Case Name: Kenneth Zamvil v. LouKen Enterprises of Palo Alto LLC, et al
Case Number: 114CV265235

Defendants’ Motion to Compel Arbitration and Request for Stay
I. Summary of Facts.

This case arises from a dispute over the dissolution of LouKen Enterprises of Palo Alto LLC, a California limited liability company (hereafter “LouKen LLC”). Plaintiff Kenneth Zamvil (hereafter “Plaintiff”) alleges that in the period prior to 1995 he has been in partnership with his father Louis Zamvil, now deceased, in purchasing and operating real property in Sonoma County. Through such partnership, they came to acquire a property known as 3200 Middlefield Road, Palo Alto, California (hereafter “3200 Middlefield Property”). Plaintiff had a 25% interest, and his father a 75% interest in ownership of the property.

Subsequently, Plaintiff and his father executed a document titled “Operating Agreement for LouKen Enterprises of Palo Alto LLC, a California limited liability company” (hereafter “Operating Agreement”), with an effective date of January 1, 1995. On or about August 9, 1995, articles of incorporation for LouKen LLC were filed with the California Secretary of State, naming Plaintiff and his father as the only two members. Through the Operating Agreement, Plaintiff and his father each contributed his respective ownership interest in the 3200 Middlefield Property to LouKen LLC. Thus, Plaintiff became a 25% shareholder, and his father a 75% shareholder of LouKen LLC. Each also retained legal title to the 3200 Middlefield Property, while LouKen LLC acquired equitable title.

The Operating Agreement made the father the sole manager of LouKen LLC, with all power and authority over the company and its affairs vested in him. The Operating Agreement also included an arbitration clause, whereby “any controversy or dispute arising out of this Agreement” was to be submitted to binding arbitration in Palo Alto, California. ( ¶13.10 of Operating Agreement.)

In his complaint, Plaintiff stated that on July 1, 2000, in response to his father’s request, he executed a quitclaim deed of what was then described as a 50% interest in the 3200 Middlefield Property. Two-and-one-half years later, full legal title to the 3200 Middlefield Property was recorded in the name of Louis Zamvil and his wife Stella Zamvil (Plaintiff’s parents). In or about 2007, legal title transferred again to a family trust known as the “Stella Zamvil Trust.” During all these transfers, equitable title remained in LouKen LLC, which owned and managed the property. Plaintiff and his father also remained to be the only members and owners of the company. Plaintiff maintains that his father at no time transferred the whole or any portion of his ownership or shares in LouKen LLC to the Stella Zamvil Trust or to any other person or entity.

Louis Zamvil died on or about May 29, 2012, leaving his wife Stella Zamvil and his other son Scott Zamvil as co-trustees of the Stella Zamvil Trust. When Stella Zamvil died almost a year later, Scott Zamvil became the sole successor trustee of the Stella Zamvil Trust. Acting as such, Scott Zamvil sold the 3200 Middlefield Property and realized some $2.45 million in net sale proceeds, which amount Plaintiff believes is still in the Stella Zamvil Trust and is not yet distributed to its beneficiaries.

Plaintiff also alleges that on or about September 18, 2013, Scott Zamvil falsely and fraudulently passed himself off to the Secretary of State as the personal representative of their late father (who was the manager of LouKen LLC), and executed a Certificate of Dissolution of LouKen LLC by falsely stating that their deceased father was the sole member of the company.

Plaintiff maintains that he was and still is a member of LouKen LLC, with a 50% interest in the company. He brought this action on his own behalf and as a derivative action on behalf of LouKen LLC, seeking declaratory relief, reinstatement of improperly dissolved corporation, imposition of constructive trust, and damages. His allegations and claims for relief are based on the Operative Agreement signed between him and his late father, a copy of which he attached to his complaint. The complaint mentions LouKen LLC and Scott Zamvil, individually and as trustee of the Stella Zamvil Trust, (collectively “Defendants”) as the named defendants.

Defendant Scott Zamvil, individually and as trustee of the Stella Zamvil Trust, filed an answer on July 18, 2014. Defendant LouKen LLC, by Scott Zamvil, as trustee of the Stella Zamvil Trust, also filed an answer on September 4, 2014.

The parties participated in mediation without success. Subsequently, Defendants demanded submission of the matter to a binding arbitration pursuant to the terms of the Operating Agreement. Having received no positive response from Plaintiff to their demand, Defendants filed the instant motion to compel arbitration and stay the action.
II. Legal Standards.

A party to a written arbitration agreement may petition the court for an order compelling arbitration if another party to the agreement refuses to arbitrate a controversy covered by the agreement. (See Code Civ. Proc., §§ 1281, 1281.2, 1290. Also see Jones v. Jacobson (2011) 195 Cal.App.4th 1, 15.) “The petitioner bears the burden of proving the existence of a valid arbitration agreement by a preponderance of the evidence.” (Jones, supra, 195 Cal.App.4th at p.15; citing Segal v. Silberstein (2007) 156 Cal.App.4th 627, 633.)

Subject to limited exceptions, only parties to an arbitration contract may enforce it or be required to arbitrate. (Nguyen v. Tran (2007) 157 CA4th 1032, 1036-1037.) “[W]hen a nonsignatory seeks to enforce an arbitration agreement/provision against a signatory [….] the nonsignatory bears the burden to establish he or she is a party to the arbitration agreement/provision covering the dispute.” (Jones, supra, 195 Cal.App.4th at p. 15; referencing Code Civ. Proc., § 1281.2.)

“If a court of competent jurisdiction, whether in this State or not, has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court in which such action or proceeding is pending shall, upon motion of a party to such action or proceeding, stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate or until such earlier time as the court specifies ….”(Code Civ. Proc., § 1281.4.)
III. Discussion.

Plaintiff opposes Defendants’ motion to compel arbitration both on procedural and substantive grounds. He states that on the same date he filed this civil action, he also filed a petition in the probate division of this Court under case number 114PR172641 (hereafter “Zamvil Probate Petition”). Plaintiff alleges that Defendants inexplicably failed to include the Zamvil Probate Petition in their motion to compel arbitration, and urges the Court to deny the motion in the interests of comity and judicial efficiency, and to avoid the possibility of disparate results before this Court and an arbitrator.

Substantively, Plaintiff argues that the dispute includes matters that are not arbitrable under the Operating Agreement’s arbitration clause, and that Defendant Scott Zamvil is not a party to the Operating Agreement or its arbitration clause. Otherwise, Plaintiff does not deny the existence of the Operating Agreement or the arbitration clause therein; nor doe he challenge the validity of the same on any ground for the invalidation of contracts. Instead, Plaintiff attached a copy of the Operating Agreement to his complaint and exclusively relied on its terms to support his allegations and claims for relief.
A. The Zamvil Probate Petition.

California Rules of Court (hereafter “CRC”) Rule 3.300(b) provides, “[w]henever a party in a civil action knows or learns that the action or proceeding is related to another action or
proceeding pending, dismissed, or disposed of by judgment in any state or federal court in California, the party must serve and file a Notice of Related Case.” Such notice must be served and filed as soon as possible, but no later than 15 days after the facts concerning the existence of related cases become known. (CRC 3.300(e).) Provided that all the related cases have been filed in one superior court, the court may then order the cases be related and assigned to a single judge or department. (CRC 3.300(h)(1).)

Here, Plaintiff acknowledges that he filed the two cases (114CV265235 and 114PR172641) on the same date, and represents that they are related. Defendants are also aware of the existence of the two cases. Neither side filed a notice of related cases as required by the rules of court. Neither side moved the Court to consolidate the two actions. The two actions are still proceeding separately in different divisions of the Court, and before two different judicial officers. Thus, denying the motion to compel arbitration because of the Zamvil Probate Petition will not by itself guarantee “the interests of comity, judicial efficiency and avoidance of disparate results,” as Plaintiff suggested.

Likewise, Defendants’ argument (in their reply memorandum) that two motions to compel are not required is unavailing. They did not provide any authority or argument supporting this assertion. Although Defendants did make an express request for orders compelling arbitration and stay of both the civil and probate actions, the probate action is not properly before this Court. As discussed above, neither party has moved the Court to relate or consolidate the two cases so that the same judicial officer could handle both. As a result, this Court cannot make an order in respect of a matter that is assigned to a different judicial officer in a different division of the Court.

Defendants’ reliance on Code Civ. Proc., §1281.4 is also unhelpful. A stay order under that provision can only be obtained upon motion of a party to the court before which the action or proceeding is pending. In the present case, unless the parties take a different course of action, stay of the Zamvil Probate Petition may only be obtained from the probate judge upon motion of a party to that case.

Nevertheless, the granting or denying of the motion to compel arbitration in the civil action is not going to change the risk of disparate results in the two cases, or help avoid judicial inefficiency. In view of the fact that the two actions are between the same parties and involving similar facts, the parties can still remedy the situation by taking appropriate steps towards bringing the two cases together, or staying one action until resolution of the other. Thus, existence of the Zamvil Probate Petition cannot be a bar to arbitration of the civil action.
B. The Issue of Arbitrability.

Plaintiff states in his opposition memorandum that his first cause of action seeks, of necessity, an order from this Court directing the California Secretary of State to set aside Scott Zamvil’s ultra vires and unauthorized cancellation of LouKen LLC’s corporate registration. He maintains that such relief is far beyond the confines of the dispute contemplated by the arbitration clause of the Operating Agreement. In addition, he argues that an arbitrator could not grant the relief sought since “private party arbitrators do not order around the Secretary of State of this State.”

In determining the scope of an arbitration clause, a court gives effect to the parties’ intentions, in light of the usual and ordinary meaning of the contractual language and the circumstances under which the agreement was made. (Victoria v. Superior Court (1985) 40 C3d 734, 744; RN Solution, Inc. v. Catholic Healthcare West (2008) 165 CA4th 1511, 1523.) Whether a contractual arbitration clause covers a particular dispute rests substantially on whether the clause in question is “broad” or “narrow.” (Bono v. David (2007) 147 CA4th 1055, 1067.)

As recited by Defendants in their moving papers, paragraph 3.10 of the Operating Agreement reads in relevant part: “Except as otherwise provided in this Agreement any controversy or dispute arising out of this agreement, the interpretation of any of the provisions hereof, or the action or inaction of any Member or Manager hereunder shall be submitted to arbitration in Palo Alto, California.” Plaintiff’s first cause of action concerns the subject matters of dissolution and winding up, which are addressed under Article X (p. 37-40) of the Operating Agreement. There is no representation by Plaintiff that these subject matters were excluded from application of the “broad” arbitration clause recited above. It was explained that the phrase “all disputes arising in connection with this agreement” includes “every dispute between the parties having a significant relationship to the contract and all disputes having their origin or genesis in the contract,” including antitrust, trade secrets, defamation, and misrepresentation claims. (Simula, Inc. v. Autoliv, Inc. (9th Cir. 1999) 175 F.3d 716, 720-725.)

As Defendants correctly pointed out in their reply memo, whether the arbitrator has the power to make an order on the Secretary of State is not an essential factor in determination of this motion; and this Court does not need to opine on that issue. If Plaintiff were to prevail in the arbitration, instead of issuing a direct order to the Secretary of State, the arbitrator could simply order the Defendants to take appropriate measures for reinstatement of the company. Even more, following issuance of an award in his favor, Plaintiff could seek entry of judgment by the Court. (See, for instance, Code Civ. Proc., §§ 1285, 1287.4, 1293.) “The judgment so entered has the same force and effect as, and is subject to all the provisions of law relating to, a judgment in a civil action of the same jurisdictional classification; and it may be enforced like any other judgment of the court in which it is entered, in an action of the same jurisdictional classification.” (Code Civ. Proc., § 1285, 1287.4.)

Thus, Plaintiff’s arguments regarding arbitrability are without merit.

C. Signatory/Non-signatory Status of Defendant Scott Zamvil.

Plaintiff contends that without being a signatory to the Operating Agreement or having no legal relationship with LouKen LLC, Scott Zamvil cannot seek to enforce the arbitration clause in the Operating Agreement.

Plaintiff acknowledges that Scott Zamvil is trustee of the Stella Zamvil Trust, which in turn is successor to Louis Zamvil, deceased member and sole manager of Louken LLC. Defendants also indicated that in March of 2014, the Court recognized Scott Zamvil as trustee of the Stella Zamvil Trust, as the sole successor to decedent Louis Zamvil, in the matter of the Stella Zamvil Family Trust, Santa Clara County Superior Court Case No. 114PR173927 by virtue of the decedent’s will and the terms of his trust.

As Defendants recited in their reply memorandum, paragraph 7.6 of the Operating Agreement provides in relevant part: “If a Member who is an individual dies … the Member’s executor, administrator, guardian, conservator, or other legal representative may exercise all of the Member’s rights for the purpose of selling the Member’s estate or administering the Member’s property, including any power the Member has under the Articles or this Agreement to give an assignee the right to become a Member….” Defendants also invoke California Corporations Code §§ 17707.01(c) and 17707.04, stating that the successor of a deceased member of an LLC shall be considered as a substituted member of the LLC for purposes of administering and settling the decedent’s estate.

Thus, Scott Zamvil, as trustee of the Stella Zamvil Trust, a successor of the estate of Louis Zamvil has substituted the now deceased member and sole manager of the LouKen LLC. The mere fact that Plaintiff sued Scott Zamvil both in his individual capacity and in his capacity as trustee in the same action does not make a difference. Scott Zamvil’s actions were purportedly taken in his capacity as trustee.

Even assuming that Scott Zamvil as an individual defendant did not have a signatory status, the doctrine of equitable estoppel allows him to invoke the arbitration clause in the Operating Agreement to compel Plaintiff to arbitration.

Under [the equitable estoppel] doctrine, a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are intimately founded in and intertwined with the underlying contract obligations This requirement comports with, and indeed derives from, the very purposes of the doctrine: to prevent a party from using the terms or obligations of an agreement as the basis for his claims against a nonsignatory, while at the same time refusing to arbitrate with the nonsignatory under another clause of that same agreement. (Jones, supra, 195 Cal.App.4th at p. 20. Internal citations and quotation marks omitted. See also Boucher v. Alliance Title Co., Inc. (2005) 127 CA4th 262, 269.)

In determining whether claims against the non-signatory are dependent upon, or inextricably bound up with, the obligations imposed by the contract, the Court is to examine the facts alleged in the complaints. (Molecular Analytical Systems v. Ciphergen Biosystems, Inc. (2010) 186 CA4th 696, 715, 111.) Here, Plaintiff did not only attach a copy of the Operating Agreement to his complaint, but also his entire action is based on the terms of the agreement. Thus, once he invoked the Operating Agreement and relied upon its terms to support his allegations and claims for relief, Plaintiff cannot refuse to abide by the arbitration clause contained in the same Operating Agreement.

D. Conclusion and Order.

Defendants’ motion to compel arbitration of the civil action (Case No. 114CV265235) is GRANTED. The proceedings before this Court are ordered STAYED pending conclusion of the arbitration process.

Defendants’ request for a similar order in respect of the probate action (Case No. 114PR172641) is DENIED without prejudice.

The Parties may wish to refer to Code of Civil Procedure Section 1281.6 et seq on guidelines for selection of an arbitrator, among other things. .