Judge: Robert S. Draper, Case: 21STCV36801, Date: 2022-12-09 Tentative Ruling

Case Number: 21STCV36801    Hearing Date: December 9, 2022    Dept: 78

Superior Court of California 

County of Los Angeles 

Department 78 

Defendant Andrew M. Deutsch’s Motion to Compel Arbitration is GRANTED.

Defendants Benjamin A. Deutsch, Claudia Deutsch, Jeremy Deutsch and Valerie Deutsch’s Motion for Joinder is GRANTED.

All further proceedings are stayed pending arbitration.

FACTUAL BACKGROUND   

This is an action for breach of fiduciary duty. Plaintiff Lawrence M. Deutsch (“Lawrence”) brings this suit individually and derivatively on behalf of nominal defendant, Mercury Plastics, Inc. (“Mercury Plastics”). The Complaint alleges as follows.

Lawrence is a beneficial owner of shares of Mercury Plastics. (Compl. ¶ 14.) Defendants Benjamin Deutsch (“Benjamin”) and Andrew Teo (“Teo” and together with Benjamin, “Fiduciary Insiders”) are directors and officers of Mercury Plastics, and in that capacity have a fiduciary duty to Mercury Plastic’s shareholders. (Compl. ¶ 20.) Fiduciary Insiders changed Mercury Plastics’ bylaws contrary to California law such that Fiduciary Insiders became the only directors. (Compl. ¶ 22.)

An entity titled Mercury Realty (“Mercury Realty”) holds title to the real property on which Mercury Plastics’ Canadian facility (the “Edmonton Property”) is located. (Compl. ¶ 24.) Shares in Mercury Realty are owned 50% by Benjamin and Defendants Claudia Deutsch (“Claudia”), Jeremy Deutsch (“Jeremy”) and Valerie Deutsch (“Valerie”) and 50% by Defendants Teo, Alfred Teo, Jr. (“Alfred”), Mark Teo (“Mark”), Alan Teo (“Alan”) and Andrew Teo (“Andrew” and collectively, “Realty Owner Defendants”). Compl. ¶ 25.)

Plaintiff alleges that Mercury Plastics’ lease payments for the Edmonton Property are substantially higher than market rate. (Compl. ¶ 26.) Fiduciary Insiders entered into the lease agreement contrary to the interests of Mercury Plastics’ shareholders. (Compl. ¶ 28.) Realty Owner Defendants are directly benefitting from this breach of fiduciary duty. (Compl. ¶ 32.) In addition, Lawrence alleges various other violations of Fiduciary Insiders’ fiduciary duties. (Compl. ¶ 86.)

PROCEDURAL HISTORY 

On October 5, 2021, Lawrence filed the Complaint asserting eight causes of action:

1.    Breach of Fiduciary Duty;

2.    Usurpation of Corporate Opportunity;

3.    Aiding and Abetting Breach of Fiduciary Duty;

4.    Unjust Enrichment;

5.    Conversion;

6.    Breach of Fiduciary Duty;

7.    Intentional and Negligent Infliction of Emotional Distress; and,

8.    Declaratory Relief.

On November 3, 2022, Andrew filed the instant Motion to Compel Arbitration.

On November 10, 2022, Benjamin, Claudia, Jeremy and Valerie filed a Notice of Joinder and a Motion to Compel Arbitration.

No Opposition has been filed to the instant Motion to Compel Arbitration or the Joinder.

DISCUSSION 

                          I.          MOTION TO COMPEL ARBITRATION

Defendant Andrew M. Deutsch moves to compel arbitration pursuant to an arbitration provision (the “Arbitration Agreement”) in a Settlement Agreement (the “Settlement Agreement”) entered into between parties including Andrew, Benjamin, and Lawrence.

California law reflects a strong public policy in favor of arbitration as a relatively quick and inexpensive method for resolving disputes. To further that policy, California Code of Civil Procedure section 1281.2 requires a trial court to enforce a written arbitration agreement unless one of three limited exceptions applies. Those statutory exceptions arise where (1) a party waives the right to arbitration; (2) grounds exist for revoking the arbitration agreement; and (3) pending litigation with a third party creates the possibility of conflicting rulings on common factual or legal issues.” (Acquire II, Ltd. v. Colton Real Estate Group (2013) 213 Cal.App.4th 959, 967 [citations omitted]; Code Civ. Proc. § 1281.2.) 

In deciding a motion to compel arbitration, trial courts must decide first whether an enforceable arbitration agreement exists between the parties, and then determine the second gateway issue whether the claims are covered within the scope of the agreement. (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.) The party seeking arbitration has the “burden of proving the existence of a valid arbitration agreement by a preponderance of the evidence, while a party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense.” (Ruiz v. Moss Bros. Auto Group, Inc. (2014) 232 Cal.App.4th 836, 842.) 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.” (Id.) General principles of contract law govern whether parties have entered a binding agreement to arbitrate. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236; see also Winter v. Window Fashions Professions, Inc. (2008) 166 Cal.App.4th 943, 947.) 

A.   Enforceable Arbitration Agreement

Andrew moves to compel arbitration pursuant to an arbitration provision located in a Settlement Agreement the parties entered into when settling a related matter, Lazben Investment Co. v. Deutsch, Case No. BC661702. (Mockler Decl. ¶ 3.) Andrew attaches a copy of the relevant portions of the Settlement Agreement to Attorney Robert Mockler’s declaration. (Ex. A.)

Following the settlement of the Lazben Investment case, the parties arbitrated remaining issues. On Dercember 12, 2021, the parties entered into a term sheet (the “Term Sheet”) to settle arbitration. (Mockler Decl. ¶ 4.) The Term Sheet is attached to Mockler’s declaration. (Ex. B.) The term sheet also contains an arbitration provision.

The Settlement Agreement contains an Arbitration Agreement that reads, in relevant part:

10.14 Any dispute arising out of or relating to this Agreement, to the extent not specifically addressed herein, shall be . . . attempted to be resolved by mediation before Judge Fahey. The costs of mediation shall be borne by the Parties to the dispute. In the event the Parties cannot reach agreement on the disputed issue, then it shall be resolved by a binding arbitration, before a mutually agreeable arbitrator, which shall be completed within 30 days. If the parties cannot agree upon an arbitrator, Judge Fahey shall select an arbitrator. The Parties shall be entitled to conduct expedited discovery for such arbitration. A reasoned arbitration award shall be issued on the disputed issues within ten days of the close of the arbitration. (Mockler Decl., Ex. A at p. 15.)

Mercury Plastics is listed under the “Remaining Issues Subject to Mediation and Arbitration” header. (Ibid.)

The Settlement Agreement is signed by Andrew Deutsch, Benjamin Deutsch, and Lawrence Deutsch, and is dated January 15, 2020. (Ibid.)

By attaching a copy of the Arbitration Agreement to his moving papers, and because no Opposition has been filed, the Court finds that Andrew has met his burden of showing the existence of a valid and enforceable arbitration agreement.

B.   Applicability to the Instant Claim

As noted above, the Arbitration Agreement explicitly states that Mercury Plastics is a remaining issue subject to mediation and arbitration. (Mockler Decl., Ex. A at p. 15.) 

Upon review of the Complaint, the Court finds that all causes of action relate to the parties’ interest in and obligations to Mercury Plastics. Additionally, as Lawrence does not oppose this Motion, he concedes that the Arbitration Agreement applies.

Accordingly, Defendant Andrew M. Deutsch’s Motion to Compel Arbitration is GRANTED.

                        II.          JOINDER

Defendants Benjamin A. Deutsch, Claudia Deutsch, Jeremy Deutsch and Valerie Deutsch move to join Andrew’s Motion to Compel Arbitration.

As noted above, Benjamin is a signatory to the Arbitration Agreement upon which the Court granted Andrew’s Motion to Compel Arbitration. Accordingly, that same agreement is binding as to Benjamin.

Additionally, Movants argue that Claudia, Jeremy and Valerie may compel arbitration as non-signatories to the agreement pursuant to the doctrine of equitable estoppel.

When a petitioner seeks to compel arbitration as to a non-signatory to the arbitration agreement, there are six theories which may support the petition: “‘(a) incorporation by reference; (b) assumption; (c) agency; (d) veil-piercing or alter ego; (e) estoppel; and (f) third-party beneficiary . . . . [Citations.]” (Benaroya v. Willis (2018) 23 Cal.App.5th 462, 469.) 

Arbitration is required under the estoppel principle if the non-party has asserted claims that are “dependent upon, or inextricably intertwined with, the obligations” imposed by the agreement containing the arbitration clause. (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1239.) The test is whether the non-party “relies on the agreement” containing the arbitration provision “to establish its cause of action.” (Goldman v. KPMH, LLP (2009) 173 Cal.App.4th 209, 229-230.) 

Movants contend that the entirety of the allegations against Claudia, Jeremy and Valerie are derivative of the allegations against Benjamin. Movants note that the Complaint contains no independent allegations against Claudia, Jeremy and Valerie, and that their entire role in the alleged scheme was to support and benefit from Benjamin’s breach of his fiduciary duty.

Upon review of the Complaint, the Court finds Movants’ argument availing. The entirety of Lawrence’s allegations against Claudia, Jeremy and Valerie are inextricably intertwined with the allegations against Fiduciary Insiders. Additionally, as no Opposition has been filed, Lawrence concedes the argument.

Accordingly, Benjamin, Claudia, Jeremy and Valerie’s Motion for Joinder is GRANTED. All further proceedings are stayed pending arbitration.

The joining parties’ independent Motion to Compel Arbitration, currently scheduled for March 9, 2022, is taken OFF CALENDAR as moot.

DATED:  December 9, 2022

___________________________

Hon. Robert S. Draper 

Judge of the Superior Court