Badgley v. Van Upp

• Court: California Court of Appeals
• Writing for the Court: BENSON; KLINE, P.J., and PHELAN
• Citation: Badgley v. Van Upp, 24 Cal.Rptr.2d 406, 20 Cal.App.4th 218 (Cal. App. 1993)
• Decision Date: 22 November 1993
• Docket Number: No. A057651,A057651
• Parties: Laurence E. BADGLEY, Plaintiff and Respondent, v. Arden VAN UPP, Defendant and Appellant.

Page 406

24 Cal.Rptr.2d 406

20 Cal.App.4th 218

Laurence E. BADGLEY, Plaintiff and Respondent, v. Arden VAN UPP, Defendant and Appellant.

No. A057651.

Court of Appeal, First District, Division 2, California.

Nov. 22, 1993.

As Modified on Denial of Rehearing Dec. 17, 1993.

Review Denied Feb. 24, 1994.

Nossaman, Guthner, Knox & Elliott, Kurt W. Melchior, Alan D. Miller, San Francisco, for defendant and appellant.

Law Offices of David B. Birenbaum, David B. Birenbaum, Fairfax, for plaintiff and respondent.

BENSON, Associate Justice.

Defendant Arden Van Upp (Van Upp) appeals from the trial court's judgment in favor of plaintiff Laurence E. Badgley (Badgley). Van Upp raises several contentions on appeal, including the following: (1) the trial court should have sustained her demurrers to Badgley's complaints on the grounds the subject matter of the complaints was subject to contractual arbitration and (2) the trial court's reference of this case to a court commissioner to take all of the evidence was improper. We agree with the second contention and, accordingly, reverse the judgment and remand this case to the trial court for further consideration.

I. FACTUAL AND PROCEDURAL BACKGROUND

The events leading up to this litigation began over 20 years ago. On July 10, 1973, Van Upp and Badgley entered into an agreement (the Agreement) to purchase residential property located at 2550 Webster Street in San Francisco (the Property) as tenants in common. According to the Agreement, the parties intended "to permit the use of certain rooms in the house by employees, long-term guests, or tenants" and "to use the house (and to permit the use of the house) for parties, gatherings, creative seminars, doctors' offices and such other uses as the parties shall from time to time select." The Agreement provided "[a]ny rents, issues, or profits collected from any person by either party for the use of any portion of the premises shall be divided equally between the parties hereto." The Agreement also set forth a detailed arrangement for the sharing of expenses.

On May 21, 1976, Badgley filed a complaint for damages, for an accounting, and for a receivership based on Van Upp's alleged breach of the Agreement; this action was assigned case No. 706719. For reasons far beyond the scope of this opinion, this litigation has continued to date. Over the course of this 17-year period, Badgley filed four other lawsuits against Van Upp relating to the Property, including case No. 745339, which sought injunctive relief and damages for waste and conversion. On June 7, 1979, the trial court consolidated case Nos. 706719 and 745339.

On January 10, 1989, the trial court referred the consolidated action to a court commissioner for the taking of "[a]ll evidence." On a number of different days between April 11, 1989, and December 6, 1990, the commissioner heard evidence in the consolidated action. The evidence was then turned over to the trial court, which rendered a statement of decision and a judgment in favor of Badgley. This timely appeal followed.

II. DISCUSSION

A. The Trial Court Properly Overruled Van Upp's Demurrers.

Van Upp's first contention on appeal is that the parties' dispute should have been submitted to arbitration. She relies on paragraph 30 of the Agreement, which provides "[a]ny controversy between the parties hereto involving the construction or application of any of the terms, covenants, or conditions of this agreement, shall on written request of one party served on the other be submitted to arbitration." According to Van Upp, her trial counsel properly asserted her right to arbitration by serving a written request for arbitration on Badgley and, following his refusal to arbitrate, by demurring to Badgley's complaints in case Nos. 706719 and 745339. ¹ We disagree.

Two courts of appeal have held a request to arbitrate may not be raised by way of demurrer. (Kustom Kraft Homes v. Leivenstein (1971) 14 Cal.App.3d 805, 811, 92 Cal.Rptr. 650; Gear v. Webster (1968) 258 Cal.App.2d 57, 59, 65 Cal.Rptr. 255.) In Charles J. Rounds Co. v. Joint Council of Teamsters No. 42 (1971) 4 Cal.3d 888, 899, 95 Cal.Rptr. 53, 484 P.2d 1397, the Supreme Court created an exception to this rule, holding a defendant may demur to a complaint on the grounds the plaintiff has failed to exhaust arbitration remedies "where the only issue litigated is covered by the arbitration clause." ² (4 Cal.3d at p. 899, 95 Cal.Rptr. 53, 484 P.2d 1397, emphasis added.) Where the complaint "raises issues not susceptible to arbitration" the defendant "may not merely assert failure to arbitrate an issue as an affirmative defense." (Ibid.) Rather, the defendant must demand arbitration and seek a stay of the litigation. (Ibid.)

In this case, Badgley's complaints in case Nos. 706719 and 745339 both sought provisional relief, relief that is ordinarily unavailable in arbitration. (See Knight, Fannin & Disco, Cal.Prac.Guide: Alternative Dispute Resolution (TRG 1992) Contractual Arbitration, p 4:365, p. 4-66; cf. Outdoor Services, Inc. v. Pabagold, Inc. (1986) 185 Cal.App.3d 676, 685, 230 Cal.Rptr. 73.) Specifically, the complaint in case No. 706719 sought the appointment of a receiver to protect Badgley's interest in the Property pending the outcome of the litigation. Likewise, the amended complaint in case No. 745339 sought a preliminary injunction, an injunction that the trial court granted. Since Badgley's complaints both sought provisional relief that was beyond the authority of an arbitrator to grant, the trial court properly overruled Van Upp's demurrers. In order to preserve her right to arbitration, Van Upp was required to seek a stay of the arbitrable portion of the litigation. (Charles J. Rounds Co. v. Joint Council of Teamsters No. 42, supra, 4 Cal.3d at p. 899, 95 Cal.Rptr. 53, 484 P.2d 1397.) Having failed to do so and having continued to litigate this matter for nearly two decades, Van Upp is not in a position to seek arbitration at this late date. ³

B. The Manner In Which This Case Was Referred To The Court Commissioner Was Unauthorized And Necessitates A Remand.

Van Upp next complains about the manner in which this case was tried. The crux of her complaint is stated in her opening brief as follows: "All of the evidence in this case was heard by a referee who made no findings. All of the findings were made by a judge who heard none of the evidence." In order to address this contention, we must first review the facts surrounding the reference in this case.

At a trial setting conference on January 10, 1989, following an off-the-record discussion, Judge Williamson made the following remarks: "what the court is going to do in this matter is schedule a hearing before one of the court commissioners and have the commissioner take the testimony, take the evidence, arrange--or ask counsel and Miss Van Upp to arrange to have a court reporter present for that hearing. [p] And, again, I will have to leave open, since it will depend on what evidence is presented ... as to whether an accountant or some other assistant to the court would be needed in the matter to handle it from the court's viewpoint. In other words, I make no claims to being an accountant, and if it involves substantial accounting matters, then the court will leave open the question of referring it to an accountant."

At the conclusion of the trial setting conference, Badgley's counsel stated his understanding that the reference was only for the limited purpose of an accounting: "following [the hearing before the commissioner], I would assume there would be arrangements to get a written report back to the court, and then we would come for another trial setting, and we eventually would have to have some kind of a hearing on other evidentiary matters. The accounting is one part. There are other parts." (See Code Civ.Proc., § 639, subds. (a) and (b) [nonconsensual special references for "the examination of a long account" and for "the taking of an account"].) ⁴ Judge Williamson disagreed with counsel's understanding, stating, "this would be for all evidentiary matters, this hearing. I don't want to have counsel or anyone misunderstand. In other words, what I'm requiring in this matter is that all evidence in this case be presented to the commissioner. [p] In point of fact, the commissioner will take care of rulings on the evidence as it comes in. I will rule on the actual case." The minutes of the trial setting conference confirm the reference as follows: "Court ordered hearing before Commissioner.... All evidence ... to be presented to Commissioner. Court to retain jurisdiction and rule upon on closing argument by counsel."

At the outset of the ensuing evidentiary hearing, Commissioner Gargano described the scope of the hearing as follows: "[the case] has been assigned to myself, Commissioner Gargano, in order to hear the evidentiary facts. I'm not going to make any ultimate decisions in this matter. [p] The matter will go back to Judge Williamson for, I believe, closing argument and decision. But I will be here to make rulings about the introduction of evidence and to hear the facts as presented." When the commissioner then asked whether counsel were ready to proceed, Van Upp's counsel stated, "Ms. Van Upp is ready to proceed on the accounting. Our understanding is that the purpose of this hearing is a hearing on a long account of accounting between the parties and we are prepared to proceed on those issues." Commissioner Gargano responded, "I believe after consultation with [Judge Williamson], he was of the opinion that this reference would be for the entire matter and only referred back to him for decision. So he does not intend to take any testimony or accounting before himself." Van Upp's counsel then posed the following objection: "Just so the record is clear, Ms. Van Upp objects to any trial in this courtroom beyond the issue of an accounting and a long account and the facts ancillary to...