Court Opinion

ID: 6498312
Source: CourtListenerOpinion
Date Created: 2022-07-06 21:02:31.022052+00
Date Added: 2024-06-11T08:50:55.903007
License: Public Domain

Filed 7/6/22 Nap Holdings v. China Electronics CA2/8
   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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has not been certified for publication or ordered published for purposes of rule 8.1115.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

                         SECOND APPELLATE DISTRICT

                                      DIVISION EIGHT

NAP HOLDINGS, LLC,                                             B315648

      Plaintiff and Respondent,                                (Los Angeles County
                                                                Super. Ct. No. 21STCV20172)
                   v.

CHINA ELECTRONICS, INC.,

      Defendant and Appellant.

     APPEAL from an order of the Superior Court of Los
Angeles County. Daniel S. Murphy, Judge. Reversed and
remanded with directions.
     Reed Smith, Lorenzo E. Gasparetti, Kasey J. Curtis and
Katherine J. Ellena for Defendant and Appellant.
     Polsinelli, David K. Schultz and Noel S. Cohen for Plaintiff
and Respondent.

                                        **********

      Defendant and appellant China Electronics, Inc., appeals
from the order denying its motion to compel arbitration of its
contract dispute with plaintiff and respondent Nap Holdings,
LLC. We reverse and remand with directions to the superior
court to vacate its denial and enter a new order granting the
motion to compel arbitration.
       FACTUAL AND PROCEDURAL BACKGROUND
       On May 28, 2021, plaintiff filed this action against
defendant seeking a declaratory judgment on the question of
whether an agreement, bearing the signatures of both parties
and an effective date of December 18, 2018, was an enforceable
written contract. Plaintiff alleged there had been no mutual
consent on all material terms of the agreement and also alleged
fraud in the execution of the agreement.
       In response, defendant filed a motion to compel arbitration.
Defendant attached a copy of the December 2018 agreement to its
motion. The six-page agreement identified defendant as “lender”
and plaintiff as “borrower.” The final page bears the signature of
Cherry Miyake, president of defendant, and Ronny Hay, manager
of plaintiff. The bottom righthand corner of each page also bears
the handwritten initials of both Ms. Miyake and Mr. Hay. The
agreement states defendant would lend plaintiff $600,000 which
was to be used exclusively by plaintiff to pay for products
purchased from a third party identified as Shandong New
Beiyang Tech-Info Co., Ltd. (an entity in which Ms. Miyake
apparently had an unspecified interest). Repayment of the loan
was to begin in March 2019 with full repayment to be made by
December 30, 2019. In the event of a breach of the repayment
schedule, the outstanding principal would accrue simple interest
at the rate of 5 percent per annum. The agreement contains a
California choice of law provision, an integration provision and
additional provisions not material to this dispute.

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      Section 6(c) of the agreement is an arbitration clause: “Any
dispute, claim or controversy arising out of or relating to this
Agreement or the breach, termination, enforcement,
interpretation or validity thereof, including the determination of
the scope or applicability of this Agreement to arbitrate, shall be
determined by arbitration in Los Angeles before one arbitrator.
The arbitration shall be administered by JAMS pursuant to
JAMS’ Streamlined Arbitration Rules and Procedures. Judgment
on the Award may be entered in any court having jurisdiction.
This clause shall not preclude parties from seeking provisional
remedies in aid of arbitration from a court of appropriate
jurisdiction.”
      Section 5 of the agreement, titled remedies, is the source of
the parties’ dispute. The final paragraph of that section states:
“Notwithstanding any provision of this agreement, a payment of
the total sum of $600,000.00 plus any interest if apply [sic] or
10% membership interests of the borrower, shall be the sole
remedy to the lender under this agreement.” This language was
added by plaintiff at the time of execution and then forwarded to
defendant for signature. The entirety of this paragraph is
crossed out in pen and next to it the following language is
handwritten: “DO NOT AGREE, DELETE, CHERRY MIYAKE.”
      On December 18, 2018, while Mr. Hay and Ms. Miyake
were exchanging the agreement for signatures, defendant wire
transferred the $600,000 in loan proceeds directly to plaintiff’s
account. After Ms. Miyake signed the agreement with the
language added by Mr. Hay crossed out, she and Mr. Hay
exchanged several e-mails over the next couple of days regarding
the crossed-out language which Mr. Hay believed they had
agreed upon. The final e-mail, dated December 20, 2018, is from

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Mr. Hay. In it, Mr. Hay says he thinks Ms. Miyake’s lawyer’s
explanation is wrong, but that he had no problem with adding
language stating “and any other remedies that the court may
allow.” He ends the e-mail by saying “I hope this settles it.”
       Thereafter, it is undisputed plaintiff paid all of the
$600,000 in loan proceeds to Shandong New Beiyang Tech-Info
Co., Ltd., in accordance with the terms of the agreement.
       Plaintiff did not repay the loan in full and defendant sent
notice of default. In early 2021, defendant initiated arbitration
before JAMS pursuant to the arbitration provision in the
agreement, prompting plaintiff to file this action.
       In addition to opposing defendant’s motion to compel
arbitration, plaintiff filed a motion to stay arbitration.
       At the hearing on both motions, the court entertained
lengthy argument from counsel. The court stated several times it
believed the parties had an agreement, at least orally, but asked
the parties to focus their argument on the formation of the
written agreement. The court took the matter under submission.
Later that day, the court issued its written order denying
defendant’s motion to compel arbitration and granting plaintiff’s
motion to stay the arbitration. The court reasoned that plaintiff’s
addition of the paragraph to the remedies section operated as a
new offer which was rejected by defendant when Ms. Miyake
crossed out the language and wrote “DO NOT AGREE, DELETE”
next to it. The court found that defendant had failed to show the
existence of a written agreement to which both parties consented
on all material terms.
       This appeal followed.

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                            DISCUSSION
       In resolving a motion to compel arbitration of a dispute, the
trial court “shall order the petitioner and the respondent to
arbitrate the controversy if it determines that an agreement to
arbitrate the controversy exists” unless it concludes a defense to
enforcement has been established. (Code Civ. Proc., § 1281.2.)
The party seeking to compel arbitration bears the burden of
proving, by a preponderance of the evidence, the existence of an
agreement to arbitrate the dispute. (Caballero v. Premier Care
Simi Valley LLC (2021) 69 Cal.App.5th 512, 517 (Caballero).)
The party opposing arbitration bears the burden of proving any
fact necessary to its stated defense. (Ibid.)
       The trial court sits as a trier of fact, weighing the
declarations and documentary evidence presented by the parties,
as well as any oral testimony that may be admitted at the
hearing on the motion. (Caballero, supra, 69 Cal.App.5th at
p. 517.) “ ‘[T]he issue of whether an arbitration agreement exists
is a “preliminary question to be determined by the court . . . .” ’ ”
(Ibid.; accord, Granite Rock Co. v. Int’l Bhd. of Teamsters (2010)
561 U.S. 287, 296 [issue of contract formation is for the court to
decide].)
       Generally, we review the denial of a motion to compel
arbitration for abuse of discretion. (Caballero, supra,
69 Cal.App.5th at p. 517.) Where the trial court’s denial of the
motion presents a pure question of law, our review is de novo.
(Id. at pp. 517–518.) And, if the trial court’s decision was based
on the resolution of disputed facts, we review the ruling for
substantial evidence. (Id. at p. 518; accord, Martinez v.
BaronHR, Inc. (2020) 51 Cal.App.5th 962, 966–967 (Martinez).)

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        Here, in denying defendant’s motion to compel, the trial
court made factual findings after considering the declarations of
Mr. Hay and Ms. Miyake, the written agreement, and the copies
of the e-mail correspondence exchanged between Mr. Hay and
Ms. Miyake during the drafting of the agreement. We therefore
apply the substantial evidence test. In applying this test, we
must accept as true the trial court’s resolution of disputed facts if
supported by substantial evidence. (Martinez, supra,
51 Cal.App.5th at p. 966.) We also presume the trial court
“ ‘ “found every fact and drew every permissible inference
necessary to support its judgment, and defer to its determination
of credibility of the witnesses and the weight of the evidence.” ’ ”
(Id. at pp. 966–967.)
        We conclude substantial evidence does not support the trial
court’s finding there was no contract formation due to lack of
mutual assent.
        “In California, ‘[g]eneral principles of contract law
determine whether the parties have entered a binding agreement
to arbitrate.’ ” (Pinnacle Museum Tower Assn. v. Pinnacle Market
Development (US), LLC (2012) 55 Cal.4th 223, 236 (Pinnacle
Museum); accord, Caballero, supra, 69 Cal.App.5th at p. 518.)
“An essential element of any contract is the consent of the
parties, or mutual assent.” (Donovan v. RRL Corp. (2001)
26 Cal.4th 261, 270.) “ ‘Mutual assent is determined under an
objective standard applied to the outward manifestations or
expressions of the parties, i.e., the reasonable meaning of their
words and acts, and not their unexpressed intentions or
understandings.’ ” (Caballero, supra, 69 Cal.App.5th at p. 518,
italics added; accord Martinez, supra, 51 Cal.App.5th at p. 967 &
Harris v. TAP Worldwide, LLC (2016) 248 Cal.App.4th 373, 381.)

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       Here, it is undisputed both parties signed the written
agreement and that each page of the agreement also contains the
handwritten initials of both Mr. Hay and Ms. Miyake. It is also
undisputed the agreement contains a broadly worded arbitration
provision and that no objection was ever raised about its
inclusion in the agreement. Nor has there been any argument
raised by plaintiff that the language of the arbitration provision
is unconscionable or otherwise improper. Plaintiff never argues
arbitration was not the agreed-upon forum for dispute resolution.
       The dispute arose solely because defendant crossed out the
paragraph plaintiff added to the remedies section.
Notwithstanding this dispute over the remedies language, the
parties largely performed under the contract, until plaintiff
defaulted by failing to repay the loan, and there is simply no
basis for finding there is no enforceable contract, including the
arbitration clause. It is for the arbitrator to determine whether
the disputed last paragraph of the remedies section is part of the
contract.
       On December 18, 2018, while Mr. Hay and Ms. Miyake
were exchanging the draft contract for signatures, the $600,000
in loan proceeds were wire transferred into plaintiff’s account.
Thereafter, plaintiff paid all of the funds to the third party as
required by the contract. “A voluntary acceptance of the benefit
of a transaction is equivalent to a consent to all the obligations
arising from it, so far as the facts are known, or ought to be
known, to the person accepting.” (Civ. Code, § 1589; see also
Pinnacle Museum, supra, 55 Cal.4th at p. 236 [acceptance of an
agreement may be express or implied in fact].)
       Plaintiff’s argument we should affirm the trial court’s
denial of arbitration on the ground the loan agreement is void

                                7
due to fraud in the execution is without merit. It is well
established that “California law distinguishes between fraud in
the ‘execution’ or ‘inception’ of a contract and fraud in the
‘inducement’ of a contract.” (Rosenthal v. Great Western Fin.
Securities Corp. (1996) 14 Cal.4th 394, 415 (Rosenthal).) Fraud
in the execution is where one party “ ‘ “is deceived as to the
nature of his act, and actually does not know what he is signing,
or does not intend to enter into a contract at all, mutual assent is
lacking, and [the contract] is void.” ’ ” (Ibid., italics omitted.) In
contrast, fraud in the inducement is when one party “ ‘ “knows
what he is signing but his consent is induced by fraud, mutual
assent is present and a contract is formed, which, by reason of
the fraud, is voidable.” ’ ” (Ibid., italics omitted.)
       Plaintiff’s fraud argument may be summed up as follows.
Ms. Miyake tricked Mr. Hay into signing the agreement after
allegedly agreeing over the phone to the additional language he
proposed to the remedies section. Then after obtaining his
signature, she crossed out that language and signed the
agreement herself. At best, this is a claim that Mr. Hay’s consent
to the contract as a whole was fraudulently induced. It is not a
claim of fraud in the execution. Claims of fraud in the
inducement that go to the contract as a whole are for the
arbitrator to resolve and are not a basis for defeating a motion to
compel arbitration. (Rosenthal, supra, 14 Cal.4th at p. 419;
accord, Brown v. Wells Fargo Bank, N.A. (2008) 168 Cal.App.4th
938, 958.)
                            DISPOSITION
       The order denying the motion to compel arbitration is
reversed and the case is remanded to the superior court with

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directions to vacate its order and enter a new order granting the
motion to compel arbitration.
      Defendant and appellant China Electronics, Inc., shall
recover costs of appeal.

                               GRIMES, J.

      WE CONCUR:

                        STRATTON, P. J.

                        HARUTUNIAN, J.*

*     Judge of the San Diego Superior Court, assigned by the
Chief Justice pursuant to article VI, section 6 of the California
Constitution.

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