Adajar v. Rwr Homes, Inc.

• Decision Date: 05 February 2008
• Docket Number: No. D049936.,D049936.
• Citation: 160 Cal.App.4th 563,73 Cal.Rptr.3d 17
• Court: California Court of Appeals Court of Appeals
• Parties: Primel ADAJAR et al., Plaintiffs and Respondents, v. RWR HOMES, INC., et al., Defendants and Appellants.

73 Cal.Rptr.3d 17

160 Cal.App.4th 563

Primel ADAJAR et al., Plaintiffs and Respondents, v. RWR HOMES, INC., et al., Defendants and Appellants.

No. D049936.

Court of Appeal, Fourth District, Division 1.

February 5, 2008.

Fred Matthew Adelman, Mark J. Masterson, Milstein, Adelman & Kreger, Pamela E. Dunn, Pasadena, Dunn Koes, for Plaintiffs and Respondents.

Teresa D. Beck, Jason A. Specht, San Diego, Lincoln Gustafson & Cercos, Bruce M. Thornton, Carlos V. Yguico, Los Angeles, Gemmill, Thornton & Baldridge, for Defendants and Appellants.

McCONNELL, P.J.

In this construction defect case, defendants RWR Homes, Inc. and related entities (collectively RWR)¹ appeal an order denying their motion to compel arbitration and stay the litigation as to certain plaintiffs. RWR contends the order violates federal and state laws that favor arbitration. RWR, however, did not submit the arbitration agreement that was allegedly incorporated by reference in the plaintiffs' applications for warranty protection. Because RWR did not satisfy its burden of establishing the existence of an arbitration contract, we affirm the order.

FACTUAL AND PROCEDURAL BACKGROUND

RWR built the single-family tract homes at issue in this action. In March 2006 the owners of 83 of the homes sued RWR for strict products liability, breach of implied and express warranties, breach of contract and negligence. The first amended complaint filed in May 2006 added the owners of an additional nine homes as plaintiffs. The amended pleading alleges various defects pertaining to soil compaction and movement; drainage, landscaping and irrigation; fencing and retaining walls; waterproofing; roofs; windows and doors; framing, drywall, siding and stucco; plumbing and electrical; sheet metal; painting; tubs and showers; and fireplaces and chimneys.

After answering the first amended complaint, RWR moved to compel arbitration and stay the action as to the claims of the owners of 28 of the homes. RWR argued these owners signed written arbitration agreements governed by the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.).

RWR submitted a declaration by Stephen Graham, a vice-president with Home Buyers Warranty Corporation (HBW), a Colorado entity authorized to do business in California. The declaration explained that RWR participated in the HBW program, which allowed it, on the payment of fees and HBW's approval, to enroll homes in a nationwide insured warranty program, under which it could issue warranties to new home buyers at the close of escrow at no cost to them. The builder's warranty obligations are insured by a warranty insurer selected by HBW. According to Graham's declaration, HBW warranties "typically provide" that the homes will be free of workmanship defects for one year, free of systems defects such as plumbing, electrical, mechanical for two years, and free of structural defects for 10 years.

RWR also submitted copies of standardform applications for HBW warranties signed by owners of the 28 homes. The applications state:

"BUYER'S ACKNOWLEDGEMENT AND CONSENT

"Your Builder is applying to enroll your home in the 2-10 HBW-insured warranty program. By signing below, you acknowledge that you have viewed and received the video `Warranty Teamwork: You, Your Builder & HBW,' you have read a sample copy of the Warranty Booklet, and CONSENT TO THE TERMS OF THESE DOCUMENTS INCLUDING THE BINDING ARBITRATION PROVISION contained herein. You further understand that when the warranty is issued on your new home, it is an Express Limited Warranty and that all claims and liabilities are limited to and by the terms and conditions of the Express Limited Warranty

as stated in the 2-10 HBW Booklet. IF YOU, THE BUYER(S), HAVE NOT RECEIVED A CERTIFICATE OF WARRANTY COVERAGE AND A WARRANTY BOOKLET FROM HBW WITHIN THIRTY (30) DAYS AFTER CLOSING, THEN NO WARRANTY EXISTS ON THE HOME AT THIS ADDRESS."

RWR did not submit any copy of the video or the "sample copy of the Warranty Booklet" (sample warranty booklet) that owners attested to having read before signing the above paragraph. Rather, RWR submitted copies of two versions of an HBW warranty booklet that HBW issued to buyers after the close of escrow. One version is dated January 1, 2001 (2001 version), and the other version is dated October 1, 2002 (2002 version). RWR also submitted copies of Certificates of Warranty Insurance that notified the owners their homes were enrolled in the warranty program and specified whether they received the 2001 or the 2002 warranty booklet.

Both the 2001 and 2002 versions of the warranty booklet contain a clause requiring binding arbitration under the rules of Construction Arbitration Services, Inc. (CAS) of any disputes between RWR and the owner, whether or not they arise from the warranty, and acknowledging the arbitration agreement involves interstate commerce and is subject to the FAA. The two versions of the arbitration provision differ somewhat, however, as the 2001 booklet provides "[n]o arbitration proceeding shall involve more than one single-family detached dwelling," and the 2002 version does not include that restriction. Further, the 2001 version gives HBW the discretion to choose an arbitrator other than CAS, and the 2002 version requires CAS arbitration.

In opposition to the motion, the plaintiffs argued, among other things, that RWR was "attempting to compel arbitration based upon consent to an arbitration provision not provided to this court or Plaintiffs' counsel. The terms of the arbitration provision in the [sample warranty booklet] are unknown. [RWR] cannot establish to what provision consent was given." Additionally, the owners of most of the 28 homes submitted declarations that stated they did not receive a video pertaining to the warranty or a copy of the sample warranty booklet.

After a hearing, the court denied the motion on the grounds that (1) even if RWR were a party to the plaintiffs' arrangement with HBW, arbitration is unavailable because the plaintiffs' claims are not for relief under the warranties; and (2) the only arbitration agreement is set forth in the application for warranty protection, and the application is "procedurally unconscionable because there is no specific acknowledgement of the arbitration clause ... and it is not separately identified in the paragraph," and "substantively unconscionable because none of the terms of the arbitration are set forth ..., nor is there any information regarding Plaintiffs' waiver of a right to jury trial."

DISCUSSION

I

When there is no conflicting extrinsic evidence, as here, we independently review the denial of a motion to compel arbitration. (Maggio v. Windward Capital Management Co. (2000) 80 Cal.App.4th 1210, 1214, 96 Cal.Rptr.2d 168.)

II

A

RWR contends the court's order violates the FAA, which "broadly provides that a written provision in a `contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.'" (EEOC v. Waffle House, Inc. (2002) 534 U.S. 279, 289, 122 S.Ct. 754, 151 L.Ed.2d 755, citing 9 U.S.C. § 2.) The FAA "incorporates a strong federal policy of enforcing arbitration agreements" (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 96, 99 Cal.Rptr.2d 745, 6 P.3d 669), and "generally preempts state legislation that would restrict the enforcement of arbitration agreements [citation]." (Id. at p. 98, 99 Cal.Rptr.2d 745, 6 P.3d 669.)

RWR also cites the California Arbitration Act (CAA) (Code Civ. Proc, § 1280 et seq.), through which the "`Legislature has expressed a "strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution." [Citation.] Consequently, courts will "`indulge every intendment to give effect to such proceedings.'" [Citations.] ... "The policy of law in recognizing arbitration agreements and in providing by statute for their enforcement is 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.]'" (Vandenberg v. Superior Court (1999) 21 Cal.4th 815, 830, 88 Cal.Rptr.2d 366, 982 P.2d 229.)

Under both federal and state law, however, arbitration cannot be compelled absent an arbitration agreement. "As the United States Supreme Court has stated, `The "liberal federal policy favoring arbitration agreements," [citation] ... is at bottom a policy guaranteeing the enforcement of private contractual arrangements.' [Citations.] Similarly, the California Supreme Court has stated [the] '"policy favoring arbitration cannot displace the necessity for a voluntary agreement to arbitrate."` [Citation.] `Although "the 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.]'" (Badie v. Bank of America (1998) 67 Cal.App.4th 779, 788, 79 Cal. Rptr.2d 273.) "Absent a clear agreement to submit disputes to arbitration, courts will not infer that the right to a jury trial has been waived." (Knight et al., Cal. Practice Guide: Alternative Dispute Resolution (The Rutter Group 2007) ¶ 5:8.3, p. 5-5 (hereafter Knight), citing Titan Group, Inc. v. Sonoma Valley County Sanitation Dist. (1985) 164 Cal.App.3d 1122, 1129, 211 Cal.Rptr. 62.)

RWR asserts the court erred by finding the applications for HBW warranties are insufficient evidence of the plaintiffs' agreement to arbitrate. RWR cites the general rule that the "agreement need not expressly provide for arbitration but may instead incorporate by reference another document containing an arbitration clause." (Knight, supra, ¶ 5:18, p. 5-12; see also King v. Larsen Realty, Inc. (1981) 121 Cal.App.3d 349,...