Von Becelaere Ventures, LLC v. James Zenovic

James Zenovic doing business as James Zenovic Construction (Zenovic) appeals

an order denying his petition to compel arbitration in an action filed by Von Becelaere

Ventures, LLC (VBV) in San Diego County. The trial court determined Zenovic waived

his right to compel arbitration by filing a separate complaint in Orange County to

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foreclose on a mechanics lien without complying with provisions in Code of Civil

Procedure section 1281.51 to preserve his arbitration rights. Zenovic contends the court

misread and misapplied section 1281.5, which he contends should only apply to the

mechanics lien action and should not operate to preclude arbitration of the separate action

filed by VBV. We disagree. We conclude section 1281.5 "means what it says: A party

who files an action to enforce a mechanic's lien, but who does not at the same time

request that the action be stayed pending arbitration, waives any right to arbitration."

(R. Baker v. Motel 6 (1986) 180 Cal.App.3d 928, 929 (Baker).) We, therefore, affirm the

order.

BACKGROUND

A

VBV entered into a construction contract with Zenovic to construct a singlefamily

residence on property owned by VBV in Laguna Beach. VBV and Zenovic both

maintain addresses in San Diego County.

The construction contract contained an arbitration agreement stating, "If any

dispute arises concerning this Contract or the interpretation thereof, or 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."



1 Further statutory references are to the Code of Civil Procedure unless otherwise

stated.

3

B

Apparently, a dispute arose between the parties. Zenovic recorded a mechanics

lien in Orange County on March 20, 2017, asserting VBV owed $449,126.96 for work

furnished at the property.

VBV filed a construction defect complaint on April 3, 2017, in the Superior Court

of San Diego County (San Diego action) asserting causes of action for breach of contract;

negligence; an accounting; violations of Business and Professions Code section 7000, et

seq.; breach of the covenant of good faith and fair dealing; aiding and abetting fraud;

aiding and abetting breach of fiduciary duty; and violation of Penal Code section 496.

VBV alleged Zenovic breached the construction contract by "(a) failing to properly

perform and construct the Work; [¶] (b) failing to hire properly licensed and insured

subcontractors; [¶] (c) failing to comply with proper license and insurance requirements;

[¶] (d) failing to obtain written subcontract agreements; [¶] (e) failing to properly

supervise the Work; [¶] (f) failing to maintain and provide upon request proper

accounting records; [¶] (g) failing to properly manage expenses and allowing gross

overages; [¶] (h) failing to comply with requirements regarding change orders,

improperly billing for extra work and improperly categorizing work as extra work which

should have been covered under the contract as included work; and [¶] (i) improperly

filing and asserting an untimely mechanics lien and threatening to file suit to foreclose on

the improper lien."

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VBV's third cause of action for an accounting alleged it overpaid Zenovic as a

result of "fraudulent, incomplete and inaccurate billing" for the project and sought a

"complete and accurate accounting of the cost of work."

The sixth cause of action for aiding and abetting fraud alleged the defendants

conspired to defraud VBV with excessive billing for which VBV paid, and "subsequently

improperly recorded an untimely Mechanics Lien against the Residence in the amount of

$449,126.96. Defendants then demanded [VBV] pay the sum of $648,811.43 or they

would file a lawsuit to foreclose on the Mechanics Lien."

A few days after being served with the San Diego action, Zenovic filed on

April 7, 2017, a complaint in the Superior Court of Orange County (Orange County

action) asserting causes of action for breach of contract, reasonable value, account stated,

open book account, abuse of process, foreclosure on mechanics lien, and breach of the

covenant of good faith and fair dealing. Zenovic alleged VBV refused to pay money due

under the construction contract for labor, materials, and services provided for

construction of the residence. Zenovic sought to foreclose on the mechanics lien.

About a month later, Zenovic filed a motion to compel arbitration in the San

Diego action. He contended VBV's entire complaint was arbitrable because the

allegations for each cause of action qualified as a "Construction Dispute" under the terms

of the arbitration agreement, including VBV's causes of action for accounting, aiding and

abetting fraud and breach of fiduciary duty based on allegations of mismanagement of

construction and billing practices, and violation of Penal Code section 496 based on

allegations of theft of construction funds.

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Thereafter, the parties submitted a stipulation to the Orange County Superior

Court agreeing to transfer the Orange County action to San Diego County Superior Court

and requesting the two actions be consolidated. The Orange County court ordered the

Orange County action transferred to San Diego County Superior Court and to be related

to the San Diego action.

The court denied Zenovic's petition to compel arbitration of the San Diego action

finding Zenovic waived the right to compel arbitration by failing to comply with section

1281.5, subdivision (a), when filing the Orange County action. Because Zenovic waived

the ability to enforce the arbitration provision, the court also denied the petition to

compel arbitration as to codefendants Union Site Contracting and Joseph Zenovic finding

there is a possibility of conflicting rulings on a common issue of law or fact. Union Site

Contracting and Joseph Zenovic are not parties to this appeal.2

DISCUSSION

Zenovic contends section 1281.5 applies only to an action to enforce a mechanics

lien and should not operate to waive his right to arbitrate other contractual disputes. We

disagree.

I

" 'Generally, the determination of waiver is a question of fact, and the trial court's

finding, if supported by sufficient evidence, is binding on the appellate court. [Citations.]



2 Union Site Contracting and Joseph Zenovic separately appealed the order denying

the motion to compel arbitration and a subsequent order awarding attorney fees. That

appeal will be considered separately. (Von Becelaere Ventures, LLC v. James Zenovic et

al., D073108.)

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"When, however, the facts are undisputed and only one inference may reasonably be

drawn, the issue is one of law and the reviewing court is not bound by the trial court's

ruling." ' " (Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348,

375.)

II

Section 1281.5, subdivision (a) states: "Any person who proceeds to record and

enforce a claim of lien by commencement of an action pursuant to Chapter 4

(commencing with Section 8400) of Title 2 of Part 6 of Division 4 of the Civil Code,

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."

A

Zenovic contends the title of the statute has some significance. However, as

enacted and amended by the Legislature, section 1281.5 never contained a title. (See

Stats. 1977, ch. 135, § 1, pp. 571–572; Stats. 1989, ch. 470, § 1, p. 1677; Stats. 1998,

ch. 931, § 122, p. 6466; Stats. 2002, ch. 784, § 82, p. 4765; Stats. 2003, ch. 22, § 1,

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pp. 97–98; Stats. 2010, ch. 697, § 25 (SB 189).) Titles inserted by publishers in

commercial versions of the statute do not indicate legislative intent and are not binding

on the court. (In re Halcomb (1942) 21 Cal.2d 126, 130; see DaFonte v. Up-Right, Inc.

(1992) 2 Cal.4th 593, 602; Cal. Style Manual (4th ed. 2000) § 2:15 [B], p. 102.) In any

event, "a provision's title 'is never allowed to enlarge or control the language in the body

of the [provision].' " (Berkeley Hillside Preservation v. City of Berkeley (2015) 60

Cal.4th 1086, 1096, fn. 2.)

B

Zenovic cites to the portions of the statute referring to the commencement of an

action to enforce a mechanics lien to argue the statute governs only actions to enforce

mechanics liens, not other issues. However, Zenovic's narrow reading overlooks the

pertinent language of the statute, which states a party who files an action to enforce a

mechanics lien "does not thereby waive any right of arbitration the person may have

pursuant to a written agreement to arbitrate" if the party complies with one of the two

enumerated provisions to stay the mechanics lien. (§ 1281.5, subd. (a), italics added.)

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

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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." (§ 1281.5, subds. (a)(2), (b), italics added.) However, a party who

commences a mechanics lien action without complying with either of the stay provisions

waives any such right to arbitration.

"[P]rior to the enactment of section 1281.5 in 1977, the filing of an action on a

contract without seeking to preserve arbitration constituted a waiver of a contract

provision for arbitration." (Baker, supra, 180 Cal.App.3d at pp. 930–931.) The Baker

court cited Titan Enterprises, Inc. v. Armo Construction, Inc. (1973) 32 Cal.App.3d 828,

830, in which a subcontractor filed an action against the contractor seeking to enforce a

mechanics lien and thereafter demanded arbitration of the same dispute. The Titan court

concluded the filing of the action on the mechanics lien without attempting to preserve

the right to arbitration amounted to a waiver. (Id. at p. 833.)

The Baker court explained, "The rule in Titan created a 'damned if you do damned

if you don't' situation for a plaintiff wishing to file a mechanic's lien, and to arbitrate his

claim. If the time limits for filing a mechanic's lien were not followed, an action to

enforce the lien could not be maintained. But, if the action to enforce the mechanic's lien

was properly brought, the materialman would waive any rights to arbitration. Section

1281.5 came to the rescue. The legislative counsel's comment to the section points out

that the filing of an action to enforce the lien does not constitute waiver of the right to

arbitrate provided the claimant applies for a stay. (Legis. Counsel's com.; Stats. 1977, ch.

135, Assem. Bill No. 322.)." (Baker, supra, 180 Cal.App.3d at pp. 930–931.) The Baker

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court concluded section 1281.5 "means what it says: A party who files an action to

enforce a mechanic's lien, but who does not at the same time request that the action be

stayed pending arbitration, waives any right to arbitration." (Id. at p. 929.)

The only other reported case interpreting section 1281.5 is Kaneko Ford Design v.

Citipark, Inc. (1988) 202 Cal.App.3d 1220, 1226–1227 (Kaneko), which held the mere

filing of an application for a stay of proceeding under section 1281.5 did not

automatically create a stay. "The sole effect of filing the application for a stay under

section 1281.5 is to preclude a finding of waiver of the right to arbitrate because of the

filing of a complaint to enforce a mechanics' lien." (Id. at p. 1227.) However, the

Kaneko court went on to conclude the failure to implement the application for stay and

actually obtain a stay order within a reasonable period of time waived the right to

arbitration. (Id. at pp. 1228–1229.)

In this case, Zenovic did not file the Orange County action to enforce the

mechanics lien until after VBV filed the San Diego action. VBV's action alleged disputes

regarding Zenovic's billing practices and specifically included allegations related to

Zenovic's actions in recording and attempting to enforce his mechanics lien. In his

motion to compel arbitration, Zenovic agreed all of VBV's causes of action qualified as

arbitrable construction disputes. Yet, Zenovic neither included an allegation in the

complaint filed in the Orange County action stating he did not intend to waive any right

of arbitration and intended to seek a stay of the Orange County action (§ 1281.5, subd.

(a)(1)), nor filed an application for stay at the time he filed the complaint in the Orange

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County action (§ 1281.5, subd. (a)(2)). His failure to do so waived the right to arbitrate

construction disputes under the terms of the construction contract.

C

The finding of waiver does not conflict with the parties' contractual agreement, as

Zenovic contends. The construction contract contained a paragraph stating, "Despite the

Arbitration of Disputes provision hereinabove, Contractor shall have the right to preserve

and pursue any statutory mechanic's lien and/or stop notice rights that Contractor may

have separate and apart from the arbitration provisions hereof; provided, however, that

the Arbitrators shall make a final determination of the amounts due and owing from

Owner to Contractor, which determination shall be binding upon Owner and Contractor,

and may be enforced as a judgment in a court of competent jurisdiction."

This clause does not mean Zenovic could choose not to arbitrate his mechanics

lien issue without impairing his right to arbitrate other construction disputes. This clause

allowed Zenovic to comply with statutory provisions to record a mechanics lien and

commence an enforcement action for that lien. However, the second portion of the clause

required Zenovic to submit to arbitration the issue of the amounts due and owing. The

arbitrator's decision on that issue would then be enforceable by a court of competent

jurisdiction. Had Zenovic preserved his arbitration rights by complying with section

1281.5, subdivisions (a)(1) or (a)(2), he would have complied with both the statute and

the arbitration agreement by obtaining a stay for an arbitrator to decide the amounts due.

His failure to do so further supports waiver.

The order denying the petition for arbitration is affirmed. VBV shall recover its

costs on appeal.