Judge: Mark A. Young, Case: 22SMCV01437, Date: 2023-02-22 Tentative Ruling


Case Number: 22SMCV01437    Hearing Date: February 22, 2023    Dept: M

CASE NAME:           Wachtel, et al., v. Shames, et al.

CASE NO.:                22SMCV01437

MOTION:                  Petition/Motion to Compel Arbitration

HEARING DATE:   2/23/2023

 

Legal Standard

 

Under California and federal law, public policy favors arbitration as an efficient and less expensive means of resolving private disputes. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 8-9; AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 339.) Accordingly, whether an agreement is governed by the California Arbitration Act (“CAA”) or the Federal Arbitration Act (“FAA”), courts resolve doubts about an arbitration agreement’s scope in favor of arbitration.  (Moncharsh, supra, 3 Cal.4th at 9; Comedy Club, Inc. v. Improv West Assocs. (9th Cir. 2009) 553 F.3d 1277, 1284; see also Engalla v. Permanente Med. Grp., Inc. (1997) 15 Cal.4th 951, 971-972 [“California law incorporates many of the basic policy objectives contained in the Federal Arbitration Act, including a presumption in favor of arbitrability [citation] and a requirement that an arbitration agreement must be enforced on the basis of state law standards that apply to contracts in general”].) “[U]nder both the FAA and California law, ‘arbitration agreements are valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.’ ” (Higgins v. Superior Crout (2006) 140 Cal.App.4th 1238, 1247.)

 

            “Code of Civil Procedure section 1281.2 requires a trial court to grant a petition to compel arbitration if the court determines that an agreement to arbitrate the controversy exists.” (Avery v. Integrated Healthcare Holdings, Inc. (2013) 218 Cal.App.4th 50, 59, quotations omitted.) Accordingly, “when presented with a petition to compel arbitration, the court’s first task is to determine whether the parties have in fact agreed to arbitrate the dispute.”  (Ibid.) A petition to compel arbitration is in essence a suit in equity to compel specific performance of a contract. (Id. at 71.) As with any other specific performance claim, “a party seeking to enforce an arbitration agreement must show the agreement’s terms are sufficiently definite to enable the court to know what it is to enforce.” (Ibid. [internal citations omitted].) “Only the valid and binding agreement of the parties, including all material terms well-defined and clearly expressed, may be ordered specifically performed.” (Ibid.) An arbitration agreement “must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.” (Civ. Code, § 1636.) The language of the contract governs its interpretation if it is clear and explicit. (Civ. Code, § 1368.) If uncertainty exists, “the language of a contract should be interpreted most strongly against the party who caused the uncertainty to exist.” (Civ. Code, § 1654.)

 

            The party seeking to compel arbitration 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.) It would then be plaintiff’s burden, in opposing the motion, to prove by a preponderance of the evidence any fact necessary to her opposition. (See Ibid.) “In these summary proceedings, the trial court sits as a trier of fact, weighing all the affidavits, declarations, and other documentary evidence, as well as oral testimony received at the court’s discretion, to reach a final determination.” (Ibid.)

 

Analysis

 

            Defendants Bradley J. Shames, Julie L. Shames, and American Textile Maintenance Corporation (ATM) move to compel Plaintiffs Deena R. Wachtel, Lisa J. Perlson, Steven A. Lewis and Michelle L. Lewis’s claims to binding arbitration. Defendants assert that an arbitration provision found in a 2011 agreement between the Lewises, the Shameses, ATM and BMS Investments mandate arbitration of Plaintiffs’ claims.

 

As with any contract, mutual assent or consent is necessary for the formation of a valid arbitration agreement. (Civ. Code, §§ 1550, 1565.) “Consent is not mutual, unless the parties all agree upon the same thing in the same sense.” (Civ. Code, § 1580.) The moving party bears the initial burden of showing the existence of an agreement to arbitrate by a preponderance of the evidence. (Mitri v. Arnel Mgmt. Co. (2007) 157 Cal.App.4th 1164, 1169 [“Because the existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance of the evidence.”].) 

 

In support of their motion, Defendants present the 2011 settlement agreement. This agreement negotiated terms for co-ownership of ATM and BMS, including Bradley Shame’s compensation, ATM shareholder distributions; continuation of the BMS partnership; codification of the relationship between BMS and ATM through written leases; and Michelle Lewis’s rights to information about the businesses. (FAC ¶¶ 27-28; see Shames Decl., ¶ 9, Ex. A.) The agreement contains an arbitration clause, which provides:

 

“[A]ny future dispute, claim or controversy arising out of or relating to (1) this Agreement or (2) the Parties’ rights or interests in ATM and/or BMS in whatever capacity, shall be resolved by binding arbitration through ADR in Century City, California. . .”

 

(Shames Decl., Ex. A, ¶ 10(b).)

 

This clause facially applies to the instant litigation. This litigation arises from the BMS partnership agreement and its amendments. On June 17, 2015, the parties amended the 1983 Partnership Agreement (“Amendment #1”) to provide that ownership of BMS would be held by the Shames Trust – holding 50.33% and the Lewis Trust – holding 49.67%. (FAC ¶16.) Amendment #1 also provides that title to or any interest in or to any real property or other asset held in the name of BMS may be conveyed, mortgaged, hypothecated, encumbered, or transferred only by a written and acknowledged document or instrument duly executed by any two of the trustees of the Shames Trust and the Lewis Trust. (Id.) In December 2020, the Lewis Trust, in conjunction with estate planning and with the consent of the Partners, transferred a percentage of their ownership interest in BMS to the Deena Trust and Lisa Trust such that the present ownership interest of Plaintiffs in BMS is as follows: Lewis Trust holding .69%, Deena Trust holding 24.5% and Lisa Trust holding 24.5%. (¶ 17.) On February 12, 2021, Fred Gartside (“Gartside”), purporting to act as the attorneys for BMS and ATM, advised Plaintiffs that a further amendment would be required (“Amendment #2”). (¶18.) Plaintiffs signed the presented amendment. (Id.)  Amendment #2 accomplished the change in percentage ownership interests of Plaintiffs in BMS, but modified the prior provisions calling for the general partners to each enjoy equal powers and rights over BMS and such modification was not acknowledged and/or explained to Plaintiffs. Plaintiffs dispute the validity and/or enforceability of Amendment #2 as it relates to and/or modifies the powers of the general partners with respect to BMS. (¶ 19.)

 

From these allegations, Plaintiffs assert causes of action for breach of fiduciary duty and breach of the BMS partnership agreement (against the Shameses), breach of lease (against ATM), and declaratory relief (against all Defendants). In particular, the declaratory relief cause of action alleges that there is a controversy between the parties regarding the validity of Amendment #2. (FAC ¶ 71.) Thus, there is a dispute regarding the parties’ “respective rights and duties as they relate to BMS in that Plaintiffs contend that Plaintiffs and Defendants are general partners in the BMS Properties and therefore, have equal rights as general partners to control the affairs of the partnership and that, notwithstanding the same Defendants have acted and continue to act unilaterally on behalf of BMS in executing the BMS Leases and thus, have assumed and are in complete control and management of the BMS Properties. Defendants Brad and Julie have excluded Plaintiffs from participating in the management of BMS and sharing in the proceeds of the same by virtue of their breaches of contract and fiduciary duty(ies) and were and are using the rents, issues, and profits of the BMS Properties for their own benefit and/or that of ATM (in which their trust is a majority shareholder) . . ..” (FAC ¶ 72.)

 

Through this action, Plaintiffs seek to determine the “respective rights and duties as they relate to BMS” specifically their “equal rights as general partners to control the affairs of” BMS. Thus, this case relates to the parties’ rights or interests in “BMS in whatever capacity” and “shall be resolved by binding arbitration through ADR in Century City, California. . .” Therefore, Defendants have met their burden to show that the 2011 arbitration provision applies to this case.

 

            Plaintiffs assert as a defense that Defendants waived their right to compel arbitration. “Whether a party to an arbitration agreement has waived the right to arbitrate is a question of fact, and a trial court’s determination on that matter will not be disturbed on appeal if supported by substantial evidence . . .. Since arbitration is a strongly favored means of resolving disputes, courts must ‘closely scrutinize any claims of waiver.’” (Sobremonte v. Superior Court (1998) 61 Cal. App. 4th 980, 991 [citations omitted].) “No single test delineates the nature of the conduct that will constitute a waiver of arbitration.” (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal. 4th 1187, 1195.) “In determining waiver, 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.” (Sobremonte, supra, 61 Cal. App. 4th at 992 [citation omitted].) 

 

Here, Plaintiffs cite no particular conduct by Defendants that could be interpreted as a waiver. Thus, they fail to substantiate their argument for waiver. The Court notes that this was the first instance that Defendants could have brought arbitration as a defense to this action.

 

Accordingly, Defendants’ motion is GRANTED. The entire action is STAYED pending the completion of the arbitration. (CCP § 1281.4.)