Case Number: BC533669 Hearing Date: April 18, 2014 Dept: 34

Moving Party: Defendant 1601 N. Cahuenga Blvd LLC (“1601″); joinder by defendants Tosh Berman (“Berman”) and Jayde Nicole Gelette-Ivany (“Gelette-Ivany”), Sebastien Arseguel (“Arseguel”), and Gian-Paolo Veronese (“Veronese”) and Vero Enterprises (“Vero”); non-opposition filed by defendants Richard Heyman (“Heyman”), Heyman Holdings LLC (“Heyman Holdings”), Grant King (“King”), and Grant Companies LLC(“Grant”) (collectively “defendants”)

Resp. Party: Plaintiff Vigil Entertainment LLC (“plaintiff”)

The Court orders the claims against 1601, Berman, Gelette-Ivany, Veronese, Vero, Heyman Holdings, Grant, and Arsenguel – all signatories of the operating agreement – be submitted to arbitration.
The Court stays the pending court action as to the other Defendants.

Plaintiff’s Objections to Declaration of Paul Berra:

Objection
1 OVERRULED
2 OVERRULED
3 OVERRULED
4 SUSTAINED
5 SUSTAINED
6 OVERRULED

BACKGROUND:

Plaintiff commenced this action on 1/17/14 against defendants for: (1) breach of fiduciary duty; (2) fraudulent concealment; (3) conversion; (4) breach of contract; (5) usurption of corporate opportunities; (6) unfair competition; (7) accounting; (8) fraudulent inducement; and (9) negligent misrepresentation.

The action concerns defendant 1601, which was formed in July 2011 for the purpose of owning and operating a nightclub in Los Angeles. (Compl., ¶¶ 1, 27, Exh. A.) Plaintiff alleges that some of the defendants are members of 1601. (See id., ¶¶ 11-13, 16, 19-20, 22.) Defendants Cahuenga Restaurant LLC, Julian Cain, Heyman, and King are not alleged to be members. (See id., ¶¶ 14-15.) Plaintiff alleges that Heyman Holdings and Grant are alter egos of Heyman and King. (See id., ¶¶ 23, 25.) Plaintiff holds a 29% interest in 1601 and alleges that defendants induced plaintiff to invest in 1601 based on misrepresentations and concealment. (Id., ¶¶ 1, 7, 28-30.) Plaintiff accuses defendants of mismanaging 1601 and using it for their own financial benefits. (Id., ¶¶ 1-2, 4-6, 32.)

On 3/24/14, plaintiff filed an amendment to the complaint, substituting JNF Foundation Inc. and JN Hospitality Inc. as Doe defendant. These defendants do not appear to be members of 1601.

ANALYSIS:
“A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” (Cal. Code of Civ. Proc, §1281.) Section 1281.2 of the Code of Civil Procedure states in pertinent part:

On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such 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, unless it determines that: [¶] (a) The right to compel arbitration has been waived by the petitioner; or [¶] (b) Grounds exist for the revocation of the agreement.

(Cal. Code Civ. Proc., §. 1281.2.)

A proceeding to compel arbitration is in essence a suit in equity to compel specific performance of a contract. (Freeman v. State Farm Mutual Auto Insurance Co. (1975) 14 Cal.3d 473, 479.) Such enforcement may be sought by a party to the arbitration agreement. (Cal. Code Civ. Proc., § 1280, subd. (e)(1).)

The petition to compel arbitration functions as a motion and is to be heard in the manner of a motion, i.e., the facts are to be proven by affidavit or declaration and documentary evidence with oral testimony taken only in the court’s discretion. (Cal. Code Civ. Proc., §1290.2; Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413 414.) The petition to compel must set forth the provisions of the written agreement and the arbitration clause verbatim, or such provisions must be attached and incorporated by reference. (Cal. Rules of Court, rule 3.1330; see Condee v. Longwood Mgmt. Corp. (2001) 88 Cal.App.4th 215, 218 19.) This rule does not require the petitioner to authenticate the agreement or do anything more than allege its existence and attach a copy. (Ibid.) Once this is done, the burden shifts to the opposing party to demonstrate the falsity of the purported agreement. (Condee, supra, 88 Cal.App.4th at 218 219.)

In deciding a petition to compel arbitration, trial courts must first decide whether an enforceable arbitration agreement exists between the parties, and then determine the second gateway issue of whether the claims are covered within the scope of the agreement. (Omar v. Ralphs Grocer Co. (2004) 118 Cal.App.4th 955, 961.) “The petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence, and a party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense. In these summary proceedings, the trial court sits as a trier of fact, weighing all the affidavits, declarations, and other documentary evidence, as well as oral testimony received at the court’s discretion, to reach a final determination. No jury trial is available for a petition to compel arbitration.” (Engalla v. Permanente Medical Group, Inc.(2007) 15 Cal.4th 951, 972 [citations omitted].)

1. An Enforceable Arbitration Agreement Exists Covering Certain Defendants

Defendants point to the arbitration provision in the operating agreement for 1601, which provides:

The parties hereto agree that any controversy, claim or dispute that cannot be settled by discussions between the parties shall be finally settled by binding arbitration conducted by and through Judicial Arbitration and Mediation Services, Inc. (“JAMS”) in accordance with JAMS’ then effective rules and procedures. The arbitration shall be conducted in Los Angeles. The proceedings shall be conducted by JAMS by a single neutral and impartial arbitrator, selected in accordance with the rules and procedures of JAMS. Notwithstanding anything in this Section 9.10 to the contrary, in the event of such arbitration, the parties shall not conduct discovery in order to ensure a rapid resolution of the matter. The arbitrator’s award shall be final and binding on the parties, who specifically renounce any judicial review of the award, and agree that judgment on the award may be entered in any court having jurisdiction over the parties or their assets.

(Motion, Exh. A, p. 39, § 9.10.)

It is undisputed that plaintiff (formerly known as One Promotions LA LLC) is a signatory to the agreement. (See Motion, Exh. A, pp. 42-43.) The moving defendants were either signatories or otherwise agree to have the action submitted to arbitration. (See Non-Opposition of Heyman and King.) Defendant Matt Bendik did sign the operating agreement, but has not petitioned to compel arbitration or joined in the petition, and thus has waived his right to arbitrate. Defendants Cain and Cahuenga Restaurant LLC are not signatories to the agreement and have not submitted any response to the instant petition. The added defendants, JNF Foundation Inc. and JN Hospitality Inc., also do not appear to be signatories to the agreement.

This action is broadly worded such that it includes “any controversy, claim or dispute” between the parties to the agreement. There is no showing that this provision cannot apply to any of plaintiff’s causes of action.

2. 1601 Had Authorization to File the Instant Petition

Plaintiff argues that this petition is improper because it was not authorized by the management committee of 1601. P.J. Javaheri, plaintiff’s COO, declares that 1601 is managed by a management committee comprised of five members of 1601, including plaintiff, and that all five members must be present for a quorum. (Javaheri Decl., ¶ 3.) Javaheri declares that the management committee did not authorize 1601’s counsel to act in a litigation capacity or file the instant petition. (Ibid.)

Plaintiff fails to show that the filing of the instant petition required authorization by a quorum of the members. Javaheri acknowledges that 1601’s counsel was retained as corporate counsel prior to the filing of this action. (Javaheri Decl., ¶ 3.) The other four members of the management committee – Berman, Grant, Heyman Holdings, and Vero – have either joined or filed a non-opposition to this petition. (See Motion, Exh. A, p. 20, § 6.1(a)(i).) There is no showing that the member authorization was needed for litigation strategy. Further, although the Operating Agreement requires a unanimous vote of the Management Committee for certain actions to be taken, there is no indication that unanimity is required for decisions concerning litigation strategy. (See Exh. A, §§ 6.1, 6.2(b).) Therefore, the Court rejects the argument that this petition was not authorized.

3. Defendants have not Waived their Right to Arbitrate

Plaintiff argues that defendants Berman, Gelette-Ivany have waived their right to seek arbitration because their counsel has engaged in discovery in this action.

As noted in Berman v. Health Net (2000) 80 Cal.App.4th 1359,

While in general arbitration is a highly favored means of settling disputes, it is beyond dispute a trial court may deny a petition to compel arbitration if it finds the moving party has waived that right. . . . There is no single test for waiver of the right to compel arbitration, but waiver may be found where the party seeking arbitration has (1) previously taken steps inconsistent with an intent to invoke arbitration, (2) unreasonably delayed in seeking arbitration, or (3) acted in bad faith or with willful misconduct. While engaging in litigation of the matter may be inconsistent with an intent to invoke arbitration, the party who seeks to establish waiver must show that some prejudice has resulted from the other party’s delay in seeking arbitration.

(Id. at pp. 1363-1364 [internal citations and quotations omitted].)

In Saint Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, the California Supreme Court recognized the following factors in determining waiver:

“‘(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.'”

(Id. at p. 1196 [quoting Sobremonte v. Superior Court (1998) 61 Cal.App.4th 980, 992 (quoting Peterson v. Shearson/American Exp., Inc. (10th Cir.1988) 849 F.2d 464, 467-468)].)

“State law, like the FAA, reflects a strong policy favoring arbitration agreements and requires close judicial scrutiny of waiver claims…. Although a court may deny a petition to compel arbitration on the ground of waiver…, waivers are not to be lightly inferred and the party seeking to establish a waiver bears a heavy burden of proof.” (Saint Agnes Medical Center, supra, (31 Cal.4th at pp. 1195-1196.) A trial court’s determination or waiver of arbitration is upheld on appeal where supported by substantial evidence. (Sobremonte v. Sup. Ct. (1998) 61 Cal.App.4th 980, 991.)

Plaintiff presents evidence that Berman, Cain, and Gelette-Ivany served two sets of requests for production and one set of form interrogatories on plaintiff beginning on 2/28/14. (See Eagan Decl., ¶ 3, Exh. C.) Counsel for these defendants indicated that he wanted to move quickly to conduct discovery because he believes discovery is not permitted in the arbitration. (Id., ¶ 4.) As of the date of Plaintiff’s Opposition to the Petition, plaintiff had not yet responded to this discovery, although plaintiff’s counsel states that “it is anticipated that Vigil will respond or otherwise object to discovery in a timely manner, prior to the April 18, 2014 hearing on the Petition.” (See id., ¶ 3.)

This evidence is not sufficient to establish that Berman, Cain, and Gelette-Ivany waived their right to seek arbitration. Although the Court may consider whether a party has taken advantage of discovery procedures not available in arbitration, there is no showing that this conduct has prejudiced plaintiff in any way. There is no showing that plaintiff (or anyone else) has responded to discovery; plaintiff leaves open the possibility that it will object to the discovery request – perhaps on the ground that such discovery is not permitted in the arbitration sought by defendants – and will not provide any substantive responses. The defendants have not delayed in seeking arbitration or otherwise invoked the litigation machinery. There have been no hearings, trial dates have not been set, and the instant petition was filed less than six weeks after the complaint was filed. (See Berra Decl. [reply], ¶ 2.)

4. Under CCP § 1281.2, the Court will Stay the Case Pending Arbitration

Plaintiff argues that the Court should deny the petition in its discretion pursuant to Code of Civil Procedure section 1281.2. A court may deny a petition to compel arbitration where a party to an arbitration agreement is also a party to a pending court action with third parties, 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. (Code Civ. Proc., § 1281.2(c); Best Interiors, Inc. v. Millie & Severson, Inc. (2008) 161 Cal.App.4th 1320, 1329; Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 383, 394.)

Plaintiff is correct that Heyman and King are not individually parties to the agreement. The mere fact that these defendants have consented to arbitrate the dispute against them is not sufficient for the court to compel Plaintiff to arbitrate its disputes against these defendants. Generally, just signatories to arbitration agreements have standing to enforce them, with exceptions as to nonsignatory persons “who are agents or alter egos of a signatory party or intended third party beneficiaries of an arbitration agreement.” (Bouton v. USAA Casualty Ins. Co. (2008) 167 Cal.App.4th 412, 424. Accord Smith v. Microskills San Diego L.P. (2007) 153 Cal.App.4th 892, 896.) Heyman and King fail to provide any evidence that they are alter egos of signatory parties or intended third-party beneficiaries.

It is undisputed that Cain and Cahuenga Restaurant are not signatories to the arbitration agreement. The Court rejects 1601’s arguments that these parties may be compelled to participate in arbitration because they are agents of the signatory parties or third-party beneficiaries under the agreement. Arbitration agreements are binding upon third parties having an agency or similar relationship with the signatory party. (See Matthau v. Sup. Ct. (2007) 151 Cal.App.4th 593, 599.) Parties seeking to compel arbitration on the ground of agency have the burden to show an express or implied consent to have the contracting party act as an agent in agreeing to arbitration. (Warfield, v. Summerville Senior Living, Inc. (2007) 158 Cal.App.4th 443, 448.) 1601 provides no evidence showing that Cain or Cahuenga Restaurants were agents or third-party beneficiaries; instead, 1601 relies on the allegations in plaintiff’s complaint. Allegations in the unverified complaint are not sufficient to meet the burden of showing that Cain and Cahuenga Restaurant may be compelled to arbitration.

Therefore, the Court will not compel Plaintiff to arbitrate its claims against Heyman, King, Cain, and Cahuenga pursuant to the provision in the operating agreement to which they are not signatories. As indicated above, although Matt Bendik is a signatory to the Agreement, he has waived his right to arbitrate by not petitioning to compel arbitration. Further, neither of the two new Doe defendants, JNF Foundation and JN Hospitality Inc., are signatories to the Agreement or have petitioned to compel arbitration.

A determination that plaintiff is a party to a pending court action with third parties, arising out of the same transaction or series of related transactions, and that there is a possibility of conflicting rulings does not necessarily warrant a denial of a petition to compel arbitration. “If the court determines that a party to the arbitration is also a party to litigation in a pending court action or special proceeding with a third party as set forth under subdivision (c) herein, the 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.” (Code Civ. Proc., § 1281.2.)

Because plaintiff’s claims primarily pertain to 1601 and its members, the Court, in its discretion, will stay the pending court action and order the claims against the following signatories of the agreement be arbitrated: 1601, Berman, Gelette-Ivany, Veronese, Vero, Heyman Holdings, Grant, and Arsenguel. The case against the remaining defendants – Julian Cain, Matt Bendik, Cahuenga Restaurant LLC, Richard Heyman, Grant King, JNF Foundation and JN Hospitality Inc. – is stayed. The Court notes that at least some of the remaining defendants, including Richard Herman and Grant King – consent to arbitration. (See Non-Opposition to Petition.) Should plaintiff and some or all of the other defendants stipulate that they wish to participate in and be bound by the same arbitration, they may do so.