Judge Michael E. Whitaker, Case Number: 22STCV39004, Date: 2023-10-04 Tentative Ruling

Judge: Michael E. Whitaker, Case: 22STCV39004, Date: 2023-10-04 Tentative Ruling

Defendant Michael Draz (“Draz”) moves to compel Plaintiff Bobs LLC (“Bobs”) to arbitrate Bobs’ claims arising from a promissory note to guaranty payments on a loan made for a construction project. Bobs opposes the motion and Draz replies.

In connection with the Motion, Draz requests the Court take judicial notice of the following:

· Exhibit 1 – Complaint filed on November 19, 2021 by Bobs in Case No. 21SMCP00658 (“First Case”)

· Exhibit 2 – Stipulation to Arbitration, executed February 28, 2022 in the First Case

· Exhibit 3 – Claimants’ Amended Arbitration Demand, dated April 1, 2022, filed in JAMS Reference No. 52200000567 (“Arbitration”)

· Exhibit 4 – Amended Counterclaim, dated January 30, 2023 filed in Arbitration

· Exhibit 5 – Second Amended Counterclaim, dated Jun 27, 2023 filed in Arbitration

The exhibits are all authenticated by the attorney declaration of Andrew V. Jablon.

Similarly, in connection with its Opposition, Bobs requests the Court take judicial notice of the following:

· Exhibit B – Request for Dismissal of the Fifth Cause of Action by Bobs in the First Case

· Exhibit C – Notice of Withdrawal of Claim of the Fifth Cause of Action by Bobs in Arbitration

· Exhibit D – Notice of Withdrawal of Claim of the Fifth Cause of Action by Barry Shy in Arbitration.

Judicial notice may be taken of records of any court in this state. (Evid. Code, § 452, subd. (d)(1).) Therefore, the Court may take judicial notice of Exhibits 1, 2, A, and B. (Ibid.) However, “while courts are free to take judicial notice of the existence of each document in a court file, including the truth of results reached, they may not take judicial notice of the truth of hearsay statements in decisions and court files. Courts may not take judicial notice of allegations in affidavits, declarations and probation reports in court records because such matters are reasonably subject to dispute and therefore require formal proof.” (Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 882 [cleaned up].) Accordingly, the Court takes judicial notice of the existence of Exhibits 1, 2, A, and B as a court record, but not the truth of the allegations contained therein.

Records from arbitration proceedings are slightly different from court records, in that arbitration proceedings are generally private, whereas court records are generally public. Nonetheless, courts have held that documents filed in arbitration proceedings are capable of immediate verification by the relevant arbitration provider. (See, e.g., Walnut Producers of California v. Diamond Foods, Inc. (2010) 187 Cal.App.4th 634, 650, fn. 6.) Moreover, the authenticity of these documents does not appear to be in question. Neither party has objected to the other party’s request for judicial notice of these documents, and both parties rely upon filings made in the Arbitration proceeding in their own briefing.

Therefore, the Court grants the parties’ requests for judicial notice, and takes judicial notice of all the requested documents, but not of the truth of the matters asserted therein.

On November 19, 2021, Bobs, and three others, brought suit against Draz, and various entities, in related matter No. 21SMCP00658 (“First Case”), alleging that Draz and a plaintiff in the first case, Barry Shy, formed BHABC LLC for the purpose of developing (and ultimately selling for profit) two real estate properties located in Beverly Hills. (RJN Ex. 1 at ¶¶ 1, 15.) Bobs is a private lender that funded the development costs. (RJN Ex. 1 at ¶ 16.)

On March 2, 2022, the parties to the First Case agreed to stay the First Case and arbitrate “the issues in the Compliant [sic]” and “pursuant to terms of the agreements at issue in the dispute.” (RJN Ex. 2 at p. 2.) The allegations in the First Case complaint include allegations that Bobs loaned BHABC $1.635 Million and Draz executed a guaranty on the loan. (RJN Ex. 1 at ¶¶ 62-66.) The complaint in the First Case also seeks a writ of mandate requiring Draz to produce the signed copy of a guaranty of the loan agreement. (See RJN Ex. 1 at p. 29-30 – “Fifth Cause of Action.”)

On April 1, 2022, plaintiffs amended their claim in arbitration. The Amended Arbitration Demand included a claim by Bobs for writ of mandate requiring Draz to produce and/or sign the guaranty. (RJN Ex. 3.)

On December 15, 2022, Bobs filed a complaint in this case against Draz and BHABC LLC only (and Does 1-10), for breach of contract (promissory note), breach of contract (guaranty) and common counts. (RJN Ex. A)

On January 30, 2023, Defendant (and the other cross-claimants) filed an Amended Counter Claim in Arbitration, seeking, among other things, cancellation of the guaranty. (RJN Ex. 4.)

On June 15, 2023, Bobs withdrew its only claim in Arbitration (for the fifth cause of action for writ of mandate requiring Draz to produce a signed copy of the guaranty). (RJN Ex. C.) On July 13, Barry Shy also withdrew his claim for the fifth cause of action in Arbitration. (RJN Ex. D.) On July 19, 2023, Bobs requested dismissal without prejudice of the fifth cause of action in the first case. (RJN Ex. B.) Bobs’ dismissal was granted the next day. (Ibid.)

The same day, on July 19, Draz filed a Notice of Related Case in the First Case. On July 24, 2023, plaintiff Barry Shy requested dismissal of the fifth cause of action, which was granted on July 26. Also on July 24, plaintiffs to the First Case objected to and opposed the Notice of Related Case, on the basis that Bobs, having dismissed his fifth cause of action against Draz, was no longer a party to the case, and therefore the cases did not involve the same parties. On July 25, 2023, the Court related the cases.

“[T]he advantages of arbitration include a presumptively less costly, more expeditious manner of resolving disputes. It follows a party to a valid arbitration agreement has a contractual right to have its dispute with another party to the contract resolved quickly and inexpensively.” (Henry v. Alcove Investment, Inc. (1991) 233 Cal.App.3d 94, 99–100 [cleaned up].) Thus, “on petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists.” (Code Civ. Proc., § 1281.2; see also

EFund Capital Partners v. Pless (2007) 150 Cal.App.4th 1311, 1320 [the language in section 1281.2 compelling arbitration is mandatory].) The right to compel arbitration exists unless the court finds that the right has been waived by a party’s conduct, other grounds exist for revocation of the agreement, or where a pending court action arising out of the same transaction creates the possibility of conflicting rulings on a common issue of law or fact. (Code Civ. Proc., § 1281.2, subds. (a)-(c).)

“On a petition to compel arbitration, the trial court must first determine whether an agreement to arbitrate the controversy exists. 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. The party seeking arbitration can meet its initial burden by attaching to the petition a copy of the arbitration agreement purporting to bear the respondent's signature.” (Bannister v. Marinidence Opco, LLC (2021) 64 Cal.App.5th 541, 543-544 [cleaned up].) The party seeking to compel arbitration must also “plead and prove a prior demand for arbitration and a refusal to arbitrate under the agreement.” (Mansouri v. Superior Court (2010) 181 Cal.App.4th 633, 640-641.)

And while the moving party on a motion to compel arbitration “bears the burden of proving the existence of a valid arbitration agreement by a preponderance of the evidence, [a] party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense. The trial court sits as the trier of fact, weighing all the affidavits, declarations, and other documentary evidence, and any oral testimony the court may receive at its discretion, to reach a final determination.” (Ruiz v. Moss Bros. Auto Group, Inc. (2014) 232 Cal.App.4th 836, 842 [cleaned up]; see also Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236 [“The party seeking arbitration bears the burden of proving the existence of an arbitration agreement, and the party opposing arbitration bears the burden of proving any defense, such as unconscionability”].)

The parties agree that there exists a valid stipulation to arbitrate the “dispute” in the First Case. (See Motion at 6:11-14; Opp. at 2:5-3:4.) Bobs argues that the stipulation to arbitrate does not cover the claims at issue in this case because (1) Draz’s breach of the loan agreement was not previously raised in any forum, and therefore is not encompassed by the stipulation; and (2) the stipulation to arbitrate “no longer binds Bobs” to arbitration because Bobs dismissed all the claims it raised in the First Action, both in the First Case and in the Arbitration.

Bobs relies on Cardiff Equities, Inc. v. Superior Court (2008) 166 Cal.App.4th 1541, 1549-1550 in support of its arguments. In Cardiff, the parties entered into two contracts: one to form a limited partnership for the purpose developing real estate, and two, a personal guaranty to repay the investment in the limited partnership. The first agreement contained an arbitration clause, whereas the guaranty agreement did not.

Cardiff sued for breach of both of the agreements. O’Neel moved to compel arbitration, which was granted. Cardiff moved to file an amended complaint that asserted only those causes of action arising from the guaranty agreement (that were not subject to arbitration). Before the motion to amend was heard, and before arbitration had commenced, Cardiff dismissed the action without prejudice and then filed a new lawsuit, with a complaint that matched the proposed amended complaint in the first action.

The two cases were then related, and O’Neel moved to stay the second case, pending the arbitration proceeding, which the court granted. The Court of Appeal reversed, on the basis that Cardiff’s dismissal of the first action deprived the court of jurisdiction to stay the second action on the basis of an arbitration order in the first case.

The Court of Appeal emphasized that O’Neel had the absolute right to abandon the arbitrable claims and pursue only those claims that were not arbitrable, and therefore the stay, which was an attempt to force O’Neel to arbitrate, was inappropriate.

The Court agrees with Bobs that Cardiff controls here. The first action is primarily a dispute among joint real estate business venturers who agreed to arbitrate their dispute in accordance with the arbitration agreements in the various LLC agreements. As part of that dispute, third party lender, Bobs, joined Barry Shy, one of the joint venturers, in alleging a writ claim against Draz to have Draz either produce the signed guaranty or to sign the guaranty, on the loan from Bobs. Although Bobs is not a party to any of the underlying LLC agreements, and therefore not subject to any of the arbitration agreements contained therein, Bobs agreed to move that writ claim to the arbitration proceeding.

Bobs and Shy have since dismissed or requested dismissal of the writ claim in both the court and arbitration proceedings. Draz argues, however, that this case is distinguishable from Cardiff because of the fact that Draz asserted a cross-claim against Bobs in the arbitration proceeding for declaratory relief to cancel the guaranty as fraudulent before Bobs and Shy dismissed their writ claim.

In general, while a plaintiff has a right to abandon pursuit of the claims it has against a defendant, it cannot escape a defendant’s cross-claims against it by dismissing its own claims. (See Code Civ. Proc., § 581, subd. (i) [“No dismissal of an action may be made or entered, or both, under paragraph (1) of subdivision (b) where affirmative relief has been sought by the cross-complaint of a defendant[….]]) This is because “a cross-pleading creates an action distinct and separate from an initial pleading” so “[d]ismissal of the complaint, […] does not affect the independent existence of the cross-complaint or counterclaim.” (Bertero v. National General Corp. (1974) 13 Cal.3d 43, 52.)

However, “arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” (Knutsson v. KTLA, LLC (2014) 228 Cal.App.4th 1118, 1130.) Moreover, “[u]nless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator.” (Ibid.)

By the language of the stipulation, Bobs agreed to arbitrate the “dispute” as defined by the allegations in the complaint. In relevant part, in support of Bob’s claim for Draz to produce the guaranty, the complaint alleged:

· 62. On or about May 20, 2020, BOBS, LLC as Lender, and BHM as Borrower entered into a Loan Agreement in the sum of $2 Million. The Loan Agreement was signed on behalf of BHM by Michael Draz, Member of Vacation in Paradise, as a Member of Beverly Hills Mansion LLC. Among other things, the Loan Agreement States that:

The Note shall be further secured by a Continuing Guaranty executed and delivered to Lender concurrent with loan documents and executed by Michael Draz, an Individual and Eric Shy, an Individual; per the terms and conditions contained therein.

· 64. On or about May 20, 2020, BOBS, LLC as Lender, and BHABC as Borrower entered into a Loan Agreement in the sum of $1.635 Million. The BHABC Loan Agreement was signed on behalf of BHABC by Michael Draz. Among other things, the BHABC Loan Agreement states that:

The Note shall be further secured by a Continuing Guaranty executed and delivered to Lender concurrent with loan documents and executed by Michael Draz, an Individual and Amit Tidhar, Trustee of the BR Shy Irrevocable Trust[] per the terms and conditions contained therein….

· “Thus, a live and actual controversy exists between and among BHM, BHABC, BOBS, LLC, Draz, Vacation in Paradise, Amit Tidhar as Trustee of the BR Shy Irrevocable Trust, and Shy concerning the repayment of BHM’s loan from BOBS in the sum of $2 Million, under which Vacation in Paradise and Draz will owe $2 Million, and concerning the repayment of BHABC’s loan from BOBS in the sum of $1.635 Million, under which Vacation in Paradise and Draz will owe $1.635 Million.

(RJN Ex. 1, ¶¶ 62, 64, 66.) Exhibit A to the Complaint in this case evidences the $1.635 Million Loan Agreement between Bobs and BHABC.

The scope of the dispute Bobs agreed to arbitrate, simply involved a writ for Draz to produce a copy of the guaranty on the loans. But Draz’s cross-claim to cancel the guaranty for fraud exceeds the scope of the original “dispute.” Unless Bobs agrees to arbitrate that issue, which it appears Bobs does not, that claim is not properly arbitrable, and must be brought in a court proceeding instead. Therefore, Bobs is not bound to the arbitration proceedings by way of the cross-claim Draz asserted in arbitration. Similarly, the stipulation to arbitrate the writ also does not cover Bobs’ claims for breach of the loan agreement, and breach of the guaranty, which ripened after the stipulation was entered. (See Opp. at p. 2:15-20.)

Therefore, the Court denies Draz’s motion to compel Bobs’ claims to arbitration. Moreover, to the extent Draz seeks to assert a cross-claim against Bobs to cancel the guaranty, such claim exceeds the scope of the stipulation to arbitrate, and is therefore properly brought in a court proceeding.

Draz shall give notice of the Court’s ruling and file a proof of service of such.

Defendant Michael Draz (“Defendant” or “Draz”) demurs to Plaintiff Bobs LLC (“Plaintiff” or “Bobs”) entire complaint pursuant to Code of Civil Procedure, section 430.10, subdivision (c), on the basis that there is another action pending between the parties on the same, or related causes of action.

Draz also demurs to Bobs’ third cause of action for failure to state a cause of action under Code of Civil Procedure 430.10, subdivision (e), and for uncertainty under subdivision (f).

“It is black letter law that a demurrer tests the legal sufficiency of the allegations in a complaint.” (Lewis v. Safeway, Inc. (2015) 235 Cal.App.4th 385, 388.) In ruling on a demurrer, the court must “liberally construe[]” the allegations of the complaint. (Code Civ. Proc., § 452.) “This rule of liberal construction means that the reviewing court draws inferences favorable to the plaintiff, not the defendant.” (Perez v. Golden Empire Transit Dist. (2012) 209 Cal.App.4th 1228, 1238.)

“The pendency of another earlier action growing out of the same transaction and between the same parties is a ground for abatement of the second action.” (Leadford v. Leadford (1992) 6 Cal.App.4th 571, 574.) “To abate a subsequently filed action it must appear (1) that the causes of action and the issues in the two suits are substantially the same and (2) it is between the same parties as the former action and that these parties stand in the same relative position as plaintiff and defendant.” (Adolph v. Municipal Court of Los Angeles Judicial Dist. (1960) 181 Cal.App.2d 198, 201.)

Draz argues that because this case was already deemed related to 21SMCP00658, which is currently in arbitration proceedings, this case must be dismissed and Bobs must bring its claims in the arbitration proceedings. The Court disagrees.

As explained in the Court’s decision with respect to Draz’s motion to compel arbitration, although Bobs was a party to the prior case and arbitration proceeding at the time the cases were deemed related, because Bobs since dismissed its claim against Draz in the prior case and in the arbitration proceedings, it is no longer a party to either of those proceedings. That Draz has asserted a cross-claim against Bobs in the pending arbitration proceedings that exceeds the scope of the parties’ stipulation to arbitrate does not bind Bobs to the arbitration. Thus, there is currently no valid claim as to Bobs in either of those other proceedings.

At the time the two cases were previously deemed related, they involved two common parties (Bobs and Draz). The cases now involve one common party (Draz). The cases do involve the same series of transactions or occurrences – the earlier case involved Bobs seeking a writ for Draz to produce a copy of the signed guaranty, and this case involves Draz’s alleged subsequent breach of the loan agreement and guaranty. However, the primary focus of the claims in the arbitration proceeding is the breakdown, declaration of rights, and division of assets and liabilities among the various parties to the LLC agreements, which contain arbitration clauses. By contrast, this case focuses on Draz’s alleged breach of the loan agreement and guaranty to lender Bobs (a nonparty to those LLC agreements) that Draz allegedly executed on behalf of one of the LLC entities. Moreover, the causes of action Bobs now raises against Draz did not ripen until after the parties stipulated to arbitrate the dispute in the first case.

Thus, the claims in this case do not involve the same parties, as Bobs is no longer a party to 21SMCP00658 or the arbitration proceedings, nor do they involve the same or substantially identical issues of fact or law.

A demurrer for uncertainty will be sustained only where the pleading is so bad that the responding party cannot reasonably respond - i.e., he or she cannot reasonably determine what issues must be admitted or denied, or what claims are directed against him or her. (Khoury v. Maly’s of California (1993) 14 Cal.App.4th 612, 616.) Where a demurrer is made upon the ground of uncertainty, the demurrer must distinctly specify exactly how or why the pleading is uncertain, and where such uncertainty appears by reference to page and line numbers. (See Fenton v. Groveland Comm. Services Dist. (1982) 135 Cal.App.3d 797, 809.)

Here, the allegations in the complaint is not so vague or uncertain that Draz cannot reasonably determine what issues must be admitted or denied, or what claims are directed against him.

Therefore, the court overrules the demurrer to the third cause of action on the ground of uncertainty.

In the alternative, Defendant argues that the complaint fails to state a cause of action pursuant to Code of Civil Procedure, section 430.10, subdivision (e), as to the third cause of action for common counts because (1) plaintiff cannot recover on a quasi-contract theory where a contract exists between the parties; (2) the common counts are demurrable because the other causes of action are demurrable; and (3) the common counts are inconsistent with the allegations.

With respect to Defendant’s first argument, at the pleadings stage, a party may “plead in the alternative and make inconsistent allegations.” (Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1388.) Thus, the fact that Bobs has pled inconsistent causes of action for breach of the loan agreement and, in the alternative, common counts, is not a basis to sustain a demurrer.

With respect to Defendant’s second argument, the Court overrules the demurrer to the other causes of action on the basis that another action was pending, and Defendant has not demurred to the other causes of action on any other basis.

As for Defendant’s third argument, the third cause of action for common counts seeks (1) “money had and received by defendant for the use and benefit of plaintiff;” (2) “money lent by plaintiff to defendant at defendant’s request;” and “money paid, laid out, and expended to or for defendant at defendant’s special instance and request.”

“A cause of action is stated for money had and received if the defendant is indebted to the plaintiff in a certain sum ‘for money had and received by the defendant for the use of the plaintiff.” (Gutierrez v. Girardi (2011) 194 Cal.App.4th 925, 937.) This cause of action “lies wherever one person has received money which belongs to another, and which in equity and good conscience should be paid over to the latter.” (Ibid.) Because the “money lent” common count contemplates money that has been lent and not repaid, proof of a loan of money will generally not support a count for money had and received. (Jones v. Re-Mine Oil Co. (1941) 47 Cal.App.2d 832, 843.)

With respect to the common count for “money had and received,” Draz argues that because Plaintiff alleges it lent money to BHABC, there is no allegation that it disbursed the funds to Draz. The complaint alleges that Bobs lent money to BHABC, and BHABC failed to repay the loan. (Complaint ¶¶ BC-1 and BC-2.)

As set forth in the Third Cause of Action, the Court finds Draz’s contention to be incorrect. Bobs has alleged the requisite ultimate facts against Draz to withstand scrutiny at the pleading stage: Draz became indebted to Bobs within the last four years “for money had and received by defendant,” which includes Draz, “for the use and benefit of plaintiff,” for money lent by plaintiff to defendant at defendant’s request, and “for money paid, laid out, and expended to or for defendant at defendant’s special instance.” (See Complaint, Third Cause of Action.) [1]

Furthermore, the loan agreement attached to the complaint shows that Draz signed the loan agreement on behalf of BHABC. Thus, the common count for money had and received plausibly alleges that Bobs disbursed the funds meant for BHABC to Draz. Moreover, because the allegations indicate the loaned money was intended for BHABC, the allegations support a cause of action for “money had and received” as to Draz, notwithstanding that a loan is involved.

Draz also argues that the “money lent” and “money paid” common counts “are simply inconsistent with the allegation that Defendant was merely a guarantor of a loan made to BHABC LLC[.]” (Demurrer at p. 10:21-25.) To the contrary, because Draz signed the loan agreement on behalf of BHABC, the allegations support an inference that Draz was more involved and not “merely a guarantor” of the loan.

Therefore the Court overrules Defendant’s demurrer to the third cause of action.

Further, the Court orders Draz to file and serve an answer to the complaint on or before November 1, 2023.

Further, the Court sets a Case Management Conference on December 15, 2023 at 8:30 A.M. in Department 207. All parties and counsel shall comply with California Rules of Court, rules 3.722, et seq. regarding Initial and Further Case Management Conferences. In particular, all parties shall adhere to the Duty to Meet and Confer (Rule 3.724) and to the requirement to prepare and file Case Management Statements (Rule 3.725).

[1] Ultimate facts are those “constituting the cause of action” or those upon which liability depends, e.g., duty of care, breach of the duty and causation (damages). (See Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 550.) “To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff's proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872 [at pleading stage, plaintiff need not specify which of the defendant’s employees committed negligent acts or omissions].)

“[T]he term ultimate fact generally refers to a core fact, such as an essential element of a claim. Ultimate facts are distinguished from evidentiary facts and from legal conclusions.” (Central Valley General Hosp. v. Smith (2008) 162 Cal.App.4th 501, 513 [cleaned up]; see also Rodriguez v. Parivar, Inc. (2022) 83 Cal.App.5th 739, 750–751 [“The elements of a cause of action constitute the essential or ultimate facts in a civil case”].)

DEPARTMENT	207
HEARING DATE	October 4, 2023
CASE NUMBER	22STCV39004
MOTION	Motion to Compel Arbitration
MOVING PARTY	Defendant Michael Draz
OPPOSING PARTY	Plaintiff Bobs LLC

DEPARTMENT	207
HEARING DATE	October 4, 2023
CASE NUMBER	22STCV39004
MOTION	Demurrer
MOVING PARTY	Defendant Michael Draz
OPPOSING PARTY	Plaintiff Bobs LLC