Judge Holly J. Fujie, Case 22STCV04190 2022-08-05 Tentative Ruling

RESPONDING PARTY: Plaintiffs Daniel Sharaby (“Daniel”)[1], Ralph Sharaby (“Ralph”), Tal Zilker (“Zilker”), Dani Gergel (“Gergel”) and Mission Hills Properties Ventures LLC (“Mission Hills”) (collectively, “Plaintiffs”)

This action arises out of a series of alleged loans Plaintiffs issued to Defendant for the purpose of a real estate development project. Plaintiff’s complaint (the “Complaint”) alleges: (1) breach of contract; (2) breach of contract; (3) breach of contract; (4) restitution based on quasi-contract and unjust enrichment; (5) restitution based on quasi-contract and unjust enrichment; (6) rescission; (7) rescission; (8) breach of contract; (9) breach of implied duty of good faith and fair dealing; (10) breach of fiduciary duty; (11) demand under Corporations Code section 17704.10 to obtain tax returns and to inspect records under Corporations Code section 17701.13; (12) breach of contract; (13) restitution based on quasi-contract and unjust enrichment; (14) rescission; (15) breach of implied duty of good faith and fair dealing; (16) breach of fiduciary duty; (17) breach of fiduciary duty; (18) demand under Corporations Code section 17704.10 to obtain tax returns and to inspect records under Corporations Code section 17701.13; (19) fraud; (20) accounting; and (21) account stated.

The 21 causes of action alleged in the Complaint generally arise out of four contractual agreements (collectively, the “Agreements”): (1) an agreement concerning real property located on Robinson Street in Los Angeles (the “Robinson Street Property”) entitled the Robinson Street Ventures LLC Limited Liability Company Agreement entered into by Moving Defendant and Daniel (the “Robinson Street Agreement”); (2) an agreement memorializing Moving Defendant’s obligation to repay loans from Daniel and Ralph signed by Moving Defendant (the “Loan Pay Back Agreement”); (3) a document concerning real property located in Mission Hills, California (the “Mission Hills Property”) entitled Iska Kulo Pekadon (the “Iska”) entered into between Moving Defendant and Ralph; and (4) an agreement concerning the Mission Hills Property entitled the Mission Hills Properties Ventures LLC Limited Liability Agreement (the “Mission Hills Operating Agreement”) entered into between Moving Defendant, Zilker and Gergel.

On July 12, 2022, Moving Defendant filed a motion to compel arbitration and stay the proceedings pending the conclusion of arbitration (the “Motion”) on the grounds that the claims in Plaintiffs’ Complaint are encompassed by arbitration agreements.

A party who claims that there is an applicable written arbitration agreement may petition

the superior court for an order compelling the parties to arbitrate. (Rice v. Downs (2016) 248 Cal.App.4th 175, 184 (“Rice”).) The moving party bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972.) The party opposing arbitration has the burden of demonstrating that an arbitration clause cannot be interpreted to require arbitration of the dispute. (Rice, supra, 248 Cal.App.4th at 185.)

California law, like federal law, favors enforcement of valid arbitration agreements. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 97.) Due to California’s strong policy in favor of arbitration, any doubts regarding the arbitrability of a dispute are resolved in favor of arbitration. (Rice, supra, 248 Cal.App.4th at 185.) This strong policy has resulted in the general rule that arbitration should be upheld unless it can be said with assurance that an arbitration clause is not susceptible to an interpretation covering the asserted dispute. (Id.) 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. (Id.) In determining whether an arbitration agreement applies to a specific dispute, the court may examine only the agreement itself and the complaint filed by the party refusing arbitration. (Id.)

The decision as to whether a contractual arbitration clause covers a particular dispute rests substantially on whether the clause in question is “broad” or “narrow.” (Bono v. David (2007) 147 Cal.App.4th 1055, 1067.) A “broad” clause includes those using language such as “any claim arising from or related to this agreement” or “arising in connection with the agreement.” (Rice, supra, 248 Cal.App.4th at 186.) Clauses requiring arbitration of a claim, dispute, or controversy “arising from” or “arising out of” an agreement, i.e., excluding language such as “relating to this agreement” or “in connection with this agreement,” however, are “generally considered to be more limited in scope than would be, for example, a clause agreeing to arbitrate “any controversy arising out of or relating to this agreement.” (Id. at 186-87.) Several Ninth Circuit cases have held that agreements requiring arbitration of “any dispute,” “controversy,” or “claim” “arising under” or “arising out of” the agreement are intended to encompass only disputes relating to the interpretation and performance of the agreement. (Id. at p. 187.)

Moving Defendant provides evidence of the Agreements. (See Declaration of Charles G. Bakaly IV (“Bakaly Decl.”) ¶¶4-7, Exhibits C, F, G, J.)

The Robinson Street Agreement, which was entered into by Moving Defendant and Daniel on December 21, 2019, contains a provision stating:

This Agreement shall be governed by, and construed in accordance with, the laws of the State of California, without giving effect to its conflict of law principles. All disputes of any nature related to this Agreement shall be determined by final and binding arbitration in Los Angeles County, California before a single arbitrator. The arbitration shall be administered by JAMS pursuant to its “Streamlined Arbitration Rules and Procedures,” and the arbitrator shall apply the laws applicable in the State of California without regard to its principles of conflict of laws. Judgment on the arbitral award may be entered in any court having jurisdiction thereof. The prevailing party in any such arbitration shall be entitled to receive its reasonable attorney’s fees, legal costs and any expenses incurred in such arbitration, and the arbitrator shall, in the arbitral award, determine the prevailing party for this purpose. This clause shall not preclude the parties from seeking an injunction or other provisional remedies in aid of arbitration from a court of appropriate jurisdiction.

The Iska, which was entered into by Moving Defendant and Ralph on November 23, 2020, contains a provision stating:

Dispute Resolution: All disputes that may arise regarding or associated with this Agreement, shall be resolved and established exclusively by binding arbitration at Bais Din Maysharim. Judgment rendered by the foresaid authority may be entered in any court having jurisdiction thereof.

The Mission Hills Agreement, which was entered into by Moving Defendant, Zilker and Gergel on April 13, 2021, contains a provision stating:

The Loan Pay Back Agreement, signed by Moving Defendant on December 1, 2021, recites Moving Defendant’s promise to repay Daniel and Ralph the amounts due on four loans. (See Bakaly Decl., Exhibit F.) The Loan Pay Back Agreement does not include an arbitration provision or any express references to any of the other Agreements at issue in the Complaint. (See id.)

As a preliminary matter, Moving Defendant has met his burden to demonstrate valid arbitration provisions with respect to all the Agreements other than the Loan Pay Back Agreement. Moving Defendant argues that the causes of action concerning the Loan Pay Back Agreement are also arbitrable because they arise out of the other Agreements.

The Complaint describes the loans encompassed by the Pay Back Agreement as relating to: (1) a November 2, 2020 loan to one of Moving Defendant’s business entities; (2) a loan dated November 10, 2020 from Daniel for purchasing supplies related to the development of the Robinson Street Property; (3) a June 30, 2020 wire transfer from Daniel to Moving Defendant; and (4) a loan in the amount of $50,000 from Ralph dated November 23, 2021. (See Complaint ¶ 25.) The Complaint alleges that the $50,000 loan from Ralph was memorialized in the Iska. (Complaint ¶ 25.)

The Robinson Street Agreement and Iska both contain broad arbitration provisions. As alleged in the Complaint, at least two of the debts described in the Loan Pay Back Agreement arise out of or relate to Moving Defendant’s obligations under the Robinson Street Agreement or Iska: the November 10, 2020 loan from Daniel and the November 23, 2021 loan from Ralph.

Plaintiffs argue that the Motion should be denied because the Loan Pay Back Agreement was executed after the other Agreements and the Loan Pay Back Agreement concerns matters outside of the other Agreements. In support of this position, Plaintiffs present evidence of Moving Defendant’s discovery response which describes the June 30, 2020 wire transfer from Daniel to Moving Defendant as a “personal loan.” (Declaration of Kenneth E. Chase (“Chase Decl.”) ¶19, Exhibit G.)

Plaintiffs do not provide evidence that the Loan Pay Back Agreement was intended to supersede or otherwise modify any of the earlier Agreements. Nor does the Loan Pay Back Agreement contain any language indicating an affect on the legal force of the earlier Agreements. Plaintiffs provide no support for their position that their claims are not subject to the arbitration provisions in the Agreements because the Loan Pay Back Agreement does not contain an arbitration provision and was executed after the other Agreements. A party’s contentions are waived when a party fails to support them with reasoned argument and citations to authority. (Moulton Niguel Water Dist. v. Colombo (2003) 111 Cal.App.4th 1210, 1215.) Plaintiffs’ argument that the Motion should be denied because the “majority” of the claims asserted in the Complaint are not subject to arbitration is similarly unavailing.[2]

The Complaint explicitly alleges the relationship between two of the transactions described in the Loan Pay Back Agreement and the Robinson Street Agreement and Iska. The claims regarding the alleged breach of the Loan Pay Back Agreement, therefore, relate to the Robinson Street Agreement and Iska and are thus arbitrable pursuant to the terms of the applicable arbitration provisions. Neither the Complaint nor the Loan Pay Back Agreement, however, indicate that the November 2, 2020 or June 30, 2020 loans relate to any of the Agreements which contain arbitration provisions. The causes of action related to the Loan Pay Back Agreement, therefore, include issues which are not encompassed by an agreement to arbitrate.[3] The Court finds that these causes of action are therefore not arbitrable.

Nonetheless, the Loan Pay Back Agreement encompasses issues raised by the claims which are subject to arbitration. 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. (CCP § 1281.4.) A controversy can be a single question of law or fact, and a stay shall be issued upon proper motion if the court has ordered arbitration of a controversy that is also an issue involved in an action or proceeding pending before it. (Heritage Provider Network, Inc. v. Superior Court (2008) 158 Cal.App.4th 1146, 1152-53.) Therefore, while not arbitrable, the claims invoking the Loan Pay Back Agreement must be stayed pending the conclusion of arbitration. (See id.)

A judge may deny a petition for arbitration when the petitioner has waived the right to compel arbitration. (CCP § 1281.2, subd. (a).) A waiver of the right to arbitrate may not be lightly inferred; rather, the party seeking to establish a waiver has a heavy burden of proof. (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1195 (“St. Agnes”)). Close judicial scrutiny of any claim of waiver is required. (Id.)

Although no single test delineates the nature of the conduct that will constitute a waiver of arbitration, the California Supreme Court has identified six factors relevant for consideration: (1) whether the party's actions are inconsistent with the right to arbitrate; (2) whether the litigation machinery has been substantially invoked and the parties were well into preparation of a lawsuit before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place; and (6) whether the delay affected, misled, or prejudiced the opposing party. (Spracher v. Paul M. Zagaris, Inc. (2019) 39 Cal.App.5th 1135, 1138 (citing St. Agnes, supra, 31 Cal.4th at 1195-96).) Whether or not litigation results in prejudice is critical in waiver determinations. (St. Agnes, supra, 31 Cal.4th at 1203.) Because merely participating in litigation by itself does not result in waiver, courts will not find prejudice where the party opposing arbitration shows only that it incurred costs and legal expenses. (Id.) Prejudice will not be found if there has been no judicial litigation of the merits on arbitrable issues. (Id. at 1203.) Prejudice sufficient for waiver will be found where instead of seeking to compel arbitration, a party proceeds with extensive discovery that is unavailable in arbitration proceedings. (Hoover v. American Income Life Ins. Co. (2012) 206 Cal. App. 4th 1193, 1205.)

The Court finds that Moving Defendants have not waived their right to enforce the arbitration provisions in the Agreements. Moving Defendants’ answer to the Complaint asserts arbitration as an affirmative defense and there has been no judicial litigation on the merits of Plaintiffs’ arbitrable claims. The four motions to expunge lis pendens (collectively, the “Lis Pendens Motions”) that Moving Defendant filed on July 8, 2022 do not constitute litigation efforts which are inconsistent with the intent to enforce Agreements’ arbitration provisions. An arbitration is not a proceeding pursuant to which a lis pendens can be filed if there is only the arbitration proceeding. (CCP § 405.20; Manhattan Loft, LLC v. Mercury Liquors, Inc. (2009) 173 Cal.App.4th 1040, 1051-52.) Thus, given that Plaintiffs could not have recorded a lis pendens if they had proceeded only in arbitration, the Court finds that jurisdiction on the Lis Pendens Motions rests solely with the Court and not with the arbitrator. (See Manhattan Loft, LLC, supra, 173 Cal.App.4th at 1053.) Furthermore, while Moving Defendant has responded to Plaintiffs’ discovery requests, Plaintiffs have not shown that Moving Defendant has proceeded with extensive discovery which would be unavailable in arbitration proceedings. Plaintiffs have therefore not demonstrated that they would be prejudiced by having the arbitrable claims adjudicated in arbitration.

Based on the foregoing, the Court GRANTS the Motion in part. All claims aside from the first, second, and fourth through seventh causes of action are to proceed to arbitration. The remainder of the causes of action are to be stayed pending the conclusion of the arbitration proceedings. The Court sets a status conference for Friday, February 10, 2023 at 8:30 a.m. in this department. The parties are ordered to file a joint status report by February 3, 2023.

In consideration of the current COVID-19 pandemic situation, the Court strongly encourages that appearances on all proceedings, including this one, be made by LACourtConnect if the parties do not submit on the tentative. If you instead intend to make an appearance in person at Court on this matter, you must send an email by 2 p.m. on the last Court day before the scheduled date of the hearing to SMC_DEPT56@lacourt.org stating your intention to appear in person. The Court will then inform you by close of business that day of the time your hearing will be held. The time set for the hearing may be at any time during that scheduled hearing day, or it may be necessary to schedule the hearing for another date if the Court is unable to accommodate all personal appearances set on that date. This rule is necessary to ensure that adequate precautions can be taken for proper social distancing.

Parties who intend to submit on this tentative must send an email to the Court at SMC_DEPT56@lacourt.org as directed by the instructions provided on the court website at www.lacourt.org. If the department does not receive an email and there are no appearances at the hearing, the motion will be placed off calendar.

Hon. Holly J. Fujie

Judge of the Superior Court

[1] The Court uses first names to distinguish persons with the same last name and does not intend any disrespect in so doing.

[2] The Court additionally notes that Plaintiffs have not presented an independent argument for why the claims brought by Zilker, Gergel and Mission Hills should not proceed to arbitration.

[3] The first, second, and fourth through seventh causes of action are brought pursuant to the alleged breach of the Loan Pay Back Agreement.