Chairez and Guerra entered into a “LEASE AGREEMENT with OPTION TO PURCHASE & EXTEND” (agreement) relating to a property at which Chairez and Guerra lived. Chairez borrowed $1.1 million against the property and defaulted on the loan, resulting in nonjudicial foreclosure proceedings by Aurora. Aurora also brought an unlawful detainer action against Guerra, and Guerra successfully moved to compel arbitration under the agreement.
Guerra did well in the arbitration. The arbitrator ordered Aurora to grant the property to him, to cancel the note, to reconvey the deed of trust, and to pay $14K in attorneys fees.
The appeal by Aurora yielded a reversal. Aurora was a nonsignatory to the arbitration agreement between Chairez and Guerra. Aurora was not a beneficiary of the agreement. And the relationship between Chairez and Aurora, i.e., between borrower and lender, was different than the types of relationships such as principal and agent or employer and employee, where the identity of interest is sufficient to bind a nonsignatory to an arbitration agreement. Hence, the trial court erred by ordering arbitration.
Interestingly, on the basis the the Court of Appeal determined that it was improper to compel arbitration – namely, Aurora was a nonsignatory to the arbitration agreement – the trial judge denied attorney’s fees to Guerra, even though he had prevailed in the arbitration. Because the Court of Appeal reversed the judgment confirming the arbitration award (see above), Guerra was not a prevailing party, and therefore the order denying him attorney’s fees was affirmed.