Tentative Ruling

Judge Pauline Maxwell
Department 6 SB-Anacapa
1100 Anacapa Street P.O. Box 21107 Santa Barbara, CA 93121-1107

CIVIL LAW & MOTION
Moss Jacobs vs Perry Adam Lieber
Case No: 19CV03259
Hearing Date: Wed Oct 23, 2019 9:30

Nature of Proceedings: Compel Arbitration and Stay Case

Tentative Ruling: The court grants defendants Perry Adam Lieber and Nora Betz’s motion to compel arbitration and stay this proceeding pending the outcome of the arbitration.

Background: On June 21, 2019, plaintiffs Moss Jacobs and Kathleen A. Jacobs, co-trustees of the Moss Jacobs Living Trust, filed their complaint against defendants Perry Adam Lieber and Nora Betz, co-trustees of the Lieber Family Revocable Trust. In their first amended complaint, plaintiffs allege:

Plaintiffs and defendants are tenants in common of real property at 1367 Danielson Road in Santa Barbara. [FAC ¶4] On September 19, 2014, they entered into a written Co-Ownership Agreement (“COA”) setting forth their respective rights and duties. [FAC ¶5, Exhibit A] (Exhibit A is attached to the original complaint but not the FAC, which supersedes the original complaint, which has ceased “to have any effect either as a pleading or as a basis for judgment.” State Comp. Ins. Fund v. Superior Court, 184 Cal.App.4th 1124, 1130-1131 (2010).) Defendants have failed to make payments to plaintiffs as required by the COA. [FAC ¶7(a)] Plaintiffs notified defendants that they have exercised their right under § 3.06 of the COA to reduce defendants’ ownership share and increase plaintiffs’ share by at least two percent. [FAC ¶7(b)] Defendants have threatened to file an action for partition but the right of first refusal in Article V of the agreement constitutes waiver of any right to partition. [FAC ¶7(d)]

The causes of action in the FAC are 1) declaratory relief on contract, 2) quiet title (to the two percent interest), and 3) intrusion into private affairs (by installation of cameras).

Motion: Defendants move to compel binding arbitration and stay the matter pending arbitration. Plaintiff opposes the motion.

CCP § 1281.2 provides that, upon petition of a party alleging the existence of a written agreement to arbitrate a controversy, and that a party thereto refuses to arbitrate the controversy, the court shall order the parties to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists. Arbitration is a matter of contract, and a party cannot be required to submit to arbitration any dispute which he has not agreed to submit. Metters, v. Ralphs Grocery Co. (2008) 161 Cal.App.4th 696, 701.

COA § 6.01 provides:

In the event any default in the terms hereof, or in the event that any dispute arises between the Owners relating to the Property, the Owners shall attempt to resolve the controversy or the default by mediation, the costs of which shall be split equally by the Owners. However, if the dispute is not resolved within fourteen (14) days after it has been submitted to mediation it shall then be resolved by submittal to binding arbitration by a single arbitrator in Santa Barbara, CA pursuant to the rules of the American Arbitration Association as they exist at such time . The cost of any such arbitration, including arbitrator’s fees and the legal fees incurred by the prevailing party, shall be paid exclusively by the non-prevailing party.

1. Mediation as a Condition Precedent to Arbitration: Plaintiffs oppose the motion, in part, because it is not ripe as defendants have refused to mediate. Defendants say they were willing to mediate all disputes but plaintiffs only agreed to mediate whether defendants owed them any money. The court will examine the correspondence between the parties’ attorneys (Exhibits 1 and 2 to the motion).

On the day he filed the complaint, June 21, plaintiffs’ counsel, Mr. Scafide, asked defendants’ counsel, Mr. Forouzandeh, if he would accept service. That same day, Mr. Forouzandeh responded that he would accept service and noted that plaintiffs failed to mediate the dispute regarding amounts allegedly owed and the ownership percentage adjustment. He said, if Scafide failed to amend the complaint to limit it to claims not covered by the ADR language of the COA, such as declaratory relief on the purported waiver of partition, he would bring a motion to compel arbitration.

Later that day, Scafide responded that he had offered a mediator and Forouzandeh refused. Four minutes later, Forouzandeh responded, saying he had responded to Scafide, rejecting the proposed mediator and proposing two others, which Scafide rejected without providing alternates. Forouzandeh reiterated his position that any claims for reimbursement and any claims for adjustment of the ownership interest are subject to mediation and arbitration. Scafide responded one minute later, saying, “No, the document says all issues will be arbitrated. You said that was wrong. Let the court tell us.”

Nearly four weeks later, on July 17 at 8:18 p.m., Scafide wrote an email asking what issues Forouzandeh wanted to mediate. The next morning, Forouzandeh mentioned three issues: claims of money owed, claim of percentage interest increase, and whether third party offer provided satisfied the right to first refusal clause of the agreement. He offered to mediate a potential buyout, though he said that was not subject to the mediation or arbitration clause. Scafide responded minutes later: “While I don’t want to waste time in mediation (I.e., if we are there, we are open to discussing many things) I believe the only issue that is ripe is issue 1. With that, we are willing to mediate issue 1 with Judge Reinert, without prejudicing my clients’ position on any matter.”

Plaintiffs assert that arbitration is not ripe because there has been no mediation and defendants refused to mediate. But the evidence shows that defendants did not refuse to mediate. Rather, there has been no mediation because plaintiffs’ counsel only agreed to mediate one of several issues. The court concludes that plaintiffs have waived the right to assert the failure to mediate, which they largely caused, as a bar to the motion to compel arbitration.

2. Scope of Arbitration: Plaintiffs contend that disputes are subject to arbitration but defaults are not. The first sentence of the ADR section says: “In the event any default in the terms hereof, or in the event that any dispute arises between the Owners relating to the Property, the Owners shall attempt to resolve the controversy or the default by mediation….” The second sentence says: “However, if the dispute is not resolved within fourteen (14) days after it has been submitted to mediation it shall then be resolved by submittal to binding arbitration….”

Plaintiffs argue that the second sentence carves out disputes “relating to the Property” for arbitration but not defaults. (Curiously, plaintiffs were only willing to mediate the claim for money owed, which apparently is a claim of default.)

The first cause of action is for declaratory relief on the COA. Plaintiffs want a declaration that defendants owe them $34,575 under the COA and that plaintiffs now own more than 50% of the property. The latter declaration is a dispute relating to the property and depends on the $34,575 owed, which is based on an alleged default in payment. It is impossible to separate the two disputed issues.

Defendants point out that, if plaintiffs’ position that defaults are not subject to arbitration is correct, any party could avoid arbitration of a dispute by claiming the dispute arises out of a default or breach.

It is a stretch to say the “intrusion into private affairs” third cause of action is a dispute related to the property. As pleaded, the cause of action arises from the installation of cameras at the property invading plaintiffs’ privacy on their portion of the property. But the gravamen of the cause of action is the alleged aiming of cameras so as to invade privacy and harass plaintiffs. Although these alleged acts occurred at the property, that is a personal cause of action rather than a property-related cause of action.

The court concludes that all disputes under the COA are disputes relating to the property. The court concludes that the parties agreed to arbitrate the issues raised in the first two causes of action but not the third.

3. Litigation with Third Parties: Plaintiffs say they intend to bring actions against third parties who have allegedly submitted fraudulent offers under the right of first refusal provisions of the COA.

The court need not compel arbitration when: “A party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact. For purposes of this section, a pending court action or special proceeding includes an action or proceeding initiated by the party refusing to arbitrate after the petition to compel arbitration has been filed, but on or before the date of the hearing on the petition.” CCP § 1281.2(c).

It does not appear that there is any third-party litigation filed prior to the hearing. Without those complaints before the court, it is impossible to determine if the three conditions of § 1281.2(c) are satisfied. Even if those actions are filed before the hearing, the court has four options if it determines the three conditions of § 1281.2(c) are satisfied. “[T]he court (1) may refuse to enforce the arbitration agreement and may order intervention or joinder of all parties in a single action or special proceeding; (2) may order intervention or joinder as to all or only certain issues; (3) 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 (4) may stay arbitration pending the outcome of the court action or special proceeding.”

The primary dispute is among plaintiffs and defendants. The validity of offers third parties have made are matters relevant to the current parties’ rights under the COA. Those matters are best addressed in arbitration among the current parties. The court would stay any third-party action pending the arbitration.

4. Stay: CCP § 1281.4 provides that, upon motion of a party, the court shall stay a proceeding pending completion of the arbitration. The court will stay the action as to the first two causes of action.

When confronted with litigants advancing both arbitrable and nonarbitrable claims, however, courts have discretion to stay nonarbitrable claims. Klay v. Pacificare Health Systems, Inc., 389 F.3d 1191, 1204 (11th Cir. 2004). It is not in the interests of justice to have the parties involved in two concurrent proceedings absent a compelling reason. The court will stay this entire proceeding pending the outcome of the arbitration.

5. Order: The court grants defendants Perry Adam Lieber and Nora Betz’s motion to compel arbitration and stay this proceeding pending the outcome of the arbitration.