A-1 A-Lectrician, Inc. v. Commonwealth Reit

• Decision Date: 27 June 2013
• Docket Number: Civ.No. 12–00607 ACK–BMK.
• Citation: 943 F.Supp.2d 1073
• Parties: A–1 A–LECTRICIAN, INC.; H.Q. Incorporated, dba Aloha Products; GP Roadway Solutions, Inc. (formerly Sun Industries, Inc.); Hawaiian Island Tire Co., Inc., dba American Tire Company; Island Lighting Co., Inc.; Jack Endo Electric, Inc.; Mark Luria; Mega Construction, Inc.; Mutual Plumbing Supply Co., Inc.; Pacific Jobbers Warehouse, Inc.; Royal Contracting Co., Ltd.; The Solaray Corporation (formerly Inter–Island Solar Supply); Triton Marine Construction Corp.; United Truck Rentals and Equipment Leasing, Inc.; Walker–Moody Construction Co., Ltd.; and Ralph S. Inouye Co., Ltd., Movants, v. COMMONWEALTH REIT; Select Income Reit; Masters Properties LLC; Robin 1 Properties LLC; TSM Properties LLC; and Sir Reit, Respondents.
• Court: U.S. District Court — District of Hawaii

943 F.Supp.2d 1073

A–1 A–LECTRICIAN, INC.; H.Q. Incorporated, dba Aloha Products; GP Roadway Solutions, Inc. (formerly Sun Industries, Inc.); Hawaiian Island Tire Co., Inc., dba American Tire Company; Island Lighting Co., Inc.; Jack Endo Electric, Inc.; Mark Luria; Mega Construction, Inc.; Mutual Plumbing Supply Co., Inc.; Pacific Jobbers Warehouse, Inc.; Royal Contracting Co., Ltd.; The Solaray Corporation (formerly Inter–Island Solar Supply); Triton Marine Construction Corp.; United Truck Rentals and Equipment Leasing, Inc.; Walker–Moody Construction Co., Ltd.; and Ralph S. Inouye Co., Ltd., Movants,

v.COMMONWEALTH REIT; Select Income Reit; Masters Properties LLC; Robin 1 Properties LLC; TSM Properties LLC; and Sir Reit, Respondents.

Civ.No. 12–00607 ACK–BMK.

United States District Court,

D. Hawai‘i.

April 26, 2013.

Order Amending June 27, 2013.

Corey Y.S. Park, Law Offices Of Corey Y.S. Park, LLLC, Margery S. Bronster, Rex Y. Fujichaku, Bronster Hoshibata, Attorneys At Law, A Law Corporation, Honolulu, HI, for Movants.

Allon Kedem, Clifford M. Sloan, Skadden Arps Slate Meagher & Flom LLP, Washington, DC, Bruce D. Voss, David R. Major, Bays Lung Rose & Holma, Honolulu, HI, for Respondents.

ORDER STAYING PROCEEDINGS TO ALLOW FOR LIMITED DISCOVERY

ALAN C. KAY, Senior District Judge.

For the following reasons, the Court STAYS proceedings in this action and in the underlying arbitrations, so that the parties may undertake limited discovery as to whether the original parties to the leases either (1) intended to permit consolidation or (2) later amended their agreements to permit consolidation.

FACTUAL BACKGROUND

Lessees are sixteen small business tenants who have ten years remaining on separate long-term leases for lots in an Oahu industrial estate. (Motion To Compel(“MTC”) at 1.) The twenty-four leases (some Lessees rent more than one lot) are between Lessees and three landlords, Masters Properties LLC, Robin 1 Properties LLC, and TSM Properties LLC. (Motion To Dismiss (“MTD”) at 8; Reply re MTD at 2.) There are other tenants in the same industrial estate who are not a party to this action; Lessees comprise roughly one-third of the tenants on the estate. ( See MTC Ex. 39.)

Lessees (or their predecessors-in-interest) entered into the leases with the Damon Estate, the previous owner of the land, between November 1972 and April 1973 (except one lease which was executed in 1994). (MTC at 1.) CommonWealth REIT (then operating under a different name) bought the land from the Damon Estate in 2003. ( Id.) The interests in the various lots were later transferred to the three current landlords, Masters, Robin, and TSM, which are affiliates of CommonWealth. ( Id. at 6.) The three landlord companies have only one “member,” SIR REIT, which is a wholly-owned subsidiary of Select Income REIT. (Doc. No. 4 at 4.) Select is a majority-owned subsidiary of CommonWealth. ( Id. at 3.) For convenience, the Court will refer to Masters, Robin, TSM, CommonWealth, SIR, and Select as, collectively, “Lessors.”

The leases in question contain largely identical terms and conditions, including an identical provision regarding the periodic setting of new rents. ( See, e.g., MTC Ex. 1 at 12–13.) Rents are to be redetermined every ten years. ( Id. at 2.) If the parties fail to agree on the new rent, one party will choose one real estate appraiser, and the other party will choose another appraiser. ( Id. at 12.) Those two appraisers will then together choose a third appraiser, or will ask the state circuit court to choose the third appraiser if they cannot agree. ( Id. at 12–13.) The three appraisers will determine a “fair and reasonable” annual rent, in a decision which will be “final, conclusive and binding upon the parties.” ( Id. at 13.)

The rent for the final ten-year period, from 2013 to 2022, is now at issue. The parties' negotiations over the new rent have failed. (MTD at 9.) Lessees therefore initiated appraisal proceedings under each individual lease and are now engaged in twenty-four separate proceedings, though appraisals apparently have not yet begun. ( Id.; see MTC at Ex. 40.) Lessees seek to consolidate all twenty-four appraisals into one proceeding. (MTC at 2.) Lessors want the appraisals to proceed separately. (MTD at 14–15.) Lessees have presented evidence that during the 1980s and 1990s the Damon Estate negotiated rents collectively with a tenants' association, and that in 1992–1993 it engaged in a consolidated arbitration as to the rents for a neighboring industrial estate. ( See Opp'n to MTD, Decls. & Exs. 3–6.) Lessees assert that the evidence they have presented shows the requisite intent to allow consolidation, but have also requested the opportunity to conduct limited discovery regarding the intent of the original parties to the leases.

PROCEDURAL HISTORY

Lessees originally filed a motion to consolidate the appraisals in state court. ( See Doc. No. 1 & Exs.) On November 9, 2012, Lessors timely removed the action to this Court, invoking federal diversity jurisdiction. (Doc. No. 1.)

Lessors filed a Motion To Dismiss the motion to consolidate on December 17, 2012. (Doc. Nos. 25–33.) On December 19, 2012, Magistrate Judge Kurren issued an order noting that Lessees needed to re-file their motion to consolidate before this Court. (Doc. No. 36.) Lessees filed the instant Motion To Consolidate on December 26, 2012. (Doc. No. 37.) On January 31, 2012, Lessors filed an Opposition to the Motion To Consolidate, and Lessees filed an Opposition to the Motion To Dismiss. (Doc. Nos. 44 & 45.) The parties filed Replies in support of their respective motions on February 28, 2013. (Doc. Nos. 49 & 50.)

After examining the parties' briefs, the Court on April 3, 2013 issued an order requesting supplemental briefing from the parties as to whether the Court has authority to rule on the merits of consolidation, or whether that is a procedural question that the arbitrators must decide. (Doc. No. 52.) The parties filed their supplemental briefs on April 15, 2013. (Doc. Nos. 53 & 54.) A hearing on the parties' motions was held on April 23, 2013.

DISCUSSION

I. Motion To Dismiss

Technically, Lessors' Motion To Dismiss the motion to consolidate was procedurally improper. Federal Rule of Civil Procedure (“Rule”) 12(b) allows for motions to dismiss to assert defenses “to a claim for relief in any pleading.” Fed.R.Civ.P. 12(b) (emphasis added). A motion is not a pleading, Parker v. United States, 110 F.3d 678, 682 & n. 9 (9th Cir.1997); seeFed.R.Civ.P. 7(a), and so a motion to dismiss cannot be filed against a motion. Lessees did not raise this objection, however, and both sides merely used their briefing on the “motion to dismiss” to present further arguments on the merits of the motion to consolidate. The Court will therefore consider the “motion to dismiss” as a cross-motion for an order directing the arbitrations to proceed separately.

II. Does the FAA Apply to These Agreements?

The first question for the Court is whether the Federal Arbitration Act (“FAA”) governs this dispute, or whether this dispute is purely a question of state law. In re Van Dusen, 654 F.3d 838, 844 (9th Cir.2011) (holding that before contemplating a motion to compel arbitration the district court must determine whether the FAA applies to the agreement at issue).¹ The Court finds that the FAA applies here.

It is true that “[t]he FAA is not the only way into court for parties wanting review of [a dispute concerning arbitration]: they may contemplate enforcement under state statutory or common law, for example....” Hall St. Assocs., 552 U.S. at 590, 128 S.Ct. 1396. “The FAA ... do[es] not extend to all arbitration agreements. As Section 2 makes clear, the Act applies only to contracts ‘evidencing a transaction involving commerce,’ or arising from a ‘maritime transaction.’ ” In re Van Dusen, 654 F.3d at 842–43.

Nonetheless, the Supreme Court has held that “[b]ecause the [FAA] provides for ‘the enforcement of arbitration agreements within the full reach of the Commerce Clause,’ it is perfectly clear that the FAA encompasses a wider range of transactions than those actually ... ‘within the flow of interstate commerce.’ ” Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56, 123 S.Ct. 2037, 156 L.Ed.2d 46 (2003) (quoting Perry v. Thomas, 482 U.S. 483, 490, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987), and Allied–Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 273, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995)). Application of the FAA is not defeated because the individualtransactions did not affect interstate commerce; “Congress's Commerce Clause power ‘may be exercised in individual cases without showing any specific effect upon interstate commerce’ if in the aggregate the economic activity in question would represent ‘a general practice ... subject to federal control.’ ” Citizens Bank, 539 U.S. at 56–57, 123 S.Ct. 2037 (quoting Mandeville Is. Farms, Inc. v. Am. Crystal Sugar Co., 334 U.S. 219, 236, 68 S.Ct. 996, 92 L.Ed. 1328 (1948)).

A handful of courts have found that the FAA did not apply to an arbitration over a real estate transaction. See SI V, LLC v. FMC Corp., 223 F.Supp.2d 1059, 1062 (N.D.Cal.2002) (finding that FAA does not apply in an arbitration dispute over a real estate sale); Cecala v. Moore, 982 F.Supp. 609, 612 (N.D.Ill.1997) (finding FAA did not apply in arbitration dispute over representations made in residential real estate sale); Saneii v. Robards, 289 F.Supp.2d 855, 859 (W.D.Ky.2003) (finding FAA does not apply to single sale of residential real estate); see Garrison v. Palmas Del Mar Homeowners Ass'n, Inc., 538 F.Supp.2d 468, 475 (D.P.R.2008) (suggesting without deciding that the FAA did not apply to intrastate real estate transactions).

But all the above cases involved one-time real estate sales, not, as here, more than twenty multi-decade leases to commercial businesses. Cf. Hall Street Assocs., 552 U.S. at 590, 128 S.Ct. 1396 (in commercial landlord-tenant dispute, ...