Tuesday, March 1, 2005
C.A. Tosses Out Arbitration Award for Failure to Disclose Jury Waiver
By KENNETH OFGANG, Staff Writer/Appellate Courts
An arbitration award related to home improvements is unenforceable against the homeowner unless he or she was notified in writing that agreement to arbitration constituted a waiver of the right to a court or jury trial, the Court of Appeal for this district ruled yesterday.
Violation of the disclosure provisions of Business and Professions Code Sec. 7191 precludes enforcement of an ensuing arbitration award against anyone other than the licensed professional who failed to make the disclosure, Presiding Justice Joan Dempsey Klein wrote for Div. Three.
The court ruled in favor of Los Angeles attorney Paul Woolls, a partner in the downtown firm of Wools & Peer, who represented himself in the dispute with Thomas Turner, a general contractor doing business as T & T Construction. The court rejected the contractor’s argument that the agreement could be enforced against Woolls because, among other things, as an attorney he understood the mandatory nature of the arbitration agreement.
Turner had contracted to renovate and expand Woolls’ home. The parties signed two contracts, both of which provided for arbitration under the rules of the American Arbitration Association.
Woolls eventually discharged Turner after disputes regarding his performance, as well as over billings by Terry Lumber for materials.
Terry Lumber later recorded a mechanics’ lien for close to $7,000 and sued Turner and Woolls. Woolls cross-complained against Terry Lumber and Turner, and Turner invoked the arbitration clause of his contract with Woolls.
The arbitrator rejected Woolls’ contention that he lacked jurisdiction and, after a three-day hearing, awarded Turner nearly $47,000, plus fees and expenses of arbitration.
Woolls’ petition to vacate the award was denied by Los Angeles Superior Court Judge Laura Matz. The judge reasoned that even though Turner had not fully complied with Sec. 7191, the language of Sec. 7191(c)—which reads: “A provision for arbitration of a dispute between a principal in a contract for work on a residential property with four or fewer units that does not comply with this section may not be enforceable against any person other than the licensee”—leaves the court with discretion to enforce a non-complying agreement.
In this case, the judge said, the circumstances—specifically the fact that Woolls is an attorney who was aware of the consequences of the arbitration agreement, to which he unsuccessfully objected prior to signing, as well as his participation in the arbitration—justified enforcing the agreement to arbitrate despite the lack of disclosure.
But Klein, writing for the Court of Appeal, said the Legislature, by passing a law that set out clear and precise requirements as to the language and type size of the disclosure, along with a requirement that the waiver be initialed by the parties, indicated its intent to preclude a non-complying contractor from enforcing an arbitration agreement.
The presiding justice went on to say that the trial judge was in error in construing the use of the word “may” as indicating that lawmakers intended to grant trial judges discretion to enforce non-complying agreements.
While the word “may” indicates the potential for the exercise of discretion, Klein explained:
“Here...the pertinent language is ‘may not,’ rather than ‘may’—section 7191, subdivision (c), states a noncompliant arbitration provision ‘may not’ be enforced against anyone other than the licensee. ‘May not’ is prohibitory, as opposed to permissive.”
Klein also noted that the Assembly floor analysis for the legislation enacting the section declares legislative intent that a non-complying agreement “shall not be enforceable” other than against the contractor. And she pointed out that a similarly worded statute regarding arbitration clauses in health service plans has been construed as invalidating all non-complying agreements.
The case is Woolls v. Superior Court (Turner), B177992.
Copyright 2005, Metropolitan News Company