitration provision because the Employment Agreement specified that the arbitration could proceed according to the rules of the AAA, and those rules state that the arbitrator has the power to determine issues of his or her own jurisdiction. Appellants' argument is unpersuasive, at least under the circumstances of this case." (Id. at p. 788, italics added.) "[T]his case," of course, involved unconscionability, which is not the issue here.
Continuing on with its discussion of "Delegation Under AAA Rules," Ajamian observed that "Some courts have, in fact, held that a reference to the rules of arbitration services, which rules permit the arbitrator to determine issues of his or her jurisdiction, constitutes clear and unmistakable evidence that the parties intended to delegate the issue to the arbitrators." (Ajamian, supra, 203 Cal.App.4th at p. 788.) The next page observed that "Even California cases have reached a similar conclusion, albeit not with respect to a claim that an arbitration clause was unconscionable, and not as to an arbitration clause in an employment agreement," going on to cite and discuss Rodriguez and Dream Theater. (Ajamian, at p. 789.) And so Ajamian concluded, in language that could apply here: "In our view, while the incorporation of AAA rules into an agreement might be sufficient indication of the parties' intent in other contexts, we seriously question how it provides clear and unmistakable evidence that an employer and an employee intended to submit the issue of the unconscionability of the arbitration provision to the arbitrator, as opposed to the court. There are many reasons for stating that the arbitration will proceed by particular rules, and doing so does not indicate that the parties' motivation was to announce who would decide threshold issues of enforceability." (Id. at p. 790.)
The Trial Court's Ruling on Waiver Is Supported
As noted, plaintiffs argued below that Beckstoffer waived any right to arbitration, based on its conduct in the litigation before filing the petition to compel arbitration. Plaintiffs' position is essentially based on the facts that Beckstoffer filed a demurrer; that for some eight months the parties engaged in some discovery; and that each filed case management statements and appeared for case management with no mention of arbitration.
As also noted, the trial court ruled against plaintiffs, finding no waiver, a ruling plaintiffs attack here. To no avail.
In the leading case of St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187 (St. Agnes), the Supreme Court discussed the issue at length, beginning with this: California law "reflects a strong policy favoring arbitration agreements and requires close judicial scrutiny of waiver claims. [Citation.] . . . waivers are not to be lightly inferred and the party seeking to establish a waiver bears a heavy burden of proof. [Citations.]" And "any doubts regarding a waiver allegation should be resolved in favor of arbitration." (Id. at p. 1195.) And the court continued, "Generally, the determination of waiver is a question of fact, and the trial court's finding, if supported by sufficient evidence, is binding on the appellate court." (Id. at p. 1196.) The court noted, however, that when " 'the facts are undisputed and only one inference may reasonably be drawn, the issue is one of law and the reviewing court is not bound by the trial court's ruling.' " (Ibid.; see also Hoover v. American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1202.)
More recently, cases have confirmed that we " 'may not reverse the trial court's finding unless the record as a matter of law compels' " a contrary finding. (Zamora v. Lehman (2010) 186 Cal.App.4th 1, 12; accord, Lewis v. Fletcher Jones Motor Cars, Inc. (2012) 205 Cal.App.4th 436, 443; Adolph v. Coastal Auto Sales, Inc. (2010) 184 Cal.App.4th 1443, 1449-1450.)
Plaintiffs do not argue that the facts are undisputed, but even if they did, the inferences to be drawn from those facts certainly are not. The trial court's finding of no waiver is supported by substantial evidence.
It is generally recognized that there are six factors to be considered when assessing a waiver claim (St. Agnes, supra, 31 Cal.4th at p. 1196; Zamora v. Lehman, supra, 186 Cal.App.4th at p. 13; Sobremonte v. Superior Court (1998) 61 Cal.App.4th 980, 992), the most significant of which is whether plaintiffs were " ' " 'affected, misled, or prejudiced' " ' " by Beckstoffer's delay in filing its petition. (St. Agnes, at p. 1196; Sobremonte v. Superior Court, supra, 61 Cal.App.4th at p. 992.) As St. Agnes noted, under federal law, the presence or absence of prejudice is determinative of the waiver issue, and under California law, "prejudice also is critical in waiver determinations." (St. Agnes, at p. 1203.) It explained: "[C]ourts assess prejudice with the recognition that California's arbitration statutes reflect ' "a strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution" ' and are intended ' "to encourage persons who wish to avoid delays incident to a civil action to obtain an adjustment of their differences by a tribunal of their own choosing." ' [Citation.] 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. [¶] 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]." (St. Agnes, at p. 1204.) None of these factors is present here.
In light of our conclusion, we need not weigh in on an issue to which the parties devote much of their briefing, whether the arbitration provision here is narrow or broad.
DISPOSITION
The order is reversed and remanded for further proceedings consistent with this opinion. Beckstoffer shall recover its costs on appeal.
/s/_________
Richman, Acting P.J. We concur: /s/_________
Stewart, J. /s/_________
Miller, J.