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Smith v. Pinnamaneni (CA1 4/28/11)

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This case concerns the importance of being earnest about arbitration.

Pinnamaneni’s corporation hired Smith’s corporation to build a home. The contract required AAA arbitration. When a dispute arose the builder demanded arbitration. The owner filed a complaint with the Registrar of Contractors and refused to arbitrate until it was resolved. The owner didn’t show up at the arbitration hearing; the builder presented evidence (these arbitration rules don’t allow default) and was given an award.

When it tried to have the award confirmed in court the owner opposed it. A week before the arbitration hearing the owner had discovered that the builder didn’t have a contractor’s license when it signed the contract. The builder argued that the owner had waived the defense by not appearing at arbitration.

The Court of Appeals agrees. “[A] contractor’s lack of licensure is an affirmative defense subject to waiver.” Its contracts are voidable, not void. Moreover, the court tells us, the only objections to confirmation of an arbitration award are those listed in 12-1512 (fraud, the arbitrators exceeded their power, etc.). So although the court uses the word, whether it’s an “affirmative” defense doesn’t seem to matter; the question is whether it’s a listed defense.

That takes sixteen pages. As usual, the court grinds on and on about the easy parts and gives the harder part – here, distinguishing California cases – a lick and a promise.

(Another issue was that the arbitrators had held Pinnamaneni personally liable even though he hadn’t signed the contract personally. That (lack of an arbitration agreement) is a listed defense. The trial court should therefore have ruled on that, it didn’t, and so on that issue the court remands. That takes seven endless pages.)

(link to opinion)

North Peak v. Architecture Plus (CA1 4/26/11)

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This opinion about an architect’s implied warranty tells us that it is “very likely” correct.

A property owner hired Architecture to design a custom home. He told Architecture that he wanted a view of the city but the contract did not expressly provide for that. North Peak, the contractor, started to build it but discovered that it faced the wrong way. North Peak therefore started over and sued Architecture for the resulting expenses, alleging breach of implied warranty (and negligence, which turned out to be barred by the state of limitations, an issue not involved here). Architecture moved to dismiss the warranty count; the trial court granted it; this opinion reverses.

The trial court followed the Court of Appeals opinion in Flagstaff Affordable Housing, which seemed to say that claims against architects are in tort, not contract. But the Supreme Court vacated that decision.  This opinion therefore follows Donnelly, which held that a contractor need not be in privity with an architect to sue on an implied warranty. But Architecture argued, citing Barmat, that the implied duty to a party not in privity is simply to act non-negligently. Although this opinion specifically says that it relies on Donnelly, that’s arguably what Donnelly says, too. The Court of Appeals looks to some Supreme Court cases involving parties in privity to conclude that the implied warranty “very likely” arises out of contract, not tort.

What is the warranty? It is to “exercise its skill with care and diligence and in a reasonable, non-negligent manner.” So, Architecture can be liable in contract to North Peak, without privity, and without any breach of the express terms of the contract.

If you’re a bit confused about where to draw the line between tort and contract, you ain’t seen nothin’ yet. North Peak also sued the architect personally. Architecture argued that he didn’t sign the contract in his personal capacity. The court says that doesn’t matter since North Peak’s claim isn’t based on the contract.

And so it almost makes sense when the court concludes by saying that North Peak isn’t entitled to fees because its claim “sounds” in contract but does not “arise out of” contract.

So, Architecture and its principal have a contractual duty not to be negligent that is independent of a contract. (That’s not the way the court puts it, that’s just the way we put it to make it sound even stranger.)

(link to opinion)

Villa de Jardines Association v. Flagstar Bank (CA2 4/22/11)

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An example of Rule 11 sanctions.

A homeowners’ association sued to foreclose its lien for, apparently, unpaid assessments on several lots. This appeal concerns banks that held first deeds of trust on some of the lots. The trial court granted them summary judgment because the statue specifically gives first deeds of trust priority over homeowners’ assessments. The court awarded Rule 11 sanctions. The homeowners filed motions for reconsideration and new trial, which the court denied. The homeowners appealed.

Substantively, they argued (again apparently; we never complain about terse opinions but since this one is sixteen pages long it’s hard to figure why the facts and issues are so briefly stated) that “first” deed of trust simply means recorded before their liens. The court says that it can’t mean that since the prior sentence of the statute already gives priority to all chronologically prior liens. The association then argued that the judgment was too broad because it covered lots the banks had no interest it. The court says that the argument is “confusing,” which may explain why the court’s explanation of it lacks crystalline clarity, but the court says that’s not what the judgment means.

In awarding sanctions the trial court found no basis for arguing that homeowners’ assessments took priority over first deeds of trust. The association argued that no precedent ruled out its statutory argument and that its title report said it had priority. As to the statute the court says that the argument was contrary to plain language; although the association’s brief used the “extend, modify, or reverse controlling law” argument the association had never suggested below that that’s what it was trying to do nor even, it seems, that the statute was uncertain enough to allow any such thing. And a title report does not “trump the law of the state.” (This is a useful reminder to those who don’t know or haven’t thought of it this way that title reports are a) not infrequently wrong and b) merely insurance policies against happenings that, as conditioned by policy language, occur with every third passing of Halley’s comet.)

Regarding the motion for new trial, the association had tried to amend it at oral argument. The trial court at first denied that, then told the association to file something in writing within five days, then – announcing that it had in the interim read the rule – ruled before the association could do so. The Rule (59) says that motions for new trial must be in writing and can be amended at any time before the ruling. The Court of Appeals says that allowing oral amendments would undermine the requirement of a writing. It also says that the trial court’s changing its mind wasn’t prejudicial because its minute entry said that the court had reviewed the entire file on its on initiative and found no error.

We were buying this opinion – until that last part. The trial court tells a guy he has five days to file, double-crosses him, but that’s okay, no error here – because the trial judge said so himself. On the other hand, context is everything; the association’s performance to that point hadn’t earned it the benefit of much doubt.

 

(link to opinion)