California Contractor Spills Coffee on Himself by Failing to Stay Mechanics Lien Action While Pursuing Arbitration

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It bugs the Mrs. that I have a habit of reading the directions. “Just plug the darn thing in!” said the Mrs. when we got a new coffee maker to replace our old one which we’ve had since I think before we were married (Life Lesson No. 347: Get a coffee maker you really, really like because they last forever). “But . . . the directions?,” I said.

By the time I had finished reading the instruction manual I could smell the coffee brewing in the kitchen. Granted, the Mrs. is more practical than I am in many ways (e.g., “You know, you didn’t need to buy 10 cans of corn to get the 10 for $10 discount. I guess you’re going to be eating a lot of corn”). But still. What might have happened if there was a serious coffee mishap?

And worrier as I may be mishaps can happen if you don’t read the directions. James Zenovic didn’t read the directions, and here’s his story . . .

Von Becelaere Ventures, LLC v. Zenovic

In Von Becelaere Ventures, LLC v. Zenovic, Case No. D072620 (June 6, 2018), James Zeonovic doing business as James Zeonovic Construction entered into a construction contract to build a single-family house for Von Becelaere Ventures, LLC in Laguna Beach, California. The construction contract included an arbitration provision that stated:

If any dispute arises concerning this Contract or the interpretation thereof, of concerning construction of the Improvements, or the Limited Warranty, customer service, defects, damages, or obligations therewith (a “Construction Dispute”), such Construction Dispute will be settled by binding arbitration.

As sometimes happens on a construction project, a dispute arose. The result, was that Mr. Zenovic recorded a mechanics lien asserting that Von Becleare Ventures owed him nearly $450,000 on the project.  Mr. Zenovic recorded his mechanics lien on March 20, 2017. As also sometimes happens on a construction project, Von Becleare Ventures filed a complaint against Mr. Zenovic alleging a host of claims relating to the work performed by Mr. Zenovic on the project. Von Becleare’s complaint was filed on April 3, 2017. On April 7, 2017, Mr. Zenovic filed a complaint against Von Becleare Ventures foreclosing on his mechanics lien.

About a month later, Mr. Zenovic file a motion to compel arbitration to stay the actions while the parties arbitrated their dispute pursuant to the arbitration provision of the contract. However, the trial court denied Mr. Zenovic’s motion finding that he had waived his right to arbitration because he failed to (read and) comply with Code of Civil Procedure section 1281.5 which provides in pertinent part:

(a) Any person who proceeds to record and enforce a [mechanics’] lien . . . does not thereby waive any right of arbitration the person may have pursuant to a written agreement to arbitrate, if, in filing an action to enforce the claim of lien, the claimant does either of the following:

(1) Includes an allegation in the complaint that the claimant does not intend to waive any right of arbitration, and intends to move the court, within 30 days after service of the summons and complaint, for an order to stay further proceedings in the action.

(2) At the same time that the complaint is filed, the claimant files an application that the action be stayed pending the arbitration of any issue, question, or dispute that is claimed to be arbitrable under the agreement and that is relevant to the action to enforce the claim of lien.

(b) Within 30 days after service of the summons and complaint, the claimant shall file and serve a motion and notice of motion pursuant to Section 1281.4 to stay the action pending the arbitration of any issue, question, or dispute that is claimed to be arbitrable under the agreement and that is relevant to the action to enforce the claim of lien. The failure of a claimant to comply with this subdivision is a waiver of the claimant’s right to compel arbitration.

(c) The failure of a defendant to file a petition pursuant to Section 1281.2 at or before the time the defendant answers the complaint filed pursuant to subdivision (a) is a waiver of the defendant s right to compel arbitration.

The Court ruled that because Mr. Zenovic had not: (1) included an allegation in his complaint to foreclose on his mechanics lien that he did not intend to waive his right to arbitration and within 30 days of service of his complaint would seek a stay of the action while he pursued arbitration; or (2) did not file an application to stay the action at the time he filed his complaint to foreclose on his mechanics lien, he had waived his right to arbitration pursuant to Section 1281.5.

Mr. Zenovic appealed.

The Court of Appeal Decision

On appeal, Mr. Zenovic contended that Code of Civil Procedure section 1281.5 only applied to his complaint to foreclose on his mechanics lien but did not apply to Von Becleare Ventures’ claims against him.

The Court of Appeals for the 4th District disagreed holding that, under a plain reading of the statute, Section 1281.5 applies not only to actions to foreclose on a mechanics lien, but also to any arbitrable claim relevant to an action to enforce a mechanics lien:

Section 1281.5, subdivision (a), contemplates a mechanics lien action will be separate from an action to resolve otherwise arbitrable disputes. It makes no difference if the arbitration action is initiated in a different venue or which party initiates the arbitration action. By its plain terms, the statute permits a contractor to take advantage of the statutory mechanics lien process while preserving the contractual right to arbitrate disputes as provided in the arbitration agreement. The purpose of the alternative stay procedures articulated in section 1281.5, subdivision (a), is to hold the mechanics lien process in abeyance “pending the arbitration of any issue, question, or dispute that is claimed to be arbitrable under the agreement and that is relevant to the action to enforce the claim of lien.” However, a party who commences a mechanics lien action without complying with either of the stay provisions waives any such right to arbitration.

(emphasis in original).

And, here, held the Court of Appeals, Von Becleare Ventures’ claims against Mr. Zenovic were arbitrable claims under the arbitration provision of the parties’ agreement, but Mr. Zenovic failed to preserve his right to arbitration by failing to comply with Code of Civil Procedure section 1281.5 when filing his action to foreclose on his mechanics lien.

Conclusion

So there you have it. Read the directions, or, in this case, the statutes, to avoid the risk of spilling coffee all over yourself.

 

3 Responses to “California Contractor Spills Coffee on Himself by Failing to Stay Mechanics Lien Action While Pursuing Arbitration”

  1. David Ross

    In my experience, courts are very eager to shift disputes from the courthouse to ADR. In San Mateo County, I think the two actions would have been consolidated and sent to arbitration in a heartbeat. Also, in my experience, Mr. Zenvovic may be better off in Superior Court for his lien foreclosure anyway.

    Reply
  2. Victor

    Would the fact that the arbitration clause failed to comply with CA BPC 7191 render the Arbitration clause unforceable except the contractor?

    Reply
    • Garret Murai

      Possibly Victor. I haven’t seen a case addressing whether failure to comply with B&P 7191, by using the specific language set forth in that section or the typeface or type size, would render that arbitration provision void or whether it would be void as to one party (e.g., the contractor) but not another party (e.g., the homeowner).

      Reply

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