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Cynthia L. Burch v. Premier Homes

September 28, 2011

CYNTHIA L. BURCH, PLAINTIFF AND RESPONDENT,
v.
PREMIER HOMES, LLC ET AL., DEFENDANTS AND APPELLANTS.



APPEAL from an order of the Superior Court of Los Angeles County, Joseph S. Biderman, Judge. (Los Angeles County Super. Ct. No. SC101002)

The opinion of the court was delivered by: Croskey, J.

CERTIFIED FOR PUBLICATION

Affirmed.

In this case, the plaintiff and respondent, Cynthia L. Burch, filed a complaint for damages arising out of alleged construction defects. After she had filed that complaint, the defendants and appellants*fn1 moved to compel arbitration of her claims and now seek reversal of the trial court's order denying that motion.*fn2 The trial court concluded that the arbitration clause in the agreement between Burch and the defendants was susceptible to conflicting interpretations with respect to its scope. The court therefore solicited, received and considered extrinsic evidence with respect to the intent of the parties on this issue, and even took the unusual step of receiving oral testimony at a special hearing. After considering such evidence and weighing the credibility of the several witnesses who had provided written and oral testimony, the trial court held that no agreement had been reached between the parties to arbitrate the issues and claims raised by Burch in her complaint.

In our view, the trial court correctly concluded that the arbitration clause was reasonably susceptible to conflicting interpretations and acted within its discretion in considering extrinsic evidence of the parties' intent, including the receipt of additional oral testimony at a special hearing. As the record before us demonstrates that substantial evidence supports the trial court's conclusion as to the parties' intent and that there was no agreement to arbitrate the issues raised in the pending complaint, we will affirm the order denying the motion to compel.*fn3

FACTUAL AND PROCEDURAL BACKGROUND*fn4

The defendants developed and built a home at 516 Almar Avenue in Pacific Palisades, California (the property). On February 8, 2007, Burch signed an offer to purchase the property for $3.3 million.*fn5 Burch submitted her offer on a standard California Association of Realtors (CAR) preprinted contract entitled "Residential Purchase Agreement and Joint Escrow Instructions"*fn6 (purchase agreement). To her offer, Burch attached an Addendum No. 1 in which she requested certain additional features and fixtures. The preprinted CAR form included a paragraph 17 which provided, in part, "Buyer and Seller agree that any dispute or claim in Law or equity arising between them out of this Agreement or resulting transaction, which is not settled through mediation, shall be decided by neutral, binding arbitration . . . . "*fn7

On or about February 10, 2007, Burch's broker, Lisa Morrin (Morrin) received a counter-offer from defendants that, among other things, included an Addendum No. 2. This addendum related to a new house limited warranty that would be issued by the Home Buyers Warranty Corporation (HBW) based in Denver, Colorado.*fn8 Addendum No. 2 included provisions relating to the arbitration of disputes that may arise between Burch, the defendants and HBW. Burch was told by Morrin that she had never seen a proposed contractual provision that would require a home buyer to agree to arbitrate with a builder over construction defects.

Burch explained to Morrin that she did not want to buy the property if her rights under California law were modified or if she would be forced to arbitrate any disputes that may arise with the defendants. However, she and Morrin discussed the idea of executing the defendants' counter-offer to specifically open escrow to buy the property; and then, within the twelve-day contingency period provided for under her original offer, negotiate with the defendants over the Addendum No. 2 terms with which she disagreed. Burch ultimately decided to pursue this approach, but told Morrin to immediately notify the defendants that Burch did not approve of all of the terms in Addendum No. 2, that she wanted to negotiate the removal of the term that required her to arbitrate any dispute with the defendants or that would alter her rights under California law, and that she wanted a copy of the terms of the applicable warranty as soon as possible. Morrin told the defendant Scott Warren (Warren) that Burch would not agree to buy the property if Burch had to give up her rights under California law.

On February 11, 2007, in accordance with this decision, Burch executed the defendants' counter-offer with its Addendum No. 2 and, over the next few days, negotiated with Warren over the terms of Addendum No. 2 and the 2-10 HBW Asset Protection Warranty (the "Warranty"). At the time that Burch executed the defendants' counter-offer, she had not yet received the booklet for the Warranty that she had previously requested. Burch did not want to commit to buying the property or to lifting any contingencies for its purchase until she had received and reviewed the Warranty booklet and had an opportunity to negotiate the removal of the provisions that would affect her rights under California law for claims against the builder for construction defects. During these conversations, Warren insisted that he could only sell the property to Burch with the unaltered language in Addendum No. 2, because HBW required that it be included in the purchase agreement in order for the Warranty to be issued under HBW's Warranty program. Of particular relevance here is the provision in Addendum No. 2 relating to arbitration:

"1. 'Arbitration of Disputes.' A. Paragraph 17 of the Agreement [the CAR arbitration provision] shall only apply to disputes that arise before the Close of Escrow. [¶] B. The following provisions shall only apply to disputes that arise after the Close of Escrow. It is hereby agreed that all claims, disputes, and controversies between Buyer and Seller arising from or related to the Property, or to any defect in or to the Property or the real property on which the Property is situated, or the sale of the Property by Seller including, but not limited to, any claim for breach of contract, negligent, or intentional misrepresentation, shall be submitted to binding arbitration by and pursuant to the arbitration provision contained in the most recent edition of the HBW Limited Warranty Booklet, as of the date of the execution of this Agreement. The Booklet has been made available to Buyer, and is incorporated herein by reference, and made a part of this Agreement. Notwithstanding any provision to the contrary in the Agreement, the arbitration provisions are hereby amended by the following provisions as though fully set forth therein: Builder has elected to adopt the standards and procedures set forth in the California Civil Code commencing at Section 895, et seq. (the 'Code').[*fn9 ] Builder has notified Buyer that it intends to follow the pre-litigation procedures in the Code commencing at Section 910, et seq. In the event Buyer makes a Claim within the purview of the Code, Builder and Buyer agree that the pre-litigation procedures with the Code, as adopted by Builder, shall control the claim process. In the event the pre-litigation procedures do not result in the resolution of Buyer's claim and Buyer pursues a further action, Buyer and Builder acknowledge the applicability of, and shall be bound by the Arbitration Agreement contained in the 2-10 HBW Asset Protection Program, the terms of which shall control the arbitration process. Buyer and Builder shall be limited to seeking redress within the specific terms of the 2-10 HBW Arbitration provisions."*fn10

Despite Warren's repeatedly taking the position that the Warranty provides extra protection for Burch's benefit, Burch believed that Warren really wanted the Warranty for the defendants' benefit. Warren specifically told Burch that the language in Addendum No. 2 applied only with respect to the Warranty, rather than with respect to disputes between Burch and defendants. Burch, however, told Morrin and Warren that she "did not really want the Warranty" and "just wanted to make sure that [she retained] all [her] rights under California law."

When Burch finally obtained a copy of the Warranty booklet on February 14, 2007, she set up a conference call to discuss the Warranty and the language in Addendum No. 2. Participating in the conference call were Burch, Morrin, Warren, Joan Riordan (Riordan), general counsel for HBW, and Don Aberbook (Aberbook), who either worked for or was a principal of HBW. Burch took contemporaneous notes of the telephone conference.

Aberbook, who spoke on behalf of HBW, stated that he was an attorney from California before he moved to Colorado and that he had participated in the drafting of the California statute (S.B. 800; Stats 2002, c. 722) relating to construction defect litigation (Civ. Code, §§ 895-945.5). Burch responded specifically that she really did not want the Warranty and that having it was not important to her. Aberbook contended that the Warranty was " 'parallel' " to rights and remedies provided by S.B. 800, but distinct from it and that the Warranty " 'cannot replace buyer's rights under California law.' " Burch then asked Aberbook about the process of filing a claim under the Warranty and reconfirmed to everyone on the conference call that she did not want anything to affect her rights under California law.

Aberbook described the claims process generally and said that Burch could sue under the California statutory scheme or other law if the defects were not repaired. He noted that outside of the HBW Warranty, arbitration was "not uncommon" but that an express agreement to do so was needed. He indicated that the language in Addendum No. 2 was provided by HBW and that HBW required its builders to put that language in their purchase agreements if they wanted to have an HBW warranty issued. Aberbook then stated that the language was only for the Warranty to which Burch remarked that this is exactly what Warren had said previously. Aberbook agreed that the language in Addendum No. 2 did not otherwise apply to disputes between Burch and defendants. Burch then requested that the parties strike the last sentence of Addendum No. 2 (" 'Buyer and Builder shall be limited to seeking redress within the specific terms of the 2-10 HBW Warranty Arbitration provision' ") in order to clarify that the language in Addendum No. 2 would not affect her rights under California law and would only apply where there was a dispute between Burch and HBW with respect to claims made against the Warranty. And, Aberbook agreed to strike that language from the purchase agreement. Warren became noticeably upset at this point and asked, " '[w]hat did I buy then?' "*fn11

It is important to note that the language found in the Warranty booklet supports Aberbook's statement that the Warranty is parallel to Burch's rights under California law. This language provides, in relevant part: "ARBITRATION. Any and all claims, disputes and controversies by or between the homeowner, the Builder, the Warranty Insurer and/or HBW, or any combination of the foregoing, arising from or related to this Warranty, to the subject Home, to any defect in or to the subject Home or the real property on which the subject Home is situated, or the sale of the subject Home by the Builder, including without limitation, any claim of breach of contract, negligent or intentional misrepresentation or nondisclosure in the inducement, execution or performance of any contract, including this ...


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