Westra v. Marcus & Millichap Real Estate

• Decision Date: 27 April 2005
• Docket Number: No. A107322.,A107322.
• Citation: 129 Cal.App.4th 759,28 Cal.Rptr.3d 752
• Court: California Court of Appeals Court of Appeals
• Parties: John WESTRA et al., Plaintiffs and Respondents, v. MARCUS & MILLICHAP REAL ESTATE INVESTMENT BROKERAGE COMPANY, INC., et al., Defendants and Appellants.

28 Cal.Rptr.3d 752

129 Cal.App.4th 759

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

No. A107322.

Court of Appeal, First District, Division 5.

April 27, 2005.

Certified for Partial Publication.^*

William H. G. Norman, John M. Ross, Jill B. Rowe, Nancy G. Berner, Cooper, White & Cooper, San Francisco, for Defendants-Appellants.

Eric D. Miller, Georgetta Beck, Miller & Beck, San Francisco, for Plaintiffs-Respondents.

STEVENS, J.

Appellants, Marcus & Millichap Real Estate Investment Brokerage Company, Inc., and certain present or former employees thereof (collectively, MM), challenge an order of the trial court that denied MM's petition to compel arbitration. The petition sought arbitration of claims of real estate fraud brought against MM by respondents John Westra, Eloise Westra, and the John J. Westra Family Trust Dated February 25, 1999 (the Westras). We reverse and remand with instructions to grant the petition to compel arbitration.

I. FACTS AND PROCEDURAL HISTORY

The Westras filed this action, alleging fraud and other claims, in connection with their 1999 purchase of a certain parcel of real estate, an Arco gas station in King City, California. One defendant in the Westras' action was the seller of the gas station, a partnership, Skyline 23 King City, LP (Skyline). Another defendant was the real estate agent and broker in the transaction, MM. Yet another defendant, not a party to this appeal, was the tenant of the gas station, Paul Tran, who has since filed for bankruptcy and disappeared. The Westras charged that Tran was already insolvent and on the verge of bankruptcy at the time of the sale, and this crucial fact was concealed from them until after they purchased the property occupied by Tran.

The purchase agreement is a form contract entitled "Marcus & Millichap Purchase Agreement" that identifies the Westras as the "Buyers" and identifies Skyline as the "Sellers," while referring to MM as the "Agent." The agreement contains an arbitration provision, providing in pertinent part as follows: "28) 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 Deposit or the payment of commissions as provided herein), Buyer, Seller and Agent agree that such controversy shall be settled by final, binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof."

This provision is followed by lines upon which the Westras and Skyline could place their initials indicating their consent, and they did so. There is no line provided upon which MM could initial or consent to the arbitration provision, and MM did not do so. In fact, MM did not sign the purchase agreement itself, even though it contained a signature line for MM stating, "Agent accepts and agrees to the foregoing," which followed a crossed-out provision for a commission payment to MM for arranging the transaction. MM apparently obtained its real estate agent's commission on the transaction by virtue of some other separate arrangement with Skyline.

Both Skyline and MM filed petitions to compel arbitration of the claims against them, relying on the arbitration provision in the purchase agreement between the Westras and Skyline. The Westras filed opposition to the petitions. The trial court granted the petition to compel arbitration as to Skyline, but denied the petition as to MM. This appeal by MM followed.

II. DISCUSSION

A. STANDARD OF REVIEW

This appeal raises issues of law that are subject to our de novo review and independent judgment. (See 24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal. App.4th 1199, 1212, 78 Cal.Rptr.2d 533.)

B. MM WAS ENTITLED TO ARBITRATE THE CLAIMS AGAINST IT.

MM maintains that the trial court's order denying its petition to compel arbitration was erroneous. While MM does not claim that it is a party to the purchase agreement, it contends the trial court erred by denying MM's petition to compel arbitration because: (1) MM was entitled to enforce the arbitration agreement as an agent for a signatory party; (2) the other parties agreed to arbitration; (3) MM was also an intended third party beneficiary of the arbitration agreement; and (4) arbitration of all claims together in a "single trial" would be preferable to pursuing one set of claims in arbitration and the other in litigation. The first two arguments are meritorious, as we discuss below. The other two arguments are also arguably correct, but moot, as we discuss below.

1. MM Was an Agent of a Signatory Party to the Agreement.

Generally speaking, one must be a party to an arbitration agreement to be bound by it or invoke it. "`The strong public policy in favor of arbitration does not extend to those who are not parties to an arbitration agreement, and a party cannot be compelled to arbitrate a dispute that he has not agreed to resolve by arbitration. [Citation.]'" (Buckner v. Tamarin (2002) 98 Cal.App.4th 140, 142, 119 Cal.Rptr.2d 489, citing Benasra v. Marciano (2001) 92 Cal.App.4th 987, 990, 112 Cal.Rptr.2d 358.)

The Westras point out that MM never signed, or became a party to the purchase agreement and its arbitration provision. Consequently, the Westras made the argument, apparently accepted by the trial court, that MM was not bound by the provision and could not invoke it. We do not agree, for the reasons that follow.

The Westras maintain that if MM was to be a party to the arbitration agreement, it was required to separately initial the arbitration provision, pursuant to Code of Civil Procedure section 1298,¹ which sets out the procedural requirements for arbitration provisions in real estate contracts. Section 1298 provides, in pertinent part: "(a) Whenever any contract to convey real property, or contemplated to convey real property in the future, ... contains a provision for binding arbitration of any dispute between the principals in the transaction, the contract shall have that provision clearly titled `ARBITRATION OF DISPUTES.' [¶] ... [¶] (b) Whenever any contract or agreement between principals and agents in real property sales transactions, including listing agreements, ... contains a provision requiring binding arbitration of any dispute between the principals and agents in the transaction, the contract or agreement shall have that provision clearly titled `ARBITRATION OF DISPUTES' [¶] ... [¶] (c) Immediately before the line or space provided for the parties to indicate their assent or nonassent to the arbitration provision described in subdivision (a) or (b), and immediately following that arbitration provision" a statutory form of notice in bold type shall appear. (Italics added.)

Thus, section 1298 requires that if an agent (such as MM) was to become a part of any arbitration agreement between itself and the principals to the transaction (such as the Westras), it must "indicate its assent" by initialing the provision. As MM did not do so, and did not even sign the purchase agreement as a whole, it could not legally be a party to the arbitration provision under section 1298. Nevertheless, we would point out that at least one court has held that section 1298 is preempted by federal law, the United States Arbitration Act. (See Hedges v. Carrigan (2004) 117 Cal.App.4th 578, 583, 11 Cal.Rptr.3d 787.) As a result, section 1298 and its requirements would appear to be beside the point.

The Westras also cite and rely on a decision from Division Three of this appellate district, Marcus & Millichap Real Estate Investment Brokerage Co. v. Hock Investment Co. (1998) 68 Cal.App.4th 83, 80 Cal.Rptr.2d 147 (Hock), which arose from a somewhat different problem in an arbitration provision contained in a similar MM purchase agreement. In Hock, disputes arose between the buyers and sellers of real property, and between sellers and MM, the broker who had also, as here, represented both the buyers and the sellers. (Hock, supra, at p. 85, 80 Cal.Rptr.2d 147.) An arbitration provision of the purchase agreement provided that "Buyer, Seller and Agent agree" that certain controversies would be settled by final, binding arbitration. (Id. at p. 86, 80 Cal. Rptr.2d 147, italics omitted.) Based on this clause, MM sought to compel arbitration of all claims against it. (Ibid.) However, only the buyers had initialed in the spaces provided after the arbitration provision, to indicate acceptance. The sellers never initialed the provision in the final contract or in any of the various counteroffers. (Ibid.) Therefore, the arbitration provision never became operative. The Court of Appeal concluded that "although the buyers offered to include the arbitration provision as part of the purchase agreement, the sellers did not accept that offer.... Thus, `Buyer, Seller and Agent' did not agree to submit controversies to binding arbitration, as the arbitration clause require[d]." (Id. at p. 89, 80 Cal. Rptr.2d 147.)

Hock distinguished and disagreed with the Second District authority urged here by MM, Grubb & Ellis Co. v. Bello (1993) 19 Cal.App.4th 231, 23 Cal.Rptr.2d 281 (Bello), which had suggested in dicta that an agreement to arbitrate disputes need not be a mutual agreement. Instead, Hock stressed that a contract to arbitrate disputes must generally be mutual, because "if there were no mutuality of remedy requirement, the seller—which is usually the offeree in the real estate sales context—would have absolutely no incentive to initial the arbitration provision and thereby bind itself to arbitrate disputes." (Hock, supra, 68 Cal.App.4th at p. 91, fn. 6, 80 Cal.Rptr.2d 147.)

However, section 1298 and the case law decided under it, such as Hock and Bello,...