Judge Thomas D. Long, Case Number: 23STCV26971, Date: 2024-03-07 Tentative Ruling

On November 2, 2023, Plaintiff Jay Import Company, Inc. filed this action against Defendants Pixior, LLC and Seko Worldwide, LLC.

On November 6, 2023, the Court denied an ex parte application by Plaintiff to enforce an arbitrator’s temporary order made pursuant to Plaintiff’s request for emergency relief under JAMS Rule 2(C) on procedural grounds.

On November 7, 2023, Defendants filed their answer and on the same day, moved to compel arbitration and request for dismissal.

On December 8, 2023, Plaintiff filed an ADR-106 petition to confirm a “partial final” JAMS arbitration award issued by the Hon. Barry Baskin following an emergency hearing on November 13, 2023 (the “Partial Final Award” or “PFA”).

On December 26, 2023, Defendants filed their opposition to the petition. Plaintiff replied on December 29, 2023.

On February 23, 2024, Plaintiff filed a limited opposition to Defendants’ motion to compel arbitration.

This dispute arises out of a Warehousing, Distribution & E-Commerce Fulfilment Service Agreement (the “Agreement”) dated December 30, 2021 between Plaintiff and defendant Pixior, LLC. Defendant Seko Worldwide, LLC acquired Pixior in August 2022. Under this Agreement, Defendants were to render services to Plaintiff at a rate of $0.21 per cubic foot.

Section 27 of the Agreement states that the agreement between the Parties as set forth in the Agreement is the full agreement of the Parties and may not be amended without a written instrument signed by all the Parties.

In April 2022, Defendants sent a notice of rate increase from $0.21 per CU/FT to $0.35 per CU/FT. Pixior’s CFO disputed the increased charges. In or about September 2022, Pixior began charging an additional long-term storage charge for products stored in its warehouse for longer than 90 days. During the more than ten-year relationship between the Parties, until September 2022, Pixior never assessed any Long Term Storage Charges against Jay, despite Jay’s having stored goods at Pixior’s warehouse for over 90 days during that period.

Starting January 2023, Pixior began placing Plaintiff’s goods on shipping holds due to nonpayment of the additional charges that the parties had not agreed on in the Agreement.

On October 16, 2023, Defendants sent Plaintiff a Notice of Enforcement of Warehouseman’s Lien in the amount of $1,346,775.39. The Lien provided that failure to pay the stated amount by October 30, 2023 would entitle Defendants to sell Plaintiff’s goods that are stored in Defendants’ warehouse.

Plaintiff sought an emergency arbitration hearing, which occurred on October 27, 2023. On November 16, 2023, the arbitrator issued the Partial Final Award prohibiting Defendants from enforcing its purported lien during the pendency of arbitration, and requiring Defendants to allow Plaintiff to retrieve its goods from Defendants’ warehouse. In exchange, Plaintiff posted a $500,000 bond, which corresponds to Plaintiff’s estimate of the value of its goods in Defendants’ possession.

The Court takes judicial notice of the Declaration of Yassine Amallal dated October 26, 2023.

A party may petition the court to confirm, correct, or vacate an arbitration award, and a response to a petition may request that the court dismiss the petition or confirm, correct, or vacate the award. (Code Civ. Proc., §§ 1285, 1285.2.) The petition or response must set forth (1) the substance of or have attached a copy of the agreement to arbitrate, (2) the names of the arbitrators, and (3) the award and the written opinion of the arbitrators, or attach a copy. (Code Civ. Proc., §§ 1285.4, 1285.6.) The court must either confirm the award as made, correct the award and confirm it as corrected, vacate the award, or dismiss the proceeding. (Code Civ. Proc., § 1286.)

Under the California Arbitration Act (“CAA”), the court must vacate the award if it determines that (1) the award was procured by corruption, fraud, or other undue means; (2) there was corruption in any of the arbitrators; (3) the rights of the party were substantially prejudiced by misconduct of a neutral arbitrator; (4) the arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted; (5) the rights of the party were substantially prejudiced by the refusal of the arbitrators to postpone the hearing upon sufficient cause being shown therefor or by the refusal of the arbitrators to hear evidence material to the controversy or by other conduct of the arbitrators contrary to the provisions of this title; or (6) an arbitrator making the award failed to make required disclosures or failed to disqualify himself. (Code Civ. Proc., § 1286.2, subd. (a).)

Defendant opposes confirmation of the arbitration award on several grounds. First, Defendant argues that the PFA cannot be confirmed because it is not a proper “award” under CCP § 1283.4, which states that “[t]he award . . . shall include a determination of all the questions submitted to the arbitrators the decision of which is necessary in order to determine the controversy.” (Emphasis added.) Defendants argue that the PFA was re-styled from a temporary restraining order previously issued by the same emergency arbitrator. In reply, Plaintiff characterize the PFA as an incremental award that should be given deference because it represents the arbitrator’s determination of what issues are necessary to an ultimate decision. Hightower v. Superior Court (2001) 86 Cal.App.4th 1415 is on point. There, the court of appeal held that the arbitrator’s partial final award was valid. The court stated that an arbitrator can resolve certain areas of a dispute with a “partial final award” and reserve jurisdiction to later decide, by a “final award,” issues that will likely arise when the remedy is implemented. The court reasoned that the principle of arbitral finality did not preclude the arbitrator from making a final disposition of a submitted matter in more than one award. The “incremental award process is within the “broad scope” of an arbitrator's authority to fashion an appropriate remedy.” (Hightower, supra, at1419.)

An injunction was proper because Plaintiff was likely to prevail on the merits and would have suffered significant, if not irreparable harm

Secondly, Defendants argue that the petition must be denied because the arbitrator erred in finding that Plaintiff would be irreparably harmed by Defendants’ warehouse lien. In explaining the elements that must be established to issue a preliminary injunction, Defendants rely on San Francisco Newspaper Printing Co. v. Superior Court (1985) 170 Cal.App.3d 438. Defendants make an improper pin cite, and nowhere in the decision does the court lay out the four elements that Defendants allege must be met for a preliminary injunction. (Opp’n, 12:25-26.) Instead, that case stands for the position that a preliminary injunction must not issue “unless it is reasonably probable that the moving party will prevail on the merits.” (San Francisco, supra, at 442.) Here, the PFA is unequivocal that Plaintiff is likely to succeed on the merits. “Pixior’s unilateral, unreasonable, and unconscionable conduct by impeding Jay’s business operations is in violation of the Agreement and is unlawful. Pixior is effectively holding Jay’s goods, and therefore its business, for a ransom of $1.3 million.” (Petition, Attachment 8(c) [“PFA”], 10:1-3.)

Even though Defendants have not shown that the law requires a showing of irreparable harm, the arbitrator did find that “Jay will suffer irreparable harm due to the material infringement on Jay’s property rights should Respondents alienate Jay’s Stored Merchandise through foreclosure on the Warehouse Lien before Jay’s claims can be heard and resolved in arbitration. No amount of pecuniary compensation would afford adequate relief given Pixior is essentially holding Jay’s products and goods in its warehouse(s) for ransom and refusing to distribute and/or ship Jay Import’s products and goods. Jay therefore also suffers the difficult-to-calculate harm to Jay’s goodwill. Jay’s business relationships, including with Amazon, will irrevocably harmed by Respondents’ unlawful conduct.” (Id., 14:12-19.)

Defendants argue that the arbitrator impermissibly relied on the Declaration of Michael Jacobowitz in finding irreparable harm. However, Jacobowitz sufficiently laid foundation for his knowledge by declaring that he is the Vice President of Plaintiff Jay Import Company, Inc., and that he is familiar with Plaintiff’s business records in relation to Defendants. (Kaufman Decl., Exh. 3 [“Jacobowitz Decl.”], ¶¶1-2.) In finding irreparable harm to Plaintiff’s business, the TFA notes that “Pixior put Jay’s goods on hold a total of twelve times in 2023. Some of the shipping holds were more egregious and expensive for Jay than others. For instance, during the June shipping hold, Pixior turned away multiple trucks that had appointments at Pixior’s warehouse to pick up Jay’s goods and take them to Jay’s retail customers. . . . Pixior’s actions have rendered Jay unable to fulfill orders of its products and goods from third-party buyers on at least twelve different occasions.” (TFA, 6:18-25. Internal citations omitted.) There is proper evidentiary basis for the arbitrator’s order for a preliminary injunction.

Thirdly, Defendants argue that the petition must be denied because the arbitrator erred in finding that the parties had waived long-term storage fees. $773,231 of the total $1,291,776 in dispute as of September 2023 arises from Defendants’ imposition of long-term storage fees. Defendants argue that they were entitled to charge those fees, despite the parties’ course of dealing and performance up to that point, because the Agreement contained an enforceable anti-waiver clause. No-waiver clauses like the one in the Agreement are commonplace. California courts have often found that course of dealing and performance may modify a contract or estopp a party from deviating from established expectations. (See, e.g., Gould v. Corinthian Colleges, Inc. (2011) 192 Cal.App.4th 1176, holding that an antiwaiver provision itself may be waived; and Wind Dancer Production Group v. Walt Disney Pictures (2017) 10 Cal.App.5th 56, holding that the existence of an antiwaiver clause does not establish that, as a matter of law, it was unreasonable for the plaintiffs to rely on the defendant’s course of conduct.) The mere fact that the Agreement contained a no-waiver provision does not mean that PFA was erroneously decided.

Lastly, Defendants argue that the petition must be denied because the arbitrator exceeded his powers by ordering relief that Plaintiff did not seek in its complaint. Specifically, the operative complaint in the JAMS arbitration does not seek injunctive relief. Plaintiff does not dispute this. However, there is no requirement that a request for injunctive relief be included in a complaint. At the very least, Defendants do not point to any authority to the contrary. In fact, the plain meaning of CCP § 526 suggests that an injunction can be granted even if it is not specifically requested. Section 526 provides that an injunction may be granted when any part of the relief demanded consists in restraining the commission of the act complained of, as well as when “it appears by the complaint or affidavits that the commission or continuance of some act during the litigation would produce waste, or great or irreparable injury, to a party to the action.” (CCP § 526(a)(1)-(2).) Defendant cannot prevent confirmation of the PFA on this ground.

Accordingly, the PFA is indeed a binding arbitration award that can be confirmed.

Prior to Plaintiff’s petition to confirm the arbitration award. Defendants had moved to compel arbitration of Plaintiff’s claims and dismissal of the action.

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.) Under California law and the Federal Arbitration Act (“FAA”), an arbitration agreement may be invalid based upon grounds applicable to any contract, including unconscionability, fraud, duress, and public policy. (Sanchez v. Western Pizza Enterprises, Inc. (2009) 172 Cal.App.4th 154, 165-166.)

Plaintiff filed only a limited opposition. Plaintiff does not dispute that the parties entered into a contract that contains an arbitration provision and are litigating the same causes of action in a JAMS arbitration.

However, Plaintiff opposes on three limited grounds. First, Plaintiff opposes Defendants’ motion insofar as it is unnecessary, because the parties are in a JAMS arbitration already. Second, Plaintiff opposes Defendants’ motion insofar as they seek the dismissal of Plaintiff’s complaint rather than a stay pending completion of arbitration. Third, Plaintiff opposes Defendants’ motion to the extent it affects Plaintiff’s Petition to Confirm the Partial Final Award it received in the JAMS arbitration, which is calendared for the same day as the hearing on Defendants’ motion and discussed at length above.

Because the parties are already in arbitration, Defendants’ motion to compel arbitration is moot. As for Defendants’ request for dismissal of Plaintiff’s claims, Defendants’ fails to provide supporting authority. In fact, the cases Defendants cite in their moving papers support a stay of civil proceedings. (Motion, 8:1-24.)

The motion to compel arbitration award is DENIED. The Court orders a stay of proceedings pending arbitration.

Parties who intend to submit on this tentative must send an email to the Court at SMCDEPT48@lacourt.org indicating intention to submit. If all parties in the case submit on the tentative ruling, no appearances before the Court are required unless a companion hearing (for example, a Case Management Conference) is also on calendar.

Hon. Thomas D. Long

Judge of the Superior Court