It Did Not Matter That Mechanic’s Lien Action Was Separate From Other Action Which Was Potentially Arbitrable.

            Von Becelaere Ventures, LLC v. Zenovic, Case No. D072620 (4^th Dist., Div. 1 June 6, 2018) (published) (McConnell, P.J., concurred in by Huffman, J. and O’Rourke, J.) is an interesting case interpreting the application of Code of Civil Procedure section 1281.5 where there are separate actions for foreclosure of a mechanics lien and for construction defect by different parties, all involving potentially arbitrable claims by signatory parties to a construction agreement arbitration clause.

            What occurred here was that Zenovic was engaged to construct a single-family residence on a Laguna Beach property owned by Von Becelaere Ventures (VBV), although the parties both maintained addresses in San Diego. There was a broad arbitration clause in the construction contract covering disputes over contractual interpretation, improvements construction, warranties, defects, damages, or other obligations. After a dispute arose, Zenovic recorded a mechanic’s lien in Orange County, prompting VBV to file a construction defect complaint in San Diego County Superior Court (alleging, among other things that the mechanics lien was untimely, improper, and abusive in nature). Later, Zenovic filed an Orange County Superior Court action for recovery on contractual and mechanics lien foreclosure claims. One month later, Zenovic filed a motion to compel arbitration in the San Diego C.D. action. The parties then stipulated to transfer the Orange County to San Diego for consolidation, which was done and with the two actions being deemed “related” in nature. The San Diego judge denied the motion to compel arbitration based on the conclusion that Zenovic waived the right to compel arbitration by failing to comply with section 1281.5. That determination was affirmed on appeal.

            Section 1281.5 provides that a mechanics lien foreclosure litigant does not waive a right to arbitration pursuant to a written arbitration agreement if, in filing a lien foreclosure action, the claimant does one of two things: (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 action for an order to stay further proceedings, or (2) simultaneously with the filing of the complaint, the claimant files an application that the action be stayed pending the arbitration of “any issues, 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.” Zenovic did neither of these things in the Orange County action after VBV filed the San Diego action.

            Zenovic principally argued on appeal that section 1281.5 contemplates a mechanics lien action will be separate from an action to resolve otherwise arbitrable disputes (even though the separate action did encompass claims for fraudulent billings, construction defect offsets/affirmative damages, and improperly recorded lien amounts). The 4/1 DCA did not agree; after all, the purpose of the alternative stay procedures to allow arbitration to proceed relating to issues, questions, or disputes relating to the amount at issue in the mechanics lien foreclosure action. Zenovic’s failure to do so in the lien foreclosure action waived the right to arbitrate constructions disputes under the terms of the construction contract, which also encompassed the issues in the construction defect action.