Superior Court of California

County of Los Angeles

Department 26

ce-gh urbanite fund 2, llc,

Plaintiff,

DAVID BELFORD, et al.

Defendants

Case No.: 22STCV20842

Hearing Date: December 11, 2023

[TENTATIVE] order RE:

Court’s own motion for reconsideration of its september 25, 2023 order

Background

On June 27, 2022, Plaintiff CE-GH Urbanite Fund 2, LLC (“Plaintiff”) filed the instant fraud action against Defendant David Belford. The complaint asserts three causes of action for (1) Intentional Misrepresentation, (2) Fraudulent Concealment, and (3) Negligent Misrepresentation.

On September 2, 2022, Belford filed a motion to compel arbitration and a motion to seal portions of the motion to compel arbitration.

On October 27, 2022, the Court issued a disclosure concerning her prior service as an Assistant United States Attorney and overlap with James Spertus and Matthew Umhofer while at the U.S. Attorney’s Office. All parties waived the issue of disqualification.

On December 12, 2022, the Court denied Belford’s motion to seal, struck the original motion to compel arbitration, which had been filed with improperly redacted documents, and invited Belford to publicly refile the motion to compel arbitration. (Order 12/12/22.)

On December 16, 2022, Belford filed an amended motion to compel arbitration. On January 5, 2023, Plaintiff filed an opposition. On January 11, 2023, Belford filed a reply. On January 13, 2023, Plaintiff filed evidentiary objections to Belford’s evidence in reply. On January 13, 2023, Belford filed a response to Plaintiff’s objections.

On January 19, 2023, the Court continued Belford’s motion to allow the parties to pursue discovery relevant to the motion to compel arbitration and lifted the stay for this limited purpose. (Minute Order 1/19/23.) The Court also ordered the parties to file a copy of the Amended and Restated Agreement of Limited Partnership of CNI Century Plaza Partners, L.P, with the text in full, unredacted form in one document.[1]

Pursuant to the parties’ March 20, 2023 stipulation, Belford filed supplemental evidence on June 22, 2023. On July 6, 2023, Plaintiff filed a supplemental opposition. On July 20, 2023, Belford filed a supplemental reply. At the conclusion of the hearing on July 27, 2023, the Court took the matter under submission.

On August 25, 2023, while Belford’s motion to compel arbitration was under submission, Plaintiff filed two Doe amendments: one naming DigitalBridge Group, Inc. f/k/a Colony Capital, Inc. & Colony NorthStar, Inc. as Doe 1, and another naming DigitalBridge Group Advisors, LLC f/k/a Colony Capital Advisors, LLC as Doe 2.

On September 6, 2023, the Court issued a minute order making a supplemental disclosure and ordered any party wishing to file a statement of disqualification to do so by September 19, 2023. On September 8, 2023, the parties filed a Joint Statement of Waiver of Disqualification.

On September 25, 2023, the Court granted Belford’s motion to compel arbitration. (Order 9/25/23.) On October 23, 2023, Defendants DigitalBridge Group, Inc. f/k/a Colony Capital, Inc. & Colony NorthStar, Inc., and DigitalBridge Group Advisors, LLC f/k/a Colony Capital Advisors, LLC (jointly “DigitalBridge Defendants”) stated in open court their intention not to move to compel arbitration. The Court immediately brought its own motion for reconsideration of the September 25, 2023 Order in light of the possibility of conflicting rulings under Code of Civil Procedure section 1281.2 and solicited briefing from the parties. (Minute Order 10/23/23.)

On November 9, 2023, Belford filed an opposition to the Court’s motion for reconsideration. On November 9, DigitalBridge Defendants filed a response to the Court’s motion for reconsideration. On December 1, 2023, Plaintiff filed a memorandum in support of the Court’s motion for reconsideration. On December 6, DigitalBridge Defendants filed a request for leave to file a reply regarding the Court’s motion for reconsideration. On December 7, 2023, Belford filed a request for leave to file a reply regarding the Court’s motion for reconsideration. On December 7, 2023, Plaintiff filed an opposition to the requests for leave to file a reply.

Defendants’ requests for leave to file a reply are granted. Accordingly, the Court will consider the proposed attached proposed replies.

Legal Standard

The court may reconsider an interim order previously issued on its own motion, but any written submission that the court do so by a party must comport with either section 437c(f)(2) or 1008(c). (Le Francois v. Goel (2005) 35 Cal.4th 1094, 1107-1108. If the court wishes to reconsider on its own motion, “it should inform the parties of this concern, solicit briefing, and hold a hearing.” (Id. at p.1108.) The responding party does not bear the burden of opposition unless the court indicates an interest in reconsideration. (Ibid.)

Discussion

Here, changed circumstances warrant reconsideration of the Court’s September 25, 2023 Order under Code of Civil Procedure section 1281.2.

Code of Civil Procedure section 1281.2 provides in relevant part that:

On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that:

. . .

(c) A party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact.

(CCP § 1281.2)

“[A] trial court must decide whether section 1281.2(c) applies based only on the three conditions identified in that subdivision.” (Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal.App.4th 959, 978.) The last paragraph of section 1281.2 sets forth four options available to the Court when the Court makes a finding that there is a possibility of conflicting rulings:

If the court determines that a party to the arbitration is also a party to litigation in a pending court action or special proceeding with a third party as set forth under subdivision (c), the court

(1) may refuse to enforce the arbitration agreement and may order intervention or joinder of all parties in a single action or special proceeding;

(2) may order intervention or joinder as to all or only certain issues;

(3) may order arbitration among the parties who have agreed to arbitration and stay the pending court action or special proceeding pending the outcome of the arbitration proceeding; or

(4) may stay arbitration pending the outcome of the court action or special proceeding.

(CCP § 1281.2.)

“Section 1281.2(c)'s primary purpose is to avoid conflicting rulings, not further judicial economy.” (Acquire II, Ltd., supra, 213 Cal.App.4th at p.978; see also Whaley v. Sony Computer Entertainment America, Inc. (2004) 121 Cal.App.4th 479, 488 [“the statute was intended primarily to prevent conflicting rulings resulting from arbitration proceedings and other related litigation arising out of the same transaction.”].)

Here, after the Court granted Belford’s motion to compel arbitration, DigitalBridge Defendants confirmed in open court that they do not intend to move to compel arbitration. (Minute Order 10/23/23.) This creates a strong possibility of conflicting rulings. “[A]n arbitration award does not have collateral estoppel effect in favor of nonparties to an arbitration unless the arbitral parties so agree.” (Broughton v. Cigna Healthplans of California (1999) 21 Cal.4th 1066, 1081; accord Pacific Fertility Cases (2022) 85 Cal.App.5th 887, 900.) Thus, any decision in the arbitration proceeding between Plaintiff and Belford would not have any binding effect in the Court proceeding between Plaintiff and DigitalBridge Defendants. “A possibility of conflict exists … because the arbitrator could find [Belford] … did not defraud [Plaintiff] while at trial the trier of fact could find fraud was committed by [Belford].” (Henry v. Alcove Investment, Inc. (1991) 233 Cal.App.3d 94, 101.) Moreover, given the lack of binding effect of any arbitration and the clear possibility of conflicting rulings, a stay would not resolve the possibility of a conflict of rulings. Especially given that the basis for liability against DigitalBridge Defendants – who were added as Doe Defendants – is based primarily on the conduct by Belford. (Complaint ¶ 9.)

DigitalBridge Defendants’ reliance on Richard B. LeVine, Inc. v. Higashi (2005) 131 Cal.App.4th 566, Brinton v. Bankers Pension Services, Inc. (1999) 76 Cal.App.4th 550, and Sartor v. Superior Court (1982) 136 Cal.App.3d 322 for the proposition that res judicata would apply to the instant action is misplaced. Each of these actions involved not only a derivative claim but also a prior concluded arbitration and then a successive court action. Each of these actions “considered whether a claim survived in light of prior arbitration, where the merits of the case against one defendant were resolved.” (Federal Home Loan Bank of San Francisco v. Countrywide Financial Corp. (2013) 214 Cal.App.4th 1520, 1528.) Here, arbitration has not yet even commenced. Thus, there can be no possible res judicata effect. Moreover, even if nonmutual res judicata were to apply in the future following arbitration, it could only apply if Plaintiffs are completely unsuccessful in the arbitration proceeding in their claims against Belford. If Plaintiffs succeed in the claims against Belford, there is a clear and distinct possibility of conflicting rulings as DigitalBridge Defendants would not be bound by the finding of Belford’s liability.

To the extent that Belford characterizes Plaintiff’s delay in adding DigitalBridge Defendants by Doe amendment as gamesmanship, the Court disagrees. As set forth in the September 25, 2023 Order, the addition of the DigitalBridge Defendants strengthened the case to compel arbitration for Belford. (Order 9/25/23 at pp.13:18-14:11.) Thus, Plaintiff’s addition of DigitalBridge Defendants did not assist Plaintiff in avoiding arbitration. Rather, the conflict arises due to DigitalBridge Defendants declining to invoke arbitration – despite having at least as strong a case to compel arbitration than Belford.

In sum, arbitration may result in conflicting rulings – an outcome to be avoided. As such, the Court’s own motion for reconsideration is GRANTED. The September 25, 2023 Order is vacated in its entirety. Belford’s motion to compel arbitration is DENIED pursuant to Code of Civil Procedure section 1281.2.

Conclusion and ORDER

Based on the foregoing, the Court’s own motion for reconsideration is GRANTED. The September 25, 2023 Order is vacated in its entirety. Defendant Belford’s motion to compel arbitration is DENIED pursuant to Code of Civil Procedure section 1281.2.

Defendant Belford is ordered to file and serve a responsive pleading within 30 days. The case management conference is continued to April 4, 2024 at 8:30 am.

Belford is to provide notice of this order to all parties and file proof of service of such.

DATED: December ___, 2023 ___________________________

Elaine Lu

Judge of the Superior Court

[1] The Amended and Restated Agreement of Limited Partnership of CNI Century Plaza Partners, L.P contains the Arbitration Agreement at issue.