Gravillis v. Coldwell Banker Residential

• Citation: 49 Cal.Rptr.3d 531,143 Cal.App.4th 761
• Decision Date: 29 September 2006
• Docket Number: No. B182588.,B182588.
• Court: California Court of Appeals
• Parties: Kenny GRAVILLIS, JR., et al., Plaintiffs and Respondents, v. COLDWELL BANKER RESIDENTIAL BROKERAGE COMPANY et al., Defendants and Appellants.

49 Cal.Rptr.3d 531

143 Cal.App.4th 761

Kenny GRAVILLIS, JR., et al., Plaintiffs and Respondents, v. COLDWELL BANKER RESIDENTIAL BROKERAGE COMPANY et al., Defendants and Appellants.

No. B182588.

Court of Appeal, Second District, Division 1.

September 29, 2006.

Coldwell Banker Residential Brokerage Company, Robert J. Shulkin, Pacific Palisades; Gemmill Thornton & Baldridge, Bruce M. Thornton and Carlos V. Yguico, Los Angeles, for Defendants and Appellants.

June Babiracki Barlow and Neil D. Kalin, Los Angeles, for California Association of Realtors as Amicus Curiae on behalf of Defendants and Appellants.

James S. Link, Pasadena; Law Offices of Robin L. Haulman, Robin L. Haulman, Upland; Law Offices of Diane Corwin and Diane Corwin, San Marino, for Plaintiffs and Respondents.

MALLANO, Acting P.J.

Plaintiffs, a married couple, bought a home using the standard form California purchase agreement, which required the arbitration of disputes arising out of the agreement or any resulting transaction. The agreement excluded from arbitration "an action for bodily injury." Before plaintiffs moved into the home, they learned that extensive structural damage had rendered it uninhabitable.

Plaintiffs filed this action against their brokers for failing to disclose the structural damage. The complaint alleged that, as a result of the nondisclosure, plaintiffs experienced emotional distress. In addition, the wife contended that the emotional distress caused her to develop a form of diabetes. The brokers moved to compel arbitration. The trial court denied the motion on the ground that the action was one for bodily injury.

We conclude that an action for bodily injury, within the meaning of an arbitration exclusion in a residential purchase agreement, does not encompass the claims alleged here. Emotional distress and diabetes caused by emotional distress are not the types of bodily injury that the contracting parties would reasonably expect to fall within the scope of the exclusion. We therefore reverse.

I BACKGROUND

The following allegations and facts are taken from the complaint and the evidence submitted on the motion to compel arbitration.

A. The Complaint

Plaintiffs Kenny Gravillis, Jr., and Deanna Gravillis entered into a "Residential Purchase Agreement" (Agreement) to buy a home in Los Angeles, California. Their brokers were defendants Coldwell Banker Residential Brokerage Company (Coldwell Banker Brokerage) and two of its employees (collectively Brokers). Deanna, Kenny's wife, "participated in the negotiations, home inspection and the purchase of the subject property as a real party to the transaction."

The Brokers failed to disclose "known material facts and defects" about the residence, including (1) termite infestation that rendered the home uninhabitable, (2) earthquake damage that made the home structurally unsound, (3) water intrusion damage, and (4) cosmetic repairs that concealed the structural damage. The Brokers failed to discuss the results of a termite inspection report that would have disclosed, or put the Gravillises on notice of, the damage. And the Brokers were negligent in recommending the company that conducted the termite inspection. If the Brokers had made the proper disclosures, the Gravillises would not have purchased the home.

At the time of the negotiations and the purchase of the home, Deanna was pregnant. When the damage to the home was discovered, Deanna was advised that, while on the property, she should wear a mask and special clothing to protect herself and her unborn child from exposure to dry rot, fungus, and other hazardous substances. This advice made the Gravillises suffer severe emotional distress, worry, depression, anxiety, and fear.

The complaint alleged four causes of action against the Brokers: breach of fiduciary duty, negligence, breach of the duty to be honest and truthful, and violation of the California unfair competition law (UCL) (Bus. & Prof.Code, § 17200 et seq.). The first three claims were premised on the Brokers' alleged failure to disclose material facts about the condition of the property. The UCL claim alleged that the Brokers engaged in a practice of choosing home inspectors and pest control companies that would minimize the disclosure of property defects in exchange for future business.¹ As a proximate result of the various nondisclosures, the Gravillises suffered severe emotional distress, pain and suffering, property damage, damage to credit, moving expenses, the cost of alternative living arrangements, lost wages, repair costs, investigative costs, and attorney fees. The complaint prayed for damages according to proof.

The Gravillises also sued the seller of the property, the seller's brokers, the company that inspected the property, and the individual who owned that company. The complaint alleged that these defendants also failed to disclose the structural damage to the home. The Brokers are the only parties to this appeal.

B. Motion to Compel Arbitration

Relying on the arbitration provision in the Agreement, the Brokers filed a motion to compel arbitration of the claims against them and to stay the action pending the outcome of arbitration. The Agreement, a preprinted form prepared by Amicus Curiae California Association of Realtors, is, according to the association, the most frequently used form in California for the sale of residential real estate. In 2003, for example, the association sold over 750,000 forms.

The Agreement indicated that the Gravillises were buying the property for $500,000, of which $485,000 would be financed through a 30-year mortgage with a fixed rate of 8.5 percent. Under the Agreement, the seller was obligated to pay for a pest control report to be prepared by a registered structural pest control company of the seller's choosing. The seller was also required to "disclose known material facts and defects" in the property. The property would be sold "in its PRESENT physical condition . . . subject to Buyer Inspection rights." The buyer had "the right to inspect the Property and, based upon the information discovered in those Inspections, [to] reasonably request that Seller make Repairs, corrections or take other action." The Agreement permitted the buyer to "inspect for wood destroying pests and organisms." It also stated, "Note to Buyer: You are strongly advised to conduct Inspections of the entire Property in order to determine its present condition since Seller may not be aware of all defects affecting the Property or other factors that you consider important." The Agreement set forth in detail the seller's rights and obligations in making repairs and the deadlines for requesting and agreeing that repairs would be made.

The Agreement named Coldwell Banker Brokerage and its two employees as the brokers for the Gravillises and listed Prudential California Realty as the broker for the seller. It also stated, "If Brokers give Buyer or Seller referrals to persons, vendors, or service or product providers . . ., Brokers do not guarantee the performance of any of those Providers."

The Agreement contained an arbitration provision that stated in part: "ARBITRATION OF DISPUTES: . . . Buyer and Seller agree that any dispute or claim in Law or equity arising between them out of this Agreement or any resulting transaction . . . shall be decided by neutral, binding arbitration . . . [subject to the exclusions noted below]. The arbitrator . . . shall render an award in accordance with substantive California Law. In all other respects, the arbitration shall be conducted in accordance with Part III, Title 9 of the California Code of Civil Procedure. . . . [¶] . . . [¶] . . . Buyer and Seller agree to . . . arbitrate disputes or claims involving either or both Brokers." However, "[a]ny election by either or both Brokers to participate in . . . arbitration shall not result in Brokers being deemed parties to the Agreement."

The Agreement excluded from arbitration "an action for bodily injury or wrongful death." It also excluded "any right of action to which Code of Civil Procedure § 337.1 or § 337.15 applies," namely, actions involving construction defects.

The arbitration provision further provided: "NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE `ARBITRATION OF DISPUTES' PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE `ARBITRATION OF DISPUTES' PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.

"WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE `ARBITRATION OF DISPUTES' PROVISION TO NEUTRAL ARBITRATION." Kenny initialed the space for the buyer. The seller also initialed the appropriate space.

In moving to compel arbitration, the Brokers argued that the Agreement was "a contract evidencing a transaction involving commerce" (9 U.S.C. § 2), and arbitration was therefore required under the Federal Arbitration Act (FAA) (9 U.S.C. §§ 116). The Brokers requested a stay of the action pending the outcome of arbitration.

In their opposition papers, the Gravillises argued, first, the arbitration exclusion applied because they sought damages for bodily injury.² Second, the FAA was not applicable because the Agreement did not involve interstate commerce; instead, the California Arbitration Act (CAA) (Code Civ. Proc., §§ 1280-1294.2) applied. Finally, under the CAA, arbitration should be denied because two of the defendants (the inspection...