Judge: Ronald F. Frank, Case: 22TRCP00392, Date: 2023-03-24 Tentative Ruling


Case Number: 22TRCP00392    Hearing Date: March 24, 2023    Dept: 8

Tentative Ruling 

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HEARING DATE:                 March 24, 2023¿ 

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CASE NUMBER:                  22TRCP00392

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CASE NAME:                        Eric Beckman, et al v. Erika Mansour, et al.

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MOVING PARTY:                Defendant, Erika Mansour

 

RESPONDING PARTY:       Plaintiffs, Eric Beckman, et al.

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TRIAL DATE:                        Not Set

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MOTION:¿                              (1) Motion to Compel Arbitration

                                                (2) Case Management Conference

 

Tentative Rulings:                  (1) GRANT in part and DENY in part.  The Court orders the parties to 1st Mediate with JAMS per ¶10.6(b) of the BIM Operating Agreement as to causes of action 1-4 and 11, which fall within the ambit of the BIM Operating Agreement’s ADR clauses between signatories to that Agreement.  Neither side has refused to mediate as the Court reads the exchanges of emails among counsel in the days just before this motion was filed.  Causes of action 5-10 appear to be reassertions of creditors claims filed by non-signatories in the currently pending probate case, and appear to be against the Decedent’s estate rather than against BIM.  The Court’s tentative is to STAY the 5th through 10th causes of action pending the conclusion of mediation and to have the parties report back to the Court for reconsideration of the equitable estoppel ground for potential arbitration of those causes of action after the JAMS mediation of the other five causes of action is completed. Deny attorney’s fees. 

                                                (2) The Court defers the CMC, pending completion of mediation of the five identified causes of action.  The parties are to contact Dept. IW-8 staff to schedule the CMC and, if so desired, the further hearing on the Motion to Compel Arbitration as to the remaining six causes of action within five court days of the completion of mediation.

 

I. BACKGROUND¿ 

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A.    Factual¿ 

 

On October 26, 2022, Plaintiffs, Eric Beckman, Carmelina Capital Management, LLC, Beckman-Mansour Partnership, Breakwater Management LP, Breakwater Credit Opportunities Fund II GP LP, Breakwater Acquisition Corp. I, Breakwater Equity Partners LP, Breakwater Credit Opportunities Fund II GP LP, Breakwater Acquisition Sponsor I LLC, Breakwater Investment Management LLC (“BIM”)(collectively, “Plaintiffs”) filed a motion against Defendant, Erika Mansour, as Executor of the Estate of Saif Mansour. The Complaint alleges 11 total causes of action, only five of which are listed on the caption page.  The first four causes of action are (1) Declaratory Relief; (2) Breach of Partnership Agreement; (3) Breach of the Duty of Loyalty and Duty of Care; and (4) Unjust Enrichment.  The remaining causes of action are each for Breach of Contract, asserted with respect to seven different entities who filed creditors claims in an active probate case In re Saif Mansour, Case No. 22STPB00003. 

 

Defendant filed this motion to enforce an arbitration clause. Defendant notes that when Saif Mansour passed away unexpectedly in October 2021, he left behind a wife (Defendant Erika Mansour) and two young children. Defendant also notes that her late husband also left behind several small but promising investment management businesses. Defendant contends that Plaintiff, Eric Beckman, who was the Decedent’s partner in one or more of those businesses, has now brought an action against Saif Mansour’s estate, naming Mrs. Mansour in her capacity as Executor of his estate.

 

First, Defendant contends that Beckman asserted a number of “specious” creditor claims against Saif’s estate, allegedly seeking to harass and intimidate the widow into selling Saif’s interest in the business to Beckman “on the cheap.” Second, Defendant argues that Beckman has laid claim to one of Saif’s other personal businesses. Defendant claims that specifically, Beckman, along with a number of entities he purports to control (collectively, “Plaintiffs”), sued Erika in an effort to commandeer interests and appropriate assets that purportedly never belonged to him.

 

Defendant argues that Beckman’s claims lack merit and are contradicted by the agreements governing those claims.  Defendant asserts that this lawsuit, filed in the court system rather than being arbitrated, is precluded by the operating agreement of the BIM partnership, a copy of which is attached to the Complaint.  Defendant submits that the agreement requires arbitration, which this Court should compel.

 

The Second Amended and Restated Operating Agreement of Breakwater Investment Management, LLC (“BIM Operating Agreement”) is attached as Exhibit A to the Complaint. Per that contract, BIM has only two members—Carmelina (Beckman’s wholly-owned personal investment company) and Breakwater Investment Group, Inc. (“BIG”). Defendant contends that Beckman alleges that this agreement “reflects” and governs the so-called Beckman-Mansour partnership.  The BIM Operating Agreement contains an arbitration provision:

 

“Any dispute, claim or controversy arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation, or validity thereof, including the determination of the scope or applicability of this agreement to arbitrate, shall be determined by arbitration in the City of Los Angeles, State of California before one arbitrator. The arbitration shall be administered by JAMS pursuant to its Streamlined Arbitration Rules and Procedures.”

 

(See id., Ex. A at ¶10.6(a).)  Subparagraph (b) of 10.6 mandates that disputes, controversies, and claims arising out of or relating to the BIM Operating Agreement shall first be submitted to mediation, also before JAMS, prior to any arbitration of the same.  While ¶10.6(b) does not repeat the litany of nouns as to the types of disputes, claims, or controversies that must be submitted to JAMS, the Court’s interpretation of the ADR provisions of the BIM Operating Agreement are read together and they both concern, in the Court’s view, assertions of alleged breach, termination, enforcement, interpretation, or the validity of the BIM Operating Agreement.

 

            Defendant now asserts that all counts in the Complaint arise under the umbrella of the purported Beckman-Mansour partnership, which is governed by the BIM Operating Agreement. As such, Defendant argues that all claims should be arbitrated. Plaintiffs disagree.  Plaintiffs assert that only the 11th cause of action for breach of contract as to Breakwater Investment Management, i.e., the creditor’s claim asserted in the probate case, is subject to the arbitration provision but that Defendants failed to satisfy the mediation condition precedent to arbitration.  Plaintiffs make numerous other assertions that the Court will not duplicate here but does discuss the material ones below. 

 

B. Procedural

 

On January 23, 2023, Defendant file a Motion to Compel Arbitration. On February 24, 2023, Plaintiffs filed an opposition. On March 17, 2023, Defendant filed a reply brief.

 

II. EVIDENTIARY OBJECTIONS

 

Defendant’s Objections to Plaintiff’s Declaration of Vivian L. Thoreen  

 

Sustain: None.

 

Overrule: All

 

 

 

 

III. ANALYSIS 

 

A.    Legal Standard 

The Federal Arbitration Act (“FAA”) states that “[a] written provision in any . . . contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (9 U.S.C. § 2.) California law incorporates many of the basic policy objectives contained in the Federal Arbitration Act, including a presumption in favor of arbitrability. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 971-72.)

California law states that “[o]n 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.) “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.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236.)

Pursuant to Code of Civil Procedure §1281.2, generally, on a petition to compel arbitration, the court must grant the petition unless it finds either (1) no written agreement to arbitrate exists; (2)¿the right to compel arbitration has been waived; (3) grounds exist for revocation of the agreement; or (4) litigation is pending that may render the arbitration unnecessary or create conflicting¿rulings on common issues. 

 

When seeking to compel arbitration, the initial burden lies with the moving party to demonstrate the existence of a valid arbitration agreement by preponderance of evidence.  (Ruiz v. Moss Bros. Auto Group (2014) 232 Cal.App.4th 836, 841-42; Gamboa v. Northeast Community Clinic (2021), 72 Cal.App.5th 158, 164-65.)  It is sufficient for the moving party to produce a copy of the arbitration agreement or set forth the agreement’s provisions.  (Gamboa, 72 Cal.App.5th at 165.)  The burden then shifts to the opposing party to prove by a preponderance of evidence any defense to enforcement of the contract or the arbitration clause.  (Ruiz, 232 Cal.App.4th at 842; Gamboa, 72 Cal.App.5th at 165.)  Subsequently, the moving party must establish with the preponderance of admissible evidence a valid arbitration agreement between the parties.  (Ibid.)  The trial court then weighs all the evidence submitted and uses its discretion to make a final determination.  (Ibid.)  “California law, ‘like [federal law], reflects a strong policy favoring arbitration agreements and requires close judicial scrutiny of waiver claims.’”  (Wagner Const. Co. v. Pacific Mechanical Corp. (2007) 41 Cal.4th 19, 31.) 

 

If the court orders arbitration, then the court shall stay the action until arbitration is completed.  (See Code Civ. Proc., § 1281.4.) 

 

 

B.     Discussion

 

          Here, the parties do not disagree that there was a valid arbitration clause. Instead, they argue about which entities the arbitration clause applies to, which causes of action are subject to arbitration, and they disagree about the effect of the mediation provision in Paragraph 10.6(b).             

 

          Defendant argues that all eleven causes of action are based on, or arise from, a purported partnership governed by the BIM Operating Agreement, which contains an arbitration clause. Defendant notes that Carmelina is a party to the agreement, and thus, Carmelina’s counts one through four, and Breakwater Investment Management’s cause of action eleven – the Private Equity Claims – are explicitly subject to arbitration. Defendant also notes that the Creditor’s claims – causes of action five though Eleven, all arise under the basic premise that the Decedent owes the Plaintiff claimholders money on account of the 50/50 Beckman-Mansour Partnership, as reflected in the BIM Operating Agreement.

 

          Defendant also asserts that all of the Plaintiffs, including those who were not formal signatories to the BIM Operating Agreement and arbitration clause, are nonetheless bound to arbitrate their claims under the principle of equitable estoppel and as a result of their status as third-party beneficiaries. Defendants first point to the Plaintiffs’ assertion that their entire relationship with Decedent (and now Erika) is governed by a “Beckman-Mansour Partnership” embodied in the BIM Operating Agreement.  Defendant contends that any of the business entity Plaintiffs that did not sign the BIM Operating Agreement still purport to benefit from it under the theories advanced by the Complaint. Thus, Defendant argues that as third-party beneficiaries, they are bound by that agreement.

 

             In opposition, Plaintiffs first argue that Defendant did not comply with the procedural requirements to move to compel arbitration. Plaintiffs assert that in BIM’s Operating Agreement, it provides that the parties are first required to submit any dispute, claim, or controversy arising out of the Operating Agreement to JAMS for mediation before submitting the same for arbitration. (Compl., Ex. A at § 10.6(b).) Plaintiffs note that the provision further provides that either party may commence mediation by providing to JAMS and the other party a written request for mediation. (Id.) Additionally, Plaintiffs assert that parties are only entitled to initiate arbitration through written demand for arbitration "following the initial mediation session or 45 days after the date of filing the written request for mediation, whichever occurs first." (Id.)

 

            Next, Plaintiffs argue that the BIM Operating agreement does not apply to other Breakwater entities or the partnership. Plaintiffs assert that Defendant denies that the arbitration clause in the BIM Operating Agreement applies to BEM and the DE Action because BEM is not a party to the BIM Operating Agreement and does not have an arbitration clause in its own operating documents. (Thoreen Decl., ¶ 17, Ex. 3.) As such, Plaintiffs argue that the Court should not apply the arbitration provisions in the BIM Operating Agreement to any other entities or parties who are not a party to the BIM Operating Agreement. In response to Defendant’s argument that all claims brought on behalf of Plaintiffs are subject to the BIM Operating Agreement, Plaintiff notes that this statement was not intended to mean that the BIM Operating Agreement directly governs all of the other Breakwater entities. Plaintiffs argue that this is further evidenced by the fact that all of the other Breakwater entities have their own operating documents akin to the BIM Operating Agreement.

 

             Plaintiffs contend that in her MSJ filed in the DE Action, Defendant admits an understanding of Plaintiffs' allegations concerning the BIM Operating Agreement and its application to the Partnership by stating that under Plaintiffs' theory, "the full scope of the 'partnership' is not memorialized in writing but instead is 'illustrat[ed]' in a written operating agreement governing a California LLC with a different name and a different purpose." (Thoreen Decl., ¶ 18, Ex. 4.)  Plaintiffs note that there is no dispute over the ownership or management of BIM as its Operating Agreement correctly reflects the terms of the controlling Partnership. However, Plaintiffs note that the eleventh cause of action in the Complaint, which is asserted on behalf of BIM, merely seeks to preserve its rights concerning a contingent obligation that may be owed by Decedent’s estate. As such, Plaintiffs contend that to the extent that the Court is inclined to enforce the arbitration clause, it should do so only in connection with the eleventh cause of action brought on behalf of BIM and it should further require Defendant to comply with the terms of the arbitration clause by making a written demand for mediation to BIM and JAMS.

 

            Plaintiffs also argue that Defendant should not be permitted to forum shop and take inconsistent positions regarding application of the BIM Arbitration Provision. Plaintiffs submit that Defendant asserts that the arbitration provisions of the BIM Operating Agreement apply only to the claims in the CA Complaint, but denies its application to the claims of the DE Action, despite the fact that both actions seek nearly identical relief as to the ownership and/or control of BEM. (Thoreen Decl., ¶ 9, Ex. 2 at ¶¶ 1, 37-48.) Based on this, Plaintiffs assert that even if this Court were to find that the arbitration provisions of the BIM Operating Agreement somehow apply to all Breakwater entities, the Partnership, Carmelina, and/or Mr. Beckman individually, there is a risk of inconsistent rulings if the parties are forced to submit to arbitration only the claims of the CA Complaint and not the claims pending in the DE Action.

 

      Claim by Claim Analysis

 

        The Court’s assessment is that causes of action 1-4 and 11 are subject to the BIM Operating Agreement’s ADR provisions.  The first cause of action for declaratory relief describes a dispute or controversy as to whether the Decedent’s private equity business of businesses were owned by Decedent in his individual capacity or by the partnership, including in Complaint ¶ 63, i.e., it calls for an interpretation of the ambit and inclusiveness of the BIM Operating Agreement.  The second cause of action is for breach of the partnership agreement, including in Complaint ¶ 68, which to the Court is a dispute, claim or controversy that arises out of or relates to the Operating Agreement or its claimed breach.  The third cause of action for breach of the duty of loyalty owed by one partner to, another including in Complaint ¶¶ 72 and 74, concerns a dispute over the interpretation of the BIM Operating Agreement, as does the fourth cause of action for unjust enrichment, including in Complaint ¶ 81.  The fifth through tenth causes of action are less clearly ones purportedly arising under the ADR provisions.   These claims are brought by non-signatories to the BIM Operating Agreement are reassertions of creditors’ claims filed in the probate case.  Claims against a decedent’s estate are ones which arguably fall within the exclusive jurisdiction of the probate courts and the Court tentatively denies the motion to compel arbitration or mediation of those claims for those reasons.  Even Plaintiff concedes that the eleventh cause of action is subject to the ADR provisions, and the Court concurs. 

 

      Because Paragraph 10.6(b) requires mediation before arbitration, a point asserted by the Opposition itself, the Court orders the parties into mediation of causes of action 1-4 and 11 before JAMS as contemplated by the BIM Operating Agreement before any arbitration.   The remaining six causes of action are ordered to be stayed pursuant to Code of Civil Procedure § 1281.2(d), both because the Court deems them to be non-arbitrable because the claimants are non-signatories to the ADR agreement in the Operating Agreement, and because in the exercise of the Court’s discretion staying those claims (other than the 11th cause of action) pending resolution of the creditors’ claims in the probate case will avoid the potential for inconsistent rulings.  The Court is willing to reconsider its stay order on those claims based on estoppel principles after the five arbitrable claims among the signatory parties are mediated. 

 

 

C.    Sanctions

 

Defendant argues that this Court should award her attorney’s fees and costs incurred in bringing this motion. Defendant contends that BIM Operating Agreement awards “costs, fees, and expenses, including attorneys; fees, to be paid by the party against whom the enforcement of it is ordered.

 

Plaintiffs argue that Defendant is not entitled to reimbursement of attorneys’ fees and costs for bringing this motion. Plaintiffs argue that Defendant did not properly comply with the procedural requirements of the arbitration provisions of BIM’s Operating Agreement as set forth above. As such, Plaintiffs argue that she should not be permitted to obtain reimbursement of attorneys’ fees. Additionally, Plaintiffs assert that Defendant only raised the arbitration provision one business day before she intended to file this motion in lieu of an Answer to the Complaint. Plaintiffs contend that Defendant has never requested that only the eleventh cause of action be submitted to mediation, and if necessary, Plaintiffs claim they would not object such a request.

 

The Court denies attorney’s fees and costs given the split ruling on the motion and in consideration of the totality of the circumstances.