Liu v. Barrelet

• Court: District Court, S.D. California
• Decided: November 22, 2024
• Docket: 3:23-cv-02186
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 WEI LIU, an individual, Case No.: 3:23-cv-02186-RBM-SBC

12 Petitioner, ORDER 13 v. (1) GRANTING MOTION TO 14 BLAISE BARRELET as Trustee of the COMPEL ARBITRATION 15 BARRELET FAMILY TRUST, (2) GRANTING APPLICATION FOR 16 Respondent. ORDER PERMITTING 17 SUBMISSION OF NEW EVIDENCE

IN OPPOSITION TO MOTION TO 18 COMPEL 19

[Docs. 4, 12] 20 21

22 Pending before the Court is Petitioner Wei Liu’s (“Liu”) Motion to Compel 23 Arbitration (“Motion”), which was filed on April 10, 2024. (Doc. 4.) On May 14, 2024, 24 Respondent Blaise Barrelet, as Trustee of the Barrelet Family Trust (“Barrelet”), filed an 25 26 27 28 1 Opposition to Liu’s Motion. (Doc. 9.) On May 21, 2024, Liu filed a Reply in Support of 2 her Motion (“Reply”). (Doc. 10.) 3 The Court finds this matter suitable for determination without oral argument 4 pursuant to Civil Local Rule 7.1(d)(1). For the reasons discussed below, Liu’s Motion is 5 GRANTED. 6 I. BACKGROUND 7 A. Barrelet’s State Court Action and Appeal 8 On October 31, 2022, Barrelet filed a Complaint for (1) Breach of Written Contract, 9 (2) Breach of Implied Covenant of Good Faith and Fair Dealing, (3) Conversion, and (4) 10 Violation of California Civil Code § 1950.5 against Liu in the Superior Court of California, 11 County of San Diego, Case No. 37-2022-00043748-CU-BC-CTL. (Doc. 9-1 at 23–292 12 [“State Court Complaint”].) Barrelet alleged that, on or about March 9, 2022, Liu leased 13 Barrelet the residential property located at 16627 Los Morros, Rancho Santa Fe, CA 92067 14 (the “Property”) pursuant to the terms of the California Association of Realtors’ (“CAR”) 15 form Residential Lease After Sale (the “Lease”). (Id. ¶ 5.) Pursuant to the terms and 16 conditions of the Lease, Barrelet delivered to Liu $40,000 to be held as a security deposit. 17 (Id. ¶ 6.) 18 Barrelet alleged that the Lease expired on May 18, 2022 and that he vacated and 19 surrendered possession of the Property in clean and good condition and repair. (Id. ¶¶ 8– 20 9.) Barrelet alleged that Liu failed to “provide the required documentation together with 21 the required itemization of deductions from Plaintiff’s Security Deposit within the statutory 22 period of [21] days, or thereafter until the present, as expressly required under California 23 Civil Code, [s]ection 1950.5 and the Lease.” (Id. ¶ 10.) Barrelet alleged that Liu 24 “wrongfully and intentional[ly] withheld the Security Deposit in bad faith and refused 25 Plaintiff’s repeated requests for return of the deposit.” (Id. ¶ 11.) 26

27 1 Liu and Barrelet are collectively referred to the as the “Parties.” 28 2 1 After Barrelet filed the State Court Complaint, Liu sought an order compelling the 2 case to arbitration based on the arbitration provision in the CAR’s form California 3 Residential Purchase Agreement and Joint Escrow Instructions (the “Purchase 4 Agreement”) that preceded the Lease. (Doc. 9-1 at 67 [Tentative Ruling].) The arbitration 5 provision states: 6 The Parties agree that any dispute or claim in Law or equity arising between them out of this Agreement or any resulting transaction, which is not settled 7 through mediation, shall be decided by neutral, binding arbitration. ... 8 Enforcement of, and any motion to compel arbitration pursuant to, this agreement to arbitrate shall be governed by the procedural rules of the 9 Federal Arbitration Act [“FAA”], and not the California Arbitration Act, 10 notwithstanding any language seemingly to the contrary in this Agreement.

11 (Id. (emphasis added).) The Parties agreed, and the trial court confirmed, that the 12 arbitration provision encompassed both the Purchase Agreement and the subsequent Lease. 13 (Id.) Interpreting the plain language of the arbitration provision, the trial court found that 14 “the arbitration agreement is governed by the ‘procedural rules of the [FAA]’ but not the 15 substantive rules [of the FAA] as the agreement expressly states only the FAA’s 16 ‘procedural rules.’” (Id. at 68.) The trial court then held that “[s]ubstantively, under 17 California law, Civil Code [§] 1953(a)(4) invalidates any provision in a lease that agrees 18 to waive or modify procedural rights in litigation, including the right to a jury trial. … 19 Here, [Barrelet’s] complaint asserts breaches and violations of the [Lease] and tenancy 20 related claims. Accordingly, arbitration is precluded.” (Id.) 21 The California state appellate court affirmed the trial court’s decision.3 (Doc. 12-1 22 [Appellate Court Decision] at 2.) The appellate court held that “the plain language of the 23 24

25 3 On September 4, 2024, Barrelet filed an Application for Order Permitting Submission of 26 New Evidence in Opposition to Liu’s Motion (“Application”). (Doc. 12.) In his 27 Application, Barrelet asks the Court to accept submission of the appellate court’s decision in the State Court Action for consideration in connection with Liu’s Motion. (Id. at 2.) Liu 28 1 agreement indicates the parties intended for substantive California law to govern in general 2 and for federal procedural law as set forth in the FAA to govern in the context of the 3 agreement to arbitrate.” (Id. at 6.) Therefore, the appellate court agreed “with the trial 4 court’s conclusion that the arbitration agreement at issue here is governed by the procedural 5 rules of the FAA, and by substantive California state law.” (Id. at 9.) The appellate court 6 then found that California Civil Code § 1953(a)(4), a substantive law that voids the waiver 7 of litigation rights in a dwelling lease or rental agreement as contrary to public policy, 8 voided the arbitration provision as it pertains to disputes concerning the Lease. (Id. at 9– 9 12.) 10 B. Liu’s Petition to Compel Arbitration 11 On November 20, 2023, Liu filed a Petition to Compel Arbitration (“Petition”) 12 before this Court pursuant to FAA, 9 U.S.C. § 4. (Doc. 1 [“Petition”].) In her Petition, Liu 13 asserts that she purchased a single-family residence on a large lot with a vineyard from 14 Barrelet. (Id. ¶ 1.) Liu asserts that, while Barrelet represented that the vineyard was in 15 perfect condition, Barrelet did not allow Liu to conduct a second inspection. (Id.) After 16 the close of escrow, Liu discovered that the vineyard contained many grape vines that were 17 dead or dying. (Id.) Similarly, despite representations that there were no easements on the 18 Property, Liu learned that an open space easement encumbered large portions of the 19 Property. (Id. ¶ 2.) The open space easement prevented Liu and her husband from 20 undertaking future improvement plans that they had for the Property, thereby reducing the 21 fair market value of the Property. (Id.) Liu asserts that her claims include “breach of 22 contract, fraud in the inducement and deceit by intentional and/or negligent 23 misrepresentation, and fraud and deceit by concealment of material facts.” (Id. ¶ 3.) Liu 24 states that she “selected the Judicial Arbitration and Mediation Service (‘JAMS’)[,] filed 25 26

27 (See Doc. 10 at 6.) Accordingly, Barrelet’s Application is GRANTED, and the Court will 28 1 its complaint-in-arbitration with JAMS, and [] paid the JAMS filing fee” but that “Barrelet 2 refuses to arbitrate.” (Id. ¶ 9.) 3 Barrelet did not respond to Liu’s Petition. 4 C. Liu’s Motion to Compel Arbitration 5 On April 10, 2024, Liu filed a Motion to Compel Arbitration (“Motion”). (Doc. 4.) 6 In her Motion, Liu re-asserts the allegations from her Petition. (Id. at 2–4.) Liu then argues 7 that an order for arbitration is proper here because (1) diversity jurisdiction exists4 and (2) 8 the disputes between the parties fall within the scope of the arbitration agreement. (Id. at 9 4–5.) 10 D. Barrelet’s Opposition 11 In his Opposition, Barrelet responds that the Petition fails to state a claim because it 12 does not provide factual support for the “bare legal conclusion” that Barrelet refused to 13 arbitrate. (Doc. 9 at 19.) Barrelet argues that Liu “unilaterally demanded arbitration before 14 a tribunal not provided for by the agreement, using JAMS rules not provided for by the 15 agreement, and in a forum not provided for by the agreement.” (Id. at 20.) Barrelet also 16 argues that “the additional evidence provided has shown, respondent did not simply refuse 17 arbitration.” (Id.) Rather, “[h]is counsel submitted argument to JAMS ….” (Id.; see also 18 id. at 27–29.) Given Barrelet’s objections, JAMS declined to proceed with the arbitration 19 because the Purchase Agreement “does not name JAMS or the JAMS rules.” (Doc. 9-1, 20 Declaration of J. Ray Ayers [“Ayers Decl.”], ¶ 11, Ex 10.) 21 Barrelet also responds that there is no valid agreement to arbitrate because the 22 arbitration agreement is not properly authenticated and, as the state court found, arbitration 23 provisions in residential lease agreements are void as against public policy. (Id. at 20–21.) 24 25 26

27 4 Barrelet does not dispute that diversity jurisdiction exists, so the Court will not address it 28 1 Lastly, Barrelet argues that the FAA does not apply or preempt California law because the 2 transaction at issue does not affect interstate commerce.5 (Id. at 22–27.) 3 E. Liu’s Reply 4 In her Reply, Liu summarily argues that the contract at issue in this action is the 5 Purchase Agreement, which contains an arbitration provision; that Barrelet’s claim in the 6 state court action is based on the Lease, not the Purchase Agreement; that the state court 7 invalidated the arbitration agreement only in reference to the Lease; and that Barrelet 8 “refused to proceed with arbitration not only with JAMS, but also anywhere in Orange 9 County and Los Angeles County, and has never stated that he will even consider arbitration 10 in any forum.” (Doc. 10 at 5.) 11 Specifically, Liu argues that “[t]he state court invalidated the arbitration provision 12 only in reference to the Lease [], not the Purchase Agreement ….” (Id. at 6.) Liu then 13 concludes that “[t]he arbitration provision is fully operative in reference to the Purchase 14 Agreement.” (Id.) Liu also argues that Barrelet is judicially estopped from claiming that 15 the arbitration agreement was not fully signed, that California Civil Code § 1953(a)(4) 16 applies to leases, that Barrelet refused to arbitrate, and that the Purchase Agreement affects 17 interstate commerce. (Id. at 6–11.) Finally, Liu argues that, even under California law, an 18 order to compel arbitration is proper.6 (Id. at 11.) 19 II. DISCUSSION 20 A. Applicability of the FAA 21 The Parties dispute whether the FAA’s substantive or procedural provisions (or 22 both) govern the arbitration agreement at issue here. (See Doc. 9 at 22–27; Doc. 10 at 9– 23

24 25 5 Barrelet also argues that the Court should stay this proceeding pending the outcome of the state court appeal. (Doc. 9 at 29–32.) Because the state court appeal has been resolved, 26 this argument is now moot, and the Court will not address it below. 27 6 Liu also argues that a stay of this matter pending resolution of the state court is appeal is improper. (Doc. 10 at 12.) However, as stated above (see Section I.D, n.5), this issue is 28 1 11.) As explained in detail above (see Section I.A), the California state trial and appellate 2 courts agree that the arbitration agreement at issue here is governed by the procedural rules 3 of the FAA but not the substantive rules. (See Doc. 9-1 at 67–68 [Tentative Ruling]; Doc. 4 12-1 [Appellate Court Decision].) The Court will not disrupt these rulings, as they are 5 consistent with the plain language of the arbitration provision, which states, “[e]nforcement 6 of, and any motion to compel arbitration pursuant to, this agreement to arbitrate shall be 7 governed by the procedural rules of the [FAA], and not the California Arbitration Act, 8 notwithstanding any language seemingly to the contrary in this Agreement.” (Petition, Ex. 9 A [Purchase Agreement], p. 14 (emphasis added).) See also First Options of Chicago, Inc. 10 v. Kaplan, 514 U.S. 938, 944 (1995) (“When deciding whether the parties agreed to 11 arbitrate a certain matter … , courts generally … should apply ordinary state-law principles 12 that govern the formation of contracts.”); Cronus Invs., Inc. v. Concierge Servs., 35 Cal. 13 4th 376, 394 (2005) (“[P]arties to an arbitration agreement [may] expressly designate that 14 any arbitration proceeding should move forward under the FAA’s procedural provisions 15 rather than under state procedural law.”); Victrola 89, LLC v. Jaman Props. 8 LLC, 46 Cal. 16 App. 5th 337, 345–48 (2020) (finding that the parties expressly incorporated the FAA’s 17 procedural provisions [9 U.S.C. §§ 3, 4, 10, 11] into an arbitration agreement when they 18 referenced “enforcement” under the FAA in the agreement). 19 Additionally, the Court agrees with the state trial and appellate courts that Liu has 20 failed to show that the transaction at issue here affects interstate commerce to implicate the 21 substantive provisions of the FAA. (Doc. 12-1 at 7–9.) Liu asserts, without evidentiary 22 support, that the transaction involves wealthy international buyers and the sale/transport of 23 wine across state lines. (Doc. 10 at 10.) However, the Petition and the Purchase Agreement 24 both characterize the Property as a residential property, and the Petition states that Liu (the 25 buyer) is a citizen of California. (See Petition ¶ 1 (“Petitioner purchased a single-family 26 residence…”); Petition ¶ 4, Ex. A [Purchase Agreement].) The Court cannot assume 27 without support that any wine produced at the vineyard will be for more than consumption 28 in the state of California or that Liu is an “international buyer.” Further, Liu does not 1 explain how the agents’ affiliations with Pacific Sotherby’s International Realty and 2 RE/MAX 2000 Realty implicates interstate commerce with regards to the transaction at 3 issue here. (See Doc. 10 at 9–10.) 4 Accordingly, the Court finds that the Parties unambiguously contracted for the 5 procedural provisions of the FAA to govern the enforcement of the arbitration agreement 6 and the transaction at issue does not affect interstate commerce. Thus, Liu’s Petition and 7 Motion, brought pursuant to the procedural rule set forth in 9 U.S.C. § 4, are properly 8 before this Court. The Court now turns to the merits of Liu’s Motion. 9 B. 9 U.S.C. § 4 10 “Section 4 of the FAA states that ‘a party aggrieved by the alleged failure, neglect, 11 or refusal of another to arbitration under a written agreement for arbitration may petition 12 any United States district court ... for an order directing that such arbitration proceed in the 13 manner provided for in such agreement.’” Lytton v. S. Cal. Reg’l Rail Auth., 683 F. Supp. 14 3d 1101, 1105 (C.D. Cal. 2023) (quoting 9 U.S.C. § 4) (emphasis added). “A court 15 reviewing a motion to compel arbitration under this section of the FAA, must determine: 16 ‘(1) the existence of a valid, written agreement to arbitrate; and, if it exists, (2) that the 17 agreement to arbitrate encompasses the dispute at issue.’” Id. (quoting Ashbey v. Archstone 18 Prop. Mgmt., Inc., 785 F.3d 1320, 1323 (9th Cir. 2015)). “Upon satisfaction of both 19 elements, the court ‘shall on application of one of the parties stay the trial of the action 20 until such arbitration has been had in accordance with the terms of the agreement.’” Id. 21 (quoting 9 U.S.C. § 3). 22 Here, as a preliminary matter, Barrelet argues that he did not refuse to arbitrate under 23 the terms of the arbitration agreement. (Doc. 9 at 19–20, 27–29.) Barrelet contends that 24 he merely refused to arbitrate with Liu’s unilaterally chosen arbitrator—JAMS—in either 25 Los Angeles or Orange County. (Id.) Second, Barrelet seems to argue that there is no 26 “valid, written agreement to arbitrate” because the arbitration agreement was not properly 27 28 1 authenticated (id. at 20) and is void “as against public policy” pursuant to California Civil 2 Code § 1953(a)(4) (id. at 21). The Court addresses each argument in turn.7 3 1. Failure, Neglect, or Refusal to Arbitrate 4 Here, the evidence shows that Barrelet filed the State Court Action alleging, among 5 other things, breach of the Lease between the parties. (Doc. 9-1 at 23–29.) Liu sought an 6 order compelling the State Court Action to arbitration, which Barrelet opposed. (Doc. 9-1 7 at 67–68.) After the state trial court ruled in Barrelet’s favor (id.), Liu again demanded 8 arbitration (Doc. 4-2 at 3, Declaration of Paul S. Marks [“Marks Decl.”], ¶ 2). Liu filed a 9 demand for Arbitration Form with JAMS and paid the $2,000 filing fee. (Id.; see also 10 Ayers Decl. ¶ 8, Ex 7.) Counsel for Barrelet refused to the accept service of the arbitration 11 demand, asserting that the arbitration agreement at issue does not provide for arbitration 12 with JAMS, that the arbitration agreement does not provide for arbitration in Orange 13 County or Los Angeles, and that the state trial court already considered Liu’s motion to 14 compel arbitration and denied the motion on the grounds that the arbitration provision is 15 invalid under applicable California law. (Ayers Decl. ¶ 9, Ex. 8.) In response, counsel for 16 Liu stated they would “entertain any proposal for a different neutral[.]” (Id. ¶ 10, Ex. 9.) 17 Counsel for Liu also stated that “[t]he location of the arbitration is also not dictated by the 18 arbitration agreement” and that “[i]n this day and age, many if not most cases are handled 19 remotely, and our side would agree to that.” (Id.) Counsel for Barrelet did not propose a 20 different neutral or agree to arbitrate remotely.8 (See id.) 21 Assessing this course of events, the Court finds that Barrelet has repeatedly failed, 22 neglected, or refused to arbitrate. Notably, counsel for Liu demonstrated a willingness to 23 select a mutually agreeable neutral and to conduct the arbitration remotely, and counsel for 24 25 26 7 Barrelet does not challenge that the arbitration agreement “encompasses the dispute at 27 issue” here. Therefore, the Court will not address this prong of the analysis below. 8 JAMS later declined to proceed with the arbitration because the Purchase Agreement does 28 1 Barrelet did not respond. Additionally, Barrelet now opposes this Motion. “‘[T]o agree 2 with [Barrelet’s] argument[] that []he has not refused a request for arbitration in the 3 meaning of the statute would create an absurd result: [denying] a motion to compel 4 arbitration against a party who argues that she never refused to arbitrate in the first place. 5 Neither common sense nor precedent countenances such a result[.]’” Kolev v. Porsche 6 Cars N. Am., Inc., No. SACV 07-1171 AG (ANx), 2008 WL 11338780, at *3 (C.D. Cal. 7 Jan. 30, 2008) (quoting Discover Bank v. Vaden, 489 F.3d 594, 607 n.20 (4th Cir. 2007)). 8 Thus, the Court finds that Barrelet failed, neglected, or refused to arbitrate. The Court now 9 turns to whether there exists a valid, written agreement to arbitrate. 10 2. Valid, Written Agreement to Arbitrate 11 As stated above, Barrelet argues that there is no “valid, written agreement to 12 arbitrate” because the arbitration agreement was not properly authenticated (Doc. 9 at 20) 13 and is void “as against public policy” pursuant to California Civil Code § 1953(a)(4) (id. 14 at 21). The Court disagrees. First, the Purchase Agreement, including the arbitration 15 provision, were authenticated by Crystal Chen, Liu’s real estate agent who assisted in the 16 preparation and signing of the relevant documents. (See Doc. 4-2 at 2, Declaration of 17 Crystal Chen [“Chen Decl.”] ¶ 3.) Barrelet has not cited any authority supporting his 18 position that Chen’s authentication is insufficient. 19 Second, while the state trial and appellate courts held that California Civil Code § 20 1953(a)(4) precludes arbitration of Barrelet’s tenancy related claims, they did not hold 21 that California Civil Code § 1953(a)(4) precludes arbitration of Liu’s claims related to the 22 Purchase Agreement. (See e.g., Doc. 12-1 at 2, 9–12 (“The trial court further concluded 23 that section 1953, subdivision (a)(4) voided any agreement between the parties to arbitrate 24 tenancy related claims. … We … affirm.”) (emphasis added).) In his Opposition, Barrelet 25 largely ignores the fact that Liu moves to compel the arbitration of claims brought under 26 the Purchase Agreement, rather than the Lease. In a brief footnote, Barrelet argues that the 27 entire arbitration provision is void because the Purchase Agreement and the Lease are a 28 single contract. (See Doc. 9 at 21, n.21.) However, Barrelet does not cite any authority 1 || supporting this position, and the Court is concerned that such a finding would essentially 2 ||invalidate the arbitration provision found in the CAR’s form California Residential 3 || Purchase Agreement and Joint Escrow Instructions any time it is accompanied by the form 4 || Residential Lease After Sale. 5 Finally, Barrelet has not cited any authority suggesting that the arbitration provision 6 ||found in the CAR’s form California Residential Purchase Agreement and Joint Escrow 7 || Instructions is void as contrary to public policy. 8 Til. CONCLUSION 9 Based on the foregoing, Liu’s Motion is GRANTED. The Court COMPELS the 10 || Parties to arbitrate any and all claims related to the Purchase Agreement only. Consistent 11 || with the state trial and appellate court’s findings, the Court does not compel the Parties to 12 || arbitrate any and all claims related to the Lease. 13 IT IS SO ORDERED. 14 ||} DATE: November 22, 2024 I eth Boesnudk,, Qe tery □□ 16 HON. RUTH BERMUDEZ'MONTENEGRO UNITED STATES DISTRICT JUDGE 17 18 19 20 21 22 23 24 25 26 27 28 11