Judge Holly J. Fujie, Case Number: 24STCV12349, Date: 2024-11-06 Tentative Ruling

On May 15, 2024, Plaintiffs Raymond M. Chan (“Raymond”)[1] and Raymond M. Chan and Cindy C. Chan, Trustees of The Chan Family Trust, dated 12/21/09, as Restated on 9/14/14, and All Amendments Thereto (the “Chan Family Trust”) (collectively, “Plaintiffs”) filed a complaint (“Complaint”) for: (1) dissolution of RHE, LLC; (2) dissolution of Chan Springdale Property, LLC; (3) Partition by Sale of Real Property; (4) breach of fiduciary duty; (5) concealment; (6) conversion; and (7) accounting.

On June 13, 2024, Raymond filed the Motion to Compel Arbitration and Partial Stay of This Action (the “Motion to Compel Arbitration”) seeking an order to: (1) compel Defendants Edward Chan, an individual (“Edward”), Edward Chan, trustee of the Chan Family Living Trust Dated August 26, 1988 (the “Parent Trust”), Howard Chan, an individual (“Howard”), RHE, LLC, a California limited liability company (“RHE LLC”), and Chan Springdale Property, LLC, a California limited liability company (“Springdale LLC”) to arbitration pursuant to the RHE LLC and Springdale LLC operating agreements; and (2) stay the action as to the claims relating to RHE LLC and Springdale LLC pending the completion of the arbitration. Edward filed an opposition to the Motion to Compel Arbitration on July 15, 2024, and Raymond filed a reply on July 24, 2024.

Previously, on April 19, 2024, Raymond had submitted to the American Arbitration Association (“AAA”) a demand for arbitration (the “AAA Arbitration Demand”) against RHE LLC, Edward and Howard. (Declaration of S.V. Stuart Johnson [“Johnson Decl.”], ¶ 3, Exh. A.) Raymond submitted the AAA Arbitration Demand pursuant to the arbitration clause in RHE LLC’s Operating Agreement (the “RHE Operating Agreement”) which was executed by Raymond, Howard, and Edward on or about July 15, 2005. (Declaration of Raymond Chan (“Chan Decl.”) ¶ 3, Exh. A.)

On June 10, 2024, Raymond also submitted to JAMS a demand for arbitration (the “JAMS Arbitration Demand”) against Springdale LLC, Howard (a member of Springdale LLC), Edward (a member of Springdale LLC), and the Parent Trust (a member of Springdale LLC). (Chan Decl., ¶ 6; Johnson Decl., ¶ 15, Exh. C.) The JAMS Arbitration Demand was made pursuant to the arbitration clause in Springdale LLC’s operating agreement (the “Springdale Operating Agreement”), which was entered into as of March 13, 2015, between Raymond, Edward, Howard, and the Parent Trust. [Chan Decl., ¶ 6, Exh. B; Johnson Decl., ¶ 16.]

On June 7, 2024, Edward filed the Motion to Dismiss the Concurrent Arbitration Proceeding Seeking Same Relief (the “Motion to Dismiss Arbitration”). Plaintiffs filed an opposition on July 15, 2024, and Edward filed a reply on July 24, 2024.

“California law reflects a strong public policy in favor of arbitration as a relatively quick and inexpensive method for resolving disputes. To further that policy, section 1281.2 requires a trial court to enforce a written arbitration agreement unless one of three limited exceptions applies. Those statutory exceptions arise where (1) a party waives the right to arbitration; (2) grounds exist for revoking the arbitration agreement; and (3) pending litigation with a third party creates the possibility of conflicting rulings on common factual or legal issues.” (Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal.App.4th 959, 967; Code Civ. Proc., § 1281.2.)

In deciding a petition to compel arbitration, trial courts must decide first whether an enforceable arbitration agreement exists between the parties, and then determine the second gateway issue whether the claims are covered within the scope of the agreement. (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.) The opposing party has the burden to establish any defense to enforcement. (Gatton v. T-Mobile USA, Inc. (2007) 152 Cal.App.4th 571, 579 [“The petitioner, T–Mobile here, bears the burden of proving the existence of a valid arbitration agreement and the opposing party, plaintiffs here, bears the burden of proving any fact necessary to its defense.”].)

Procedurally, a petition to compel arbitration or stay proceedings must state verbatim the provisions providing for arbitration, or must have a copy of them attached. (Cal. R. Ct., rule 3.1330.)

“With respect to the moving party’s burden to provide evidence of the existence of an agreement to arbitrate, it is generally sufficient for that party to present a copy of the contract to the court.” (Baker v. Italian Maple Holdings, LLC (2017) 13 Cal.App.5th 1152, 1160.)

Here, Raymond submits evidence that on or about July 15, 2005, Raymond, Edward and Howard executed the RHE Operating Agreement. (Chan Decl., ¶ 3, Exh. A.) Section 10.1 of the RHE Operating Agreement contained an arbitration provision that stated in relevant part:

Any action to enforce or interpret this Agreement or to resolve disputes between the Members or by or against any Member shall be settled by arbitration in accordance with the rules of the American Arbitration Association…

Raymond also presents evidence that the Springdale Operating Agreement was entered into as of March 13, 2015 between Raymond, Edward, Howard, and the Parent Trust. (Chan Decl., ¶ 6; Johnson Decl., ¶ 16.) Section 9.3 of the Springdale Operating Agreement specifically states:

Any actions, controversies, claims or disputes arising out of or relating to this Agreement shall be settled by a majority vote of the Members. To the extent they are unable to be settled by a majority vote of the Members, any actions, controversies, claims or disputes arising out of or relating to this Agreement shall be settled by binding arbitration administered by the Judicial and Mediation Services (“JAMS”) under its Commercial Arbitration Rules as then in effect…

Because Raymond has established the existence of valid and binding arbitration agreements contained in the RHE Operating Agreement and the Springdale Operating Agreement (collectively, the “Agreements”), of which both Raymond and Edward are parties, the burden shifts to Edward as the party opposing arbitration, to show why the Agreements should not be enforced. In his opposition, Edward does not dispute that he signed and entered into both Agreements. Edward contends, however, that the Motion to Compel Arbitration should be denied on the grounds that Raymond’s claims for judicial dissolution of the two limited liability companies, RHE LLC and Springdale LLC, are not arbitrable; the language of each arbitration provision within the RHE Operating Agreement and the Springdale Operating Agreement does not cover arbitration of Raymond’s judicial dissolution claims; and Raymond has waived his right to arbitration.

The Court is not persuaded by Edward’s arguments. Foremost, the language of the arbitration provisions contained in both Agreements is broad and clearly covers Raymond’s claims against Edward that relate to RHE LLC and Springdale LLC. Specifically, the RHE Operating Agreement covers “[a]ny action…to resolve disputes between the Members or by or against any Member” (it is undisputed that both Raymond and Edward are members of RHE LLC), while the Springdale Operating Agreement includes “any actions, controversies, claims or disputes arising out of or relating to this Agreement”. (Chan Decl., Exhs. A and B.)

There is also no support for Edward’s position that claims for dissolution of RHE LLC and Springdale LLC are not arbitrable. In the case of Larkin v. Williams, Woolley, Cogswell, Nakazawa & Russell, the court held that an arbitration clause that broadly covered “any controversy or claim arising out of or relating to any provision of this (partnership) (a)greement or the breach thereof” was sufficient to compel arbitration of a dissolution and accounting claim, as the dispute arose out of and related to the partnership agreement (Larkin v. Williams, Woolley, Cogswell, Nakazawa & Russell (1999) 76 Cal.App.4th 227.) Similarly thus, a cause of action for the dissolution of an LLC can be compelled to arbitration if the arbitration agreement is broad enough to encompass such disputes.

Finally, the Court finds that Raymond did not waive arbitration as Raymond filed his Motion to Compel Arbitration within a few days of recording his notice of lis pendens. Specifically, the Court’s records reflect that this action was initiated on May 15, 2024. Raymond filed three separate Notices of Lis Pendens involving three different properties on June 5, 2024. The following week, on June 13, 2024, Raymond filed his Motion to Compel Arbitration. At the time he filed his Motion to Compel Arbitration, he had not yet served the Complaint, as it was not served on Howard until June 20, 2024, and on Edward on June 25, 2024. (Johnson Decl. in Support of Reply, ¶¶ 5-6.) The Court thus finds that Raymond has not yet actively litigated this action.

The party opposing arbitration bears the burden of showing waiver. This burden is described as a “heavy burden of proof”, and any doubts regarding a waiver allegation should be resolved in favor of arbitration. (Quach v. California Com. Club, Inc. (2024) 16 Cal. 5th 562, 574 [“in ruling on waiver questions, California courts have, for decades, been applying a framework grounded in a ‘strong policy favoring arbitration’ over litigation, under which they hold parties seeking to establish waiver to a ‘heavy burden of proof,’ requiring a showing of prejudice beyond the loss of time and expenses normally associated with litigating a dispute and resolving any doubts ‘in favor of arbitration.’”].)

In sum, Edward has not carried his burden of demonstrating that the arbitration provisions should not be enforced. Accordingly, the Motion to Compel Arbitration is GRANTED. In light of this finding, the Motion to Dismiss Arbitration is MOOT.

Based on the foregoing, the action is stayed pending completion of the arbitration as to Raymond’s claims that pertain to RHE LLC and Springdale LLC, as follows: (1) the First Cause of Action for judicial dissolution of RHE LLC; (2) the Second Cause of Action for judicial dissolution of Springdale LLC; (3) the Fourth Cause of Action for breach of fiduciary duty as it relates to RHE LLC and Springdale LLC; (4) the Fifth Cause of Action for concealment as it relates to RHE LLC and Springdale LLC; (5) the Sixth Cause of Action for conversion as it relates to RHE LLC and Springdale LLC.

The Court sets a Status Conference for May 5, 2025, regarding the status of arbitration.

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 will refer to parties surnamed “Chan” by their first name to distinguish one from the other, and in doing so, no disrespect is intended.