Marcus & Millichap Real Estate Inv. Brokerage Co. v. Hock Inv. Co.

• Decision Date: 30 November 1998
• Docket Number: No. A078977,A078977
• Citation: Marcus & Millichap Real Estate Inv. Brokerage Co. v. Hock Inv. Co., 80 Cal.Rptr.2d 147, 68 Cal.App.4th 83 (Cal. App. 1998)
• Court: California Court of Appeals
• Parties: , 98 Cal. Daily Op. Serv. 8761, 98 Daily Journal D.A.R. 12,144 MARCUS & MILLICHAP REAL ESTATE INVESTMENT BROKERAGE COMPANY et al., Plaintiffs and Appellants, v. HOCK INVESTMENT COMPANY et al., Defendants and Respondents.

Page 147

80 Cal.Rptr.2d 147

68 Cal.App.4th 83, 98 Cal. Daily Op. Serv. 8761,

98 Daily Journal D.A.R. 12,144

MARCUS & MILLICHAP REAL ESTATE INVESTMENT BROKERAGE COMPANY et al., Plaintiffs and Appellants, v. HOCK INVESTMENT COMPANY et al., Defendants and Respondents.

No. A078977.

Court of Appeal, First District, Division 3, California.

Nov. 30, 1998.

Certified for Partial Publication. ^*

Paul S. Mudrich, Marcus & Millichap, Palo Alto, for Appellant.

Jeffrey A. Baruh, Andrew L. Fagan, Bryant, Clohan, Eller, Maines & Baruh, LLP, Palo Alto, Kenneth W. Pritikin, Foley McIntosh, Randall E. Kay, Pamela J. Ortiz, Kay & Tawasha, LLP, San Francisco, for Respondent.

PARRILLI, J.

Marcus & Millichap Real Estate Investment Brokerage Company (Marcus & Millichap or Broker) appeals from a trial court order denying its petition to compel arbitration. We conclude the trial court correctly found there was no agreement to arbitrate the dispute at issue. Consequently, we affirm.

I FACTS

This case arises from a real estate transaction in which Hock Investment Company and Bryan Silverstein (buyers) purchased a 79 unit apartment complex from Country Club Partners (sellers). Marcus & Millichap represented both the sellers and the buyers in the transaction.

After the sale closed, buyers filed suit against sellers (including nine individual partners) alleging that sellers had misrepresented and concealed certain plumbing problems in the complex. The original complaint also named the sellers' agent, Marcus & Millichap, as a defendant and alleged Marcus & Millichap was negligent for failing to discover and disclose the plumbing defects. However, the buyers dismissed the claim against Marcus & Millichap without prejudice when they learned the claim might not be covered by Marcus & Millichap's insurance. Before it was dismissed as a defendant, Marcus & Millichap never claimed the suit was subject to arbitration.

Subsequently, most of the sellers filed cross-complaints for indemnity against Marcus & Millichap and two of their own co-defendants: Dean Sandquist, who was one of the sellers and was also the listing agent on behalf of Marcus & Millichap, and his wife, Diane Sandquist, who managed the property for sellers and was an individual seller as well. About two months after it was brought back into the action as a cross-defendant, Marcus & Millichap filed a petition to compel arbitration.

In its petition to compel arbitration, Marcus & Millichap contended the entire action against it was subject to arbitration. The only basis for this claim was an arbitration clause in the purchase agreement between the buyers and sellers. That clause provided in pertinent part:

"ARBITRATION OF DISPUTES: If a controversy arises with respect to the subject matter of this Purchase Agreement or the transaction contemplated herein (including but not limited to the parties' rights to ... the payment of commissions as provided herein), Buyer, Seller and Agent agree that such controversy shall be settled by final, binding arbitration....

"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 court or jury trial. By initialing in the space below you are giving up your judicial rights to discovery and appeal.... 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. ¹

Buyer's Initials /s/ Seller's Initials _____"

Although the buyers initialed this provision, the sellers did not. Moreover, the sellers did not agree to arbitration in any of the various counteroffers that went back and forth between the parties.

The sellers (with the exception of the Sandquists) and all of the buyers opposed the petition to compel arbitration on the ground, inter alia, that the sellers never agreed to the arbitration provision in the purchase agreement, and thus there was no enforceable arbitration agreement.

However, at the hearing on the petition to compel arbitration, Marcus & Millichap attempted to rely on new evidence to support an entirely different basis for compelling arbitration. In particular, the day before the hearing, Marcus & Millichap filed the declaration of its agent, Dean Sandquist, in which Mr. Sandquist stated there was an enforceable arbitration clause in the listing agreement between Marcus & Millichap and the sellers. ² The court did not allow Marcus &amp Millichap to rely on this 11th hour theory, and denied the petition to compel arbitration. ³ The court's written order stated it was denying the petition to compel arbitration on the ground "there is not a binding, enforceable agreement to arbitrate the controversy between plaintiffs, defendants and petitioner MARCUS & MILLICHAP."

Motion for Reconsideration

After the court denied the petition to compel arbitration, Marcus & Millichap filed a motion for reconsideration or, in the alternative, for relief under Code of Civil Procedure section 473. The motion was based on the fact the court did not consider the Sandquist declaration at the original hearing. Marcus & Millichap contended the Sandquist declaration established there were "new or different facts" within the meaning of Code of Civil Procedure section 1008, or that the order was taken against Marcus & Millichap through its "mistake, inadvertence, surprise, or excusable neglect." (Code Civ. Proc., § 473.)

In particular, Broker argued the listing agreement contained an arbitration clause that the sellers and the agent (Marcus & Millichap) had both initialed. ⁴ After a brief hearing, the court denied the motions to reconsider and for relief under Code of Civil Procedure section 473. This timely appeal followed.

II DISCUSSION

A. The Petition to Compel Arbitration.

We first consider whether the trial court erred when it denied Broker's original petition to compel arbitration on the ground there was no agreement to arbitrate. We conclude the trial court acted properly.

Code of Civil Procedure section 1281.2 provides in material part: "On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy ..., the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists . ..." (Italics added.) Thus, "[t]he right to arbitration depends upon contract; a petition to compel arbitration is simply a suit in equity seeking specific performance of that contract. [Citations.]" (Engineers & Architects Assn. v. Community Development Dept. (1994) 30 Cal.App.4th 644, 653, 35 Cal.Rptr.2d 800.) There is no public policy in favor of forcing arbitration of issues the parties have not agreed to arbitrate. (Ibid.) It follows that 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.

We apply general California contract law to determine whether the parties formed a valid agreement to arbitrate. (Rice v. Dean Witter Reynolds, Inc. (1991) 235 Cal.App.3d 1016, 1023, 1 Cal.Rptr.2d 265, disapproved on another point in Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 407, 58 Cal.Rptr.2d 875, 926 P.2d 1061; Chan v. Drexel Burnham Lambert, Inc. (1986) 178 Cal.App.3d 632, 637, 223 Cal.Rptr. 838.) Since the extrinsic evidence in this case consists entirely of written declarations, we review this issue de novo. (Mayhew v. Benninghoff (1997) 53 Cal.App.4th 1365, 1369, 62 Cal.Rptr.2d 27; Patterson v. ITT Consumer Financial Corp. (1993) 14 Cal.App.4th 1659, 1663, 18 Cal.Rptr.2d 563.)

Here, Broker's original petition to compel arbitration was based entirely on the arbitration clause in the purchase agreement between the sellers and buyers. As we have indicated, although the buyers initialed the arbitration clause as part of their offer to purchase the property, the sellers never initialed this provision or otherwise indicated they accepted this provision in their counteroffers. Again, the actual "ARBITRATION OF DISPUTES" clause states: "If a controversy arises with respect to the subject matter of this Purchase Agreement or the transaction contemplated herein ... Buyer, Seller and Agent agree that such controversy shall be settled by final, binding arbitration." Although buyers assented to this provision, sellers did not. Applying general California contract law to this fact pattern, we conclude that although the buyers offered to include the arbitration provision as part of the purchase agreement, the sellers did not accept that offer. The terms of an offer must be " 'met exactly, precisely and unequivocally for its acceptance to result in the formation of a binding contract ...; and a qualified acceptance amounts to a new proposal or counteroffer putting an end to the original offer ....' " (Panagotacos v. Bank of America (1998) 60 Cal.App.4th 851, 856, 70 Cal.Rptr.2d 595, quoting Apablasa v. Merritt & Co. (1959) 176 Cal.App.2d 719, 726, 1 Cal.Rptr. 500.) None of the subsequent counteroffers between the buyer and seller mentioned the arbitration provision. Thus, "Buyer, Seller and Agent" did not agree to submit controversies to binding arbitration, as the arbitration clause requires.

Nevertheless, one California case has indicated that a party initialing the arbitration provision in a real estate listing contract may be bound by that provision, even though the other party has not assented to that provision and is therefore not bound by it. (Grubb & Ellis Co. v. Bello (1993) 19 Cal.App.4th 231, 238-241, 23 Cal.Rptr.2d 281.) Bello involved real estate listing...