Opinion
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of San Diego County No. 37-2008-00063532-CU-BC-EC, Eddie C. Sturgeon, Judge.
O'ROURKE, J.
In this action involving a real estate purchase agreement, Kenneth Boyle appeals from an order denying his motions to compel arbitration and to stay proceedings. He contends: (1) arbitration was mandated under a validly executed arbitration clause in the purchase agreement; (2) the trial court erroneously declined to conduct an evidentiary hearing on whether the plaintiffs knew their contract included an arbitration clause; and (3) certain claims against the codefendants were unrelated to the subject of the parties' dispute. We reverse the order and remand with directions.
The underlying dispute concerns the purchase of a single family residence by agreement executed by respondent-buyers Jon Muhoberac and Joanne Conway from Boyle. Respondents sued Boyle alleging that Boyle was aware of previous flooding in the house but failed to adequately disclose that fact to them. The complaint set forth causes of action against Boyle for: (1) breach of contract; (2) negligent misrepresentation; (3) fraudulent concealment; (4) fraud - intentional misrepresentation; (5) breach of implied covenant of good faith and fair dealing; and (6) breach of fiduciary duty and negligence. Respondents also included a seventh cause of action, for negligence, against Boyle and defendants Steven Bilson and his company, ReWater Systems, Inc., for their previous repairs of flood-related damages to the house.
The complaint states, "In approximately March of 2006, Plaintiffs submitted a written offer to purchase the property from Defendant Boyle. The purchase offer was approximately $600,000 and required a $6,000 deposit. Defendant Boyle submitted a counter offer increasing the deposit amount to $10,000, and requesting a series of other items. Plaintiffs agreed to the terms of Defendant Boyle's counter offer, with exception of the increased deposit amount — which remained at $6,000. A true and correct copy of the documents constituting this transaction are attached hereto as Exhibit 'A.' "
Boyle moved to compel arbitration of the dispute based on the purchase agreement's arbitration clause, which stated, "Buyer and Seller 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." Boyle also moved to stay the trial court proceedings pending arbitration under Code of Civil Procedure sections 1281.1, 1281.7, and 1281.4.
Boyle further stated in his moving papers that the parties began but abandoned implementation of the arbitration clause. Specifically, "On August 29, 2007, BOYLE participated in mediation under the Agreement. After this unsuccessful mediation, BOYLE willingly agreed to participate in arbitration as required under the Agreement. The parties agreed to attend arbitration in January, until BUYER'S [sic] deferred it until February. Then, the parties agreed and confirmed to a March 13, 2008 arbitration date, but shortly before that date, BUYERS again cancelled the arbitration... and instead, on April 29, 2008, filed this Complaint."
All statutory references are to the Code of Civil Procedure unless otherwise stated.
Respondents opposed the motion to compel, arguing that under section 1281.2 subdivision (b), grounds existed to revoke the agreement. They conceded they had "initialed the operative arbitration clause contained within the residential purchasing agreement," but argued they "could not have known that Boyle was concealing a significant and ongoing water intrusion problem." Respondents also argued an order to compel arbitration would impact the rights of codefendants because "Defendants STEVE BILSON and REWATER SYSTEMS, INC. have knowledge and information related to the very gravamen of the instant dispute between [respondents] and Boyle. [¶] Further, in determining the negligence of defendants arguing that the rights of defendants Bilson and REWATER SYSTEMS, INC., the Court will have to determine the same issues of fact and law that exist between [respondents] and Boyle." Respondents relied on the same arguments to oppose the motion to stay, and added that under section 1281.4, the trial court could not stay proceedings unless it ordered arbitration.
Respondents' opposition papers elaborated on the grounds for revocation: "There is no doubt that grounds exist to revoke the agreement between Plaintiffs and Boyle. Boyle and his agent... fraudulently induced [them] to enter into the agreement by committing the following acts: (1) instructing neighbors not to mention or discuss the 'water problem' while prospective buyers [respondents] were present and looking at the home; (2) covering up deteriorated cinderblock with epoxy type substance to blend with existing undamaged wall; (3) painting over areas damaged by water intrusion to hide deteriorated wall segments and cover up evidence of water flowing through the walls; (4) painting the floor of the garage to cover up evidence of water flowing from the wall out of the garage; (5) painting the cement driveway to cover up evidence of water flowing out of the garage and down the driveway; (6) intentionally failing to disclose recurrent water flow through the cinderblock wall of the garage; (7) intentionally failing to disclose the existence of the recurrent flooding in the basement/bedroom conversion; and (8) intentionally misleading [respondents] by telling them that the water problem was caused by overwatering when Boyle knew otherwise."
Respondents each submitted declarations stating, "I signed the Residential Purchase Agreement at issue in this matter, including the arbitration clause.... [¶] I would not have initialed the arbitration clause if the preexisting and ongoing problems with the home were revealed to me. Because of defendant Kenneth Boyle's conduct and representations, which were false, I was induced to initial the arbitration provision."
The trial court denied the motions to compel arbitration and stay the proceedings, ruling that under Rosenthal v. Great Western Financial Corp. (1996) 14 Cal.4th 394, 415(Rosenthal), "A party's apparent consent to a written contract is negated by fraud in the exception [sic]. There is simply no arbitration agreement to be enforced."
Boyle filed this appeal under sections 1294, subdivision (a) and 1294.2.
DISCUSSION
I.
Respondents acknowledged in their declarations that they signed the purchase agreement and separately initialed the arbitration agreement, which states, "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 arbitration clause is sufficiently broad to encompass the allegations in respondents' complaint, and respondents do not contend otherwise. Therefore, the sole question for the trial court was whether respondents had met their burden of proving that grounds existed to refuse enforcement of the arbitration clause under section 1281.2. The trial court relied on Rosenthal, 14 Cal.4th 394,and answered the question in the affirmative. We agree with the parties and amicus that Rosenthal controls this case, but conclude the trial court misapplied it and therefore erred in finding that respondents alleged grounds to revoke the arbitration clause in the purchase agreement.
We review the scope of an arbitration provision de novo when, as here, that interpretation does not depend on conflicting extrinsic evidence. (Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 684.) The arbitration clause specifically excludes from mediation and arbitration: (1) foreclosures or other actions or proceeding to enforce a deed of trust, mortgage or installment land sale contract; (2) unlawful detainer actions; (3) the filing or enforcement of a mechanic's lien; and (4) any matter falling in the jurisdiction of the probate, small claims or bankruptcy courts. None of these exclusions apply here.
We granted the application of California Association of Realtors to file an amicus curiae brief on behalf of appellant and requested additional briefing from the parties.
Section 1281.2 states: "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... (b) [g]rounds exist for the revocation of the agreement." (Accord, Rowe v. Exline (2007) 153 Cal.App.4th 1276, 1282 ["Section 1281.2 generally mandates arbitration of all claims that are subject to an enforceable arbitration agreement."].) "Because the existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance of the evidence. If the party opposing the petition raises a defense to enforcement — either fraud in the execution voiding the agreement, or a statutory defense of waiver or revocation [citation] — that party bears the burden of producing evidence of, and proving by a preponderance of the evidence, any fact necessary to the defense." (Rosenthal, supra, 14 Cal.4th 394, 415.)
"The scope of arbitration is, of course, a matter of agreement between the parties, and if they choose to limit that scope so as to exclude questions of fraud in the inducement of the contract that choice must be respected.... [D]oubts concerning the scope of arbitrable issues are to be resolved in favor of arbitration.... [I]n the absence of indication of contrary intent, and where the arbitration clause is reasonably susceptible of such an interpretation, claims of fraud in the inducement of the contract (as distinguished from claims of fraud directed to the arbitration clause itself) will be deemed subject to arbitration." (Ericksen Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street. (1983) 35 Cal.3d 312, 323.) Arbitration should not be denied or postponed upon the mere cry of fraud in the inducement, as this would permit the frustration of the very purposes sought to be achieved by the agreement to arbitrate, i.e., a speedy and relatively inexpensive trial. (Rowland v. Paine Webber Inc. (1992) 4 Cal.App.4th 279, disapproved on another ground in Rosenthal, supra, 14 cal.4th at pp. 415-416.)
Respondents supported their allegations of fraud by pointing to Boyle's asserted concealment of "ongoing and existing problems with the home." Because these allegations relate to the underlying purchase agreement and were not excluded from the scope of the arbitration clause, the allegations are to be resolved in the arbitral forum and not in the trial court. (Ericksen, supra, 35 Cal.3d at p. 323.)
Respondents contend in their opening brief, "[T]here was no factual dispute on the critical issue of fraud in the inducement; indeed, the only evidence relevant to the point was in the form of declarations from both of the Respondents to the effect that: 'Because of [Boyle's] conduct and representation, which were false, [respondents] were induced to initial the arbitration provision.' " (Emphasis in original.) We conclude the declarations did not provide evidence of fraud. For example, they did not state any facts to show that Boyle concealed the arbitration clause or made "any affirmative misrepresentations regarding the existence or meaning of an arbitration clause." (Rosenthal, supra, 14 Cal.4th at p. 426.) The declarations merely state a legal conclusion relating to inducement of fraud, which does not substitute for factual evidence, which was nonexistent. (In re Marriage of Heggie (2002) 99 Cal.App.4th 28, 30, fn. 3 ["The proper place for argument is in points and authorities, not declarations."] Moreover, the parties' negotiations for the residential purchase belies the claim of fraud. The respondents initialed the arbitration clause included in their initial offer on a California Association of Realtors form dated March 20, 2006. This arbitration provision was never contested or altered in the counteroffers dated March 21 and March 22, 2006. Accordingly, no grounds existed to deny arbitration under section 1281.2 sudivision (b).
II.
Respondents argue that we may affirm the judgment under section 1281.2 subdivision (c) because in their opposition to the motion to compel arbitration they contended the seventh cause of action alleged negligence against both Boyle and third party defendants Bilson and ReWater Systems, Inc. The trial court did not address this contention. Rather, the court relied exclusively on section 1281.2, subdivision (b).
Under Section 1281.2, subdivision (c) a trial court may deny arbitration if "[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." Upon making a finding regarding third parties, "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." (Ibid.) We review the trial court's decision for an abuse of discretion. (Henry v. Alcove Investment, Inc. (1991) 233 Cal.App.3d 94, 101.)
The California Supreme Court has held that, " '[s]ection 1281.2, subd[ivision] (c) is not a provision designed to limit the rights of parties who choose to arbitrate or otherwise to discourage the use of arbitration. Rather, it is part of California's statutory scheme designed to enforce the parties' arbitration agreements.... [It] addresses the peculiar situation that arises when a controversy also affects claims by or against other parties not bound by the arbitration agreement.' " (Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 393.)
Here, the seventh cause of action is the only one that comes within the purview of section 1281.2, subdivision (c). Accordingly, we conclude the trial court should have proceeded as outlined in RN Solutions, Inc. v. Catholic Healthcare West (2008) 165 Cal.App.4th 1511, 1522 (RN Solutions): "[T]he [trial] court should have first determined the arbitrable and nonarbitrable claims alleged in the complaint, ordered all of the arbitrable claims to arbitration, and stayed all such claims pending arbitration. The court would then have had discretion to delay its order to arbitrate the arbitrable claims under section 1281.2, subdivision (c), only if it first determined that the adjudication of the nonarbitrable claims in court might make the arbitration unnecessary. Absent that determination, the arbitrable claims would proceed to arbitration and the nonarbitrable claims would continue to be litigated in court unless a party moved successfully pursuant to section 1281.4, to stay further litigation of such nonarbitrable claims." (RN Solutions, at pp. 1521-1522.)
"When a trial court 'has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before' the court, it 'shall, upon motion of a party... stay the action or proceeding until the arbitration is had in accordance with the order to arbitrate.' (§ 1281.4.) 'It is irrelevant under the statute whether the movant is a party to the arbitration agreement.' [Citation.] Any party to a judicial proceeding 'is entitled to a stay of those proceedings whenever (1) the arbitration of a controversy has been ordered, and (2) that controversy is also an issue involved in the pending judicial action.' [Citation.] 'The purpose of the statutory stay is to protect the jurisdiction of the arbitrator by preserving the status quo until arbitration is resolved.' [Citation.] 'In the absence of a stay, the continuation of the proceedings in the trial court disrupts the arbitration proceedings and can render them ineffective.' " (Heritage Provider Network, Inc. v. Superior Court (2008) 158 Cal.App.4th 1146, 1152.)
Based on the above analysis, there are no statutory grounds for denying arbitration of the first through sixth causes of action. In light of our disposition directing the trial court to issue a new order compelling arbitration of those claims, any party to the judicial proceedings will have an opportunity to file a motion to stay the seventh cause of action under section 1281.4. We express no opinion as to whether that claim should be stayed, but leave that determination to the trial court.
DISPOSITION
The order is reversed. The trial court is directed to vacate its order and enter an order granting Boyle's motion to compel arbitration of the first through sixth causes of action of Jon Muhoberac and Joanne Conway's complaint. Kenneth Boyle is awarded costs on appeal.
WE CONCUR: HALLER, Acting P. J., McDONALD, J.