Barrelet v. Liu CA4/1
D083088
| Cal. Ct. App. | Aug 21, 2024Background
- Liu purchased a residential property from Barrelet and leased it back to him for one month as part of the same transaction.
- The sale and leaseback involved two separate agreements: a Residential Purchase Agreement (which included an arbitration clause) and a Residential Lease After Sale (with no arbitration clause).
- A $40,000 security deposit was provided by Barrelet under the lease agreement, to be held in escrow.
- When Barrelet vacated the property, a dispute arose over the property's condition, leading Liu to withhold the security deposit.
- Barrelet sued for breach of contract, conversion, and wrongful retention of the security deposit; Liu moved to compel arbitration based on the purchase agreement’s arbitration clause.
- The trial court denied Liu’s motion to compel arbitration, relying on California Civil Code § 1953(a)(4), which voids arbitration agreements for tenant litigation rights in residential lease agreements.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the arbitration clause in the purchase agreement apply to the lease dispute? | Lease is separate and not subject to arbitration due to § 1953(a)(4). | Arbitration clause governs all agreements in the transaction. | Arbitration applies procedurally (FAA), but is substantively controlled by California law. |
| Does § 1953(a)(4) invalidate arbitration of tenant claims in residential lease agreements? | Arbitration of tenancy claims is void as against public policy. | Lease after sale isn’t a typical residential tenancy; § 1953 shouldn’t apply. | Section 1953 applies and voids arbitration of tenant claims. |
| Does the FAA preempt California law regarding tenancy disputes here? | No federal interest; transaction does not involve interstate commerce. | FAA applies due to loan/commerce, preempting California law. | No preemption; transaction is local, California law governs. |
| Was Liu entitled to compel arbitration of Barrelet’s tenancy claim for the security deposit? | No, as arbitration of this claim is void under § 1953(a)(4). | Yes, as both agreements are a single transaction covered by arbitration. | No, as tenancy arbitration waiver is void under California law. |
Key Cases Cited
- Moncharsh v. Heily & Blase, 3 Cal.4th 1 (CA Supreme Ct. 1992) (scope of arbitration is a matter of party agreement)
- Cable Connections, Inc. v. DIRECTV, Inc., 44 Cal.4th 1334 (CA Supreme Ct. 2008) (distinguishes FAA procedural and substantive provisions application in state courts)
- Harris v. University Village Thousand Oaks CCRC LLC, 49 Cal.App.5th 847 (interpretation and invalidation of arbitration in certain residential lease agreements under CA law)
- Jaramillo v. JH Real Estate Partners, Inc., 111 Cal.App.4th 394 (preclusion of arbitration clauses for tenant procedural rights in residential leases)