1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 | Linda Leahy, No. 2:24-cev-01855-KJM-CKD 12 Plaintiff, ORDER 13 v. CMH Homes, Inc., 1S Defendant. 16 17 Defendant CMH Homes, Inc. (CMH) moves to compel arbitration of plaintiff Linda 18 | Leahy’s breach of contract and related claims. Leahy contests the motion, arguing the arbitration 19 | agreement is unenforceable because it violates California Business and Professions Code section 20 | 7191 (section 7191) and because she did not sign or agree to an arbitration agreement with CMH. 21 | As explained below, the court denies Leahy’s request to find the arbitration agreement 22 | unenforceable and holds CMH’s motion to compel arbitration in abeyance pending an 23 | evidentiary hearing to determine whether Leahy agreed to an arbitration provision with CMH. 24 | I. BACKGROUND 25 Leahy is an Oregon resident who contracted with CMH, a Tennessee corporation, to build 26 | amobile home for her to be placed in Casa Mobile Park in West Sacramento, California. Notice 27 | of Removal. Ex. B (Compl.) Jf 1-2, 6, ECF No. 1-2; Mem. P. & A. Supp. Mot. Compel Arb. 28 | (Mem.) at 3, ECF No. 15-1. In November 2022 the parties signed a “Manufactured Home
1 Purchase Order” requiring CMH to construct a mobile home for Leahy for $140,000. Campbell 2 Decl. Ex. A at 5, ECF No. 15-2. Leahy put a $1,000 deposit down on the home. Id. CMH then 3 constructed the mobile home using parts manufactured outside of California. Caruso Decl. ¶ 2, 4 ECF No. 15-3. CMH manufactured the home in California. Mem. at 7. When the home was 5 completed in March 2023, Leahy and Julie Campbell, a sales manager for CMH, sat down 6 together in person. Leahy Decl. ¶ 7, ECF No. 17-1; Campbell Decl. ¶ 7. Leahy paid for the home 7 in full and Campbell provided her with paperwork to sign. Leahy Decl. ¶ 7; Campbell Decl. 8 ¶¶ 7–8. When the mobile home arrived, Leahy was dissatisfied with its dimensions and features. 9 See Compl. ¶¶ 17–22. 10 II. PROCEDURAL BACKGROUND 11 Leahy filed an amended complaint against CMH in Yolo County Superior Court on June 12 5, 2024, alleging breach of contract, breach of the implied covenant of good faith and fair dealing 13 and fraud. See Compl. at 7–10. CMH removed to this court based on diversity jurisdiction. See 14 Notice of Removal, ECF No. 1. CMH submits a motion to compel arbitration. ECF No. 15. The 15 matter is now fully briefed, and the court submitted it without a hearing. See Opp’n, ECF No. 17 16 and Reply, ECF No. 19. 17 III. LEGAL STANDARD 18 The Federal Arbitration Act (FAA) applies to a written provision in a contract “evidencing 19 a transaction involving commerce to settle by arbitration a controversy thereafter arising out of 20 such contract or transaction . . . .” 9 U.S.C. § 2. “[I]t is the burden of the party claiming that 21 Congress intended to preempt state law to prove it.” Olszewski v. Scripps Health, 30 Cal. 4th 22 798, 815 (2003) (citations and internal marks omitted). Valid contract defenses are available to 23 those seeking to invalidate an arbitration agreement under the FAA but “courts may not . . . 24 invalidate arbitration agreements under state laws applicable only to arbitration provisions.” 25 Dr.’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 686–87 (1996) (citations omitted). If one party 26 disputes another’s assertion that they agreed to arbitrate, the FAA requires the district court to 27 “hear the parties” and determine whether “the making of the arbitration agreement [is] in issue.” 28 9 U.S.C. § 4. That is, the court decides whether there is a “genuine dispute of material fact” 1 under the standard of Federal Rule of Civil Procedure 56, which governs motions for summary 2 judgment. Hansen v. LMB Mortg. Servs., Inc., 1 F.4th 667, 670–71 (9th Cir. 2021). “[O]nce a 3 district court concludes that there are genuine disputes of material fact as to whether the parties 4 formed an arbitration agreement, the court must proceed without delay to trial on arbitrability and 5 hold any motion to compel arbitration in abeyance until the factual issues have been resolved.” 6 Id. at 672. 7 IV. ANALYSIS 8 CMH submits Leahy signed an arbitration agreement, the Binding Dispute Resolution 9 Agreement (BDRA), on March 24, 2023. Mem. at 3. The parties do not dispute that, if valid, the 10 BDRA encompasses Leahy’s breach of contract, breach of implied covenant of good faith and 11 fair dealing and fraud claims against CMH. See Compl. at 7–10. Instead, the dispute rests on two 12 arguments: (1) Leahy argues the BDRA should not be enforced because it violates section 7191 13 and (2) Leahy claims she did not actually sign or agree to the BDRA. See Opp’n at 1–5. The 14 court addresses each argument in turn.1 15 A. Section 7191 16 Leahy contends the BDRA is unenforceable because it violates section 7191. See id. at 3– 17 5. CMH does not dispute the BDRA violates section 7191. Instead, it argues the FAA applies to 18 the BDRA and preempts section 7191. See Reply at 2–4. The court agrees with CMH. 19 Section 7191 requires contracts relating to work on residential properties of four or fewer 20 units have a specific title for an included arbitration clause: “ARBITRATION OF DISPUTES.”
1 CMH argues the court should not consider Leahy’s opposition because it was filed 17 days late. See E.D. Cal. L.R. 230(c) (providing opposition to motion shall be filed and served no later than 14 days after motion was filed); Stmt. Non-Opp’n, ECF No. 16; Reply at 2, ECF No. 19. Leahy’s lawyer, Elan Dunaev, has filed a declaration, stating the untimely opposition was due to excusable neglect stemming from a recent amendment to the Local Rules that he did not catch. Dunaev Decl. ¶¶ 3–4, ECF No. 17-2. To determine whether an excusable neglect standard has been met for an untimely filing this court examines the following factors: (1) the danger of prejudice to the opposing party, (2) the length of the delay and its impact, (3) the reason for the delay, and (4) whether the party acted in good faith. See Rodriquez v. USF Reddaway, Inc., No: 22-0210, 2022 WL 18012518, at *6 n.1 (E.D. Cal. Dec. 29, 2022). Here, CMH has not pled it was prejudiced by the delay and therefore the court finds good cause to consider Leahy’s opposition. 1 Cal. Bus. & Prof. Code § 7191(a). Section 7191 also contains other requirements for the 2 arbitration provision including font size, the capitalization of letters and mandatory language. See 3 id. § 7191(a)–(b). 4 Whether section 7191 invalidates the BDRA depends on whether the FAA applies to the 5 transaction between CMH and Leahy. As noted, the party seeking to enforce an arbitration 6 agreement bears the burden of showing the FAA applies to the agreement. Olszewski, 30 Cal.4th 7 at 815. The party must show that the controversy in fact—not necessarily controversies 8 contemplated by the parties upon the signing of the contract—involved commerce. Allied-Bruce 9 Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 277–81 (1996). The Supreme Court has interpreted 10 “involving commerce” to encompass all conceivable activities Congress could regulate under its 11 Commerce Clause power. See id. at 273. 12 Here, CMH has met its burden to show the FAA applies to the BDRA. See Mem. at 6–8.
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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 | Linda Leahy, No. 2:24-cev-01855-KJM-CKD 12 Plaintiff, ORDER 13 v. CMH Homes, Inc., 1S Defendant. 16 17 Defendant CMH Homes, Inc. (CMH) moves to compel arbitration of plaintiff Linda 18 | Leahy’s breach of contract and related claims. Leahy contests the motion, arguing the arbitration 19 | agreement is unenforceable because it violates California Business and Professions Code section 20 | 7191 (section 7191) and because she did not sign or agree to an arbitration agreement with CMH. 21 | As explained below, the court denies Leahy’s request to find the arbitration agreement 22 | unenforceable and holds CMH’s motion to compel arbitration in abeyance pending an 23 | evidentiary hearing to determine whether Leahy agreed to an arbitration provision with CMH. 24 | I. BACKGROUND 25 Leahy is an Oregon resident who contracted with CMH, a Tennessee corporation, to build 26 | amobile home for her to be placed in Casa Mobile Park in West Sacramento, California. Notice 27 | of Removal. Ex. B (Compl.) Jf 1-2, 6, ECF No. 1-2; Mem. P. & A. Supp. Mot. Compel Arb. 28 | (Mem.) at 3, ECF No. 15-1. In November 2022 the parties signed a “Manufactured Home
1 Purchase Order” requiring CMH to construct a mobile home for Leahy for $140,000. Campbell 2 Decl. Ex. A at 5, ECF No. 15-2. Leahy put a $1,000 deposit down on the home. Id. CMH then 3 constructed the mobile home using parts manufactured outside of California. Caruso Decl. ¶ 2, 4 ECF No. 15-3. CMH manufactured the home in California. Mem. at 7. When the home was 5 completed in March 2023, Leahy and Julie Campbell, a sales manager for CMH, sat down 6 together in person. Leahy Decl. ¶ 7, ECF No. 17-1; Campbell Decl. ¶ 7. Leahy paid for the home 7 in full and Campbell provided her with paperwork to sign. Leahy Decl. ¶ 7; Campbell Decl. 8 ¶¶ 7–8. When the mobile home arrived, Leahy was dissatisfied with its dimensions and features. 9 See Compl. ¶¶ 17–22. 10 II. PROCEDURAL BACKGROUND 11 Leahy filed an amended complaint against CMH in Yolo County Superior Court on June 12 5, 2024, alleging breach of contract, breach of the implied covenant of good faith and fair dealing 13 and fraud. See Compl. at 7–10. CMH removed to this court based on diversity jurisdiction. See 14 Notice of Removal, ECF No. 1. CMH submits a motion to compel arbitration. ECF No. 15. The 15 matter is now fully briefed, and the court submitted it without a hearing. See Opp’n, ECF No. 17 16 and Reply, ECF No. 19. 17 III. LEGAL STANDARD 18 The Federal Arbitration Act (FAA) applies to a written provision in a contract “evidencing 19 a transaction involving commerce to settle by arbitration a controversy thereafter arising out of 20 such contract or transaction . . . .” 9 U.S.C. § 2. “[I]t is the burden of the party claiming that 21 Congress intended to preempt state law to prove it.” Olszewski v. Scripps Health, 30 Cal. 4th 22 798, 815 (2003) (citations and internal marks omitted). Valid contract defenses are available to 23 those seeking to invalidate an arbitration agreement under the FAA but “courts may not . . . 24 invalidate arbitration agreements under state laws applicable only to arbitration provisions.” 25 Dr.’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 686–87 (1996) (citations omitted). If one party 26 disputes another’s assertion that they agreed to arbitrate, the FAA requires the district court to 27 “hear the parties” and determine whether “the making of the arbitration agreement [is] in issue.” 28 9 U.S.C. § 4. That is, the court decides whether there is a “genuine dispute of material fact” 1 under the standard of Federal Rule of Civil Procedure 56, which governs motions for summary 2 judgment. Hansen v. LMB Mortg. Servs., Inc., 1 F.4th 667, 670–71 (9th Cir. 2021). “[O]nce a 3 district court concludes that there are genuine disputes of material fact as to whether the parties 4 formed an arbitration agreement, the court must proceed without delay to trial on arbitrability and 5 hold any motion to compel arbitration in abeyance until the factual issues have been resolved.” 6 Id. at 672. 7 IV. ANALYSIS 8 CMH submits Leahy signed an arbitration agreement, the Binding Dispute Resolution 9 Agreement (BDRA), on March 24, 2023. Mem. at 3. The parties do not dispute that, if valid, the 10 BDRA encompasses Leahy’s breach of contract, breach of implied covenant of good faith and 11 fair dealing and fraud claims against CMH. See Compl. at 7–10. Instead, the dispute rests on two 12 arguments: (1) Leahy argues the BDRA should not be enforced because it violates section 7191 13 and (2) Leahy claims she did not actually sign or agree to the BDRA. See Opp’n at 1–5. The 14 court addresses each argument in turn.1 15 A. Section 7191 16 Leahy contends the BDRA is unenforceable because it violates section 7191. See id. at 3– 17 5. CMH does not dispute the BDRA violates section 7191. Instead, it argues the FAA applies to 18 the BDRA and preempts section 7191. See Reply at 2–4. The court agrees with CMH. 19 Section 7191 requires contracts relating to work on residential properties of four or fewer 20 units have a specific title for an included arbitration clause: “ARBITRATION OF DISPUTES.”
1 CMH argues the court should not consider Leahy’s opposition because it was filed 17 days late. See E.D. Cal. L.R. 230(c) (providing opposition to motion shall be filed and served no later than 14 days after motion was filed); Stmt. Non-Opp’n, ECF No. 16; Reply at 2, ECF No. 19. Leahy’s lawyer, Elan Dunaev, has filed a declaration, stating the untimely opposition was due to excusable neglect stemming from a recent amendment to the Local Rules that he did not catch. Dunaev Decl. ¶¶ 3–4, ECF No. 17-2. To determine whether an excusable neglect standard has been met for an untimely filing this court examines the following factors: (1) the danger of prejudice to the opposing party, (2) the length of the delay and its impact, (3) the reason for the delay, and (4) whether the party acted in good faith. See Rodriquez v. USF Reddaway, Inc., No: 22-0210, 2022 WL 18012518, at *6 n.1 (E.D. Cal. Dec. 29, 2022). Here, CMH has not pled it was prejudiced by the delay and therefore the court finds good cause to consider Leahy’s opposition. 1 Cal. Bus. & Prof. Code § 7191(a). Section 7191 also contains other requirements for the 2 arbitration provision including font size, the capitalization of letters and mandatory language. See 3 id. § 7191(a)–(b). 4 Whether section 7191 invalidates the BDRA depends on whether the FAA applies to the 5 transaction between CMH and Leahy. As noted, the party seeking to enforce an arbitration 6 agreement bears the burden of showing the FAA applies to the agreement. Olszewski, 30 Cal.4th 7 at 815. The party must show that the controversy in fact—not necessarily controversies 8 contemplated by the parties upon the signing of the contract—involved commerce. Allied-Bruce 9 Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 277–81 (1996). The Supreme Court has interpreted 10 “involving commerce” to encompass all conceivable activities Congress could regulate under its 11 Commerce Clause power. See id. at 273. 12 Here, CMH has met its burden to show the FAA applies to the BDRA. See Mem. at 6–8. 13 The parties are not residents of California. See id. at 7. Leahy is a resident of Oregon. Compl. 14 ¶ 1. CMH is incorporated in Tennessee. See Notice of Removal ¶¶ 8–9. CMH provides 15 uncontested evidence from Lisa Caruso, a CMH employee, that most of the parts for the mobile 16 home built for Leahy came from outside of California. Caruso Decl. ¶ 2. CMH manufactured the 17 home in West Sacramento. Mem. at 7. The FAA applies to this transaction because goods were 18 physically shipped across state lines and because the parties are from different states. See Allied- 19 Bruce Terminix, 513 U.S. at 273–74 (noting the core of Congress’s commerce power is to 20 regulate physical flow of goods across state lines and the FAA also applies to contracts between 21 interstate residents). 22 The Supreme Court has repeatedly held that the FAA preempts state laws “that single out 23 executed arbitration agreements and prevent the enforcement of such agreements according to 24 their terms.” Chamber of Com. of the U.S. v. Bonta, 62 F.4th 473, 483 (9th Cir. 2023) (collecting 25 cases). This “equal-treatment principle . . . requires courts to place arbitration agreements on 26 equal footing with all other contracts.” Id. (citations and internal marks omitted). Here, section 27 7191 applies only to arbitration provisions and not to contracts generally. The court cannot 1 invalidate an arbitration provision based on section 7191 because it singles out arbitration 2 provisions. See Casarotto, 517 U.S. at 686–87. The FAA preempts section 7191. 3 Leahy cites Woolls v. Superior Court, 127 Cal. App. 4th 197 (2005), as evidence that 4 section 7191 applies to the BDRA. Opp’n at 4–5. But the court in Woolls applied section 7191 5 only after finding the party seeking to enforce the agreement had not met its burden to show the 6 FAA applied to the arbitration agreement. Id. at 213–15. The case involved a dispute over a 7 contract between California residents to renovate a single-family home in California. Id. The 8 party invoking the FAA did not provide any evidence to show how the contract involved 9 interstate commerce. See id.; see also Lane v. Francis Cap. Management, 224 Cal. App. 4th 676, 10 688 (2014) (finding defendant had not met burden of proving preemption because all parties were 11 California residents and defendant had not submitted a declaration or other evidence showing 12 dispute involved interstate commerce). As noted above, CMH has met its burden to show the 13 FAA applies to the BDRA by submitting evidence that goods crossed state lines and the parties 14 are residents of different states. 15 B. The BDRA 16 Leahy claims she never agreed to the BDRA and submits her own declaration as evidence. 17 Leahy Decl. ¶ 2. CMH submits a declaration of Campbell. See generally Campbell Decl. 18 Campbell claims she witnessed Leahy sign the BDRA on March 24, 2023. See id. ¶¶ 8–9. 19 Campbell submits a copy of the BDRA signed by a “Linda Leahy” and dated March 24, 2023. 20 Campbell Decl. Ex. C at 18. CMH requests an evidentiary hearing to determine whether Leahy 21 signed the BDRA. Reply at 5. The court agrees that an evidentiary hearing is necessary. 22 Leahy submits she did not meet Campbell on March 24, 2023, because her daughter had 23 surgery that day. Leahy Decl. ¶ 5. Leahy claims she did not meet Campbell until March 27, 24 2023, when Leahy received some “paperwork to sign.” Id. ¶ 7. According to Leahy, the 25 paperwork did not include the BDRA. Id. ¶ 8. Leahy’s narrative of events is open to question. 26 In her operative complaint, Leahy attaches as exhibit 1 a copy of the sales agreement between 27 CMH and Leahy, perhaps mistakenly thinking it was the November 2022 agreement. See Compl. 28 ¶ 6 & Ex. 1 at 14. The sales agreement bears a signature identified as Leahy’s and is dated March 1 24, 2023. Id. Campbell has submitted a copy of the same agreement with the same date and 2 signature. See Campbell Decl. ¶ 7 & Ex. B at 12. Nevertheless, even though Leahy admits to 3 signing some paperwork at some point with Campbell and even if her contention that she did not 4 meet Campbell on March 24, 2023, is questionable, there is still a dispute of material fact 5 regarding whether Leahy signed the BDRA and agreed to arbitrate her disputes with CMH. 6 The court therefore will hold an evidentiary hearing to determine whether Leahy agreed to 7 an arbitration agreement with CMH. See Hansen, 1 F.4th at 672 (noting “the court must proceed 8 without delay to a trial on arbitrability and hold any motion to compel arbitration in abeyance 9 until the factual issues have been resolved.”). 10 V. CONCLUSION 11 Leahy’s request to find the arbitration agreement unenforceable is denied. CMH’s motion 12 to compel arbitration is held in abeyance pending an evidentiary hearing to determine if Leahy 13 consented to an arbitration agreement with CMH. Within 30 days, the parties must meet and 14 confer and submit a joint statement for the evidentiary hearing. The statement should include 15 proposed dates for the hearing, an estimate of how long the hearing will last, witness and exhibit 16 lists, a list of undisputed facts, and a list of disputed facts. Upon receipt of the joint statement, the 17 court will set an evidentiary hearing date as well as dates for any status conference beforehand 18 needed. 19 IT IS SO ORDERED. 20 DATED: January 28, 2025.