Judge Thomas D. Long, Case 22PSCV01377 2023-04-11 Tentative Ruling

On October 20, 2022, Plaintiff Envision WC Toy Auto, LLC dba Envision Toyota of West Covina (“Envision”) filed this action against Defendants UCNP II, LLC (“UCNP”), West Covina Motor Group LLC (“Trophy”), and Byron Moldo (erroneously sued as Byron Muldo).

On March 20, 2023, Envision filed a Notice of Partial Settlement with UCNP and Moldo.

On March 30, 2023, the Court approved a settlement via an ex parte application in the Receivership Action of Schrage v. Schrage, Case No. BC579623. The settlement agreement approved by the Court was between Moldo as Receiver, UCNP, and Trophy, among other parties.

Trophy’s request for judicial notice of the Complaint (Exhibit 1) is denied as irrelevant because the Complaint is already part of this case’s record.

Trophy’s request for judicial notice of the Declaration of Nasser Watar, filed in conjunction with Trophy’s Motion for Leave to Sue Receiver in Schrage v. Schrage et al., Case No. BC579623 (Exhibit 2), is denied. The Court could take judicial notice of the existence of the document, but not the truth of its contents. However, the document is also irrelevant to the Court’s decision.

When seeking to compel arbitration of a plaintiff’s claims, the defendant must allege the existence of an agreement to arbitrate. (Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 219.) The burden then shifts to the plaintiff to prove the falsity of the agreement. (Ibid.) After the Court determines that an agreement to arbitrate exists, it then considers objections to its enforceability. (Ibid.) The Court must grant a petition to compel arbitration unless the defendant has waived the right to compel arbitration or if there are grounds to revoke the arbitration agreement. (Ibid.; Code Civ. Proc., § 1281.2.)

Envision argues that Trophy has waived the right to compel arbitration by waiting four months to file the petition and by filing a cross-complaint. (Opposition at pp. 16-17.)

“‘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.” ’ [Citation.]” (St. Agnes Med. Ctr. v. PacifiCare of Cal. (2003) 31 Cal.4th 1187, 1196 (St. Agnes).) Recently, the United States Supreme Court resolved a circuit split and “held that under the FAA, courts may not ‘condition a waiver of the right to arbitrate on a showing of prejudice.’” (Davis v. Shiekh Shoes, LLC (2022) 84 Cal.App.5th 956, 965 (Davis), quoting Morgan v. Sundance, Inc. (2022) 142 S.Ct. 1708, 1713 (Morgan).) Accordingly, the St. Agnes factors “‘minus the prejudice requirement’ are unaffected by Morgan and remain proper considerations in the waiver inquiry.” (Davis, supra, 84 Cal.App.5th at p. 966.)

Envision filed this action on October 20, 2022. According to the filed Proof of Service, Trophy was served with the summons and complaint on October 31, 2022. Trophy’s first filing in this action was this petition to compel arbitration, filed on February 21, 2023. This delay from service to filing the petition was short. Trophy’s actions are consistent with its intention to arbitrate. The only prior proceedings were Envision’s repeated filing of a motion for preliminary injunction, so the litigation machinery was not substantially invoked. Additionally, Trophy’s Cross-Complaint (filed on February 22, 2023) is brought against UCNP and Moldo, who are not parties to the arbitration agreement at issue here. Accordingly, Trophy’s filing of a Cross-Complaint against them and failure to ask for a stay does not affect Trophy’s right to arbitrate under its agreement with Envision.

After consideration of all the St. Agnes factors, the Court concludes that Trophy has not waived its right to compel arbitration.

B. The Relation of This Case and the Receivership Action Does Not Affect Rights Regarding Arbitration.

According to Envision, the Court “has already found that the issues raised by Envision’s Complaint should be addressed in the Receivership Court,” and Trophy has waived its ability to compel arbitration by not objecting to the Court relating this case with the Receivership Action. (Opposition at pp. 17-18.) This is not an accurate characterization of events. On February 23, 2023, the Court did deem this action and the Receivership Action related. However, that does not transfer the claims here into the Receivership Action or require that the issues be addressed in the Receivership Action. The actions remain separate; relation of cases is for the convenience of the Court and the parties when cases involve the same parties or claims, arise from substantially similar transactions, involve the same property, or otherwise may require substantial duplication of judicial resources if heard by different judges. (See California Rules of Court, rule 3.300(a).) The relation of the cases does not affect either party’s rights in this action.

Trophy seeks to arbitrate Envision’s claims against it pursuant to the Assignment. (See Petition at p. 3.) The Assignment contains a “DISPUTE RESOLUTION” section with provisions for resolution of any dispute that “arises out of or relates to this Agreement or any Related Agreement, the relationships that result from this Agreement or the breach of this Agreement or any Related Agreement.” (Complaint, Ex. B at p. 14, ¶ 9.1.) The parties “agree to submit the dispute to mediation prior to commencing arbitration. . . . If the parties do not resolve their dispute through mediation, they will submit the dispute for arbitration as discussed below. No party may commence or pursue arbitration until this non-binding mediation has been conducted and concluded.” (Complaint, Ex. B at p. 14, ¶ 9.1.) “If the parties are unable to resolve their dispute by mediation, after the unsuccessful conclusion of any such mediation, either party may submit the dispute to binding arbitration administered by JAMS under their applicable Arbitration Rules in Los Angeles County, California.” (Complaint, Ex. B at p. 14, ¶ 9.2.)

The Complaint’s fourth cause of action alleges that Trophy was unjustly enriched by its receipt of $6 million from Envision for the purchase of assets and assignment of the lease when Envision has not received the benefits of the lease assignment. (Complaint ¶ 74.) The seventh cause of action seeks declaratory relief and a declaratory judgment regarding the validity of the Assignment. (Complaint ¶ 97.) The Complaint’s other causes of action are not brought against Trophy. These claims arise out of or relate to the Assignment and fall within the scope of the “DISPUTE RESOLUTION” section and related mediation and arbitration provisions.

Envision does not dispute that it is bound by the Assignment’s mediation and arbitration provisions or that its claims fall within their scope. Instead, Envision argues that the arbitration provision is optional, not mandatory.

Envision argues that “[t]he plain language of the Assignment demonstrates that the parties clearly intended for the arbitration provision in Section 9 to be permissive, as evidenced by the deliberate use of ‘may’ to address arbitration as an option for dispute resolution and use of ‘shall’ elsewhere in that section.” (Opposition at p. 12.) Envision primarily focuses on the following language: “If the parties are unable to resolve their dispute by mediation, after the unsuccessful conclusion of any such mediation, either party may submit the dispute to binding arbitration.” (Complaint, Ex. B at p. 14, ¶ 9.2.) Envision also looks at language prohibiting “[a]n arbitrator or Court” from ordering the non-prevailing party to pay the expenses of the prevailing party. (Opposition at pp. 13-14; see Complaint, Ex. B at pp. 15-16, ¶ 10.7.)

“Among its many connotations the word ‘may’ is sometimes used in granting to either of opposing parties a right, or privilege, with regard to the dispute.” (Service Employees Internat. Union, Local 18, AFL-CIO v. American Building Maintenance Co. (1972) 29 Cal.App.3d 356, 359.) Just as an appeal “may” be taken or an action “may” be brought unilaterally, “[a] similar meaning may reasonably attend the words, ‘the issue in dispute may be submitted to an impartial arbitrator.’” (Ibid.) “If that connotation were not employed the arbitration provision would serve little or no purpose, a disfavored result under the canon that contracts should be construed so as to make them operative.” (Pacific Gas & Electric Co. v. Superior Court (1993) 15 Cal.App.4th 576, 595, abrogated on other grounds by Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362.)

Therefore, the language here of “either party may submit the dispute to binding arbitration” makes arbitration mandatory after one of the parties has elected to arbitrate. The parties could have resolved their disputes in court (see Complaint, Ex. B at pp. 15-16, ¶ 10.7), but Trophy made a demand for arbitration on February 3, 2023. (Motion at p. 5; Eastmond Decl. ¶ 2.) Under the Assignment, the parties must now arbitrate their dispute.

E. The Court Will Stay Arbitration Due to the Possibility of Conflicting Rulings.

Envision argues that compelling arbitration would run the risk of conflicting rulings. (Opposition at pp. 14-15.)

A court must grant a motion to compel arbitration unless a party to the arbitration agreement is also a party to a pending court action with a third party arising out of the same transaction and there is a possibility of conflicting rulings on a common issue of law or fact. (Code Civ. Proc., § 1281.2, subd. (c).) If the court does determine that subdivision (c) applies, the court may order arbitration among the parties who have agreed to arbitration and stay the pending court action or special proceeding pending the outcome of the arbitration proceeding, or may stay arbitration pending the outcome of the court action. (Code Civ. Proc., § 1281.2.)

Although Envision has filed a Notice of Partial Settlement with UCNP and Moldo in this action, it has not yet dismissed its claims against them. According to the Notice, a dismissal will be filed by May 4, 2023. Therefore, those claims are still pending in this action.

In addition to being a defendant in Envision’s Complaint, Trophy has brought a Cross-Complaint against UCNP and Moldo, who are not parties to the arbitration agreement. Trophy’s Cross-Complaint alleges breach of contract by UCNP and Moldo preventing Envision (as Trophy’s assignee) from entering the property and withholding consent to the assignment. Trophy also seeks contractual indemnity and declaratory relief regarding, among other things, the validity of the assignment, UCNP’s failure to timely object to the assignment, and UCNP’s acceptance of rent from Envision. These claims arise out of the same transaction—the Assignment—and could create conflicting rulings on the validity of the Assignment.

Accordingly, based on the pending Complaint and Cross-Complaint, the Court determines that subdivision (c) applies. The pending settlements in this action and the Receivership Action may moot the potential for conflicting rulings. (See Reply at p. 4.) However, the other claims have not yet been dismissed from this action, and the possibility of conflict still exists.

Trophy’s cross-defendants are the Receiver and a receivership entity. The Court finds that it is appropriate for the Court, not an arbitrator, to first determine the validity of the Assignment and other issues relating to the Receivership and its entities. Therefore, the Court will grant the petition but stay arbitration pending the outcome of this action. (See Code Civ. Proc., § 1281.2.)

The motion to compel arbitration is GRANTED, and Envision’s claims against Trophy are ordered to arbitration. Arbitration is stayed pending a resolution of the other claims in this action.

Parties who intend to submit on this tentative must send an email to the Court at SMCDEPT48@lacourt.org indicating intention to submit. Parties intending to appear are encouraged to appear remotely and should be prepared to comply with Dept. 48’s new requirement that those attending court in person wear a surgical or N95 or KN95 mask.

Hon. Thomas D. Long

Judge of the Superior Court