Judge: Anne Richardson, Case: 22STCV29794, Date: 2023-09-21 Tentative Ruling

DEPARTMENT 40 - JUDGE ANNE RICHARDSON - LAW AND MOTION RULINGS
The Court issues tentative rulings on certain motions.The tentative ruling will not become the final ruling until the hearing [see CRC 3.1308(a)(2)]. If the parties wish to submit on the tentative ruling and avoid a court appearance, all counsel must agree and choose which counsel will give notice. That counsel must 1) email Dept 40 by 8:30 a.m. on the day of the hearing (smcdept40@lacourt.org) with a copy to the other party(ies) and state that all parties will submit on the tentative ruling, and 2) serve notice of the ruling on all parties. If any party declines to submit on the tentative ruling, then no email is necessary and all parties should appear at the hearing in person or by Court Call. 

Case Number: 22STCV29794    Hearing Date: September 21, 2023    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

Background

Plaintiffs Manbir Dhillon aka Money Mike aka Mikey Dankz (Dankz) and Gold Grizzly Entertainment (Grizzly) sue Defendants Vassal Benford (Benford), The Benford Company (Benford Co.), Ronald M. Lebow (Lebow), TBC Group, LLC (TBC Group), and Does 1 through 50 pursuant to a September 13, 2022 Complaint alleging claims of (1) Breach of Contract, (2) Breach of Fiduciary Duty, (3) Breach of Covenant of Good Faith and Fair Dealing, (4) Intentional Misrepresentation, (5) Negligent Misrepresentation, (6) Conversion, and (7) Unjust Enrichment.

The claims arise from allegations that, among other things, Dankz (a music artist), on behalf of Grizzly, and Lebow, on behalf of TBC Group, entered into a Re Distribution Agreement (Agreement), pursuant to which TBC Group would use its pre-existing agreements with Animal Head Entertainment (Animal Head) and Warner Brothers/Tommy Boy Distribution (Warner Bros.) to market and distribute Dankz’s music releases (collectively, the Project). In exchange for its work, TBC Group would receive songwriting and publishing rights of those songs in addition to a share of the producer royalty, as well as up to 25% of any revenue from the sale of Dankz’s records and all ancillary rights derived from online and advertising ads. Plaintiffs allege that despite Dankz transferring $150,000 of his own money to Lebow in connection with the Project, Defendants never produced the Project, and had no intention of keeping their promises relating to the same.

On July 28, 2023, Defendants Benford, Lebow, and TBC Group (hereafter referred to as Defendants to the exclusion of Defendant Benford Co.) moved to compel arbitration of Plaintiffs’ action and to stay these proceedings.

On September 5, 2023, Plaintiffs opposed the motion.

On September 11, 2023, Plaintiff filed a supplemental declaration in support of the opposition.

On September 14, 2023, Defendants replied to the opposition.

Defendants’ motion to compel arbitration and stay proceedings is now before the Court.

Motion to Compel Arbitration and Stay Proceedings

Procedural Requirements

“A petition to compel arbitration or to stay proceedings pursuant to Code of Civil Procedure sections 1281.2 and 1281.4 must state, in addition to other required allegations, the provisions of the written agreement and the paragraph that provides for arbitration. The provisions must be stated verbatim or a copy must be physically or electronically attached to the petition and incorporated by reference.” (Cal. Rules of Court, rule 3.1330.)

Here, Defendants’ motion complies with this rule of court because the motion verbatim states the relevant provisions of the written agreement and the paragraph that provides for arbitration. (See Mot., pp. 2-5 [four references to arbitration clause].) Defendants also comply with the rule by attaching a copy of the Agreement. (Mot., Lebow Decl., Ex. A.)

Adequacy of Statement of Facts in Motion

The memorandum supporting a motion must contain a statement of facts, a concise statement of the law, evidence and arguments relied on, and a discussion of the statutes, cases, and textbooks cited in support of the position advanced. (Cal. Rules of Court, rule 3.113, subd. (b).)

Here, the Court finds—contrary to Plaintiffs’ argument (Opp’n, pp. 5-6)—that the statement of facts supporting Defendants’ motion (Mot., pp. 2-4) satisfies this rule of court. The statement of facts sufficiently apprises the Court of the background for the relief sought.

Legal Standard

A party to an arbitration agreement may seek a court order compelling the parties to arbitrate a dispute covered by the agreement. (Code Civ. Proc., § 1281.2.) Absent a viable defense to enforcement, the court must grant the motion if it determines there is an agreement to arbitrate that has not been rescinded. (See Code Civ. Proc., § 1281.2; see also Cinel v. Barna (2012) 206 Cal.App.4th 1383, 1389 [“Under section 1281.2, the court shall order a matter to arbitration if it determines that there is an agreement to arbitrate and (1) the agreement has not been waived or (2) the agreement has not been revoked”].) Even where the FAA governs the interpretation of arbitration clauses, California law governs whether an arbitration agreement has been formed in the first instance. (Baker v. Osborne Development Corp. (2008) 159 Cal.App.4th 884, 893.)

The party seeking arbitration has the “burden of proving the existence of a valid arbitration agreement by a preponderance of the evidence[.]” (Ruiz v. Moss Bros. Auto Group, Inc. (2014) 232 Cal.App.4th 836, 842.) “Once that burden is satisfied, the party opposing arbitration must prove by a preponderance of the evidence any defense to the petition.” (Lacayo v. Cataline Restaurant Group Inc. (2019) 38 Cal.App.5th 244, 257.) “The trial court sits as the trier of fact, weighing all the affidavits, declarations, and other documentary evidence, and any oral testimony the court may receive at its discretion, to reach a final determination.” (Ruiz v. Moss Bros. Auto Group, Inc., supra, at p. 842.) “A party required to prove something by a preponderance of the evidence ‘need prove only that it is more likely to be true than not true.’ [Citation.] Preponderance of the evidence means ‘“that the evidence on one side outweighs, preponderates over, is more than, the evidence on the other side, not necessarily in number of witnesses or quantity, but in its effect on those to whom it is addressed.”’ [Citations.] In other words, the term refers to ‘evidence that has more convincing force than that opposed to it.’ [Citations.]” (People ex rel. Brown v. Tri-Union Seafoods, LLC (2009) 171 Cal.App.4th 1549, 1567.)

Generally, on a petition to compel arbitration, the court should grant the petition unless it finds either (1) no written agreement to arbitrate exists; (2) the right to compel arbitration has been waived; (3) grounds exist for revocation of the agreement; or (4) litigation is pending that may render the arbitration unnecessary or create conflicting rulings on common issues. (Cal. Code Civ. Proc., § 1281.2; see Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218-219.) Nonetheless, California’s policy in favor of arbitration does not override ordinary principles of contract interpretation holding that the contractual terms themselves must be carefully examined before the parties to the contract can be ordered to arbitration. (Rice v. Downs (2016) 248 Cal.App.4th 175, 185.)

Order Compelling Arbitration and Staying Proceedings: GRANTED.

I.

Whether Arbitration Agreement Exists

“Parties are not required to arbitrate their disagreements unless they have agreed to do so. [Citation.] A contract to arbitrate will not be inferred absent a ‘clear agreement.’ [Citation.] When determining whether a valid contract to arbitrate exists, we apply ordinary state law principles that govern contract formation. [Citation] In California, a ‘clear agreement’ to arbitrate may be either express or implied in fact. [Citation.]” (Davis v. Nordstrom, Inc. (9th Cir. 2014) 755 F.3d 1089, 1092-93 [applying California law].) The court is only required to make a finding of the agreement’s existence, not an evidentiary determination of its validity. (Condee v. Longwood Management Corp., supra, 88 Cal.App.4th at p. 219.)

Defendants seek to compel arbitration pursuant to an arbitration clause in the Agreement. Defendants argue that TBC Group is a party to the agreement and that Defendants Benford and Lebow may invoke the arbitration clause either as agents of TBC Group or through the doctrine of equitable estoppel. (Mot., pp. 2-3, 5-6; see Mot., Lebow Decl., Ex. A, § 8(e).)

The Court briefly notes that the Agreement was specifically entered by TBC Group and Grizzly and no other parties to this action. (See Mot., Lebow Decl., Ex. A.)

In their opposition, Plaintiffs do not dispute the existence of an arbitration agreement between TBC Group and Grizzly. Neither do Plaintiffs dispute Benford’s and Lebow’s standing to invoke the arbitration agreement.

After review, the Court finds that an arbitration agreement exists between the parties.

An arbitration agreement clearly exists between the TBC Group and Grizzly. (See Mot., Lebow Decl., Ex. A, Introductory Paragraph [agreement is between these parties] & § 8(e) [arbitration clause] & Signatures [Dankz binds Grizzly, Lebow binds TBC Group].)

The Court also accepts the argument that Benford and Lebow may invoke the arbitration clause in the Agreement.

First, “when a plaintiff alleges a defendant acted as an agent of a party to an arbitration agreement, the defendant may enforce the agreement even though the defendant is not a party thereto. [Citations.]” (Thomas v. Westlake (2012) 204 Cal.App.4th 605, 614.) Here, the Complaint clearly alleges that “Plaintiffs are informed and believe and thereon allege that at all relevant times each of the named Defendants … were the … agents … of each other defendant.” (Complaint, ¶ 8.) Thus, Benford and Lebow may enforce the Agreement, including its arbitration clause.

Second, under the doctrine of equitable estoppel, “a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are ‘intimately founded in and intertwined’ with the underlying contract obligations.” (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1237.) The doctrine applies when the signatory (1) must rely on the terms of the written agreement containing the arbitration clause in asserting its claims against the nonsignatory or (2) alleges “substantially interdependent and concerted misconduct” by the nonsignatory against a signatory and the alleged misconduct is “founded in or intimately connected with the obligations of the underlying agreement.” (Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 218-219.) Here, Plaintiffs’ claims against Benford and Lebow arise from obligations that were created by the Agreement. (See Complaint, ¶¶ 29-30 [duty from Lebow to Dankz in relation to Project], 40 [all Defendants have failed to respond to Plaintiffs’ inquiries on the Project, breaching the covenant of good faith and fair dealing].) Such allegations show that the harms allegedly committed by Benford and Lebow are founded in or intimately connected with the obligations of the Agreement, triggering equitable estoppel.

Last, and though not raised by Defendants, the Court finds that the Agreement’s arbitration clause may be enforced against non-signatory Plaintiff Dankz.

“Under California law, a nonsignatory can be compelled to arbitrate under two sets of circumstances: (1) where the nonsignatory is a third party beneficiary of the contract containing the arbitration agreement; and (2) where ‘a preexisting relationship existed between the nonsignatory and one of the parties to the arbitration agreement, making it equitable to compel the nonsignatory to also be bound to arbitrate his or her claim.’ [Citation.]” (Crowley Maritime Corp. v. Boston Old Colony Ins. Co. (2008) 158 Cal.App.4th 1061, 1069-1070 (Crowley).) “The preexisting relationship generally gives the party to the agreement authority to bind the nonsignatory. Examples of the preexisting relationship include agency, spousal relationship, parent-child relationship and the relationship of a general partner to a limited partnership. [Citations.]” (Crowley, supra, at p. 1070.)

Here, the Court determines that Plaintiff Dankz is a third-party beneficiary to the Agreement because the purpose of the Agreement is to produce his music records and release the same to the public. (Mot., Lebow Decl., Ex. A, p. 1, Whereas, § (b) [“TBC intends to distribute the songs and Artist [Plaintiff Dankz] through its distribution agreement with Animal Head Entertainment and Warner Bros./Tommy Boy Distribution”].) The Court also determines that the Agreement contemplates that Grizzly (the signatory) has the authority to bind and act in favor of Dankz (the artist) insofar as the entire purpose of the Agreement is to establish terms by which Dankz will need to contractually perform by creating music for release, and where Grizzly is tasked with paying music royalties to Dankz. (Mot., Lebow Decl., Ex. A, § 3.B. [“[Grizzly] shall provide the recording artist … and Masters satisfactory for release” and “be responsible for payment of all artist … royalties”].) The Court thus determines that the circumstances here allow Defendants to invoke the Agreement’s arbitration clause against Plaintiff Dankz.

II.

Scope of, and Defenses to, the Arbitration Agreement

“‘[P]arties may agree to have an arbitrator decide not only the merits of a particular dispute but also ‘“‘gateway’ questions of ‘arbitrability,’ such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy.”’ [Citation.] But ‘[c]ourts should not assume that the parties agreed to arbitrate arbitrability unless there is “clea[r] and unmistakabl[e]” evidence that they did so.’ [Citation.] This is a ‘heightened standard,’ and it ‘pertains to the parties’ manifestation of intent, not the agreement’s validity.’ [Citation.]” (Najarro v. Superior Court (2021) 70 Cal.App.5th 871, 879-880 (Najarro).) 

However, “[c]ourts have held that ‘there is no clear and unmistakable delegation to the arbitrator’ to decide arbitrability where the contract ‘includes a severability clause stating a court of competent jurisdiction may excise an unconscionable provision.’” (Id. at p. 880.) “In other words, pursuant to an exception …, if a severability clause states that a court may excise unconscionable provisions, the delegation clause does not meet the heightened standard necessary for enforcement, because it is no longer clear that only the arbitrator may decide issues such as unconscionability.” (Ibid. [emphasis in original]; accord. Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, 891 [“‘There are two prerequisites for a delegation clause to be effective. First, the language of the clause must be clear and unmistakable. [Citation.] Second, the delegation must not be revocable under state contract defenses such as fraud, duress, or unconscionability.’ [Citations.]”].)

Defendants argue that the scope and defenses to the arbitration agreement should be determined by an American Arbitration Association (AAA) arbitrator. Defendants refer to the Agreement’s term providing that arbitration will be conducted under the auspices of the AAA and note that the AAA Commercial Rules incorporated into the Agreement provide that the arbitrator has “‘the power to rule on his or her own jurisdiction, including any objections with respect to their existence, scope or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.’ Rule R-7(a) ….” (Mot., p. 4.)

Plaintiffs fail to address this delegation in their opposition.

The Court finds that there is a valid delegation clause divesting this Court of jurisdiction to determine the scope of and defenses to the arbitration agreement.

California courts have determined that where an arbitration agreement incorporates arbitration rules and those rules give the arbitrator the right to decide the scope of and defenses to arbitration, there is a clear and unmistakable intent to delegate the resolution of those questions to the arbitrator. (See Brinkley v. Monterey Financial Servs., Inc. (2015) 242 Cal.App.4th 314, 353-354 [“In our view, an agreement that incorporates by reference terms that address the question at issue, such as the agreements’ incorporation of the AAA rules in the instant case, is not silent regarding the delegation of arbitrable issues to the arbitrator. The parties’ agreement to arbitrate their disputes under a specifically designated set of rules, which in turn provide that the arbitrator shall decide whether the parties' arbitration agreement permits class arbitration, is ‘clear and unmistakable’ evidence that the parties intended to delegate the resolution of that question to the arbitrator.”].)

Here, the Governing Law section of the arbitration agreement provides that “[t]he arbitration shall be … conducted in accordance the American Arbitration Association.” (Mot., Lebow Decl., Ex. A, § 8(e).) Though this sentence lacks the word ‘rules’ after “American Arbitration Association,” the Court determines that the Agreement is clear in providing that any arbitration would proceed according to the terms set by the AAA, including its rules. As argued by Defendants, AAA’s Commercial Arbitration Rules and Mediation Procedures provide that “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim, without any need to refer such matters first to a court.” (American Arbitration Association, Commercial Arbitration Rules and Mediation Procedures (Sep. 1, 2022) Rule R-7, subd. (a) <https://www.adr.org/sites/default/files/Commercial-Rules_Web.pdf > [as of Sep. 21, 2023]; see Mot., p. 2, fn. 2 & pp. 4, 6.)

The Court also notes that the Agreement does not contain any clauses that state that any delegation to AAA is revocable under state contract defenses such as fraud, duress, or unconscionability. (See Mot., Lebow Decl., Ex. A.) Neither do the AAA rules contemplate severability of the arbitration agreement by a court. (See American Arbitration Association, Commercial Arbitration Rules and Mediation Procedures (Sep. 1, 2022) Rule R-7, subds. (a)-(c) <https://www.adr.org/sites/default/files/Commercial-Rules_Web.pdf > [as of Sep. 21, 2023].)

Accordingly, the Court is divested of the jurisdiction to make a determination relating to the scope of and defenses to the enforcement of the Agreement’s arbitration clause, which are delegated to a AAA arbitrator.

Defendants’ motion is therefore GRANTED.

III.

Dismissal or Stay of Action

“If a court of competent jurisdiction, whether in this State or not, has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies.” (Code Civ. Proc., § 1281.4.)

Here, because the Court has compelled arbitration of this action insofar as it is directed against Defendants TBC Group, Benford, and Lebow, this action is STAYED as to these Defendants pending the outcome of the arbitrability determination. If the arbitrator determines that Plaintiffs’ claims against these Defendants are arbitrable, the action will remain STAYED until a final outcome is reached in the arbitration or until the Court otherwise specifies.

However, this stay does not apply to Plaintiffs’ claims against Defendant Benford Co., which is not a party to this motion. 

Conclusion

Defendants Vassal Benford, Ronald M. Lebow, and TBC Group, LLC’s Motion to Compel Arbitration of Complaint and Stay Proceedings is GRANTED.

Plaintiff’s action is COMPELLED into arbitration with the American Arbitration Association insofar as it relates to Defendants Vassal Benford, Ronald M. Lebow, and TBC Group, LLC.

Pending the outcome of the arbitrability determination, the Court STAYS this action insofar as it is directed against Defendants Vassal Benford, Ronald M. Lebow, and TBC Group, LLC. If the arbitrator determines that Plaintiffs’ claims against these Defendants are arbitrable, the action will remain STAYED until a final outcome is reached in the arbitration or until the Court otherwise specifies. The stay does not apply to claims against Defendant The Benford Company, which was not a party to this motion.