Judge: Maren Nelson, Case: 23STCV05448, Date: 2023-09-29 Tentative Ruling

Case Number: 23STCV05448    Hearing Date: September 29, 2023    Dept: 17

Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENTATIVE RULING

Defendant’s motion to deny arbitration pursuant to CCP section 1281.2(c) is GRANTED.

On 3/10/2023, Plaintiffs Marvin Pietruszka M.D., Compremed Medical Group, Inc., and Bridgetone Holdings, LLC filed suit against Koruon Daldalyan, M.D., and Del Carmen Medical Center (collectively, Defendants). On 5/23/2023, Plaintiffs filed a first amended complaint (FAC), alleging: (1) fraud and deceit by intentional misrepresentation; (2) fraud and deceit by negligent misrepresentation; (3) fraud and deceit by suppression of facts; (4) constructive fraud; (5) breach of duty of loyalty/violation of California Labor code section 2863; (6) breach of assert purchase agreement; (7) conversion; (8) injunctive relief; (9) violation of the unfair competition law; (10) constructive trust; (11) an accounting; and (12) breach of lease.

Now, Defendant moves for an order that Plaintiff has waived its right to arbitration. Alternatively, Defendant moves for an order denying arbitration pursuant to CCP section 1281.2(c).

Discussion

            Defendant argues that Plaintiff Compremed has waived its right to arbitration, and even if it has not, arbitration should be denied pursuant to CCP section 1281.2(c).

In determining whether the right to arbitrate has been waived, a court can consider: “(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.’ ” (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196.)

            Here, Defendant submitted the following evidence to show that Compremed has substantially invoked the litigation machinery and has taken actions substantially inconsistent with the right to arbitrate:

-         March 10, 2023 – Plaintiffs file the Complaint alleging twelve (12) causes of action, including a cause of action for the alleged breach of the Asset Purchase Agreement. (See, Comp., ¶¶ 93-97; Ex. 3 to Comp.)

-         April 19, 2023 – Plaintiffs issue a Subpoena to JP Morgan Chase Bank, NA seeking loan applications and other financial information pertaining to the funding of the Asset Purchase Agreement. (Ex. I to the Sparks Decl.)

-          April 24, 2023 – Plaintiffs issue a Subpoena for the deposition of Kanwar Basra. (Ex. J to the Sparks Decl.)

-         On May 22, 2023, Dr. Daldalyan propounds discovery on Plaintiff Compremed. (Exs. K, L and M to the Sparks Decl.)

-         May 23, 2023 – Plaintiffs file a First Amended Complaint again alleging twelve (12) causes of action, including a cause of action for the alleged breach of the Asset Purchase Agreement. (See, FAC, ¶¶ 92-96; Ex. 3 to FAC.)

-         June 6, 2023 – Plaintiffs take the deposition of Kanwar Basra. (Ex. N to the Sparks Decl.)

-         June 29, 2023 – Plaintiffs file a Case Management Statement demanding a jury trial. (Ex. O to the Sparks Decl., § 5, p. 2.)

-         June 29, 2023 – Plaintiffs post jury fees. (Ex. P to the Sparks Decl.)

-         July 14, 2023 – Plaintiffs through their counsel participate in a Case Management Conference where a jury trial is scheduled. Plaintiffs do not object to the setting of the jury trial nor do they inform the Court that they intend to demand arbitration of any claims.

-         July 21, 2023 – Plaintiff serves a Demand for Arbitration of a cause of action for breach of the Asset Purchase Agreement. (Ex. Q to the Sparks Decl.) A comparison of the Demand for Arbitration with the First Amended Complaint reveals that Paragraphs 1-12 and 14 through 17 of the Demand for Arbitration are virtually identical to Paragraphs 1, 2, 4, 9- 12, 14-18 and 93-96 of the First Amended Complaint and seek the same relief.

-         July 28, 2023 – Plaintiff files a Request for Dismissal of the sixth cause of action for Breach of the Asset Purchase Agreement.

-         July 31, 2023 – Plaintiff vigorously opposes a Motion to Quash the Subpoena issued to JP Morgan Chase Bank arguing that the loan and bank account information are directly relevant to the claims for breach of the Asset Purchase Agreement.

As such, Compremed has filed a Complaint and First Amended Complaint alleging a cause of action for breach of the Asset Purchase Agreement. Plaintiff has served a Subpoena upon JP Morgan Chase Bank, NA for loan and bank records pertaining to the funding of the Asset Purchase Agreement, and opposed the Motion to Quash the Subpoena. Plaintiff also demanded a jury trial.

            However, Defendants have only recently filed their answer to the FAC on 9/15/2023, trial is not until 11/14/2024, no written discovery has been propounded by Plaintiffs, and Plaintiffs alleged in their Complaint that the APA was subject to an enforceable arbitration agreement. Moreover, Plaintiffs do not seek to arbitrate all claims.

            As such, the Court finds insufficient evidence to conclude that Plaintiffs have acted so inconsistently with an intention to arbitrate, or have so substantially invoked the litigation machinery that they have waived their right to arbitrate. 

            This leaves the question of whether or not the Court should in its discretion decline to allow arbitration to move froward under CCP section 1281.2(c).

            Defendants argue that arbitration would lead to risk of conflicting ruling because the APA claim and the claims here arise out of the same transactions. 

CCP section 1281.2(c) provides that a 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. 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. This subdivision shall not be applicable to an agreement to arbitrate disputes as to the professional negligence of a health care provider made pursuant to Section 1295.

            After review, the Court exercises its discretion under section 1281.2 (c) in order to avoid the possibility of conflicting rulings on common issues of law and fact.

            Here, the claim for the alleged breach of the Asset Purchase Agreement at issue in the Demand for Arbitration arises out of the same series of related transactions at issue in this action. Plaintiff argues that there is no risk of conflicting rulings because the breach of APA claim is limited to the narrow question of whether or not Daldalyan complied with his alleged obligation under the APA to purchase assets for $2 million.  Compremed alleges that Daldalyan did not issue any payment for the assets, and this is the issue to be resolved under this cause of action. However, the Court agrees with Defendant that there is a strong likelihood for conflicting rulings on common issues of law or fact if Plaintiff is permitted to proceed with its Demand for Arbitration and this case is also litigated.

 For example, an arbitrator could conclude that Defendant did not breach the Asset Purchase Agreement by failing to make any payment because he made a good faith effort to obtain a loan whereas this Court could conclude that Defendant defrauded Plaintiff by misrepresenting that he would qualify for a loan for at least $1 million, and did not make a good faith effort to obtain a loan. Moreover, Plaintiffs assert a cause of action for breach of fiduciary duty here, which is a relationship directly implicated by the Asset Purchase Agreement, as thus requires interpretation of the APA. While Plaintiffs insist in opposition that the breach of APA claim is limited to the question of whether or not Defendant made the payments owed under the APA, Plaintiffs offer no substantive explanation as to how the other causes of action are not implicated given that they concern alleged misrepresentations made by Defendant as to his ability to comply with his obligations under the APA.

            Finally, Plaintiff argues that the Court has no authority to issue this ruling because the Court has no petition to compel arbitration before it. However, Plaintiffs have no pending motion to compel arbitration. Thus, under Plaintiffs logic, the Court’s hands could be tied indefinitely from denying arbitration as long as Plaintiffs did not move to compel arbitration.  Plaintiffs offer no explanation as to what available option Defendant otherwise has to seek the relief sought here. The purpose of section 1281.2 is to provide Courts with discretionary control over cases where there is arbitration and litigation involved. There is nothing which indicates that the Court must adopt the narrow and formalistic approach of Plaintiffs that only where a formal petition to compel arbitration has been expressly filed may the Court exercise its powers under section 1281.2.  Here, Plaintiffs has submitted a Demand for Arbitration, and thus is seeking in a de facto sense to compel arbitration.

            Moreover, Plaintiff argues that questions of arbitrability should be left to the arbitrator. However, section 1281.2 is a discretionary power held by trial courts, not arbitrators, and thus an arbitrator does not have the power to grant the relief sought here. Moreover, this discretionary power does not concern a determination as to whether or not the relevant claims are subject to an arbitration agreement—the power delegated to an arbitrator—but rather if for some other statutorily recognized reason, a claim which is otherwise subject to an arbitration agreement should not proceed in arbitration.

            Accordingly, the Court finds a high risk of conflicting rulings if Compremed were to arbitrate a breach of contract claim based on the Asset Purchase Agreement, while this action, which is based on the same facts and transactions as the breach of contract claim, were litigated here. Accordingly, pursuant to CCP section 1281.2 the Court declines to order arbitration of that cause of action. 

            Based on the foregoing, Defendant’s motion to deny arbitration pursuant to CCP section 1281.2(c) is granted.

It is so ordered.

Dated:  September    , 2023

   Hon. Jon R. Takasugi
   Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the court at smcdept17@lacourt.org by 4 p.m. the day prior as directed by the instructions provided on the court website at www.lacourt.org.  If a party submits on the tentative, the party’s email must include the case number and must identify the party submitting on the tentative.  If all parties to a motion submit, the court will adopt this tentative as the final order.  If the department does not receive an email indicating the parties are submitting on the tentative and there are no appearances at the hearing, the motion may be placed off calendar.  For more information, please contact the court clerk at (213) 633-0517.