Judge: Joseph Lipner, Case: 23STCV09744, Date: 2023-09-14 Tentative Ruling
Case Number: 23STCV09744 Hearing Date: November 9, 2023 Dept: 72
SUPERIOR COURT OF CALIFORNIA
COUNTY OF LOS ANGELES
DEPARTMENT 72
TENTATIVE
RULING
|
LEEOR 26, INC., Plaintiff, v. NOURAFSHAN LLC; et al., Defendants. |
Case No:
23STCV09744 Hearing Date: November 9, 2023 Calendar Number: 4 |
Defendants Nourafshan LLC, RIF Investments-2 LLC, David
Nourafshan, Joshua Nourafshan, Jonathan Nourafshan, and Sophia Nourafshan
(collectively, “Defendants”) move to compel arbitration and stay proceedings.
The Court GRANTS Defendants’ motion to compel arbitration
and stay proceedings. The Court sets a
status conference re arbitration for June 5, 2023 at 8:30 a.m. Defendants to give notice.
This litigation concerns a number of transactions regarding
real property located at 11000 Chalon Road in Los Angeles (the “Property”). In
February 2020, Plaintiff Leeor 26 LLC (“Plaintiff”) entered into a series of
written agreements with Defendants for the purpose of refinancing the Property,
which was under threat of foreclosure. Although Plaintiff contends that the
intent of the parties was to enter into a loan transaction, the parties
structured it as a sale transaction.
On or about February 21, 2020, Defendants purchased the
Property from Plaintiff for $2,000,000. (Kohn Decl. Ex. A.) The parties concurrently executed an option
contract, which was amended by written instrument dated February 28, 2020 (the
“Option Contract”), under which Plaintiff was granted the option to repurchase
the Property from Defendants during a term of three years for an exercise price
of $2,000,000, plus interest and an annual option fee of $50,000. Interest was
set to 5 percent, or 10 percent in the event of default. None of the documents executed by the parties
in February 2020 contained an arbitration clause.
Two years later, in February 2022, Plaintiff entered into a
contract for the sale of the Property to a third party at a favorable price of
$3,225,000. (Kohn Decl. ¶ 8.) Since the Property was then held in the name
of certain of the Defendants, on February 15, 2022, Plaintiff and those
Defendants entered into a Contract of Sale where Plaintiff would repurchase the
Property for a total purchase price of $2,000,000, plus all costs and fees
payable under the Option Agreement and a $75,000 “closing incentive fee,” as
well as all other fees. (the “Contract
of Sale”). (Kohn Decl. ¶ 9 & Ex. C.)
The Contract of Sale contains an arbitration clause, discussed in more
detail below.
Plaintiff filed a complaint against Defendants alleging
causes of action for (1) recovery of usurious interest and penalty for
violation of California usury law; and (2) violation for Bus. & Prof. Code
§ 17200, et seq.
The complaint alleges that Defendants would not close escrow
for transfer of the Property unless Plaintiff paid a total of $2,621,971.06,
which included, in addition to the $2,000,000 purchase price, an additional
$621,971.06 in option fees, interest charges, incentive fees and other fees and
costs. (Complaint ¶ 21.) Plaintiff alleges that the amounts paid by
Plaintiff over the principal amount of $2,000,000 was usurious. (Complaint ¶ 25.) Plaintiff sought attorney’s fees in bringing
this action “under the provisions of the Sales Agreement, Option Agreement, and
Contract of Sale.” (Complaint ¶ 36.)
On August 14, 2023, Defendants filed a motion to compel
arbitration and stay proceedings including declarations of David Nourafshan and
Fred F. Fenster in support.
Plaintiff filed an opposition and Defendants filed a reply.
A hearing was held on September 14, 2023, where the Court
ordered further briefing on the issue of whether the arbitration agreement at
issue is a narrow arbitration clause and how the agreement, properly
interpreted, applies to this case.
Defendants filed a supplemental brief, Plaintiff filed an
opposition, and Defendants filed a reply.
The party moving to compel arbitration must establish the
existence of a written arbitration agreement between the parties. (Code of Civ.
Proc., § 1281.2.) “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. (See
Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 218 (Condee );
see also Cal. Rules of Court, rule 3.1330 [“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”].)
Once the party moving to compel arbitration presents proof
of the existence of the arbitration agreement, the burden shifts to the party
opposing the motion to compel. The
opposing party may present any challenges to the enforcement of the agreement
and evidence in support of those challenges. [Citation].” (Baker v. Italian
Maple Holdings, LLC (2017) 13 Cal.App.5th 1152, 1160.)
Defendants state that they entered into the Contract of Sale
with Plaintiff on or about February 15, 2022. (Nourafshan Decl. ¶ 2, Exh. 1.)
Defendants further assert that Article 5.4 of the 2022 Contract of Sale contains
an arbitration clause accompanied by bolded notice language confirming the
parties’ agreement to arbitrate any claims arising out of the agreement.
(Nourafshan Decl. ¶ 3.)
The language of Article 5.4 Arbitration of Disputes
states in pertinent part:
“Any
controversy or claim arising out of this Contract or a breach thereof shall be
settled by arbitration in accordance with the rules of the American Arbitration
Association, and judgment on the award rendered by the arbitrators may be
entered in any court having jurisdiction.”
(Nourafshan
Decl., Exh. 1 at p. 7.)
Furthermore, the language of the notice right below the
arbitration clause states in bold formatting the following:
“BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE IN
ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE ‘ARBITRATION OF DISPUTES’
PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU
ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A
COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR
JUDICIAL RIGHTS TO DISCOVERY AND AN APPEAL, UNLESS SUCH RIGHTS ARE SPECIFICALLY
INCLUDED IN THE ‘ARBITRATION OF DISPUTES’ PROVISION. IF YOU REFUSE TO SUBMIT TO
ARBITRATION AFTER AGREEING TO THIS PROVISION YOU MAY BE COMPELLED TO ARBITRATE
UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT
TO THIS ARBITRATION PROVISION IS VOLUNTARY. WE HAVE READ AND UNDERSTOOD BEFORE
GOING AND AGREED TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE
ARBITRATION OF DISPUTES PROVISION TO NEUTRAL ARBITRATION.”
(Nourafshan
Decl., Exh. 1 at p. 7.)
Defendants also
state that both Defendant David Nourafshan and Plaintiff initialed the space
provided for confirming the parties’ agreement to arbitrate. (Nourafshan
Decl. ¶ 3.)
The Court therefore
finds that Defendants have made a prima facia case that an arbitration
agreement exists.
Under California law and the Federal Arbitration Act
(“FAA”), an arbitration agreement may be invalid based upon grounds applicable
to any contract, including unconscionability, fraud, duress, and public
policy.¿(Sanchez v. Western Pizza Enterprises, Inc.¿(2009) 172 Cal.App.4th
154, 165-166.)
The doctrine of economic duress “may come into play upon the
doing of a wrongful act which is sufficiently coercive to cause a reasonably
prudent person faced with no reasonable alternative to succumb to the
perpetrator's pressure. (Perez v. Uline, Inc. (2007) 157 Cal.App.4th
953, 959. Economic-duress doctrine does not require an unlawful act in nature
of tort or crime; instead, doctrine may come into play upon doing of wrongful
act which is sufficiently coercive to cause reasonably prudent person faced with
no reasonable alternative to succumb to perpetrator's pressure. (Rich &
Whillock, Inc. v. Ashton Development, Inc. (1984) 157 Cal.App.3d 1154,
1158.) “The assertion of a claim known to be false or a bad faith threat to
breach a contract or to withhold a payment may constitute a wrongful act for
purposes of the economic duress doctrine.” (Id. at p. 1159 [internal
citations omitted].) “Further, a reasonably prudent person subject to such an
act may have no reasonable alternative but to succumb when the only other
alternative is bankruptcy or financial ruin.” (Ibid. [internal citations
omitted].) Although hard bargaining, efficient breaches, and reasonable
settlements of good faith disputes are acceptable in the marketplace, the
doctrine is intended to “preclude the wrongful exploitation of business
exigencies to obtain disproportionate exchanges of value,” particularly where
the failure to reach an agreement could be “serious or fatal to an enterprise
at a crisis in its history.” (Ibid., quoting Dalzell, Duress by
Economic Pressure II (1942) 20 N. Carolina L.Rev. 340, 370.)
Plaintiff argues that it signed the arbitration agreement
under duress. Plaintiff contends that it had no choice but to consent to the
arbitration clause in order to secure the Property and convey it to the
third-party buyer.
Here, Plaintiff has not presented facts other than the
existence of the third-party sale contract and the sale price to indicate its
economic situation at the time that the parties entered the Contract of Sale.
Furthermore, the third-party contract was a contract which Plaintiff chose to
enter, and not an unpredictable business exigency. Thus, the Court is not able
to find that the economic pressure on Plaintiff constituted anything more than
the normal pressures of somewhat complex real estate transactions.
The Court notes, however, that it disagrees with Defendants’
argument that the Contract of Sale’s integration clause and the parole evidence
rule, taken together, prevent Plaintiff from asserting duress. The parole
evidence rule prevents the use of extrinsic evidence to add to or vary a fully
integrated contract’s terms. (Masterson v. Sine (1968) 68 Cal.2d 222,
225.) However, as discussed above, duress goes to the issue of validity,
which is a prior question to contractual interpretation. (Sanchez, supra,
172 Cal.App.4th at pp. 165-166.)
“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.’” (Ahern v. Asset Management Consultants,
Inc. (2022) 74 Cal.App.5th 675, 689 [internal quotations and citations
omitted].) “A broad clause includes language that requires arbitration of ‘any
claim arising from or related to’ the agreement. (Ibid. [internal
quotations and citations omitted].) “A narrow clause, on the other hand,
typically includes language that requires 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.’” (Ibid. [internal quotations and citations omitted].)
“Narrow arbitration clauses are generally interpreted to be more limited in
scope and apply only to disputes regarding the interpretation and performance
of the agreement.” (Id. at pp. 689-690 [internal quotations and
citations omitted].)
The
relevant portion of the arbitration clause states that “[a]ny controversy or
claim arising out of this Contract or a breach thereof shall be settled by
arbitration[.]” The arbitration clause is therefore a narrow clause, an issue
that Defendants do not dispute in their supplemental briefing.
Here,
it appears that the gravamen of Plaintiff’s claims do arise from the Contract
of Sale, and thus fall within the narrow arbitration provision. The Contract of Sale is the document that
expressly tallies up and requires Plaintiff to pay the sums that Plaintiff
challenges as usurious. Thus, Section
1.1 of the Contract of Sale lists the purchase price as $2,000,000 and
provides: “In addition to the Purchase
Price, Buyer agrees to pay a sum equal to (i) the other payments which shall be
due and payable to the Buyer at closing under this Agreement and the Option
Agreement between the parties dated February 21, 2020 (the “Option Agreement”)
including the Option Fee, accrued interest, legal fees, costs and expenses as
per estimate provided in Exhibit B (the “Option Agreement Payments”) and (ii) a
lump sum amount of $75,000 (the “Incentive Fee”) as a closing incentive.” (Kohn Decl. Ex. C at ¶ 1.1(a).) The Contract of Sale provides that all these
fees must be paid at the close of escrow.
(Id. at ¶ 1.1(b).) Exhibit
B to the Contract of Sale lists the amount of fees that Plaintiff must pay.
Because the Contract of Sale sets forth in detail, and
mandates Plaintiff to pay, the very fees that Plaintiff is challenging,
Plaintiff’s lawsuit is a “controversy or claim arising out of this Contract” (Kohn
Decl. Ex. C at ¶ 5.4), subject to arbitration.
Indeed, certain of the fees set forth in the Contract of Sale, such as
the $75,000 “incentive payment” (Kohn Decl. Ex. C at ¶ 1.1(a)(ii)) originate only from the Contract of Sale
rather than from earlier agreements such as the Option Agreement. Moreover, Plaintiff explicitly relies on the
terms of the Contract of Sale in its complaint, claiming attorney’s fees “under
the provisions of the Sales Agreement, Option Agreement, and Contract of
Sale.” (Complaint ¶ 36.)
Defendants
also argue that the Contract of Sale’s integration clause integrates the
parties’ prior agreements into the Contract of Sale. (Kohn Decl. Ex. C. at p
5.3.) That is true, though complicated by the fact that the Option Agreement is
partially exempted from the integration clause.
(Id. at ¶ 5.9.) Nonetheless, the Contract of Sale containing
the arbitration clause sets forth with clarity all the fees that Plaintiff owes
– and that Plaintiff agreed to pay by the close of escrow. These are the fees that Plaintiff is
challenging. Accordingly, the claims
arise under the Contract of Sale and are
subject to arbitration.