MotionMotionCal. Super. - 5th Dist.December 16, 2019A N nn W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 HUGUENIN KAHN LLP Edward R. Huguenin, Esq., State Bar No. 173653 Jessica L. Moran, Esq., State Bar No. 252905 Michael R. Laidlaw, Esq., State Bar No. 255647 ehuguenin@hugueninkahn.com jmoran@hugueninkahn.com mlaidlaw @ hugueninkahn.com 3001 Lava Ridge Court, Suite 300 Roseville, CA 95661 Telephone: (916) 367-7098 Facsimile: (916) 367-7491 Attorneys for Defendant MERITAGE HOMES OF CALIFORNIA, INC. ELECTRONICALLY FILED 5/20/2020 2:54 PM Kern County Superior Court By Kasey Griffith, Deputy SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY STEVEN & STACY UPTON; SHERGIL & GANDEEP SINGH; HARJOT PADILLA & LOVEPREET THIND; HECTOR ARAMBULA & LAURIE MALDONADO; RAJINDER KAPPOR & NEELAMA RANI; RAMON ARREDONDO; NOE & ALEJANDRA CALDERON; JEREMY & TANISHA CARPENTER; IRMA CATUIZA; JUAN & ANDREA CRUZ; RICHARD DALEY; PAUL & MANIJIT GILL; JAIME & ANA HARO; SILVIA HERNANDEZ; RAYMUNDO HUGO; MAYA KAURA; ERNIE & DIANE MOLINA; LUCERITO REYNOSO; GURDIP SINGH; GURJINDER & MAJOR SINGH; JOSE JESUS SOLANO GONZALEZ, Plaintiffs, VS. MERITAGE HOMES OF CALIFORNIA, INC., A CALIFORNIA CORPORATION; AND DOES 1-1,000 INCLUSIVE, Defendants. OF KERN CASE NO. BCV-19-103508 SDS JUDGE: HON. STEPHEN D. SCHUETT DEPT... 10 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT MERITAGE HOMES OF CALIFORNIA, INC.’S MOTION TO COMPEL ARBITRATION DATE: JULY 14, 2020 TIME: 8:30 A.M. DEPT: 10 COMPLAINT FILED: DECEMBER 16, 2019 TRIAL DATE: NOT SET _1- MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT MERITAGE HOMES OF CALIFORNIA, INC.’S MOTION TO COMPEL ARBITRATION P:\DOCS\Meritage\Upton v. Meritage\Pleadings\MTC Arb\MTC.Arb.MPA Final.docx H U G U E N I N K A H N A N nn W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 IL. IL. III. IV. VIL TABLE OF CONTENTS INTRODUCTION ....coiiiiiiiitieieee neces seteeeeeieesteesr eseeeeeseeesae ean eie anne PROCEDURAL, BAC ET RATUTININ ciicummansssmnsssossmnnss e ses as s5 sis s-misa isms A. The Purchase Agreements, CC&Rs and ADR Notice Require Binding Arbitration........c.cecueereiriieenieeieeieertee secretes s e seers see ae THE ARBITRATION PROVISION MUST BE ENFORCED.........cccoccecieiiinnenne A. A Written Agreement to Arbitrate Governs Here.........c.cccovveeieiniinnennncn B. Plaintiffs Cannot Establish Unconscionability Because the Arbitration Agreement is Unambiguous, Fair and Complies with California and Federal Law .......ooou.eeeeeeeeeeeeee eee ee ee e ee ee eeaee ees THE ARBITRATIONS MUST PROCEED ON A HOME-BY-HOME THE COURT ACTION SHOULD BE DISMISSED OR, IN THE ALTERNATIVE, STAYED PENDING COMPLETION OF THE ARBITRATIONS oiesteer eee cece sree sane ese enna IF PLAINTIFFS CONTEST THIS MOTION, MERITAGE SHOULD BE AWARDED ITS ATTORNEYS FEES AND COSTS ASSOCIATED WITH BRINGING THIS MOTION cuitscece sees eines COC LTS TCI comments sissies os SEES SE HR 9. MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT MERITAGE HOMES OF CALIFORNIA, INC.’S MOTION TO COMPEL ARBITRATION P:\DOCS\Meritage\Upton v. Meritage\Pleadings\MTC Arb\MTC.Arb.MPA Final.docx ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES Page(s) Cases Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97.......cccccuveennn. 9 AT&T Mobility v. Concepcion (2011) 131 S.Ct. 1740, 1746-1750 ......cocoviemriiiiniiiniieeieeeenn 5,8,9 Bos Marerial Handling, Inc. v. Crown Controls Corp. (1982) 137 Cal.App.3d 99, 0 California Correctional Peace Officers Ass'n v. State (2006) 142 Cal. App.4th 198, 2T0TT heehee eae ehh testes ebb sh testes tenia ebe sabes 10 Complaint of Hornbeck Offshore (1984) Corp. 981 F.2d 752, 754 ...ueeeeeeeeeeieeieeeeeeee ee 15 Crowell Downey Community Hospital Foundation (2002) 95 Cal. App.4th 730, 3 Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972.....ccooiiiiniiniiiiiiiniieens 10 Engineers & Architects Assn. v. Community Development Dept. (1994) 30 Cal ADPP.Ath 644, 652... eee eee steerer eerie 10 In re Tobacco Cases (2005) 124 Cal.App.4th 1095 ...ccouiiiiiiiie eee eee 13 Kinecta Alternative Financial Solutions, Inc. v. Sup. Ct. (2012) 205 Cal. App.4th S06, STT-518 eee eect sae steer eebeeb te shee ste t eae eae este shee ste et estaba enre 14 KPMG, LLG». Cocchi, et al. (2011) 132 SCH: 23; 25 sons sunninonsans is swans nssnss sossmswss 5555055 555s sa5as5m 5655 8 LAPS PLUS .cc..eooeieieiee eee eee eee ete ete ete ete sates e sates sates sates sate eet bees ebbe ee abe en 14 Lawips Plus; Ine. v. Varela (2019) 139 8. Ct 1407, 1415 causes sssnon.ssunssss sosssn ss semanas sosanss.s somes sasavsnis 14 Marcus & Millichap Real Estate Investment Brokerage Co. v. Woodman Investment Group (2005) 129 Cal. App.4th 508, S13... c ir sree eee 16 McCaffrey Group, Inc. v. Superior Court (2014) 224 Cal. App.4th 1330, 1352 ....coocviivviiinniiaen. 11 McManus v. CIBC World Markets Corp. (2003) 109 Cal. App.4th 76, 87 ......oovvveevnieiiieinnen. 11,12 Mission Viejo Emergency Medical Associates v. Beta Healthcare Group (2011) 197 CalLAPP.Ath 1146, 1154... eects erect sete sree esas 10 Peng v. First Republic Bank (2013) 219 Cal. App.4th 1462, 1467-68.......cccccooveeiiirieiniecieceenenne 10 Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.dth 223, 236, 248... eee sees ese 10, 11, 12 Rodriguez v. American Technologies, Inc. (2006) 136 Cal. App.4th 1110, 1114-1115, TI2T-T122 eeee sh et e eae eb teehee teste eae shee sheet esate cates 8,15 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT MERITAGE HOMES OF CALIFORNIA, INC.’S MOTION TO COMPEL ARBITRATION P:\DOCS\Meritage\Upton v. Meritage\Pleadings\MTC Arb\MTC.Arb.MPA Final.docx ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES (cont.) Page(s) Shepard Wp Mackay Enterprises, Inc. (2007) 148 Cal.App.4th 1092, 1097, " Stolt-Nielsen S.A. v. Animal Fees Int’l Corp (2010) 130 S.Ct. 1758.....euviiiieiiiieeeeee eevee 14 Three Valleys Mun. Water Dist. v. E.F. Hutton & Co., Inc. (1991) 925 F.2d 1136.........cccuuce......... 15 TRB Investments, Inc. v. Fireman's Fund Ins. Co. (2006) 40 Cal.4th 19, 27 ......cccovvvveeereeveveinnnnen. 13 Statutes California Civil Code: § DOU) susan suns svusssn so sansa sons ss sommes sawnsn.so 555555 505555545 505558 S055585 5 855 305 14, 16 California Civil Code §8§ 896 aNd 897 ........coooiuiiiieeiieie cesses ttre eres ees ae ee aae ess re ae eens 6 Cade of Civil Procedife § 1281201) wuss ssussss.so sows susan ss sows susan. so moms esses ss saan Semsss 4s 5asss ss sassssnds 10 Code of Civil Procedure § 1281.4 ......cuueei ieee eee eee eset eee ee eet ae esses ae eaae aes aae ae ee ssnees 15 Cade of Civil ProcedUfe § 1293 uns susssss svusssn so sansa sss ss sams ss savanisn.ss somes 5osssmis sass Se5asss 4 Sass 5 15,16 Other Authorities GUST: BB 1-116 conn sumsson snsmwsss msn sss onus n 5 5555558 54550545.50 555555 S555 55045 FH 5595. 50505 55.30 58550 SH85 30509 S350 4955 6, 15 -4 - MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT MERITAGE HOMES OF CALIFORNIA, INC.’S MOTION TO COMPEL ARBITRATION P:\DOCS\Meritage\Upton v. Meritage\Pleadings\MTC Arb\MTC.Arb.MPA Final.docx ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 I. INTRODUCTION On December 16, 2019, Plaintiffs filed a Complaint against MERITAGE HOMES OF CALIFORNIA, INC. (“Meritage”). The Complaint alleges a variety of defects in 21 separate single-family homes, constructed over a three year period of time by a myriad of subcontractors, and located throughout The Grove development in Bakersfield, California. Meritage served as the developer for The Grove. Unfortunately, Plaintiffs have improperly sought relief in this judicial forum - ignoring the contractual obligations to which they agreed to be bound at the time they purchased their homes from Meritage, including the agreement to have their claims submitted to binding arbitration on a home-by-home basis with JAMS. All but one of the Plaintiffs purchased their homes directly from Meritage (“Original Purchasers”). See Declaration of Elliott Mann (“Mann Decl.”) at 4. Each of the 20 Original Purchaser Plaintiffs executed separate New Home Purchase Agreements (the “Purchase Agreements”) that provide that all disputes must be resolved by binding arbitration on a home-by- home basis with JAMS. Mann Decl. at | 5, Exhs. 1-20. The remaining Plaintiffs, Harjot Padilla and Lovepreet Thind, jointly purchased their home from a prior homeowner who purchased their home from Meritage (“Subsequent Purchasers”). Mann Decl. at 4. As to the Subsequent Purchasers, they are bound by the community’s duly recorded Declaration of Covenants, Conditions and Restrictions (“CC&Rs”) and Notice of Existence of Alternative Non-Adversarial Procedures (“ADR Notice”), which also mandate that all disputes be resolved by binding arbitration on a home-by-home basis with JAMS. Request for Judicial Notice (“RIN”), Exhs. A & B. The arbitration provisions in the CC&Rs are substantively identical to those in the Purchase Agreements signed by the Original Purchasers. In filing this lawsuit, Plaintiffs have violated the Agreements in an attempt to improperly bypass the dispute resolution protocol agreed upon by the parties. Such conduct can only be intended to: (a) wrest from an impartial arbitrator the power to determine issues the parties expressly delegated to him/her for decision; and (b) circumvent the Federal Arbitration Act (“FAA”) in direct contravention of the agreement of the parties, and the United States Supreme Court’s holding in AT&T Mobility v. Concepcion (2011) 131 S.Ct. 1740. The law, however, -5- MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT MERITAGE HOMES OF CALIFORNIA, INC.’S MOTION TO COMPEL ARBITRATION P:\DOCS\Meritage\Upton v. Meritage\Pleadings\MTC Arb\MTC.Arb.MPA Final.docx A N nn W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 mandates that arbitration proceed, and that this Court action be stayed. In light of the above, and in accordance with the Agreements, CC&Rs and ADR Notice, Meritage respectfully requests that this Court compel all of the Plaintiffs to arbitrate their claims on a home-by-home basis and stay the Court action pending completion of the arbitrations. § II. PROCEDURAL BACKGROUND Plaintiffs filed their Complaint against Meritage on December 16, 2019, which asserts causes of action for (1) violations of Civil Code Sections 896 and 897; (2) breach of contract; (3) breach of express warranty; and (4) breach of implied warranty (merchantability). RIN, Exh. C. Plaintiffs allege the same laundry list of construction defects at each of the 21 homes at issue. Meritage attempted to avoid the present motion by requesting that Plaintiffs agree to stipulate to arbitrate the present action, but Plaintiffs refused to so stipulate. See Declaration of Michael R. Laidlaw (“Laidlaw Decl.”), |] 2-3, Exh. AA. A. The Purchase Agreements, CC&Rs and ADR Notice Require Binding Arbitration The Purchase Agreements and duly recorded CC&Rs and ADR Notice! clearly and unambiguously require binding home-by-home arbitration of all disputes between Plaintiffs and Meritage with JAMS. This is explained throughout the purchase documents (notably, each page of the Purchase Agreements that references arbitration is initialed by the Original Purchasers). For example, the Purchase Agreements provide, in pertinent part, as follows: Binding Neutral Arbitration. Buyer and Meritage hereby agree that any claim between them and/or their respective successors-in- interest (except for a dispute concerning Meritage’s right to liquidated damages) arising out of the matters included in this “Resolution of Post-Closing Disputes” provision that are not resolved through the dispute resolution procedures set forth above shall be submitted to final and binding arbitration as provided by the Federal Arbitration Act 9 U.S.C. §§ 1-16) and similar statues and not by a court of law. NOTICE: BY INITIALING IN THE SPACE PROVIDED BELOW, YOU ARE VOLUNTARILY AGREEING OT HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THIS “RESOLUTION OF POST-CLOSING DISPUTES” ! The CC&Rs and ADR Notice were recorded against title associated with each Plaintiffs’ home with the Kern County Assessor-Recorder’s Office. Mann Decl., | 6-8. -6- MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT MERITAGE HOMES OF CALIFORNIA, INC.’S MOTION TO COMPEL ARBITRATION P:\DOCS\Meritage\Upton v. Meritage\Pleadings\MTC Arb\MTC.Arb.MPA Final.docx A N nn W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY THE FEDERAL ARBITRATION ACT AND, TO THE GREATEST EXTENT NOT INCONSISTENT, CALIFORNIA LAW. YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR BY 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 APPLICABLE FEDERAL LAW AND, TO THE EXTENT NOT INCONSISTENT, THE CALIFORNIA CODE OF CIVIL PROCEDURE. WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THIS “RESOLUTION OF POST- CLOSING DISPUTES” PROVISION TO NEUTRAL ARBITRATION. Buyer’s Initials:[Each Buyer Initialed here] Seller’s Initials: [Meritage’s representative initialed here] Mann Decl., Exhs. 1-20, 16(D)(iv)?; see also RIN, Exh. A, 11.1.4 (substantively identical to the J 16(D)(iv) but with the capitalized text in bold, and Exh. B, { 1(0). Additionally, the title page of the CC&Rs that was recorded on title with the Kern County Assessor-Recorder’s Office provides as follows: ARTICLES X AND XI OF THIS DECLARATION CONTAINS BINDING ARBITRATION PROVISIONS IN ACCORDANCE WITH STATE AND FEDERAL LAW AND A WAIVER OF THE RIGHT TO A JURY TRIAL. RIN, Exh. A (emphasis in original). Moreover, in addition to recording the CC&Rs, Meritage also recorded a Notice of Existence of Alternative Non-Adversarial Procedures (“ADR Notice”), which recites the non- adversarial procedures and arbitration clause set forth in the CC&Rs and Purchase Agreements. RIN, Exh. B. The primary purpose of recording this document is to ensure that all Subsequent Purchasers are placed on notice that they will be bound by the non-adversarial procedures and arbitration clause before they purchase their home. Mann Decl., 8. 2 See additional arbitration references at JJ 16(D)(), (ii), (i)(f), (ii)(h), (ii)(j), (i)(1) and 16(D)(iv)(a), ef al. ~F MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT MERITAGE HOMES OF CALIFORNIA, INC.’S MOTION TO COMPEL ARBITRATION P:\DOCS\Meritage\Upton v. Meritage\Pleadings\MTC Arb\MTC.Arb.MPA Final.docx ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 IL. THE ARBITRATION PROVISION MUST BE ENFORCED Plaintiffs and Meritage contractually agreed in the Purchase Agreements, CC&Rs and ADR Notice that the law applicable to any arbitration proceeding involving the subject homes would be the FAA. Mann Decl., Exhs. 1-20, { 16(D)(iv); RIN, Exh. A, {11.1.4 and B, J 1(0). The Parties’ designation of the FAA as the controlling law in the agreement is determinative of which law to apply when interpreting the agreement. See, Rodriguez v. American Technologies, Inc. (2006) 136 Cal. App.4th 1110, 1121-1122. Even if this were not the case, the construction of the homes and the housing development at issue in this matter was related to interstate commerce, as Meritage is an interstate company, and contracted with several out-of-state subcontractors to supply materials and labor for the project. Mann Decl. {{9-10, Exhs. 21-30. The FAA applies to agreements that “involv[e] interstate commerce,” which is functionally equivalent to the term “affecting commerce,” signaling the broadest possible exercise of Congress’ commerce clause power. Shepard v. Edward Mackay Enterprises, Inc. (2007) 148 Cal. App.4th 1092, 1097.3 “The Federal Arbitration Act reflects an ‘emphatic federal policy in favor of arbitral dispute resolution.” KPMG, LLC v. Cocchi, et al. (2011) 132 S.Ct. 23, 25 (emphasis added). The FAA leaves no place for the exercise of discretion by a lower court, but instead mandates that lower courts shall direct parties to proceed to arbitration on issues as to which an arbitration agreement has been signed. Id. In AT&T Mobility v Concepcion (2011) 131 S.Ct. 1740, the Supreme Court overturned a California law that prohibited arbitration agreements that include a class action waiver. The Supreme Court held: The “principal purpose” of the FAA is to “ensur[e] that private arbitration agreements are enforced according to their terms.” This purpose is readily apparent from the FAA’s text. Section 2 makes arbitration agreements “valid, irrevocable, and enforceable” as written (subject, of course, to the saving clause); § 3 requires courts to stay litigation of arbitral claims pending arbitration of those claims “in accordance with the terms of the agreement”; and § 4 requires courts to compel arbitration “in accordance with the terms of the 3 The Court specifically noted that this went beyond just “activities within the flow of interstate commerce.” Id. With respect to construction defect actions involving large-scale housing developments, evidence that materials or services for the development were provided by out-of-state suppliers, professionals, trade contractors, subcontractors or other was sufficient to establish that the FAA applies. Id. at 1100. -8- MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT MERITAGE HOMES OF CALIFORNIA, INC.’S MOTION TO COMPEL ARBITRATION P:\DOCS\Meritage\Upton v. Meritage\Pleadings\MTC Arb\MTC.Arb.MPA Final.docx ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 agreement” upon the motion of either party to the agreement (assuming that the “making of the arbitration agreement or the failure. ..to perform the same” is not at issue). In light of these provisions, we have held that parties may agree to limit the issues subject to arbitration, to arbitrate according to specific rules, and to limit with whom a party will arbitrate its disputes. Id. at 1748-1749 (internal quotations and citations omitted). The Supreme Court reaffirmed that the FAA requires an arbitration agreement to be upheld unless the party seeking to avoid it can establish a traditional common law defense of general applicability that requires invalidation of the agreement as a matter of state law. Further, the Supreme Court noted that, although the FAA allows private agreements to be invalidated in particular cases, this cannot be done by asserting “defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.” Id at 1746.* This, however, is precisely what invalidation of the arbitration provisions at issue in this case would require, as there is absolutely nothing about the arbitration provisions here that is unconscionable. The FAA and the Concepcion decision have established a default rule in favor of arbitration, such that even in circumstances that once were considered “unconscionable” (e.g., adhesion contracts), the Court will still enforce arbitration provisions. Id. at 1750. The Concepcion Court’s favorable view of arbitration provisions even in boilerplate adhesion contracts means that such provisions will be enforced even if there is some level of procedural unconscionability. Consequently, much more is required for an arbitration agreement to be found invalid and unenforceable under the FAA. Moreover, assuming arguendo that the FAA does not control, “California law, like Federal law, favors enforcement of valid arbitration agreements.” Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97. “This strong public policy has resulted in the general rule that arbitration should be upheld unless it can be said with assurance that an arbitration clause is not susceptible to an interpretation covering the asserted dispute.” Bos Material Handling, Inc. v. Crown Controls Corp. (1982) 137 Cal. App.3d 99, 105 (internal citations 4 Moreover, there is nothing about an agreement to arbitrate that renders that class of contract suspect or inherently unfair. Such a concept has been expressly rejected by the Supreme Court. Id. at 1747. -9. MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT MERITAGE HOMES OF CALIFORNIA, INC.’S MOTION TO COMPEL ARBITRATION P:\DOCS\Meritage\Upton v. Meritage\Pleadings\MTC Arb\MTC.Arb.MPA Final.docx ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 omitted). Given the strong public policy in favor of enforcing arbitration agreements, “[d]oubts as to whether an arbitration clause applies to a particular dispute are to be resolved in favor of sending the parties to arbitration.” Engineers & Architects Assn. v. Community Development Dept. (1994) 30 Cal. App.4th 644, 652. Moreover, Code of Civil Procedure (“C.C.P.”) § 1281.2(b) authorizes use of arbitration in lieu of litigation to resolve private disputes: On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such 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, unless it determines that: []] ... []] ... Grounds exist for the revocation of the agreement. (emphasis added.) The party seeking to compel arbitration must first establish the existence of an arbitration agreement by a preponderance of the evidence. Peng v. First Republic Bank (2013) 219 Cal.App.4th 1462, 1467-68; Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236; Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972. Thereafter, the burden shifts to the opposing party to establish any defenses. Id. In the absence of a valid defense, the trial court has no discretion to exercise and must compel arbitration. California Correctional Peace Officers Ass'n v. State (2006) 142 Cal. App.4th 198, 210-11. As demonstrated herein, arbitration is proper as there is clear evidence of an existing binding arbitration agreement between the parties, and Plaintiffs cannot meet their burden to prove any defenses to enforcement. A. A Written Agreement to Arbitrate Governs Here Meritage has clearly shown “prima facie evidence [of the existence] of a written agreement to arbitrate the controversy.” Mission Viejo Emergency Medical Associates v. Beta Healthcare Group (2011) 197 Cal.App.4th 1146, 1154. While Meritage could arguably meet a higher burden in light of the clear language in the purchase documents, the requisite prima facie showing merely entails proof by a preponderance of the evidence of the existence of an agreement to arbitrate. Id. (finding that the burden of proof was satisfied by showing the existence of an insurance policy 111 -10 - MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT MERITAGE HOMES OF CALIFORNIA, INC.’S MOTION TO COMPEL ARBITRATION P:\DOCS\Meritage\Upton v. Meritage\Pleadings\MTC Arb\MTC.Arb.MPA Final.docx A N nn W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 containing an arbitration agreement, regardless of whether plaintiffs actually read the agreement, noting it was their responsibility to read it). “Significantly, a homebuyer is given notice of the contractual procedures before entering into a home purchase contract, as those procedures do not become part of the bargain unless they are set out in the contractual documents and the buyer agrees to them.” McCaffrey Group, Inc. v. Superior Court (2014) 224 Cal. App.4th 1330, 1352. As detailed above, there can be no doubt that the Original Purchasers received, executed and initialed the purchase documents, thus acknowledging their agreement to be bound by their terms, including the arbitration provision. Mann Decl. at 5, Exhs. 1-20. Given the multitude of conspicuous and initialed disclosures in the purchase documents explaining the procedures that are to be used to resolve disputes between the parties, Plaintiffs cannot, in good faith, contest the existence and application of the arbitration provision to their claims. Further, it is undisputable that the CC&Rs (as well as ADR Notice) were recorded prior to the Subsequent Purchasers’ purchase of their home, and they are deemed to be on notice and bound by the CC&Rs. Pinnacle, supra, 55 Cal. 4th 223, 236. B. Plaintiffs Cannot Establish Unconscionability Because the Arbitration Agreement is Unambiguous, Fair and Complies with California and Federal Law Meritage anticipates that Plaintiffs may argue that the arbitration provisions are unconscionable. “Procedural unconscionability focuses on whether there is ‘oppression’ arising from an inequality of bargaining power or ‘surprise’ arising from buried terms in a complex printed form. The substantive element addresses the existence of overly harsh or one-sided terms. An agreement to arbitrate is unenforceable only if both the procedural and substantive elements are satisfied.” McManus v. CIBC World Markets Corp. (2003) 109 Cal.App.4th 76, 87 (internal citations omitted; italics in original). Additionally, the degree of procedural or substantive unconscionability required to hold an arbitration provision unenforceable is based on a sliding scale: “the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice 111 “11 - MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT MERITAGE HOMES OF CALIFORNIA, INC.’S MOTION TO COMPEL ARBITRATION P:\DOCS\Meritage\Upton v. Meritage\Pleadings\MTC Arb\MTC.Arb.MPA Final.docx ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 versa. Id. The provisions here are neither procedurally nor substantively unconscionable, and thus the arbitration agreement must stand. By way of the Agreements, CC&Rs and ADR Notice, Plaintiffs expressly agreed that any disputes with Meritage relating to their home would be decided by binding arbitration. Any argument that the arbitration provisions or terms were somehow “hidden” or that the Plaintiffs were surprised by those terms would be disingenuous, at best, especially given that these provisions are emphasized throughout the documents and were individually approved by the parties at the time of original sale. There is simply no room for the Plaintiffs to argue that they were unaware of the arbitration provisions or their express agreement thereto (thereby eliminating any claim of procedural unconscionability). Plaintiffs may argue that it would be unconscionable for the subsequent purchasers to be bound by terms in the CC&Rs, however a similar argument was considered and rejected by the Court in Pinnacle Museum Tower Association v. Pinnacle Market Development, LLC, et al. (2012) 55 Cal. 4th 223. The Court expressly held that “a developer’s procedural compliance with the Davis-Stirling Act provides a sufficient basis for rejecting a[] [. . .] claim of procedural unconscionability.” Pinnacle, supra, 55 Cal. 4th at 248. It cannot be reasonably asserted that Meritage failed to comply with the Davis-Stirling Act, such that the arbitration provision in the CC&R’s is not, as a matter of law, procedurally unconscionable. Because there is no evidence of procedural unconscionability, Plaintiffs must demonstrate a high degree of substantive unconscionability to overcome enforceability of the parties’ agreement to arbitrate. This is not possible in light of the unbiased and fair terms of the arbitration provisions. For example, the provisions apply equally to the Plaintiffs and to Meritage, such that the Plaintiffs cannot claim that the terms are “so one-sided as to ‘shock the conscience.’ Moreover, neither party has sole discretion in selecting an arbitrator-rather the arbitrator is selected in accordance with JAMS arbitration rules. JAMS is a neutral and highly reputable arbitration association. The rules governing the arbitration are neutral, (i.e., the rules are not drafted by Meritage nor are they biased toward any party, thus eliminating any potential substantive unconscionability arguments that Plaintiffs may assert). Further, any appointed arbitrator must comply with all applicable statutory and decisional disclosure requirements. Taken as a whole, it is clear that the arbitration provision -12- MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT MERITAGE HOMES OF CALIFORNIA, INC.’S MOTION TO COMPEL ARBITRATION P:\DOCS\Meritage\Upton v. Meritage\Pleadings\MTC Arb\MTC.Arb.MPA Final.docx ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 provides for reasonable, neutral rules for adjudicating the Plaintiffs’ claims, and is therefore enforceable. III. THE ARBITRATIONS MUST PROCEED ON A HOME-BY-HOME BASIS Private arbitration is a matter of agreement between the parties, which is governed by contract law. Crowell v. Downey Community Hospital Foundation (2002) 95 Cal.App.4th 730, 734. Thus, arbitration agreements are to be construed like any other contract and courts must give effect to the intention of the parties, as set forth in the language of the agreement itself. In re Tobacco Cases (2005) 124 Cal.App.4th 1095, 1104; TRB Investments, Inc. v. Fireman's Fund Ins. Co. (2006) 40 Cal.4th 19, 27. Here, the parties expressly agreed that all arbitrations would proceed on a separate, home-by-home basis. The Purchase Agreements, CC&Rs and ADR Notices all provide as follows: Class/Collective Action/Multi-Home Action Waiver. [Buyer] agrees that in the event it fully complies with the Nonadversarial Procedures, and nevertheless desires to commence mediation or arbitration against [Meritage] for any claim, cause of action (whether at law or in equity), or disagreement of any nature whatsoever arising from or in connection with the sale of [Property] to [Buyer], the use or condition of the [Property], or the design or construction of or any condition on or affecting the [Property], including but not limited to, all Construction Standards, or disputes which allege fraud, misrepresentation or breach of implied or express warranties as to the condition of the [Property] or the breach, rescission, enforceability and/or specific performance of the [Contract] or any other agreement pertaining to the [Property] (“Claim”), [Buyer] shall not join or include other [hJomes and/or homeowners in such proceeding (regardless of whether it may be through joinder, class action, collective action, multi-home action, or any other procedural remedy), notwithstanding any alleged commonality of claims, facts, and/or legal theories that may or may not exist. [Buyers’ Initials (Each Original Purchaser initialed the Purchase Agreement here)] Mann Decl., Exhs. 1-20, {16(D)(ii)(1) (emphasis added); RIN, Exh. A, {11.1.2(1) and Exh. B, q 1(). Moreover, well-settled U.S. Supreme Court case law mandates that arbitration can only proceed on a home-by-home basis in this situation. Indeed, a party may not be compelled to submit to class (or in this case group) arbitration unless the arbitration contract provides a basis for -13 - MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT MERITAGE HOMES OF CALIFORNIA, INC.’S MOTION TO COMPEL ARBITRATION P:\DOCS\Meritage\Upton v. Meritage\Pleadings\MTC Arb\MTC.Arb.MPA Final.docx A N nn W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 concluding that the party expressly agreed to do so. Lamps Plus, Inc. v. Varela (2019) 139 S. Ct. 1407, 1415; Stolt-Nielsen S.A. v. Animal Fees Int’l Corp (2010) 130 S.Ct. 1758; Kinecta Alternative Financial Solutions, Inc. v. Sup. Ct. (2012) 205 Cal. App.4th 506, 517-518. “[A]rbitration is strictly a matter of consent.” Lamps Plus, Inc. v. Varela, supra, at 1415. Here, as noted above, the arbitration provisions expressly forbid group arbitration. Consequently, California and federal law prohibit such group arbitration and further mandates that each homeowner arbitrate their claims separately on a home-by-home basis. For all of the foregoing reasons, Meritage respectfully requests that Plaintiffs be compelled to arbitrate their claims on a home-by-home basis with JAMS. This is required by the agreements and is designed to allow each arbitrator to focus solely on the claims asserted by a particular homeowner, thereby eliminating the potential prejudice to Meritage should Plaintiffs’ counsel attempt to assert that claims at one particular home should be extrapolated to all the others without adequate evidence in support thereof. Individual arbitrations will also allow for swift resolution of each claim under JAMS’ expedited rules, which are designed to apply to individual arbitrations as opposed to protracted group claims that can last for years. Expedited home-by-home arbitrations will also be much more manageable if the parties must proceed by way of video-conference for the arbitration hearings in light of the pandemic. IV. THE COURT ACTION SHOULD BE DISMISSED OR, IN THE ALTERNATIVE, STAYED PENDING COMPLETION OF THE ARBITRATIONS The purchase documents provide in pertinent part as follows: “[Buyer] and [Meritage] agree that in the event [Buyer/Owner] fails to first fully comply with the Nonadversarial Procedures below and instead commences a lawsuit, that [Meritage] shall have the right pursuant to California Civil Code [Section] 930(b) to move the court for an order fo dismiss the lawsuit or, at [Meritage’s] option, to stay the lawsuit pending [Buyer’s] compliance with the Nonadversarial Procedures below.” Mann Decl., Exh. 1-20, {16(D)(i1), RIN, Exh. A, 11.1.2; Exh. B, {1 (emphasis added). Meritage hereby requests that the action be dismissed in its entirety. However, if the Court is not inclined to do so, it requests in the alternative that it by stayed pending the completion of the arbitrations. -14 - MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT MERITAGE HOMES OF CALIFORNIA, INC.’S MOTION TO COMPEL ARBITRATION P:\DOCS\Meritage\Upton v. Meritage\Pleadings\MTC Arb\MTC.Arb.MPA Final.docx A N nn W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Both Federal and California law mandate a litigation stay while the arbitrations are pending. 9 U.S.C. § 3 provides: If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration (emphasis added). 9 U.S.C. § 3. Additionally, C.C.P. § 1281.4 mandates that the litigation be stayed while Plaintiffs’ claims are arbitrated: If a court of competent jurisdiction, whether in this State or not, has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies (emphasis added). C.C.P. § 1281.4. Issuance of a stay is mandatory if any of the issues in the proceedings are within the scope of the arbitration clause. Any doubt as to arbitrability is resolved in favor of arbitration. Complaint of Hornbeck Offshore (1984) Corp. 981 F.2d 752, 754; Rodriguez, 136 Cal. App.4th at 1114-15. Moreover, federal law preempts state law on issues of arbitrability under the FAA. Three Valleys Mun. Water Dist. v. E.F. Hutton & Co., Inc. (1991) 925 F.2d 1136. A stay is therefore necessary and appropriate. For all the foregoing reasons, Meritage requests that the Court dismiss this Superior Court action or, in the alternative, stay the action pending the completion of all the arbitrations. V. IF PLAINTIFFS CONTEST THIS MOTION, MERITAGE SHOULD BE AWARDED ITS ATTORNEYS FEES AND COSTS ASSOCIATED WITH BRINGING THIS MOTION C.C.P. § 1293.2 states that “The court shall award costs upon any judicial proceeding under this title as provided in Chapter 6 (commencing with Section 1021) of Title 14 of Part 2 of this code.” (emphasis added). Judicial proceedings under Title 14 include motions/petitions made -15 - MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT MERITAGE HOMES OF CALIFORNIA, INC.’S MOTION TO COMPEL ARBITRATION P:\DOCS\Meritage\Upton v. Meritage\Pleadings\MTC Arb\MTC.Arb.MPA Final.docx ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 prior to and after the commencement of arbitration, petitions for an order to arbitrate per agreement and a motion for a stay of the action on the ground an issue therein is subject to arbitration. “The award of costs pursuant to section 1293.2, including attorney fees when authorized by contract, is mandatory.” Marcus & Millichap Real Estate Investment Brokerage Co. v. Woodman Investment Group (2005) 129 Cal.App.4th 508, 513. As attorney’s fees are expressly authorized by the parties contracts, Meritage is entitled to its fees and costs in connection with this Motion. Pursuant to the terms of the Purchase Agreements, CC&Rs and ADR Notice applicable to all parties, “[Buyer] and [Meritage] agree that in the event [Buyer/Owner] fails to first fully comply with the Nonadversarial Procedures below and instead commences a lawsuit, that [Meritage] shall have the right pursuant to California Civil Code [Section] 930(b) to move the court for an order to dismiss the lawsuit or, at [Meritage’s] option, to stay the lawsuit pending [Buyer’s] compliance with the Nonadversarial Procedures below. The court shall award the prevailing party its reasonable attorney’s fees and costs in bringing or opposing such motion.” Mann Decl., Exh. 1- 20, [16(D)(ii), RIN, Exh. A, 11.1.2; Exh. B, {1 (emphasis added). Meritage has incurred more than $2,860 in attorney’s fees for the preparation of this Motion and anticipates that the Reply brief and oral argument at the hearing will add an additional $1,500 in attorney’s fees. Meritage also incurred $1,435 in connection with the filing of this Motion. Laidlaw Decl. at J 3. If Plaintiffs oppose this Motion, Meritage seeks the recovery of all of its fees and costs in connection with this Motion, which is expected to amount to approximately $5,795. Laidlaw Decl. at | 4. VI. CONCLUSION The parties here have expressly and unequivocally agreed to have all disputes by and between them resolved by binding arbitration (as set forth in the purchase documents). Despite not having any basis to challenge the arbitration provision, Plaintiffs now want to ignore the entirety of the contractual relationship between the parties by having their claims heard in Superior Court. Meritage respectfully requests the Court find that the arbitration provision, governed by the FAA, is valid and enforceable, and that such disputes be compelled to home-by-home arbitrations. Meritage further requests that the Court action be dismissed or, in the alternative, stayed pending -16 - MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT MERITAGE HOMES OF CALIFORNIA, INC.’S MOTION TO COMPEL ARBITRATION P:\DOCS\Meritage\Upton v. Meritage\Pleadings\MTC Arb\MTC.Arb.MPA Final.docx ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 the completion of the arbitrations. Lastly, if Plaintiffs oppose this Motion, Meritage requests that it be awarded its fees and costs. Dated: May 20, 2020 HUGUENIN KAHN LLP / J Edward R.fluguenin, Esq. Jessica L. Moran, Esq. Michael R. Laidlaw, Esq. Attorneys for Defendant MERITAGE HOMES OF CALIFORNIA, INC. -17 - MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT MERITAGE HOMES OF CALIFORNIA, INC.’S MOTION TO COMPEL ARBITRATION P:\DOCS\Meritage\Upton v. Meritage\Pleadings\MTC Arb\MTC.Arb.MPA Final.docx H U G U E N I N K A H N ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PROOF OF SERVICE I am employed in the County of Placer, State of California. I am over the age of 18 and not a party to the within action. My business address is 3001 Lava Ridge Court, Suite 300, Roseville, CA 95661. On May 20, 2020, I served the within document(s) described as: MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT MERITAGE HOMES OF CALIFORNIA, INC.”S MOTION TO COMPEL ARBITRATION on the interested parties in this action as stated below: Joseph J. Su, Esq. Milstein Jackson Fairchild & Wade, LLP 10250 Constellation Blvd., Suite 1400 Los Angeles, CA 90067 Phone: (310) 396-9600 Fax: (310) 396-9635 jsu@mjfwlaw.com Attorneys for Plaintiffs (ONLY BY ELECTRONIC TRANSMISSION) Only by e-mailing the document(s) to the persons at the e-mail address(es) listed based on notice provided on March 19, 2020 that, during the Coronavirus (COVID-19) pandemic, this office will be working remotely, not able to send physical mail as usual, and is therefore using only electronic mail. No electronic message or other indication that the transmission was unsuccessful was received within a reasonable time (48 hours) after the transmission I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed on May 20, 2020, at Roseville, California. Kelly Olin (Type or print name) 0) (Signature) -18 - MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEFENDANT MERITAGE HOMES OF CALIFORNIA, INC.’S MOTION TO COMPEL ARBITRATION P:\DOCS\Meritage\Upton v. Meritage\Pleadings\MTC Arb\MTC.Arb.MPA Final.docx
