Hedges v. Carrigan, B166248

• Citation: 11 Cal.Rptr.3d 787,117 Cal.App.4th 578
• Decision Date: 06 April 2004
• Docket Number: No. B166248,B166248
• Court: California Court of Appeals
• Parties: Arthur W. HEDGES et al., Plaintiffs and Respondents, v. Stephen E. CARRIGAN, Defendant and Appellant.

11 Cal.Rptr.3d 787

117 Cal.App.4th 578

Arthur W. HEDGES et al., Plaintiffs and Respondents, v. Stephen E. CARRIGAN, Defendant and Appellant.

No. B166248

Court of Appeal, Second District, Division 5

April 6, 2004

Certified for Partial Publication^*

Jones, Bell, Abbott, Fleming & Fitzgerald, Fredrick A. Rafeedie, Los Angeles, and William M. Turner for Defendant and Appellant.

Law Offices of Leslie J. Hedges and Leslie J. Hedges, Lynwood, for Plaintiffs and Respondents.

TURNER, P.J.

I. INTRODUCTION

Defendant, Stephen E. Carrigan, individually and doing business as National Real Estate Council, appeals from an order denying his petition pursuant to Code of Civil Procedure section 1281.2¹ to compel plaintiffs, Arthur W. Hedges and Dimity Hedges, to arbitrate a dispute. The dispute arose from plaintiffs' purchase of a single family residence from the sellers and defendants, Lane G. Weinman and Cynthia N. Weinman. In the published portion, we discuss whether section 1298 is subject to the limited preemptive effect of the United States Arbitration Act. We affirm.

II. BACKGROUND

On September 9, 2002, plaintiffs filed their action on a number of contractual and tort theories against: the Weinmans; Mr. Carrigan, who was plaintiffs' broker; and Todd Olsen Realty and Debbie Schreve, who was the Weinmans' broker. The complaint alleged that defendants failed to disclose several defects in the residence, which plaintiffs discovered after they purchased and occupied the home in September 2000.

On February 7, 2003, Mr. Carrigan filed a petition for an order compelling plaintiffs to mediate and to arbitrate the controversy. (The parties subsequently agreed to mediate the dispute.) The petition to compel alleged that: on January 10, 2003, Mr. Carrigan was served with the summons and complaint; by letter dated January 28, 2003, Mr. Carrigan's counsel demanded mediation and arbitration; and plaintiffs have refused his demand. The following are the pertinent facts. Mr. Carrigan acted as plaintiffs' broker in connection with the purchase of the residence. On August 15, 2000, plaintiffs executed a written residential purchase agreement, joint escrow instructions, and deposit receipt which contains an arbitration clause. The August 15, 2000, residential purchase agreement, joint escrow instructions, and deposit receipt was in legal effect an offer to purchase the residence under specified terms. Paragraph 7D of the August 15, 2000, residential purchase agreement, joint escrow instructions, and deposit receipt required that the controversy be arbitrated if agreed to by the parties. Paragraph 7D provides: "BROKERS: Buyer and Seller agree to mediate and arbitrate disputes or claims involving either or both Brokers, provided either or both Brokers shall have agreed to such mediation or arbitration, prior to or within a reasonable time after the dispute or claim is presented to Brokers. Any election by either or both Brokers to participate in mediation or arbitration shall not result in Brokers being deemed parties to the Agreement." Paragraph 7 of the agreement is entitled "Dispute Resolution" and provides in part: "A. MEDIATION: Buyer and Seller agree to mediate any dispute or claim arising between them out of this Agreement, or any resulting transaction, before resorting to arbitration or court action, subject to paragraphs 17C and D below. Mediation fees, if any shall be divided equally among the parties involved. If, for any dispute or claim to which this paragraph applies, any party commences an action without first attempting to resolve the matter through mediation, or refuses to mediate after a request has been made, then that party shall not be entitled to recover attorney's fees, even if they would otherwise be available to that party in any such action. THIS MEDITATION PROVISION APPLIES WHETHER OR NOT THE ARBITRATION PROVISION IS INITIALED. [¶] B. 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, which is not settled through mediation, shall be decided by neutral, binding arbitration, including and subject to paragraphs 17C and D below.... 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.'" Plaintiffs initialed the space as required by paragraph 7D.

On August 17, 2000, the Weinmans, the sellers, made a written counteroffer. On the same date, plaintiffs accepted the Weinmans' written counteroffer. The August 17, 2000, written counteroffer executed by both the Weinmans and plaintiffs was a single document.

The August 17, 2000, written counteroffer referred to the August 15, 2000, residential purchase agreement, joint escrow instructions, and deposit receipt as follows, "Paragraphs in the purchase contract (offer) which require initials by all parties, but are not initialed by all parties, are excluded from the final agreement unless specifically referenced for inclusion in paragraph 1C of this or another Counter Offer." Paragraph 1C of the August 17, 2000, written counteroffer made no reference to paragraph 7D, the arbitration clause, in the August 15, 2000, residential purchase agreement, joint escrow instructions, and deposit receipt. Defendants never initialed paragraph 7D, the arbitration clause, in the August 15, 2000, residential purchase agreement, joint escrow instructions, and deposit receipt.

On March 10, 2003, the trial court denied the petition to compel arbitration. This timely appeal followed. Because this is a case involving enforcement of an arbitration clause, we have treated the case as a preference matter as required by statute. (§ 1291.2; Cal. Rules of Court, rule 19.)

III. DISCUSSION^**

Plaintiffs contend the arbitration clause in the August 15, 2000, residential purchase agreement, joint escrow instructions, and deposit receipt is unenforceable because it does not comply with the notice and format provisions required by section 1298.² Section 1298 imposes various requirements on arbitration clauses in specified real estate agreements including in part: point size and bolded font specifications; a specific reference to "ARBITRATION OF DISPUTES"; and a warning that certain rights attendant to judicial proceeding are being lost by initialing the agreement to arbitrate. Plaintiffs contend the arbitration clause at issue did not comply with section 1298 and the failure to do so rendered the agreement to arbitrate unenforceable. We need not address the question as to whether the arbitration clause complied with section 1298. Nor need we discuss whether the purported failure to comply with section 1298 invalidates the arbitration clause.

Rather, we conclude that the United States Arbitration Act would preempt a statutory requirement or judicial holding that compliance with section 1298 is a condition precedent to enforcement of an arbitration clause contained in one of the specified contracts. The limited preemptive effect of United States Arbitration Act is based on title 9 United States Code, section 2 which states in pertinent part: "A written provision in any ... contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." (See McManus v. CIBC World Markets Corp. (2003) 109 Cal.App.4th 76, 85, 134 Cal.Rptr.2d 446; Siegel v. Prudential Ins. Co. (1998) 67 Cal.App.4th 1270, 1286-1287, 79 Cal.Rptr.2d 726.) Thus, an arbitration contract must be enforced according to its terms subject to state law defenses applicable to all disputes under general contract law principles such as fraud, duress, or unconscionability. (Doctor's Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902; Allied-Bruce Terminix Cos. v. Dobson (1995) 513 U.S. 265, 281, 115 S.Ct. 834, 130 L.Ed.2d 753; Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 407, 410, 58 Cal.Rptr.2d 875, 926 P.2d 1061.) A court may not invalidate an agreement to arbitrate under state laws that are only applicable to arbitration clauses. (Doctor's Associates, Inc. v. Casarotto, supra, 517 U.S. at p. 687, 116 S.Ct. 1652; Allied-Bruce Terminix Cos. v. Dobson, supra, 513 U.S. at p. 281, 115 S.Ct. 834.) In Perry v. Thomas (1987) 482 U.S. 483, 492-493, footnote 9, 107 S.Ct. 2520, 96 L.Ed.2d 426, the United States Supreme Court explained, "A court may not, then, in assessing the rights of litigants to enforce an arbitration agreement, construe that agreement in a manner different from that in which it otherwise construes nonarbitration agreements under state law." (See Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1075, 90 Cal.Rptr.2d 334, 988 P.2d 67.) As Justice Stephen Breyer plainly explained: "What States may not do is...