Court Opinion

ID: 9554340
Source: CourtListenerOpinion
Date Created: 2023-08-08 18:04:51.894233+00
Date Added: 2024-06-11T15:33:38.531099
License: Public Domain

Filed 8/8/23 McDonnell v. JAMS CA1/5
                  NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or
ordered published for purposes of rule 8.1115.

          IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                      FIRST APPELLATE DISTRICT

                                                  DIVISION FIVE

 JOHN P. MCDONNELL,
           Plaintiff and Appellant,                                      A164616
 v.
 JAMS, INC.,                                                             (San Mateo County
           Defendant and Respondent.                                     Super. Ct. No. 19-CIV-06660)

         This appeal arises from a breach of contract dispute. Plaintiff John P.
McDonnell appeals from final judgment after the trial court sustained the
demurrer of defendant JAMS, Inc. (JAMS), to the second amended complaint
without leave to amend. We agree with the trial court that plaintiff failed to
allege facts sufficient to state a cause of action for breach of contract and
therefore affirm the judgment.
                    FACTUAL AND PROCEDURAL BACKGROUND
         On May 10, 2021, plaintiff filed the operative second amended
complaint (SAC) against JAMS, alleging causes of action for breach of
contract and violation of the Consumers Legal Remedies Act (Civ. Code,
§ 1750 et seq.). He sought compensatory damages, punitive damages, and
attorney fees and costs.
         According to the SAC, in September 2013, plaintiff purchased a new car
from Waterville, Inc., dba Antioch Nissan (Waterville). The written sales

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agreement signed by plaintiff and Waterville contained an arbitration clause,
pursuant to which plaintiff agreed to have any claim or dispute regarding the
condition of his vehicle resolved by neutral, binding arbitration rather than
court action. The arbitration clause further stated: “You may choose the
American Arbitration Association, 1633 Broadway, 10th Floor, New York,
New York 10019 (www.aclr.org), or any other organization to conduct the
arbitration subject to our approval.”
      Plaintiff believed the car was defective and tried unsuccessfully to sell
it back to Waterville. Ultimately, plaintiff sold the car to a third party for a
loss and commenced litigation against Waterville. Thus, on or about
February 17, 2015, plaintiff sent written notice to Waterville that he was
requesting arbitration of the dispute regarding the defective condition of his
vehicle.
      After Waterville failed to respond to this notice, on or about
November 9, 2015, plaintiff filed a demand for arbitration with JAMS.
Plaintiff did not, as required by the arbitration clause, seek Waterville’s
approval to have JAMS conduct the arbitration. Plaintiff’s arbitration
demand was served on Waterville on November 12, 2015.
      On or about December 8, 2015, JAMS notified plaintiff that JAMS had
initiated an arbitration case with assigned case No. 1100082863. About a
week later, a JAMS senior case manager notified plaintiff and Waterville
that the arbitration would be subject to JAMS standards and rules.
      On December 18, 2015, JAMS demanded payment of an initial
nonrefundable fee of $1,200. Both JAMS and plaintiff thereafter attempted
to obtain this payment from Waterville but were not successful.
      On or about April 27, 2016, the JAMS senior case manager advised
plaintiff that JAMS had not heard from Waterville and asked how he wished

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to proceed. Plaintiff replied by email on or about May 10, 2016, asking
whether and how he could pay the fee and obtain a default against
Waterville. On May 11, 2016, the senior case manager responded that if
plaintiff paid the $1,200 fee, JAMS would commence the arbitration and
initiate the process to select an arbitrator, and once the arbitrator was
selected, the arbitrator would set a date for a hearing. If plaintiff did not pay
the fee, JAMS would close the case file.
      Accordingly, on or about June 17, 2016, plaintiff paid JAMS the $1,200
fee. A week later, on June 24, 2016, JAMS sent plaintiff and Waterville an
arbitration commencement letter that included a list of five potential
arbitrators and requested that each party strike one proposed arbitrator. On
or about June 29, 2016, plaintiff responded to the commencement letter and
struck one of the proposed arbitrators. Waterville, however, never responded
to this letter.
      Despite further requests by plaintiff, JAMS never appointed an
arbitrator or scheduled a hearing in the case. Finally, in September 2018,
plaintiff sent JAMS a written demand that JAMS follow its rules and
schedule the arbitration hearing. Instead, on October 1, 2018, JAMS notified
plaintiff that it had “ ‘closed the file,’ ” as JAMS was “unable to get agreement
from [Waterville] to proceed . . . .” This was followed by a January 8, 2019,
letter from a JAMS attorney stating that JAMS would not proceed with the
arbitration, as Waterville did not agree to it as an arbitral forum. JAMS also
refunded the $1,200 fee paid by plaintiff to commence arbitration. Plaintiff
never cashed this refund check.
      On November 18, 2019, plaintiff initiated this lawsuit against JAMS.

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      On June 11, 2021, JAMS demurred1 to the SAC on the grounds that
plaintiff failed to state facts sufficient to constitute a valid cause of action.
Following a hearing, the trial court sustained this demurrer without leave to
amend, ruling that (1) JAMS lacked authority to arbitrate plaintiff’s dispute
with Waterville because there was no enforceable agreement to arbitrate at
JAMS and (2) the doctrine of arbitral immunity barred both causes of action.
      On December 8, 2021, judgment was entered in favor of JAMS,
prompting this timely appeal.
                                  DISCUSSION
      Plaintiff challenges the trial court’s decision to sustain JAMS’s
demurrer without leave to amend.2 We review this decision de novo, applying
the same principles as the trial court. (E-Fab, Inc. v. Accountants, Inc.
Services (2007) 153 Cal.App.4th 1308, 1315.)
      “In reviewing the sufficiency of a complaint against a general
demurrer, we are guided by long-settled rules. ‘We treat the demurrer as
admitting all material facts properly pleaded, but not contentions, deductions
or conclusions of fact or law. [Citation.] We also consider matters which may
be judicially noticed.’ [Citation.] Further, we give the complaint a reasonable
interpretation, reading it as a whole and its parts in their context. [Citation.]
When a demurrer is sustained, we determine whether the complaint states
facts sufficient to constitute a cause of action. [Citation.] And when it is
sustained without leave to amend, we decide whether there is a reasonable

      1 The trial court sustained JAMS’s demurrer to the first amended

complaint with leave to amend, prompting the filing of the operative SAC.
      2 Plaintiff challenges the trial court’s order only as to his cause of action

for breach of contract. We thus consider forfeited any appellate challenge to
the court’s decision to sustain the demurrer without leave to amend as to his
cause of action for violation of the Consumers Legal Remedies Act.

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possibility that the defect can be cured by amendment: if it can be, the trial
court has abused its discretion and we reverse; if not, there has been no
abuse of discretion and we affirm. [Citations.] The burden of proving such
reasonable possibility is squarely on the plaintiff.” (Blank v. Kirwan (1985)
39 Cal.3d 311, 318.)
      Plaintiff theorizes in the SAC that once he paid JAMS the $1,200 filing
fee, a written agreement was formed obligating JAMS to provide arbitration
under its consumer arbitration rules and policy (hereinafter, JAMS rules).
Plaintiff further theorizes that because Waterville failed to answer or
respond to his demand for arbitration with JAMS, JAMS had a duty under
its rules to appoint an arbitrator and set up a hearing to resolve the dispute
without Waterville, similar to a hearing on entry of default in civil court.
JAMS breached their agreement, plaintiff alleges, by failing to set this
hearing and enter an arbitration award in his favor. For reasons that follow,
plaintiff’s theory is fatally flawed from the start.
      Arbitration is a “ ‘creature of contract’ ” wherein the parties to a
transaction bargain for terms and provisions contained in the arbitration
clause. (Greenspan v. LADT, LLC (2010) 185 Cal.App.4th 1413, 1460.) Thus,
while there is a presumption in favor of arbitration, the parties will not be
required to arbitrate where they have not agreed to do so. (Brinkley v.
Monterey Financial Services, Inc. (2015) 242 Cal.App.4th 314, 330–331
(Brinkley).)
      Here, the SAC incorporates in its entirety the arbitration clause from
plaintiff and Waterville’s written sales agreement. Per this agreement, as
stated in the SAC, “ ‘all claims and disputes’ ” between the seller (Waterville)

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and buyer (plaintiff) shall be resolved by neutral, binding arbitration.3 To
this end, the buyer (plaintiff) “may choose the American Arbitration
Association, 1633 Broadway, 10th Floor, New York, New York 10019
(www.aclr.org), or any other organization to conduct the arbitration subject to
our approval.”
      Whether plaintiff alleged facts sufficient to state a valid cause of action
for breach of contract against JAMS depends on the language of this
arbitration clause. “ ‘Our Supreme Court long ago established “[t]he
interpretation of a written instrument, even though it involves what might
properly be called questions of fact [citation], is essentially a judicial function
to be exercised according to the generally accepted canons of interpretation so
that the purposes of the instrument may be given effect. [Citations.]’ ”
(Morrow v. Los Angeles Unified School Dist. (2007) 149 Cal.App.4th 1424,
1444 (Morrow); Davies v. Sallie Mae, Inc. (2008) 168 Cal.App.4th 1086, 1091
[“ ‘[t]he rule on demurrer is simply a variation on the well-recognized theme
that “[i]t is . . . solely a judicial function to interpret a written instrument
unless the interpretation turns upon the credibility of extrinsic evidence” ’ ”].)
Under the generally accepted canons of interpretation, we “ ‘give effect to the
parties’ mutual intent at the time of contracting’ ” and interpret the words of
the instrument (here, the arbitration clause) according to their “ ‘ “ordinary

      3 The arbitration clause provides in relevant part:       “Any claim or
dispute, whether in contract, tort, statute or otherwise (including the
interpretation and scope of this Arbitration Provision, and the arbitrability of
the claim or dispute), between you and us . . . which arises out of or relates to
your . . . purchase or condition of this vehicle . . . shall, at your or our election,
be resolved by neutral, binding arbitration and not by a court action. . . . You
may choose the American Arbitration Association, 1633 Broadway, 10th
Floor, New York, New York 10019 (www.aclr.org), or any other organization
to conduct the arbitration subject to our approval.”

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and popular” ’ ” meaning. (Avalon Pacific–Santa Ana, L.P. v. HD Supply
Repair & Remodel, LLC (2011) 192 Cal.App.4th 1183, 1198, fn. 3; Allen v.
Superior Court (2003) 111 Cal.App.4th 217, 224 [“arbitration provisions . . .
are to be construed in accordance with their plain meaning”].)
      These rules are easily applied in this case. The arbitration clause, read
straightforwardly, required plaintiff and Waterville, as an integral part of the
written sales contract, to submit any and all claims or disputes to designated
arbitral forums. These forums were “the American Arbitration Association
. . . or any other organization to conduct the arbitration subject to our
approval.”
      As alleged in the SAC, Waterville never approved JAMS to arbitrate
their dispute. Nor was Waterville required to. (Allen v. Superior Court,
supra, 111 Cal.App.4th at p. 228 [“ ‘[A]n agreement to arbitrate before a
particular forum is as integral a term of a contract as any other, which courts
must enforce’ ”]; Brinkley, supra, 242 Cal.App.4th at p. 331 [“ ‘ “a party
cannot be required to submit to arbitration any dispute which he has not
agreed so to submit” ’ ”].) As such, JAMS was not authorized under the
arbitration clause to appoint an arbitrator to decide plaintiff’s claims against
Waterville, notwithstanding Waterville’s failure to respond to plaintiff’s
demand for arbitration with JAMS. Moreover, lacking any authority under
the arbitration clause, JAMS acted properly in declining to appoint an
arbitrator and proceed with a hearing on plaintiff’s claims. California law is
clear that because arbitrators “derive their powers from the parties’
voluntary submission of disputes for resolution in a nonjudicial forum”
(Brinkley, at p. 326), an arbitrator exceeds his or her powers by “ ‘act[ing] in a
manner not authorized by the contract or by law’ ” (O’Flaherty v. Belgum
(2004) 115 Cal.App.4th 1044, 1056).

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      The JAMS rules are in accord. JAMS rules, rule 1(a), states: “The
JAMS Streamlined Arbitration Rules and Procedures (‘Rules’) govern binding
Arbitrations of disputes or claims that are administered by JAMS and in
which the Parties agree to use these Rules or, in the absence of such
agreement, no disputed claim or counterclaim exceeds $250,000 . . . .” (Italics
added.) Plaintiff focuses on the latter part of this rule to argue that the
JAMS rules govern his claims notwithstanding Waterville’s failure to agree
to his arbitration demand because his claims do not exceed $250,000. In
doing so, he disregards the initial language of JAMS rules, rule 1(a), which
states the JAMS rules govern binding arbitrations of disputes or claims
administered by JAMS. As explained ante, per the arbitration clause agreed
to by plaintiff, his claim is not one subject to administration by JAMS but by
the American Arbitration Association or another organization approved by
Waterville.
      Further, as the SAC acknowledges: “The JAMS arbitration rules
provide in Rule 5(c) that if a party that is obligated to arbitrate pursuant to a
written contract fails to participate, then pursuant to JAMS Rule 14, ‘the
Arbitrator shall schedule, and provide appropriate notice of, a hearing, or
other opportunity for the party demanding the Arbitration to demonstrate its
entitlement to relief.’ JAMS Rule 14 provides that, if a party has failed to
participate in the Arbitration process, the Arbitrator may set the hearing
without consulting with that non-participating party.” (Italics added.) Here,
for the reasons stated ante, Waterville was not obligated under the
arbitration clause to arbitrate a dispute with a buyer before JAMS. As such,
the provision under JAMS rules, rule 14, requiring the JAMS arbitrator to
set a hearing without consulting with Waterville, was never triggered.

                                        8
      Under these circumstances, we conclude as a matter of law JAMS had
no authority, much less a contractual duty, to arbitrate plaintiff’s dispute
with Waterville. The arbitration clause does not state, nor does the SAC
allege, that a buyer such as plaintiff may require Waterville, the seller, to
arbitrate a claim or dispute before JAMS. Accordingly, we agree with the
trial court the SAC fails to state facts sufficient to constitute a cause of action
because it conclusively appears JAMS did not breach the terms of an
enforceable agreement to arbitrate plaintiff’s dispute.
      Alternatively, we conclude the trial court properly sustained JAMS’s
demurrer to the SAC on the independent ground of arbitral immunity.
California common law arbitral immunity protects both arbitrators and the
organizations that sponsor arbitrations, such as JAMS, from civil liability for
conduct in their quasi-judicial capacity. (Morgan Phillips, Inc. v.
JAMS/Endispute, LLC (2006) 140 Cal.App.4th 795, 800; American
Arbitration Assn. v. Superior Court (1992) 8 Cal.App.4th 1131, 1134.) “The
purpose of arbitral immunity is to encourage fair and independent
decisionmaking by immunizing arbitrators from lawsuits arising from
conduct in their decisionmaking role. [Citations.] Thus, generally speaking,
arbitral immunity ‘shields all functions which are “integrally related to the
arbitral process.” [Citations.]’ ” (Morgan Phillips, Inc. v.
JAMS/Endispute, LLC, at pp. 800–801.)
      Here, plaintiff alleges JAMS breached an agreement to conduct
arbitration when, after sending out an arbitration commencement letter on
June 24, 2016, it refused to (1) appoint an arbitrator, (2) schedule an
arbitration hearing to consider his claims against Waterville, or (3) enter an
award in his favor based on Waterville’s failure to respond to his arbitration
demand. However, these alleged actions or refusals to act by JAMS were

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“sufficiently associated with the adjudicative phase of the arbitration to
justify [arbitral] immunity.” (Thiele v. RML Realty Partners (1993) 14
Cal.App.4th 1526, 1530 [the organization’s administrative act of sending out
the arbitral award contrary to a party’s express instructions was shielded
from liability by arbitral immunity]; La Serena Properties, LLC v. Weisbach
(2010) 186 Cal.App.4th 893, 901–902 [arbitral immunity shielded the
sponsoring organization from liability for breach of contract for its alleged
failure to appoint a neutral arbitrator].) As such, the trial court’s arbitral
immunity finding was correct.
       Finally, plaintiff has presented us with no facts that demonstrate a
reasonable possibility that the defects identified ante could be cured by
amendment. (Blank v. Kirwan, supra, 39 Cal.3d at p. 318.) Accordingly, the
demurrer to the SAC was properly sustained on two separate grounds.
Judgment in favor of JAMS thus stands.4
                                  DISPOSITION
       The judgment is affirmed.

                                            _________________________
                                            Jackson, P. J.

WE CONCUR:

_________________________
Simons, J.

_________________________
Burns, J.
A164616/McDonnell v. JAMS, Inc.

       4 JAMS’s request for judicial notice filed on October 24, 2022, is denied

as moot.

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