2018-00239612-CU-BC

Michel J. Orradre vs. Roger P. Duke

Nature of Proceeding: Motion to Compel Arbitration

Filed By: Lewis, Dennis

Plaintiffs’ “motion to compel arbitration, define scope of arbitration, select arbitrator, stay the action pending arbitration and compel turnover of books and records” is ruled on as follows.

*** If oral argument is requested, the parties must at the time oral argument is requested notify the clerk and opposing counsel of the specific issues identified below will be addressed at the hearing. Counsel are also reminded that pursuant to local rules, only limited oral argument is permitted on law and motion matters. ***

The notice of motion does not provide notice of the court’s tentative ruling system, as required by Local Rule 1.06. Moving counsel is directed to contact opposing counsel and advise him/her of Local Rule 1.06 and the court’s tentative ruling procedure and the manner to request a hearing. If moving counsel is unable to contact opposing counsel prior to hearing, moving counsel is ordered to appear at the hearing in person or by telephone.

Plaintiffs paid only one $60 filing fee in connection with this motion, although it seeks at least two (2) different orders (i.e., to compel arbitration and related relief, and to compel turnover of books and records). A separate filing fee is required for each (Gov. Code §70617(f)) and thus, to the extent this motion seeks to compel turnover of books and records, it is dropped from calendar.

The response filed by defendant was not timely filed in accordance with Code of Civil

Procedure §1290.6 but it was nevertheless considered.

As Code of Civil Procedure §1290 et seq. does not expressly permit the filing of a “reply” brief such as the one filed by plaintiffs, it was not considered.

Both moving and opposing counsel failed to comply with CRC Rule 3.1110(b)(3)-(4).

Factual Background

This is an action for declaratory relief, injunctive relief and breach of fiduciary duty. Plaintiffs are members of plaintiff O Street Partners, LLC (“OSP”), which owns commercial real property on J Street in Sacramento. Defendant Roger Duke owns an interest in OSP and was its initial manager. Plaintiffs own the remaining interests of OSP.

Plaintiffs allege they discovered in May 2018 that Duke misappropriated almost

$40,000 in unauthorized “leasing commissions” and “construction management fees.” In June 2018 plaintiffs executed an Action by Written Consent (“Written Consent) and voted to replace Duke as manager of OSP pursuant to Section 6.1.1 of the Operating Agreement. Plaintiffs allege that Duke is withholding OSP’s rental income until he is reinstated as a signer on OSP’s bank account and thus, OSP is currently unable to pay its bills. Duke is also allegedly telling tenants that all future rental payments should be made directly to Duke and not OSP. Duke contends that the Written Consent has no legal force and effect because plaintiffs were required to comply with the removal provision set forth in Section 6.1.6, of the Operating Agreement.

Moving Papers. Plaintiffs contend that OSP’s Operating Agreement contains an arbitration clause which requires arbitration of all disputes “regarding the execution and interpretation of this Agreement” and that despite plaintiffs’ demands, Duke has not responded or scheduled arbitration before a mutually agreeable arbitrator. Plaintiffs also insist Duke has refused to provide produce OSP’s books and records for inspection.

Opposition. Duke maintains he has never objected to arbitration and was, in fact, the first to demand it. The opposition also asserts that plaintiffs’ request to have the court determine the scope of arbitration is unnecessary as the Operating Agreement sets forth the procedures for arbitration, specifically providing in Section 19.16(D) [“The Arbitrator shall schedule a pre-hearing conference to resolve procedural matters, arrange for the exchange of information, obtain stipulations and narrow the issues.”] and that Duke has proposed a number of potential arbitrators but no agreement has been reached to date. Finally, Duke asserts that he previously provided all of the books and records demanded by plaintiffs.

Analysis

Arbitration. Code of Civil Procedure §1281.2 provides 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.
(c) 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. …

Based on the moving and opposing papers, there is no dispute that the OSP’s Operating Agreement requires arbitration of all disputes “regarding the execution and interpretation of this Agreement” and it currently appears both sides desire to arbitrate. Accordingly, the court will and must pursuant to §1281.2 compel arbitration as specified in the Operating Agreement.

Curiously, although plaintiffs request the court to define the scope of arbitration, the moving papers appear to take no particular position as to what the “scope of arbitration” should be and the opposition does little more than suggest the arbitrator shall determine what the “scope of arbitration” will be. Regardless, the “scope of arbitration” required by OSP’s Operating Agreement is fundamentally a matter of interpretation of the Operating Agreement’s own provisions and Section 19.16 states in pertinent part:

ARBITRATION OF DISPUTES. In the event that any dispute shall arise regarding the interpretation or execution of this Agreement and in the event that the parties are unable to informally resolve such dispute within 30 days, the dispute shall be resolved by binding arbitration before a retired judge of the Superior Court, Appellate Court or Supreme Court of the State of California…

Based on this plain language, any dispute the parties may have regarding the “scope of arbitration” is to be resolved by the arbitrator, not by this court.

Stay Pending Completion of Arbitration. Code of Civil Procedure §1281.2 provides in pertinent part:

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.
(Underline added for emphasis.)

As the court has already determined that arbitration must be compelled, a stay of the present litigation must also be imposed until completion of the arbitration required pursuant to the Operating Agreement.

Selection of Arbitrator. Section 19.16(C) of the Operating Agreement states in pertinent part:

The parties shall attempt to agree on a retired judge to be the Arbitrator. If they are unable to agree, the parties shall simultaneously exchange the names of

three available retired judges and a judge appearing on both lists shall be selected. If there is no common available Arbitrator and the parties still cannot agree on an Arbitrator, the parties shall submit further lists until one is selected. If the parties have not selected the Arbitrator within 15 days following the responding party’s statement of its position, the presiding judge of the Superior Court of California in and for the County of Sacramento shall appoint the Arbitrator. …

Code of Civil Procedure §1281.2 provides in pertinent part:

If the arbitration agreement provides a method of appointing an arbitrator, that method shall be followed. … In the absence of an agreed method, or if the agreed method fails or for any reason cannot be followed…, the court, on petition of a party to the arbitration agreement, shall appoint the arbitrator.

When a petition is made to the court to appoint a neutral arbitrator, the court shall nominate five persons from lists of persons supplied jointly by the parties to the arbitration or obtained from a governmental agency concerned with arbitration or private disinterested association concerned with arbitration. The parties to the agreement who seek arbitration and against whom arbitration is sought may within five days of receipt of notice of the nominees from the court jointly select the arbitrator whether or not the arbitrator is among the nominees.

If the parties fail to select an arbitrator within the five-day period, the court shall appoint the arbitrator from the nominees.

Pursuant to §1281.2, the parties shall jointly submit no later than 1/11/2019 a list of at least five (5) but no more than ten (10) proposed arbitrators from which the court will nominate five candidates.

Turnover of Books and Records. As noted above, to the extent the present motion seeks to compel Duke’s turnover of OSP’s books and records, it is dropped from calendar because plaintiffs failed to pay the requisite $60 filing fee for obtaining an order for such relief.

Conclusion

For the reasons explained above, plaintiffs’ petition to compel arbitration, to stay proceedings pending completion of arbitration and to appoint arbitrator is GRANTED but plaintiffs’ request for an order compelling Duke to turnover of OSP’s books and records is DROPPED.

Plaintiffs’ latent request in the concluding paragraph of the moving points & authorities to compel Duke to advance one-half of the arbitrator’s fees is also DROPPED since this relief was not specified in the notice of motion.

This minute order is effective immediately. No formal order or other notice is required. (Code Civ. Proc. §1019.5; CRC Rule 3.1312.)