Opinion
E069279
06-14-2018
SUNLAND COMMUNITIES, LLC. et al., Plaintiffs and Appellants, v. TOM DODSON & ASSOCIATES, Defendant and Respondent.
Samuels, Green & Steel, Philip W. Green, Anat Pieter and Sabrina Beg for Sunland and Appellants. Koenig Jacobsen, Randall F. Koenig, Wilfred A. Llaurado and Kenneth A. Ohashi for Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super.Ct.No. CIVDS1711355) OPINION APPEAL from the Superior Court of San Bernardino County. Brian S. McCarville, Judge. Affirmed. Samuels, Green & Steel, Philip W. Green, Anat Pieter and Sabrina Beg for Sunland and Appellants. Koenig Jacobsen, Randall F. Koenig, Wilfred A. Llaurado and Kenneth A. Ohashi for Defendant and Respondent.
Plaintiffs and appellants Sunland Communities, LLC and Greenspot Corridor, LLC (collectively, Sunland Defendants) appeal the denial of their petition to compel arbitration and request for attorney fees (Petition). Sunland Defendants were the developers of a residential planned development called the Mediterra Project (Project) in the City of Highland (City). Sunland Defendants hired respondent and defendant Tom Dodson & Associates (Dodson), an environmental consulting firm, to prepare documents for the Project that complied with the California Environmental Quality Act (CEQA). The parties entered into a written agreement for Dodson's services (Agreement). The Project was approved by the City. Thereafter, a petition for peremptory writ of mandate was filed by the Coalition to Protect Highland's Heritage (Coalition) pursuant to Code of Civil Procedure sections 1085 and 1094.5, and Public Resource Code section 21000 in case No. CIVDS1604787 (Writ) against the City and named Sunland Defendants as real parties in interest. The Writ was based on the City's approval of the Project relying on the CEQA documents prepared by Dodson.
The Petition was brought to compel arbitration on the issue of whether Dodson had to defend and indemnify Sunland Defendants in the Writ action based on the language of the Agreement. The trial court denied the Petition and Sunland Defendants have appealed the denial of the Petition.
FACTUAL AND PROCEDURAL HISTORY
A. PETITION TO COMPEL ARBITRATION
On June 14, 2017, Sunland Defendants filed their Petition. They alleged there was a written agreement between Sunland Defendants and Dodson, which included an arbitration clause for disputes between the parties. They also sought reimbursement of $10,185 in attorney fees and costs incurred to file the Petition.
On May 28, 2014, Sunland Defendants entered into the Agreement with Dodson in which, among other things, Dodson assumed responsibility for "[p]reparation of environmental documentation for Compliance with the California Environmental Quality Act (CEQA) for the reference project in the City of Highland." (Bold and underscore omitted.) The Agreement included a "broad" indemnification clause, which required Dodson to defend Sunland Defendants "for any damages, losses, claims, [and] attorneys' fees" that arise out of or are connected with any act or omission under the Agreement. Based on this language, Dodson was required to provide Sunland Defendants with a defense and indemnification of the Writ.
Additionally, the Agreement included an arbitration clause for any disputes between the parties arising under the Agreement. Sunland Defendants alleged that the Writ was seeking to have the City set aside various approvals concerning the Project because such approvals violated CEQA. The Writ alleged deficiencies in the City's actions, findings and conclusions, which were connected to the work performed by Dodson on the Project.
Sunland Defendants alleged that Dodson refused to indemnify them on the Agreement and the Petition sought to have the matter arbitrated. The Writ would not have conflicting rulings or issues because it would not determine whether Dodson had a duty to indemnify Sunland Defendants. The duty to indemnify existed regardless of the outcome of the Writ; resolution of the matter would only affect the damages recoverable by Sunland Defendants. Sunland Defendants sought that the court order Dodson to arbitrate the dispute existing under the Agreement and to pay attorney fees and costs in the amount of $10,185.
The Agreement was attached to the Petition. It included an indemnification clause that provided Dodson shall "indemnify, protect, defend, save and hold" Sunland Defendants "harmless from and against all liability, damage, loss, claims, demands, actions and expenses of any nature whatsoever, including, but not limited to, attorney's fees, which arise out of or are connected with, or are claimed to arise out of or be connected with: (i) any act or omission of an Indemnitor; (ii) the willful misconduct of the Indemnitor; (iii) the breach of any provision of this Agreement by an Indemnitor; or (iv) the failure of any Indemnitor to comply with the laws, statutes, ordinances or regulations of any governmental or quasi-governmental authority in effect at the time any such services is rendered, except to the extent such loss or damage is attributable to the negligent acts or omissions or willful misconduct of such Indemnitee."
The arbitration provision, which was not separately initialed by the parties, provided in pertinent part: "Any action, dispute, claim or controversy between the parties, whether sounding in contract, tort or otherwise ('Dispute' or 'Disputes'), shall be resolved by arbitration as set forth in this Section and shall include all Disputes arising out of or in connection with this Agreement and any related agreements or instruments and any transaction contemplated hereby. Such disputes shall be resolved by binding arbitration in accordance with Title 9 of the U.S. Code and the commercial Arbitration Rules of the American Arbitration Association ('AAA'). In the event of any inconsistency between such rules and these arbitration provisions, these provisions shall supersede such rules. . . . Except as otherwise provided, the arbitrator shall be selected in accordance with the Commercial Arbitration Rules of the AAA. Any arbitrator selected under this Section shall be knowledgeable in the subject matter of the Dispute. . . . The provisions of this Article shall survive any termination, amendment or expiration of the Agreement in which this section is contained, unless the parties otherwise expressly agree in writing. Should an action, dispute, claim or controversy be brought against Client and/or Consultant by a third party who is not bound by a binding arbitration provision similar to the arbitration provision contained herein, the terms of this Section shall not apply to such action, dispute, claim or controversy."
The Agreement included the scope of services to be provided by Dodson. This included preparation of documentation for compliance with CEQA for the Project. Dodson advised Sunland Defendants it would prepare an initial study (IS), which would lead to a mitigated negative declaration (MND). This would be submitted to the City for its approval.
Also attached to the Petition was the Writ filed by the Coalition. The respondent was the City. The Real Parties in Interest were Dodson, Calvary Chapel of San Bernardino and San Bernardino Valley Municipal District. The Writ sought to have approvals by the City with respect to the Project set aside. It was alleged that the City, in approving the Project, had violated CEQA. Reliance on the MND (prepared by Dodson) was improper because the Project would have significant environmental impacts on the area. The MND did not adequately evaluate the potential impacts of the Project and did not provide adequate and effective mitigation measures contrary to the requirements of State law. The City had approved the project on March 8, 2016, and March 22, 2016, over the objection of the Coalition.
Also attached to the Petition was a demand letter sent to Dodson that he provide Sunland Defendants with a full defense and indemnity with respect to the Writ. Sunland Defendants wanted Dodson to pay the costs and attorney fees of responding to the Writ. On April 12, 2017, Sunland Defendants sent a demand for arbitration and payment to the AAA. Sunland Defendants sought in the demand for arbitration that they be reimbursed for all attorney fees and costs already incurred in relation to defending the Writ, and to have Dodson assume the defense of the Writ. A letter from Dodson's counsel to Sunland Defendants dated May 15, 2017, provided that Dodson's asserted arbitration was improper because the Writ arose out of the same facts. as a pending lawsuit that had already been filed in the San Bernardino Superior Court. The matter regarding indemnification should be filed in the superior court. Further, the arbitration clause was defective because "arbitration of disputes" was not capitalized; there was no separate signature line for the provision in the Agreement; and no notice of the consequences of agreeing to the arbitration clause, including waiving the right to a jury trial. Moreover, there was no finding that Dodson had done anything wrong in the Writ action; accordingly, arbitration was premature. An email from counsel for Sunland Defendants responding to the letter by counsel for Dodson set forth Sunland Defendants' understanding that Dodson was refusing to arbitrate and Sunland Defendants planned to file the Petition.
B. OPPOSITION TO THE PETITION
Dodson filed opposition to the Petition. Dodson claimed the Petition should be denied to avoid inconsistent rulings in two separate forums. Code of Civil Procedure section 1281.29, subdivision (c) gave the trial court the power to order joinder of all parties into a single action when there is both an arbitration agreement and court action. This would avoid the possibility of conflicting rulings on common issues and facts.
Dodson also claimed that the Petition should be denied because the claims were not ripe. No facts regarding responsibility or liability on the part of Dodson had been established on the Writ. Sunland Defendants had opposed the Writ and the matter had yet to be heard. There may be no need for arbitration.
C. REPLY TO THE OPPOSITION
Sunland Defendants filed a reply to the opposition to the Petition on August 7, 2017. Initially, Sunland Defendants alleged the opposition was filed late and should be rejected. Further, even if considered, Dodson had failed to establish that there would be conflicting rulings on the Writ and the Petition. It noted Dodson was not a party to the Writ. Finally, the Writ did not seek damages, but sought to stop the Project. The Petition sought damages against Dodson under the Agreement. Consolidation of the cases in the superior court was not appropriate.
Sunland Defendants also contended that the issue of arbitration was ripe. The filing of the Writ triggered Dodson's liability under the indemnification clause of the Agreement. Sunland Defendants stated, "Given that the Agreement makes [Dodson] responsible to defend and indemnify regardless of the result of the CEQA Action—and it has failed to do so—a claim has been stated." Sunland Defendants should not be forced to wait to seek redress for the breach of the Agreement until the Writ was resolved. Sunland Defendants declared that their attorney fees and costs for filing the Petition should be paid by Dodson.
D. TRIAL COURT'S RULING
On August 15, 2017, the trial court heard the matter. It had reviewed the Petition and its exhibits, the opposition and the reply. The trial court began that it was not persuaded by the arguments by either side on the issues. It noted the Agreement and the scope of services clearly provided the work that Dodson was to do for Sunland Defendants.
The trial court had reviewed both the indemnification clause and the arbitration clause in the Agreement. It specifically quoted the last sentence of the arbitration clause, which referred to an action brought by a third party. The trial court noted that neither of the parties to the Writ—the Coalition and City—were parties to the Agreement between Dodson and Sunland Defendants. The trial court found, "As a result, the CEQA litigation can be viewed as a dispute or controversy, arising out of or in connection with a contract, and thus, [Sunland Defendants]' current claims against [Dodson] is not subject to the arbitration provision."
The trial court then addressed the Writ. The Writ was a CEQA action in which the superior court must "only determine whether the act or decision of a public agency in approving the project as defined under CEQA was supported by substantial evidence in light of the entire record." The trial court referred the parties to Public Resources Code section 21168. The trial court advised the parties, "[I]n the pending Coalition litigation, the issue is not whether the initial study prepared by [Dodson] was materially deficient, but whether the City's decision to approve the project on a mitigated negative declaration was improper because there is substantial evidence in the record of a fair argument that the project will result in significant environmental impacts."
The trial court found, "Accordingly, [Sunland Defendants'] claims in the current petition that [Dodson] is required to provide it with a defense and indemnification in the CEQA action is misplaced because . . . it presupposes that [Sunland Defendants'] claim is ripe. The application is denied." The trial court denied any consolidation of the instant matter and the Writ in superior court.
On August 21, 2017, Sunland Defendants filed their ex parte application to reverse the trial court's order denying the Petition. Sunland Defendants insisted the trial court improperly relied upon the last sentence of the arbitration clause in the Agreement.
The order denying the Petition was entered on August 22, 2017. Dodson was awarded attorney fees and costs in the amount of $19,542.52.
On November 30, 2017, the superior court granted the Writ in case No. CIVDS1604787 and required the City to undertake an EIR on the Project. The matter has been settled by the parties in superior court.
We grant the request for judicial notice of Sunland, of the minute order in the Writ action providing that the matter has been settled by the parties.
DISCUSSION
Sunland Defendants insist the trial court erred by denying the Petition. They contend that the interpretation of the arbitration clause was erroneous and the trial court erred by finding the issue was not ripe.
The FAA recognizes " ' "arbitration as a speedy and relatively inexpensive means of dispute resolution" ' " (Saint Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1204) and requires that agreements to arbitrate be rigorously enforced (Shearson/American Express, Inc. v. McMahon (1987) 482 U.S. 220, 226). "Code of Civil Procedure section 1281.2 requires a trial court to grant a petition to compel arbitration 'if [the court] determines that an agreement to arbitrate the controversy exists.' [Citation.] Accordingly, ' "when presented with a petition to compel arbitration the trial court's first task is to determine whether the parties have in fact agreed to arbitrate the dispute. [¶] . . ." [Citation.]' [Citations.] 'A party seeking to compel arbitration has the burden of proving the existence of a valid agreement to arbitrate. [Citations.] Once that burden is satisfied, the party opposing arbitration must prove by a preponderance of the evidence any defense to the petition.' " (Avery v. Integrated Healthcare Holdings, Inc. (2013) 218 Cal.App.4th 50, 59.)
The parties specifically contracted that FAA rules applied. Additionally, they contracted that the Agreement would be construed in accordance with the laws of the state in which the Project was located. As such, the procedural rules of California were also applicable. (Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 381, 394; Rodriguez v. American Technologies, Inc. (2006) 136 Cal.App.4th 1110, 1122 [FAA procedural rules applied as no other contract provision suggested California procedural rules applied].) --------
"The rules of contract interpretation employed under the FAA are the same as those used under [California law]. For example, under the FAA, courts interpret arbitration agreements using the plain meaning rule." (Valencia v. Smyth (2010) 185 Cal.App.4th 153, 176.) " '[E]ven when the [FAA] applies, interpretation of the arbitration agreement is governed by state law principles. . . . Under California law, ordinary rules of contract interpretation apply to arbitration agreements. . . . " 'The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties. . . . If contractual language is clear and explicit, it governs.' " ' " (Id. at p. 177.)
Here, the trial court's decision that the disagreement over indemnification was not subject to arbitration was based on its interpretation of the language of the arbitration clause. There was no extrinsic evidence presented to help with the interpretation of the Agreement. As such, we review the claim de novo. (Buckhorn v. St. Jude Heritage Medical Group (2004) 121 Cal.App.4th 1401, 1406.) As such, "Ordinary rules of contract interpretation apply to the arbitration clause." (Maggio v. Windward Capital Management Co. (2000) 80 Cal.App.4th 1210, 1214, fn. omitted.)
"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.' " (Victoria v. Superior Court (1985) 40 Cal.3d 734, 744.) " 'There is no public policy favoring arbitration of disputes which the parties have not agreed to arbitrate.' " (Bono v. David (2007) 147 Cal.App.4th 1055, 1063; see also Gravillis v. Coldwell Banker Residential Brokerage Co. (2006) 143 Cal.App.4th 761, 772 ["The policy in favor of arbitration does not apply when the contract cannot be interpreted in favor of arbitration"].)
By looking at the entirety of the arbitration clause, the interpretation by the trial court here was appropriate. The arbitration clause begins, "Any action, dispute, claim or controversy between the parties, whether sounding in contract, tort or otherwise . . . , shall be resolved by arbitration as set forth in this Section and shall include all Disputes arising out of or in connection with this Agreement and any related agreements or instruments and any transaction contemplated hereby." (Italics added.) The clause concludes with the operative language referred to by the trial court: "Should an action, dispute, claim or controversy be brought against [Sunland Defendants] and/or [Dodson] by a third party who is not bound by a binding arbitration provision similar to the arbitration provision contained herein, the terms of this Section shall not apply to such action, dispute, claim or controversy." (Italics added.)
This provision makes clear that any action, dispute, claim or controversy between the parties is subject to arbitration. However, the last sentence, which is broadly worded, exempts from arbitration any "action, dispute, claim or controversy" brought by a third party against either Sunland Defendants or Dodson. Sunland Defendants' insistence that Dodson must defend Sunland Defendants in the Writ action brought by a third party is inextricably intertwined with the "claim" or "controversy" in the Writ action. Based on the contractual language, although Dodson may have to indemnify Sunland Defendants, such determination is not subject to arbitration because it is in relation to the claim and controversy brought by a third party.
Sunland Defendants argue on appeal "Simply put, the term "such" action in this sentence can only refer to the third party lawsuit, not to the action brought by the parties to the Agreement." They insist it is the only logical interpretation of the arbitration provision. Focusing only on "such action" does not give proper meaning to the entirety of the clause. If the phrase was only "such action" we may agree with Sunland Defendants. However, the phrase includes "dispute, claim or controversy." This broadly worded exception applies to the "claim" or "controversy" involved in the action filed by the third party, e.g. the Writ. This is further supported by the first sentence, which specifically refers to "[a]ny action, dispute, claim or controversy between the parties, . . ." (Italics added.) The introductory sentence to the arbitration clause refers to actions between the parties, and the last sentence refers to actions involving third parties brought against Sunland Defendants or Dodson, which are not subject to arbitration.
Sunland Defendants also contend that this interpretation violates Code of Civil Procedure section 1281.2, subdivision (c), which provides that arbitration must proceed unless "a party 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." Sunland Defendants insist there was no possibility of conflicting rules on a common issue of law or fact. However, in the Agreement, the parties agreed that "[i]n the event of any inconsistency between such rules and these arbitration provisions, these provisions shall supersede such rules." Accordingly, even if the Agreement conflicted with the FAA rules, or Code of Civil Procedure section 1281.2, the language of the arbitration provision is to be followed, not the rules. Sunland Defendants are bound by the wording in the Agreement, which does not favor arbitration in cases involving third parties.
Finally, in the trial court, Sunland Defendants had argued that the trial court's interpretation "may be well taken" but contended it was not entirely clear that the Writ was brought against Sunland Defendants; rather, the defendant was the City. Sunland Defendants do not revive this issue on appeal.
Based on the contractual language, Sunland Defendants and Dodson agreed that actions, disputes, controversies and claims between them would be resolved by arbitration. However, if the action, dispute, controversy or claim involved a third party, arbitration would not be mandated. As such, the trial court properly denied the Petition.
DISPOSITION
The trial court's order is affirmed. Respondent is awarded costs on appeal.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
MILLER
Acting P. J. We concur: CODRINGTON
J. FIELDS
J.