Judge: Joseph Lipner, Case: 23STCV27800, Date: 2024-05-14 Tentative Ruling

Case Number: 23STCV27800    Hearing Date: May 14, 2024    Dept: 72

SUPERIOR COURT OF CALIFORNIA

COUNTY OF LOS ANGELES

DEPARTMENT 72

TENTATIVE RULING

Defendants Vincent Mehdizadeh; Jaime Ortega; Marco Rullo; Matthew Feinstein; Pineapple Ventures, Inc. (“Ventures”); PNPL Holdings, Inc. (“Holdings”); PNPLXPRESS X, Inc. (“Express”); and Pineapple Consolidated, Inc. (“Consolidated”) (collectively, “Moving Defendants”) move for an order compelling Plaintiff Blue Fire LLC (“Plaintiff”) to arbitrate its claims against Defendants and staying this action pending arbitration.

The Court DENIES the motion as to Plaintiff’s third, fourth, and fifth causes of action.

The Court DELAYS its ruling on the motion as to Plaintiff’s remaining claims against the Moving Defendants pending the resolution of Plaintiff’s third, fourth, and fifth claims.

Background

Plaintiff alleges that Defendants run an investment fraud scheme whereby they persuade investors to invest money in their companies and then cut off distributions and payments once it is clear that an investor has given all they are willing or able to invest.

On March 7, 2022, Plaintiff entered into a Stock Purchase Agreement and Shareholder Agreement (the “PVI Agreement”) with Holdings for the purchase of 1,000 shares of Ventures stock, representing 1% of the outstanding shares of Ventures, in exchange for $400,000.00.

Also on March 7, 2022, Plaintiff entered into a Stock Purchase Agreement and Shareholder Agreement (the “Dispensary Agreement”) with Holdings for the purchase of 30,000 shares of Express stock, representing 30% of the outstanding shares of Express, in exchange for $1,800,000.00.

The PVI Agreement and the Dispensary Agreement (collectively, the “Agreements”) contained identical arbitration clauses (the “Arbitration Clauses”).

Plaintiff filed this action on November 13, 2023 against Moving Defendants, as well as Raking Leaves, Inc. (“Raking Leaves”), raising claims for (1) fraud; (2) breach of contract; (3) unjust enrichment; (4) imposition of a constructive trust; (5) unfair business practices; (6) breach of fiduciary duty; and (7) theft under Penal Code, section 496, subd. (c).

Moving Defendants filed this motion on March 11, 2024. Plaintiffs filed an opposition. Moving Defendants did not file a reply.

Discussion

Plaintiff does not dispute the existence of the arbitration agreement. Plaintiff argues that (1) the Arbitration Clauses exclude its equitable claims, and (2) the Court should therefore delay its order to arbitrate until the equitable claims are resolved.

Plaintiff’s equitable claims are not subject to arbitration

The Arbitration Clauses state, in relevant part:

“8.12 Arbitration. Except as to any claim for injunctive or equitable relief, any controversy or claim arising out of or relating to this Agreement, the construction thereof, or breach thereof, shall be settled by arbitration in accordance with the Rules of the American Arbitration Association except as otherwise provided in this Section’ provided however that any party may seek preliminary injunctive relief or other equitable relief pending arbitration to prevent irreparable harm.”

(Defendants’ Ex. 1 at § 8.12; Defendants’ Ex. 2 at § 8.12 [emphasis added].)

Plaintiff’s complaint alleges claims for unjust enrichment and the imposition of a constructive trust. Plaintiff also seeks restitution and injunctive relief under Business & Professions Code, sections 17200, et seq.

“A UCL action is equitable in nature.” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1144.)

“The phrase ‘unjust enrichment’ is used in law to characterize the … failure to make restitution of or for property or benefits received under such circumstances as to give rise to a legal or equitable obligation to account therefor. It is a general principle, underlying various legal doctrines and remedies, that one person should not be permitted unjustly to enrich himself at the expense of another, but should be required to make restitution of or for property or benefits … where it is just and equitable that such restitution be made, and where such action involves no violation or frustration of law or opposition to public policy[.]” (Dinosaur Development, Inc. v. White (1989) 216 Cal.App.3d 1310, 1315.)

“A constructive trust is an equitable remedy imposed where the defendant holds title or some interest in certain property which it is inequitable for him to enjoy as against the plaintiff.” (Kraus v. Willow Park Public Golf Course (1977) 73 Cal.App.3d 354, 373.) “One who gains a thing by fraud, accident, mistake, undue influence, the violation of a trust, or other wrongful act, is, unless he has some other and better right thereto, an involuntary trustee of the thing gained, for the benefit of the person who would otherwise have had it.” (Civ. Code, § 2224.)

“Restitution is a legal remedy when ordered in a case at law and an equitable remedy when ordered in an equity case, and whether it is legal or equitable depends on the basis for the plaintiff's claim and the nature of the underlying remedies sought. For restitution to lie in equity, the action generally must seek not to impose personal liability on the defendant, but to restore to the plaintiff particular funds or property in the defendant's possession.” (Great-West Life & Annuity Ins. Co. v. Knudson (2002) 534 U.S. 204, 205.)

Thus, Plaintiff’s claims for unjust enrichment and constructive trust, as well as his claim for restitution under the UCL, are equitable claims. Furthermore, his claim for injunctive relief under the UCL is facially exempted by the Arbitration Clauses. These claims are therefore not subject to arbitration.

The Court therefore denies the motion as to Plaintiff’s third, fourth, and fifth causes of action.

The Court delays its order to arbitrate Plaintiff’s remaining claims

“If the court determines that there are other issues between the petitioner and the respondent which are not subject to arbitration and which are the subject of a pending action or special proceeding between the petitioner and the respondent and that a determination of such issues may make the arbitration unnecessary, the court may delay its order to arbitrate until the determination of such other issues or until such earlier time as the court specifies.” (Code Civ. Proc., § 1281.2, subd. (d).)

Moreover, arbitration need not be ordered where 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. For purposes of this section, a pending court action or special proceeding includes an action or proceeding initiated by the party refusing to arbitrate after the petition to compel arbitration has been filed, but on or before the date of the hearing on the petition.” (Code Civ. Proc., § 1281.2, subd. (c).)

Here, there is a significant chance that resolution of Plaintiff’s claims seeking restitution and injunctive relief will render arbitration of the remaining claims unnecessary. Furthermore, Plaintiff’s action here against Raking Leave will continue regardless of whether the Court compels arbitration against Moving Defendants, creating a risk of conflicting rulings.

The Court therefore delays its ruling on the motion as to Plaintiff’s remaining claims pending the resolution of Plaintiff’s third, fourth, and fifth claims.