2017-00221278-CU-MC

CDCR vs. Solpac Construct

Nature of Proceeding: Motion to Stay Arbitration

Filed By: Alweiss, Daniel B.

Plaintiff State of California by and through the Department of Corrections and Rehabilitation’s (“CDCR”) motion for preliminary injunction staying the arbitration proceedings currently set for May 2018 until after the claims asserted in CDCR’s present action for declaratory and injunctive relief are adjudicated is DENIED, as follows.

Moving counsel failed to comply with CRC Rule 3.1110(b)(3)-(4).

Factual Background

In May 2010, CDCR entered into a $20-plus Million contract with defendant Soltek Pacific Construction Company (“Soltek”) to build a health facility for a state prison.

According to CDCR, Soltek had a limited amount of time after completion of construction to submit a written claim for additional payments under the contract but is now barred from pursuing such claim due to its failure to timely comply with this requirement.

In July 2013, Soltek filed for arbitration but the claim was dismissed. Soltek filed another claim for arbitration in July 2014, amending it in October 2014. CDCR responded to the claim, by arguing that the arbitrator lacks subject matter jurisdiction because Soltek did not timely present its claim for money. However, the arbitrator denied CDCR’s motion to dismiss in September 2016 while CDCR’s subsequent motions for summary judgment and for bifurcation in late 2017 appear to still be under submission to the arbitrator.

The arbitrator has apparently scheduled a hearing on the merits of the parties’ claims to begin in May 2018.

Present Court Action. CDCR filed the complaint in this action on 10/25/2017, seeking declaratory and injunctive relief. More specifically, this complaint alleges that the aforementioned construction contract contained a provision requiring Soltek to submit any claim for additional money relative to the contract no later than 30 days after receipt of CDCR’s Final Estimate Worksheet and Release of Claims form and that Soltek neither timely complied with this requirement nor sought relief to submit a late claim. According to CDCR, the parties’ contract contains an arbitration provision but it only applies to claims which are both timely and valid, neither of which true of the claims asserted by Soltek in the pending arbitration proceedings. The complaint further alleges both Soltek and the arbitrator have been advised that the former’s claim is barred and that this deprives the arbitration tribunal of subject matter jurisdiction over Soltek’s claim. By this action, CDCR seeks a declaration not only that Soltek is precluded from pursuing its claim for money against CDCR relative to the underlying contract as a result of its failure to timely submit such claim but also that no arbitration can be had in light of the absence of a timely, valid claim submission.

The court notes that CDCR also recently filed a motion for summary judgment on 2/6/2018 and it is currently set to be heard on 4/23/2018.

Moving Papers. Although labeled as a motion to stay, the moving papers by their own terms actually seek a preliminary injunction prohibiting the arbitration proceeding from taking place before this court adjudicates CDCR’s declaratory relief cause of action which maintains that Soltek’s claim for money is not subject to arbitration as a result of its failure to submit a timely, valid claim following completion of the project. Indeed, the motion relies on the Code of Civil Procedure §526 which governs the issuance of injunctions and the opening paragraph of this motion CDCR maintains it is entitled the requested relief “because CDCR shows a likelihood of success on the merits, and irreparable harm if arbitration proceeds,” while the heart of the moving papers insists “Preliminary Injunction Staying Arbitration is Appropriate Because CDCR Will Likely Prevail, and Suffer Irreparable Harm Otherwise.” (Mov. Memo. P&A, p.4:6-8; p.13:1-p.17:28.)

The moving papers parallel the above-cited allegations from CDCR’s complaint for

declaratory and injunctive relief but add further details including the fact the assigned

arbitrator charges $600 per hour and CDCR anticipates incurring at least another
$200,000 in fees and costs if the arbitration is not stayed, none of which is recoverable

thereafter. It is these non-recoverable expenses that CDCR cites as the irreparable harm which satisfies the first prong of the showing needed to obtain an injunction against the arbitration proceedings. With respect to the likelihood of success, CDCR contends that the subject matter jurisdiction of the arbitrator can be raised at any time and that under California law, the courts decides what disputes are subject to arbitration rather than the arbitrator. However, on Pages 14-15 CDCR explicitly characterizes Soltek’s alleged failure to submit a timely claim as a “defense” (which would ordinarily be amenable to resolution by arbitration), rather than as a prerequisite to the arbitrator’s subject matter jurisdiction.

Opposition. Soltek opposes, arguing first that CDCR has unreasonably delayed for over three years before seeking injunctive relief from this court but has instead voluntarily participated in the very arbitration proceedings now portrayed as lacking subject matter jurisdiction, several times raising the same issue presented here and effectively conceding the arbitrator’s authority to determine the question of whether a timely claim was presented by Soltek. Regardless, the opposition maintains under the Public Contract Code and related regulations which govern the subject construction contract, it is clearly the arbitrator and not the court who decides whether a claim is subject to arbitration and CDCR has also failed to make the showing necessary to justify the court’s exercise of its discretionary power to issue an injunction halting another tribunal’s ongoing proceedings, including the existence of irreparable harm and the likelihood of prevailing on the merits. Among other things, Soltek argues that merely incurring monetary litigation costs does not under California law constitute irreparable harm and CDCR is incorrectly asserting that no timely claim was filed inasmuch as CDCR failed to timely deliver the Final Estimate Worksheet and Release of Claims form which commenced the claim submission period and then misleading Soltek into believing it had not been issued, when it had been delivered to temporary receptionist at Soltek who failed to direct it to the appropriate Soltek personnel.

Analysis

At the outset, the court notes “[T]he issuance of an injunction involves ‘…the exercise of a delicate power, requiring great caution and sound discretion, and rarely, if ever, should [it] be exercised in a doubtful case. [Citations.]’” (Paiva v. Nichols (2008) 168 Cal.App.4th 1007, 1021-1022 (citing Fleishman v. Sup. Court (2002) 102 Cal.App.4th 350, 355-356).) Among the factors to be considered when injunctive relief is sought is whether the moving party will, absent such relief, suffer great or irreparable harm for which pecuniary compensation would not afford adequate relief. (See, e.g., Code Civ. Proc. §526(a)(2), (4); Jessen v. Keystone Sav. & Loan (1983) 142 Cal.App.3d 454, 457.)

Irreparable Harm. As noted above, CDCR cites its anticipated non-recoverable expenditure of an additional $200,000 in fees and costs in preparing for the upcoming arbitration hearings in May as the “irreparable harm” weighing in favor of an order enjoining the arbitration proceedings. However, the opposition correctly points out that under current California law, irreparable harm for purposes of injunctive relief is something which is either not susceptible to monetary valuation or which is so unique that its loss deprives the possessor of intrinsic values cannot be restored by money or in kind. (See, e.g., Intel Corp. v. Hamidi (2003) 30 Cal.4th 1342, 1352; Grail Semiconductor, Inc. v. Mitsubishi Electric & Electronics USA, Inc. (2014) 225 Cal.App.4th 786, 401.) Moreover, the First District Court of Appeal has explicitly addressed the question of whether the mere expense involved in exhausting an

administrative remedy can constitute an irreparable injury and concluded it did not based on existing precedent, one of which found that a remedy would not be deemed inadequate merely because additional time and effort would necessarily come at a cost and another which explained that “litigation expenses, however substantial and nonrecoverable,…do not constitute irreparable injury.” (Eight Unnamed Physicians v. Medical Executive Committee (2007) 150 Cal.App.4th 503, 515 [citing Unnamed Physician v. Board of Trustees (2001) 93 Cal.App.4th 607, 620; State of California ex rel. Christensen v. F.T.C. (9th Cir. 1977) 549 F.2d 1321, 1323.) For these reasons, this court holds that CDCR has failed to carry its burden of producing evidence establishing it will suffer any genuine irreparable harm in the event the upcoming arbitration hearing is not enjoined.

Likelihood of Success. CDCR has also failed to persuade this court it has likelihood of prevailing on the merits of its current action for declaratory and injunctive relief. Although the CDCR attempts to characterize Soltek’s alleged failure to submit a timely claim for additional money under the construction contract as the sine qua non for the arbitrator’s subject matter jurisdiction the moving papers themselves repeatedly refer to the lack of a timely claim as a mere “defense.” For instance, the opening sentence states:

“CDCR has an absolute right to a trial on its Government Code claim submission defense.” ( Underline added for emphasis.)

That the lack of a timely claim is merely a “defense” (which like other defenses is ordinarily subject to resolution by arbitration) is reiterated several times at Page 9, Lines 18-25; Page 10, Line 5; Page 12, Lines 3-8; Page 14, Lines 20-28; Page 15, Lines 6 and 20-21; and Page 16, Lines 20-23.

Second, CDCR’s own actions tend to undermine its current assertion that without a timely claim by Soltek, the arbitrator lacks subject matter jurisdiction. It appears CDCR responded to Soltek’s amended claim in 2014 by asserting this alleged lack of subject matter jurisdiction and even though this assertion was rejected, CDCR did not seek any judicial relief but instead chose to advance the same argument again in 2016, which was also unsuccessful. CDCR did not at that time pursue any judicial remedy but opted to re-assert the same argument in 2017, again without success. CDCR’s failure to raise in this court any contention that the arbitrator was without subject matter jurisdiction is not only indicative a tacit belief there was subject matter jurisdiction but also potentially estops CDCR from now pursuing a judicial remedy after proceeding for well over three years in an arbitral forum.

Third, while CDCR unqualifiedly maintains that Soltek failed to timely submit a valid claim and is therefore barred from prosecuting its claim in arbitration, the opposition presents facts which tend to show the existence of a number reasons why Soltek may not be found to have not timely submitted a valid claim for additional compensation under the contract. Consequently, even if this court were to enjoin the arbitration hearings now set for May, it cannot be said on the present record that CDCR is likely to prevail on its contention Soltek failed to timely submit a claim which may permissibly be resolved via arbitration.

Additionally, the court does not find that the relevant provisions of the parties’ contract necessarily preclude as a matter of law the submission of ostensibly untimely claims for additional compensation to arbitration. Paragraph 8.3.B of Section 00708 of the contract provides that the contractor’s failure to execute and return the Release of Claims within 30 days “shall constitute Contractor’s binding acceptance of the Net Final Payment as the total amount due under the contract and a waiver and release of all claims of any nature…arising under or related to performance of the contract,” but it does not explicitly state that the contractor is categorically barred from otherwise submitting claims relating to disputed work as discussed in Section 00709, which provides for an Administrative Claim and Review Process and then arbitration of unresolved claims. At a minimum, the waiver and release which CDCR now attributes to Soltek by virtue of the latter’s alleged failure to timely return the Release of Claims after the project’s completion constitutes an affirmative defense which must be resolved pursuant to the administrative claim process set forth in the contract, including arbitration of unresolved claims.

Conclusion

Since CDCR has failed to carry its burden of not only demonstrating CDCR has probability of prevailing on its declaratory and injunctive relief action as against Soltek but also showing CDCR will suffer irreparable, non-monetary harm in the absence of the request injunction prohibiting the upcoming arbitration, the court declines to exercise its equitable powers to grant the requested order enjoining the arbitration proceedings now set for May 2018. As noted above, “[T]he issuance of an injunction involves ‘…the exercise of a delicate power, requiring great caution and sound discretion, and rarely, if ever, should [it] be exercised in a doubtful case. [Citations.]’” (Paiva, at 1021-1022.)