Judge: Daniel S. Murphy, Case: 22STCV21063, Date: 2024-02-02 Tentative Ruling

Case Number: 22STCV21063    Hearing Date: February 2, 2024    Dept: 32

BACKGROUND

            On June 29, 2022, Plaintiff Robert Howard, through his conservator Cynthia Finerty, filed the operative First Amended Complaint against Defendants Joseph Duerr (“Duerr”) and Realty Advisors and Asset Managers, Inc. (“RAAM”).  

Plaintiff is the settlor and sole beneficiary of a trust holding substantial assets. Plaintiff, personally and through the trust and an LLC, owns various commercial properties throughout California. Pursuant to a property management agreement in 2007 (“2007 Agreement”), Plaintiff retained RAAM to manage his and his LLC’s properties. Plaintiff alleges that the Agreement was designed to take advantage of him and allow Defendants to embezzle his money.

The 2007 Agreement contains an arbitration provision covering any claims arising out of the Agreement. Accordingly, Defendants moved to compel arbitration, which the Court granted on August 24, 2022, also staying the case in its entirety. Plaintiffs commenced arbitration on January 9, 2023. On July 13, 2023, the arbitrator denied Plaintiffs’ motion to dismiss the arbitration but struck certain allegations from the arbitration demand as non-arbitrable.

On November 9, 2023, Plaintiffs filed the instant motion for leave to file a Second Amended Complaint to assert claims related to the non-arbitrable claims before they become time-barred. Defendants filed their opposition on January 22, 2024. Plaintiffs filed their reply on January 26, 2024.  

LEGAL STANDARD

The court may, in furtherance of justice, and on such terms as may be proper, allow a party to amend any pleading. (Code Civ. Proc, §§ 473, subd. (a), 576.) Courts must apply a policy of liberality in permitting amendments at any stage of the proceeding, including during trial, when no prejudice to the opposing party is shown. (Duchrow v. Forrest (2013) 215 Cal.App.4th 1359, 1377.) In determining the extent of prejudice to the opposing party, the court must consider various factors, such as whether the amendment would delay trial or increase the discovery burden. (Demetriades v. Yelp, Inc. (2014) 228 Cal.App.4th 294, 306.)

DISCUSSION

            The arbitrator identified four “Non-Arbitrable Disputes” from Plaintiffs’ arbitration demand: (1) “the alleged improper payment of monies to Respondents for unlicensed investment advisory, securities broker-dealer, legal, and accounting services provided to Claimants;” (2) “the alleged improper payment of monies to Respondents for services rendered to Claimants under the 2015 Agreement;” (3) “the alleged improper payment of monies to Respondents for actions taken on behalf of Claimants by Duerr as trustee of the Trust;” and (4) “the alleged improper payment of monies to Respondents for actions taken on behalf of Claimants under the Duerr POA.” (Wallen Decl., Ex. 1, p. 10.) The arbitrator found that these alleged acts were “materially separate and distinct from the services to be rendered and payments to be made under the 2007 Agreement” and therefore not covered by the arbitration clause in the 2007 Agreement. (Ibid.)

            Plaintiffs seek to file an SAC to assert claims and allegations related to the Non-Arbitrable Issues (See Mtn. 3:22-4:14.) Plaintiffs also seek to add Defendant Duerr’s son, Christopher Duerr, as a defendant. Plaintiffs contend that the amendment is proper despite the current stay because “[i]f the issue which is the controversy subject to arbitration is severable, the stay may be with respect to that issue only.” (Code Civ. Proc., § 1281.4.) Plaintiffs argue that the Non-Arbitrable Disputes were indeed severed by the arbitrator’s decision. Plaintiffs argue that, although they would be entitled to do so under Section 1281.4, they are not seeking to lift the stay to immediately litigate the Non-Arbitrable Disputes. Instead, Plaintiffs only seek to assert the claims before they become time-barred. Plaintiffs argue that Defendants will not be prejudiced because no trial date has been set and the stay will remain in effect.

            However, Plaintiffs cite no authority for the proposition that they may amend a complaint while a stay is in effect. Section 1281.4 does not entitle Plaintiff to file an amended complaint while a stay is in effect. Section 1281.4 authorizes a court to stay litigation upon compelling arbitration. It does not authorize the parties to take any action, including amend a complaint, once a stay is in place.

CONCLUSION

            Plaintiffs’ motion for leave to amend is DENIED.