Arbitration confusion hampers suit over building code violations.

A real estate broker in California sold her own home to a pair of buyers but was later ordered in arbitration to fork over more money when the couple allegedly discovered building code violations. The order was mired by confusion over whether an arbitration clause was actually in effect. Would the broker be required to pay the award? Read on.

A California real estate broker who was ordered to pay attorney fees and other costs to the couple who bought her home argued that she agreed to the settlement under duress, and that arbitration couldn’t be compelled because the lawsuit that was filed against her was based on the sale contract, which did not include an arbitration clause.

The trial court granted an award in the buyers’ favor, and on June 30, the Court of Appeal, Fifth District, California, affirmed the lower court’s decision.

The problems became apparent after plaintiffs Eric and Teresa Kurtz entered into a contract to buy a house in Fresno, Calif., from defendants Raymond and Barbara Wizbowski, a licensed real estate broker, on April 24, 2002.

After escrow closed, the Kurtzes claimed they found several problems in the property that were not disclosed to them previously, such as improvements allegedly constructed without proper permits and building code violations.

The Kurtzes claimed the sellers and Guarantee Real Estate — which represented both parties in the transaction — were aware of the problems prior to selling the property. The plaintiffs offered to settle the dispute for nearly $40,000 or through mediation, pursuant to a mediation clause in the sale contract.

An agreement through arbitration

Guarantee Real Estate, the Wizbowskis and the Kurtzes participated in mediation on Nov. 17, 2004. The parties eventually entered into a settlement agreement which noted a payment owed to the Kurtzes for $22,500. The agreement included a statement which read, “It is understood and agreed that this is an abstract of the actual agreement and that the dispute is settled. The mediator shall have the authority to perform binding arbitration over all disputes including the language of documents to be prepared hereafter and all disputes as to this settlement.”

Guarantee Real Estate drafted a more detailed settlement agreement, but the Wizbowskis told the other parties they did not intend to perform. The Kurtzes responded by filing a complaint on March 16, 2005 in Superior Court of Fresno County.

The lawsuit alleged that the Kurtzes had specifically told Guarantee Real Estate that they were only interested in properties with no building permit problems or building code compliance issues. The buyers also claimed the sellers had represented in a disclosure statement that their house did not have any of the aforementioned problems. The lawsuit included causes of action for breach of contract, fraud and failure to make required disclosures.

Guarantee Real Estate filed a petition to compel arbitration, arguing that the settlement agreement’s provision which stated that the mediator shall have the authority to perform binding arbitration over all disputes must be followed.

No initials, no arbitration clause

The parties did not initial the arbitration provisions in the printed sale contract form, however, so there was no arbitration clause included in the sale contract. The trial court granted the petition on July 12, 2005. It stated that Raymond Wizbowski was not bound by the arbitration order because he had not signed it, but Barbara Wizbowski was.

An arbitration hearing was held on Oct. 5, 2006 and in a written award dated Oct. 20, 2006, the arbitrator determined the settlement agreement was enforceable, and thus awarded the Kurtzes $22,500 plus interest, as well as attorney fees.

The Wizbowskis made a motion to vacate or correct the award. The Kurtzes filed a petition to have the award confirmed. The court granted the Kurtzes’ petition along with some of the corrections that the Wizbowskis had requested. The attorney fees award was removed and all references to Raymond Wizbowski were eliminated. The sellers’ motion to vacate was denied and the Wizbowskis were ordered to pay the buyers $22,500 plus interest.

The Kurtzes again filed a motion, this time seeking to recover their attorney fees. The court determined the buyers could recover fees that were incurred in the judicial proceedings but not during arbitration, since the arbitration agreement did not have a provision for attorney fees. The Kurtzes were awarded $11,961 in attorney fees. Barbara Wizbowski appealed.

Wizbowski claimed the order compelling arbitration was based on the resolution of disputed facts. She argued that the Kurtzes’ complaint was based on the sale contract which did not have an arbitration clause, and therefore the court could not properly compel arbitration under the settlement agreement.

The appellate court explained that a petition to compel arbitration does not have to be based on an arbitration agreement contained in a contract that is at issue in a previously filed lawsuit. Instead, the Code of Civil Procedure allows for a petition to compel arbitration when a written agreement to arbitrate a dispute exists, and where a party has refused to arbitrate. A petition may be filed even if there is no pending lawsuit, the appellate court noted.

“An agreement to arbitrate a controversy over the settlement agreement existed, defendant refused to arbitrate and the controversy was over the same facts as those ‘involved in’ the action filed by plaintiffs in the superior court,” the appellate court stated. “Guarantee Real Estate’s petition to compel arbitration there was proper.”

Evidence of an objection needed

Wizbowski also claimed she was not provided with proper notice of the petition to compel arbitration. But Wizbowski had filed a brief opposing the petition, and that brief did not include any objection to the notice, the appellate court said. Her attorney made no objection to the notice during oral argument.

“It has long been settled that where a party appears in the trial court to contest a motion and makes no objection based on lack of notice or defective notice, the issue of notice is waived. Defendant filed no reply brief to explain why there would be no waiver here,” the appellate court stated.

Wizbowski claimed her signature on the settlement agreement was obtained by means of duress. She claimed that during the mediation, her attorney needed to step outside to call Raymond Wizbowski, who was absent due to recent heart surgery. While he was out, Barbara Wizbowski claimed, she was “pressured” to agree to pay the Kurtzes the $22,500 or be met with a lawsuit. Wizbowski claimed she was told a settlement was “a favor” to her. When her attorney came back into the room, she said they should pay what the plaintiffs requested.

The trial court had ruled against Wizbowski’s duress claim on the grounds that she made no attempt to support the claim with evidence. Her attorney responded to this by arguing he had mistakenly thought the buyers were going to oppose the motion and win, and if that were to occur, his argument based on section 664.6 of the Code of Civil Procedures “was more important, so he decided not to provide any factual support for the duress claim. As it turned out, they filed a statement of non-opposition instead,” the appellate court explained.

Wizbowski’s counsel stated that as he rode home from mediation with another person who was present at the hearing, the individual told him that the mediator made statements to the defendant while he was out of the room.

“This declaration fails to support defendant’s case for at least two reasons. First, the declaration contains no evidence at all of the content of the statements by the mediator that allegedly resulted in duress. … It also says defendant asserted that the statements caused [Wizbowski] great stress. As for the content of the statements, however, the declaration only says there was no evidence of what these statements were not,” the appellate court stated. “Second, the submission of this declaration in support of the motion to vacate cannot affect the correctness of the earlier ruling on the motion to compel. Defendant does not argue that the motion to vacate was an opportunity to correct her failure to present evidence she could have, but did not, present in opposing the motion to compel.”

There was therefore a lack of evidence to dismiss the arbitration order. The appellate court determined the lower court’s decision not to vacate the arbitration award was based on substantial evidence in the record.

The trial court’s judgment was thus affirmed. The Kurtzes were entitled to recover their costs on appeal.

Eric Kurtz et al. v. Barbara Wizbowski.