Case Number: BC558134    Hearing Date: January 05, 2015    Dept: 34

Moving Party: Defendants Sky Zone LLC (“Sky Zone”), Sky Zone Franchise Group LLC (“Franchise Group”), RPSZ Construction LLC (“RPSZ”), Jeffrey Platt, Aron Shapiro, Richard Rothkopf, Brent Platt, and Tom Collinger (“defendants”)

Resp. Party: Plaintiff Richard Platt

Defendants’ motion to compel arbitration is GRANTED as to the claims related to Sky Zone and RPSZ only. The instant litigation as to the Franchise Group is stayed pending arbitration.

Plaintiff’s Objections to the Declaration of Yeffa;

Objection
1 OVERRULED
2 OVERRULED
3 OVERRULED
4 OVERRULED
5 OVERRULED
6 OVERRULED
7 OVERRULED
8 OVERRULED
9 OVERRULED
10 OVERRULED
11 OVERRULED
12 OVERRULED
13 OVERRULED

Defendants’ Objections to Declaration of Platt:

Objection SUSTAINED
1 OVERRULED
2 OVERRULED
3 OVERRULED
4 OVERRULED
5 OVERRULED
6 OVERRULED
7 OVERRULED
8 OVERRULED
9 OVERRULED
10 OVERRULED

BACKGROUND:

Plaintiff commenced this action on 9/18/14 against defendants for: (1) injunctive relief; (2) declaratory relief; (3) appointment of receiver; and (4) breach of fiduciary duty. Plaintiff alleges that the members of Sky Zone entered into a second amended operating agreement on 12/5/02 wherein plaintiff was designated as Sky Zone’s sole manager. (Compl., ¶ 15.) The operating agreement incorporates an option agreement, and plaintiff exercised the options and obtained special protections including: plaintiff is entitled to designate all members of Sky Zone’s board of directors, managers and officers; approval of the board and prior consultation with plaintiff is required for the operating agreement to be amended in a fashion that adversely affects plaintiff or his membership rights; and plaintiff is entitled to a right of first offer regarding any membership issue in Sky Zone. (Id., ¶ 17.) Plaintiff alleges that the operating agreement remains in effect and that he remains the sole manager of Sky Zone. (Id., ¶ 18.)

Franchise Group is also governed by its own operating agreement dated 12/20/08. (Compl., ¶ 20.) Plaintiff is one of two managers of Franchise Group and cannot be removed except upon his death, incapacity, or resignation, and no other person can become a manger without his approval. (Ibid.) Plaintiff alleges that the Franchise Group operating agreement remains in effect and plaintiff remains a manager. (Id., ¶ 21.) Plaintiff alleges that no lawful action may be taken by the managers of Franchise Group without his consent. (Id., ¶ 22.)

RPSZ is governed by its own operating agreement dated 11/24/08. (Compl., ¶ 23.) Plaintiff is the manager of RPSZ for as long as Sky Zone is a member, unless he resigns. (Ibid.) The RPSZ operating agreement remains in effect and plaintiff has not resigned as manager. (Id., ¶ 24.)

Plaintiff alleges that the individual defendants are all minority members of Sky Zone and Franchise Group. (Compl., ¶ 25.) Beginning in 2013, defendants submitted a bogus operating agreement for Franchise Group to the companies’ banker in an effort to remove plaintiff as a signatory on the companies’ bank accounts. (Id., ¶ 26.) In April 2014 the individual defendants purported to remove plaintiff as manager of Sky Zone and appoint themselves to a board of managers and a board of directors of Sky Zone. (Id., ¶ 27.) Plaintiff alleges that this conduct was not permitted pursuant to the Sky Zone operating agreement and option agreement. (Ibid.) The individual defendants invoked a draft third amended operating agreement which omitted the provisions giving plaintiff sole authority to designate the managers and directors, and plaintiff alleges that this agreement never became effective. (Ibid.) In April 2014 the individual defendants passed a resolution to form a new entity, Sky Zone Construction LLC, and sought to transfer all of Sky Zone’s membership interest in RPSZ to this new entity. (Id., ¶ 28.) The defendants then prepared a document under which Sky Zone Construction purported to remove plaintiff as manager of RPSZ. (Id., ¶ 29.) Plaintiff alleges that the attempted transfer of Sky Zone’s interest in RPSZ was in excess of defendants’ authority because they were not managers or directors of Sky Zone and the operating agreement and option agreement require plaintiff’s approval for any investment or transaction. (Id., ¶ 30.) Moreover, Sky Zone should have still had an interest because Sky Zone Construction was to be a wholly owned subsidiary of Sky Zone. (See id., ¶¶ 28, 31.) Defendants did not purport to remove plaintiff as manager of Franchise Group, but simply ignored his authority. (Id., ¶ 32.) Plaintiff alleges that defendants attempted to dilute plaintiff’s ownership of Sky Zone by issuing additional membership units in Sky Zone without affording plaintiff the rights of first offer to which he is entitled under the operating and option agreements. (Id., ¶ 35.) Plaintiff alleges that defendants refuse to recognize plaintiff’s termination of Rothkopf as a consultant for Sky Zone or the cancellation of membership interests granted to him. (Id., ¶ 36.) Plaintiff alleges that defendants’ attempts to usurp control over the companies appears to be intended to cover up fraudulent misconduct by defendants. (Id., ¶ 37.)

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.)

Defendants point to language in Sky Zone’s second amended operating agreement which provides:

12.3 Arbitration. Any dispute, claim or controversy among the parties arising out of or relating to this Agreement or the Articles shall be resolved in accordance with Section 16 of the Option Agreement, as amended.

(See Yeffa Decl., Exh. A, pp. 26.) The agreement appears to have been signed by plaintiff. (See id., Exh. A.) The agreement may have also been signed by defendants Aron Shapiro and Brent Platt. (See ibid.) Though defendants purport to provide section 16 of the option agreement, the option agreement does not appear to be included with defendants’ evidence. However, the option agreement is attached to plaintiff’s complaint. Section 16 states:

16. Dispute Resolution. If a dispute should arise under this Agreement which the parties are unable to resolve following thirty (30) days of good faith negotiation, such dispute shall be submitted to binding arbitration in Las Vegas, Nevada, under the then current rules of the American Arbitration Association (“AAA”). If the parties can agree upon one (1) neutral AAA arbitrator, the parties will use only that arbitrator for the proceedings. If, however, the parties cannot agree upon one (1) neutral arbitrator, then each of the parties shall pick an arbitrator and those two (2) arbitrators shall select a third neutral arbitrator, which third arbitrator shall conduct the arbitration. The decision of the arbitrator hall be final and binding upon all parties and may be entered into judgment by any court of competent jurisdiction.

(Compl., Exh. B, p. 7.) The option agreement was executed by Sky Zone, plaintiff, and Karin M. K. Winkelhorn. (Id., Exh. B, p. 13.) The purported third amended operating agreement contains similar language. (See Yeffa Decl., Exh. B, ¶ 12.3.)

The arbitration provision applies to “[a]ny dispute, claim or controversy among the parties arising out of or relating to this Agreement.” Plaintiff’s claims as to Sky Zone and RPSZ appear to arise out of the second amended operating agreement and option agreement. Plaintiff alleges that the individual defendants purported to remove plaintiff as the manager of Sky Zone and to appoint themselves as the board, but that this conduct has no effect because of the terms of the operating and option agreements. (See Compl., ¶ 27.) Plaintiff alleges that defendants attempted to transfer Sky Zone’s interests in RPSZ to another entity, but that this had no effect because it would violate the terms of the operating and option agreements. (See id., ¶¶ 28-30.) Plaintiff alleges that defendants attempted to issue additional membership units without affording plaintiff the rights of first offer, in violation of the agreements. (Id., ¶ 35.) Plaintiff alleges that defendants refuse to recognize that plaintiff terminated Rothkopf and canceled his membership interests, despite the fact that plaintiff had the authority to do so as manager of Sky Zone (authority which was given in the operating agreement). (Id., ¶ 36.)

However, the claims relating to Franchise Group do not appear to arise out of or relate to the Sky Zone operating agreement or option agreement. Instead, the claims relating to Franchise Group appear to only arise out of the Franchise Group operating agreement. (See Compl., ¶¶ 23, 24, 26, 32, 33.) There is no showing that the Franchise Group operating agreement contains an arbitration provision. Thus, the only claims that could be governed by the subject arbitration provision are those as to Sky Zone and RPSZ.

The Sky Zone agreements were not signed by all of the moving defendants. Defendants argue that they may enforce the arbitration agreement under the doctrine of equitable estoppel. “[U]nder both federal and California decisional authority, 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.” (Boucher v. Alliance Title Co., Inc. (2005) 127 Cal. App. 4th 262, 271.) “[T]he sine qua non for application of equitable estoppel as the basis for allowing a nonsignatory to enforce an arbitration clause is that the claims the plaintiff asserts against the nonsignatory must be dependent upon, or founded in and inextricably intertwined with, the underlying contractual obligations of the agreement containing the arbitration clause.” (Goldman v. KPMG LLP (2009) 173 Cal.App.4th 209, 217-218. See also Crowley Maritime Corp. v. Boston Old Colony Ins. Co. (2008) 158 Cal.App.4th 1061, 1071 [“A common theme in [equitable estoppel] cases is that the party seeking relief was suing on the contract itself, not a statute or some other basis outside the contract”].) As discussed above, plaintiff’s claims against the individual defendants as to Sky Zone and RPSZ are intimately founded in and intertwined with the obligations outlined in the Sky Zone operating agreement and option agreement. Therefore, the doctrine of equitable estoppel allows certain non-signatory defendants to enforce the arbitration provision.

However, defendants fail to establish that the claims against and related to Franchise Group are intimately founded in and intertwined with the Sky Zone agreements.

The Court finds that defendants (except for Franchise Group) may compel arbitration of plaintiff’s claims as to Sky Zone and RPSZ only. The claims against and related to Franchise Group may not be compelled to arbitration.

Courts have discretion to order arbitration among the parties to which the arbitration provision applies and to stay the court action pending the outcome of the arbitration. (See Code Civ. Proc., §1281.2(c).)

Defendants’ motion to compel arbitration is GRANTED as to the claims related to Sky Zone and RPSZ only. The instant litigation is stayed at to the Franchise Group, pending the outcome of the arbitration.

The Court sets a Status Conference re Arbitration on Oct. ____, 2015.