City of
& Assoc.
Filed 3/21/13 City of Piedmont v. Harris & Assoc. CA1/4
California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b). This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST
APPELLATE DISTRICT
DIVISION
FOUR
CITY OF PIEDMONT,
Plaintiff and Respondent,
v.
HARRIS
& ASSOCIATES,
Defendant and Appellant;
ROBERT GRAY
& ASSOCIATES,
Defendant and Respondent.
A133983
(Contra
Costa County
Super. Ct.
No. C11-00762)
The
trial court denied a petition to compel arbitration of an action brought by
respondent City of Piedmont (Piedmont)
against appellant Harris & Associates (Harris), in part because of the risk
that arbitration of their dispute might result in conflicting rulings affecting
an action arising out of the same transaction between the city and respondent
Robert Gray & Associates (Gray).
Harris appeals, contending inter alia that the trial court had
common issues to warrant denial of his petition
to compel arbitration. (Code Civ.
Proc.,
§ 1281.2, subd. (c), pars. 1, 4 (section 1281.2(c)).) We affirm the trial court’s order.
I. FACTS
In May 2005, Piedmont
created the Piedmont Hills Underground Assessment District to underground
certain municipal utilities. For many
years, Piedmont had contracted with Harris—a civil
engineering firm—to serve as its city engineer.
To obtain engineering services for the assessment district project, Piedmont
entered into a separate contract with Harris in May 2005. In March 2007, Harris again contracted with Piedmont
to continue to serve in its more general role as city engineer through June
2009. The 2005 assessment district
contract did not include an arbitration clause, but the more general city
engineer contract dating from 2007 did.
In
the summer of 2008, Harris and Piedmont agreed that work
on the assessment district project would be deleted from Harris’s scope of work
and that those tasks would be undertaken by a third party. In November 2008, Piedmont
and Harris executed an amendment to the 2005 assessment district project
contract. In it, Piedmont
reduced Harris’s scope of work and agreed to contract with civil engineers Gray
to complete the remaining work on the assessment district project. The same month, Piedmont
entered into a professional services contract with Gray to do so. The 2008 Gray contract did not include an arbitration
clause.
According
to Piedmont, Harris and Gray created the plans and
specifications that formed the basis of Piedmont’s
competitive bid process. In 2009, Piedmont
instructed its successful bidder to begin construction, based on those plans and
specifications. The construction process
was subject to serious delays and significant cost overruns, which Piedmont
claims resulted from the failure of the plans and specifications to account for
bedrock in the project area. In March
2011, Harris made a demand for arbitration of the resulting dispute with
Piedmont, citing the 2007 contract.
Piedmont—citing the 2005 contract—refused to arbitrate.
In
April 2011, Piedmont brought an action for breach of contract and negligence
against Harris and Gray. It alleged that
that the two engineering firms jointly and severally created the plans and
specifications on which the assessment district bidding process was based. Its two breach of contract causes of action
alleged that Harris and Gray had each prepared inadequate and incomplete plans
and specifications, and failed to recommend or review a preproject soils
analysis. The complaint alleged that
Harris breached the 2005 and 2007 contracts, and that Gray breached the 2008
contract.
Piedmont alleged that the professional services provided by Harris and Gray
“and each of them†fell below the applicable standard of care for professional
engineers, damaging Piedmont.
Gray’s
May 2011 answer included a denial that Gray and Harris had jointly and
severally created plans and specifications for the project.
Harris
did not file an answer to Piedmont’s complaint.
Instead, in August 2011, it petitioned for an order compelling Piedmont
to arbitrate the issues raised in the complaint pursuant to the terms of the
2007 contract. Harris also sought a stay
of the underlying action until arbitration was completed. (§ 1281.2.) The petition to compel incorporated a copy of
this contract by reference. (See Cal.
Rules of Court, rule 3.1330.) Its
petition was supported by point and authorities, several declarations and
numerous attachments. Harris asked the
trial court to take judicial notice of Piedmont’s complaint and the relevant
contracts. Three days later, Harris
filed an amended petition to compel.
The
petition to compel focused on two issues.
Harris first argued that the 2005 contract that did not contain an
contract underlying Piedmont’s lawsuit, which Harris reasoned turned only on
the 2007 agreement—the one that included an arbitration clause. It asked the trial court to examine these
contracts and to find—as a matter of law—that Piedmont had only set out a cause
of action for breach of the 2007 contract.
Based on this conclusion, Harris reasoned that there was no basis to
find that some aspects of Piedmont’s case were subject to arbitration but
others were not.
Second,
Harris argued that it had no liability for the project design, because Gray
took over the project with the 2008 contract, before the plans and
specifications were finalized and before the construction bidding process
began. Harris asserted that its
involvement in the circumstances giving rise to Piedmont’s complaint was “minimalâ€
because its duty to provide engineering services for the project had been
removed by the amended agreement assigning those duties to Gray before any
damage occurred.
In
September 2011, Piedmont opposed the petition to compel on both grounds. It asserted that its claims were grounded in
both the 2005 and the 2007 contracts, some of which were not subject to
arbitration. It also argued that its
complaint raised issues involving Gray that were not subject to arbitration. It filed three declarations with attachments
in opposition to the petition, prompting Harris to object to significant
aspects of them. Harris also filed a new
declaration in support of its petition to compel, including the 2008 amendment
to the 2005 contract as an attachment.
On
October 4, 2011, the trial court sustained Harris’s objections to many aspects
of Piedmont’s three declarations. It
issued a tentative decision exercising its discretion to deny the petition to
compel on two grounds. First, it
rejected Harris’s invitation to make a conclusive finding that the Piedmont
action was not based on the 2005 contract.
The trial court concluded that to make such a binding determination on a
petition to compel arbitration would be improper. Instead, the trial court accepted Piedmont’s
allegations that Harris breached both the 2005 and the 2007 contracts. (See § 1281.2(c), par. 3.)
The
trial court also found that the resolution of some issues arising from the 2007
arbitration agreement and other issues in litigation involving third party Gray
created a substantial risk of conflicting rulings on common issues of law and
fact. It found that Piedmont’s claims
against Harris were not easily severable from those alleged against Gray. It also rejected Harris’s claim that the
issues involving Gray involved no common issues of law or fact that could
affect the Harris aspect of the Piedmont action. It found that Gray took over a project on
which Harris had worked for several years, and on which Harris continued to
have “at least a modest role.†(See
§ 1281.2(c), pars. 1, 4.)
The
trial court conducted a hearing on the petition, allowing Harris to contest the
tentative decision. Attorneys for
Piedmont, Harris and Gray appeared at that hearing. Harris argued that after the trial court sustained
its objections to Piedmont’s declarations, the court was left with no other
conflicting rulings affecting Gray.
Gray
filed a posthearing objection to Harris’s petition to compel, which Harris
challenged on standing grounds.
name="_ftnref4" title="">[4] On October 21, 2011, the trial court affirmed
its tentative decision and denied the petition to compel arbitration. This appeal followed. During the pendency of the appeal, Gray filed
a cross-complaint for indemnity and declaratory relief against Harris.
PETITION TO COMPEL
A.
On
appeal, Harris contends that the trial court erred when it denied its petition
to compel arbitration on both grounds.
It argues that the trial court incorrectly concluded that it had no
authority to determine whether Piedmont’s complaint was based on the 2005 or
the 2007 contract, and erred further when it accepted the allegations of that
complaint at face value. (See
§ 1281.2(c), par. 3.) Harris
also contends that the trial court had no basis to conclude that common issues
of law and fact involving third party Gray created a risk of conflicting
rulings, that severance of the actions against Harris and Gray was impractical,
and that denial of the petition to compel arbitration was the best available
alternative. (See § 1281.2(c),
pars. 1, 4.) Harris reasons that
these errors require reversal. It seeks
an order directing the trial court to sever the two parts of Piedmont’s action
and to Harris’s part of it to arbitration.
The resolution of the issues presented on appeal requires a careful
consideration of the statutory
requirements for a petition to compel arbitration.
B.
Legal Framework
When
a party to an arbitration agreement alleges the existence of a written
agreement to arbitrate and demonstrates that another party to that agreement
refuses to arbitrate a controversy, the initial party may petition the trial
court to compel the other party to arbitrate.
If the trial court determines that an agreement to arbitrate exists, it
must compel the parties to arbitrate that controversy, barring some statutory
defense to enforcement of the arbitration agreement. (§ 1281.2, subds. (a)-(b).) As the moving party in the trial court,
Harris had the burden of proving by a preponderance of evidence a valid
arbitration agreement, a request to arbitrate, and a Piedmont refusal to
arbitrate. (See Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th
394, 413; Molecular Analytical Systems v.
Ciphergen Biosystems, Inc. (2010) 186 Cal.App.4th 696, 705 (
Cal.App.4th 633, 641-642; see also Hotels
Nevada v. L.A. Pacific Center, Inc. (2006) 144 Cal.App.4th 754, 761.) Harris made this prima facie case for a
petition to compel arbitration under the 2007 contract.
Even
if Harris made this prima facie case, under certain circumstances the trial
court retained the authority to delay arbitration or to deny the petition to
compel. The trial court has discretion
to delay an arbitration order if it finds that some issues between the
petitioner and the opponent of the petition are subject to arbitration, but
others are not. (§ 1281.2(c),
par. 3.) It also has the power to
deny arbitration altogether if a third party who is not subject to arbitration
is involved in the transactions forming the basis of the underlying
action. If one of the parties to the
arbitration agreement is also a party to a pending court action arising from
the same transaction or a series of related transactions involving a third
party, and if there is a possibility of conflicting rulings on a common issue
of law or fact, the trial court has discretion to decline to enforce the arbitration
agreement. (§ 1281.2(c),
pars. 1, 4; Lindemann v. Hume (2012)
204 Cal.App.4th 556, 564-565.) While
strong public policy favors enforcement of an arbitration agreement, an equally
compelling argument exists for refusing to enforce one when to do so creates
the possibility of inconsistent outcomes and duplication of effort. (Fitzhugh
v. Granada Healthcare & Rehabilitation Center, LLC (2007) 150
Cal.App.4th 469, 475.) Harris asked the
trial court to find that Piedmont’s complaint raised no Harris issues that fell
outside of the arbitration agreement. It
also argued that Gray’s presence did not raise third party common issues. The trial court ruled against Harris on both
arguments.
A
careful review of the statute and California Supreme Court authority reveals
three different sets of issues that may arise when a trial court is faced with
a petition to compel arbitration. The
first set focuses on the prima facie case for a petition to compel—whether an
arbitration agreement exists and, if so, whether enforcement of it is negated
by waiver, revocation, or fraud in the execution. (§ 1281.2, subds. (a), (b), (c), par. 2;
Rosenthal v. Great Western Fin.
Securities Corp., supra, 14 Cal.4th at pp. 413-417.) The second requires the trial court to consider
whether it is appropriate to delay arbitration of some issues between the
parties to an arbitration agreement because other issues between them fall
outside that agreement.
(§ 1281.2(c), par. 3.)
The third asks whether compelling the dispute between the parties to
arbitration is practical if common issues involving a third party that is not
subject to arbitration may result in conflicting rulings if part goes to
arbitration and part proceeds in litigation.
(§ 1281.2(c), pars. 1, 4.)
In the case at bar, the trial court considered the second and third set
of these issues and rejected Harris’s petition to compel arbitration on the
basis of each of them. Although stemming
from the same statute, each issue requires its own unique analysis which may be
based on differing evidence. Thus, we
consider separately each of these potential grounds for error on appeal.
C.
Issues Arising out of Single
Contract
The trial court rejected
Harris’s request to make a conclusive factual finding that all the issues in dispute
between Piedmont and Harris arose from the 2005 arbitration agreement and that
none of those issues arose in the 2007 agreement that did not include such a
clause. Instead, the trial court
accepted the allegations of Piedmont’s complaint that the dispute arose from
both contracts as true. This decision
was part of the trial court’s analysis of whether some issues between Harris
and Piedmont were subject to arbitration, but others were not. A finding that some parts of their dispute
were arbitrable but others were not would have allowed the trial court to
conclude that litigating the nonarbitrable aspects of the case would make
arbitrating the aspects subject to the arbitration agreement unnecessary. That conclusion would give the trial court
the authority—not to deny the
petition to compel arbitration—but to delay
arbitration of the part of the case falling within an arbitration clause while
the rest of the case between Piedmont and Harris was litigated. (§ 1281.2(c), par. 3.) If the trial court had agreed with Harris
that all aspects of the case Piedmont alleged fell within the arbitration
agreement, it would have had no authority to delay arbitration, absent another
independent reason to deny the petition to compel.
On
appeal, Harris contends that the trial court erred by failing to review the
contractual evidence and failing to make a factual finding whether all or only
some of Piedmont’s claims arose under the 2007 contract requiring
arbitration. In essence, Harris asserts
that case law requires that the trial
court undertake this inquiry and make a conclusive finding on this underlying
issue in Piedmont’s case. Whether this
is correct is unclear. In some
contexts—if an issue arose about whether a valid arbitration agreement existed
because the complaint alleged that the contract was fraudulent, of if Piedmont
asserted a waiver or revocation defense to Harris’s petition to compel—the
trial court is required to conduct an evidentiary hearing on these issues and
to determine them on the basis of competent evidence.
v. Great Western Fin. Securities Corp., supra, 14 Cal.4th at pp. 413-417;
Cal.App.4th at p. 705; Mansouri v.
Superior Court, supra, 181 Cal.App.4th at pp. 641-642; see also
§§ 1281.2, subds. (a), (b), (c), par. 2, 1290.2; Hotels Nevada v. L.A. Pacific Center, Inc., supra, 144 Cal.App.4th
at pp. 761-762.) By contrast, when the
issue before the trial court is whether claims involving a third party are
interrelated with those asserted against the party seeking to arbitrate its
dispute such that common issues might result in conflicting rulings, appellate
courts allow consideration of the allegations of the complaint. (See, e.g., Lindemann v. Hume, supra, 204 Cal.App.4th at pp. 566-568;
200 Cal.App.4th 679, 691, fn. 7; Molecular
Analytical, supra, 186 Cal.App.4th at p. 708; Birl v. Heritage Care, LLC (2009) 172 Cal.App.4th 1313, 1319-1320;
see also § 1281.2(c), pars. 1, 4.)
It
is unclear whether a trial court faced with the question of whether Piedmont’s
claims against Harris arose from both contracts or only one would be entitled
to rely on the allegations of the complaint.
(See § 1281.2(c), pars. 1, 4.)
We need not resolve this question because even if we assume arguendo
that the trial court had insufficient evidence to support this aspect of its
ruling, Harris cannot prevail on appeal unless it also establishes that the
trial court erred when denying the petition to compel arbitration on its alternative
ground that its dispute with Piedmont was intertwined with Piedmont’s dispute
with Gray.
D.
The
trial court rejected Harris’s arguments that Piedmont’s claims against it were
separate from Piedmont’s claims against Gray; that the Piedmont claims against
Harris were easily severable from those against Gray; and that the two sets of
issues involved no common questions of law or fact. On appeal, Harris does not contest that Gray
is a third party in this litigation.
However, it does challenge the sufficiency of evidence to support the
trial court’s conclusions (1) that Piedmont’s claims against Gray and its
claims against Harris arose out of a series of related transactions; (2) that
there were common issues of law and fact in the two aspects of Piedmont’s case;
and (3) that those common issues raise a substantial risk of conflicting
rulings if arbitration was compelled. ~(AOB 22)~ (§ 1281.2(c),
pars. 1, 4.)
Harris
argues that a review of the underlying contracts necessarily establishes that
in November 2008, its obligations on the assessment district project ended when
Gray took them on. Reasoning that the
two transactions were clearly separate, did not raise common issues, and did
not create a risk of conflicting rulings in arbitration and in litigation,
Harris contends that the trial court erred by finding otherwise. In essence, Harris asserts that the November
2008 “ ‘handoff’ †of responsibilities necessarily separates Piedmont’s
claims against Harris and Gray. However,
a temporal separation does not necessarily negate the existence of a series of
related transactions involving a third party.
(Birl v. Heritage Care, LLC,
supra, 172 Cal.App.4th at p. 1320; see Lindemann
v. Hume, supra, 204 Cal.App.4th at pp. 566-567.) Even if they were separate in time, the
decisions Harris made in the early stage of the assessment district plans and
specifications could have affected the final set that Gray issues, such that
they were related transactions.
When
determining whether the trial court acted within its discretion when finding
that the claims Piedmont filed against Harris arose out of the same transaction
or a series of transactions related to those that the city raised against Gray,
we may consider the factual allegations of the complaint. (See, e.g., Lindemann v. Hume, supra, 204 Cal.App.4th at pp. 566-568;
200 Cal.App.4th at p. 691, fn. 7; Molecular
Analytical, supra, 186 Cal.App.4th at p. 708; Birl v. Heritage Care, LLC, supra, 172 Cal.App.4th at pp.
1319-1320.) Piedmont’s pleading alleges
that Harris and Gray jointly and severally created the plans and specifications
for the assessment district project. In
addition to this evidence, Harris’s own declarations tend to prove that it had an
ongoing role in the assessment district project after November 2008. Specifically, a declaration from Harris
officials states that after the contractual shift in responsibilities, Harris
received Gray’s drawings of the project and provided comments about a
preliminary set of drawings to Gray.
On
appeal, Harris protests that this evidence shows that its involvement was minor
and could not form the basis of liability for the final plans and
specifications that Gray issued.
However, that argument goes to the weight of the evidence, not to its
admissibility. (See Evid. Code,
§§ 210, 350.) We ask only whether
there was sufficient evidence from which the trial court could find that the
two sets of Piedmont claims arose from a series of related transactions. In our view, the complaint and the Harris
declaration provide substantial evidence supporting the trial court’s finding
that Piedmont’s claims against Harris and its claims against Gray arose out of
a series of related transactions.
Next,
we must consider the trial court’s determination that common issues of law and
fact raised the possibility of conflicting rulings in a Harris arbitration and
the Gray litigation. On appeal, we
review this determination for an abuse of discretion. (Metis
Development LLC v. Bohacek, supra, 200 Cal.App.4th at p. 691.) We will not disturb a trial court’s
discretionary ruling refusing to enforce an arbitration agreement unless that
decision exceeds the bounds of reason. (
Rehabilitation Center, LLC, supra, 150 Cal.App.4th at p. 475.)
If
the trial court’s order turns on a factual finding made on the basis of
disputed facts, we first determine if there is substantial evidence to support
that finding. (Laswell v. AG Seal Beach, LLC (2010) 189 Cal.App.4th 1399, 1406;
see Molecular Analytical, supra, 186
Cal.App.4th at p. 708.) When determining
the factual issue whether there are common issues raising the potential for
conflicting rulings, we may consider what the pleadings allege. (See Metis
Development LLC v. Bohacek, supra, 200 Cal.App.4th at p. 691, fn.
7.) Piedmont’s allegation that Harris
and Gray jointly and severally created the assessment district project plans
and specifications constitutes substantial evidence to support the trial
court’s factual determination that there were common issues raising the
potential for conflicting rulings if one part of the interconnected case went
to arbitration and another aspect of it proceeded in litigation. Thus, the trial court did not abuse its
discretion when it denied Harris’s petition to compel arbitration.
We
close by noting that our decision is based on the evidence that was before the
trial court in November 2011, when it denied Harris’s petition to compel
arbitration. (See Hotels Nevada v. L.A. Pacific Center, Inc., supra, 144 Cal.App.4th
at p. 763, fn. 3; Bos Material Handling,
Inc. v. Crown Controls Corp. (1982) 137 Cal.App.3d 99, 112 [when unnamed
third party was not identified until after ruling, later substitution of third
party for Doe defendant does not allow appellate court to consider new third
party].) While we do not rely on the
later-filed cross-complaint in which Gray asserts claims against Harris for
fact that this cross-complaint was filed affirms the wisdom of the trial
court’s exercise of its discretion.
name="_ftnref6" title="">[6]
The
order denying Harris’s petition to compel arbitration is affirmed.
_________________________
REARDON,
J.
We concur:
_________________________
RUVOLO, P. J.
_________________________
BASKIN, J.*
* Judge of the Contra
Costa Superior Court, assigned by the Chief Justice pursuant to article VI,
section 6 of the California Constitution.
statutory references are to the Code of Civil Procedure unless otherwise
indicated.
name="_ftn2" title=""> [2]
Some aspects of our statement of facts are taken from the allegations of
Piedmont’s complaint. These allegations
are hotly disputed by Harris and Piedmont and have yet to be adjudicated. Nevertheless, we include them to place
Piedmont’s lawsuit in context.
