Bagnarol v. Bagnarol

• Court: California Court of Appeals
• Writing for the Court: TUCHER, P.J.
• Decision Date: 24 February 2023
• Docket Number: A163703
• Citation: Bagnarol v. Bagnarol, A163703 (Cal. App. Feb 24, 2023)
• Parties: FRANCIS BAGNAROL et al, Plaintiffs and Respondents, v. CAROLINA BAGNAROL, Defendant and Appellant.

FRANCIS BAGNAROL et al, Plaintiffs and Respondents, v. CAROLINA BAGNAROL, Defendant and Appellant.

A163703

California Court of Appeals, First District, Third Division

February 24, 2023

NOT TO BE PUBLISHED

San Mateo County Super. Ct. No. 18CIV03397

TUCHER, P.J.

Carolina Bagnarol appeals from a judgment confirming an arbitration award obtained against her and her sister, Nadine, by their brothers, Francis and Anthony, and sisters-in-law, Mary and Sheila.^[1] The arbitrator awarded plaintiffs substantial damages and equitable relief due to Carolina's mismanagement of the family's elder-care business. On appeal, Carolina contends the judgment is void because the trial court did not have jurisdiction to appoint an arbitrator or confirm the final arbitration award. We reject these contentions and affirm the judgment.

BACKGROUND

I. The Underlying Action

In June 2018, plaintiffs filed a complaint seeking damages and equitable relief for Carolina's mismanagement of A Family Affair Elder Care, LLC (the Company). According to the complaint, the Company was formed in 2008 to operate an elder-care business that had been established by the parents of the Bagnarol siblings, and was jointly owned by plaintiffs and defendants. The Company's care facilities were located at two properties in Redwood City: 826-828 Vera Avenue, and 817 Canyon Road. These properties were also jointly owned by the parties.

Plaintiffs alleged that Carolina was responsible for the day-to-day operations of the elder care business and mismanaged the Company by, among other things, failing to pay taxes and maintain business records, and paying substantial funds to herself without explanation or justification. Plaintiffs also alleged Carolina used Company assets to purchase and renovate a warehouse on Bayport Avenue in San Carlos, which she used as her personal residence without paying rent, and that Carolina permitted Nadine to live rent-free at the Vera facility. Carolina, Nadine, and the Company were named defendants, along with other entities that were later dismissed. Plaintiffs sought compensatory and punitive damages for breach of fiduciary duty and orders to dissolve the Company, partition through sale the Vera and Canyon properties, and compel an accounting.

In September 2018, plaintiffs filed a proof of service indicating that their summons and complaint were served on Carolina by substitute service. After several attempts to personally serve Carolina at the Bayport warehouse and the Canyon facility, the process server served the documents to a person at Canyon who appeared to be in charge of the office. Carolina, represented by attorney Alison Madden, moved to quash service, arguing that plaintiffs made an inadequate attempt to serve Carolina and that Canyon was not the Company's place of business. This, in spite of the fact that the Operating Agreement for the Company states the principal office is Canyon "or such other places as the Members from time to time designate." In October, Carolina's motion to quash was denied because her default had already been entered. In late November, the default was set aside pursuant to the parties' stipulation, which required defendants to respond to the complaint by November 26.

On November 26, 2018, defendants filed a petition to compel arbitration, which they amended the following month. (Code Civ. Proc., § 1281 et seq.; statutory references are to this code, unless otherwise indicated.) Defendants argued that arbitration was mandatory pursuant to an arbitration clause in the Company's Operating Agreement, a copy of which was attached to their petition. Plaintiffs opposed arbitration, and moved to disqualify Madden from representing the Company due to her conflicting interests. In January 2019, Madden was disqualified from representing the Company and the court sought further briefing on the motion to compel arbitration. On March 15, 2019, the court granted defendants' motion to compel and ordered the parties to participate in mediation prior to arbitration.^[2] On July 5, 2019, the State Bar Court of California issued an order suspending defendants' counsel, Ms. Madden, from practicing law, effective July 29. The suspension was precipitated by Madden's recent conviction for felony driving under the influence of alcohol causing injury. On August 22, Madden sent letters to defendants and plaintiffs' counsel, Mr. Wailes, giving formal notice of her suspension. (See Cal. Rules of Court, rule 9.20.) Both letters described Madden's suspension as a non-final "summarily-granted, interim suspension" from practicing law. Madden stated that she had filed a motion to vacate, delay or temporarily stay the effective date of the interim suspension so that she could continue to represent defendants, and that she would advise the parties of the outcome of that motion.

In her letter notice to the defendants, Madden stated that she had informed the State Bar court of the "faith and trust" that defendants had placed in her, and of defendants' "prior lack of success with other counsel." Madden expressed her hope that she would be allowed to continue to represent defendants in this case, but she also advised them that if her suspension was not vacated "replacement counsel must be obtained."

On August 21, 2019, the day before Madden served notices of her suspension, Madden sent a courtesy copy of the notice to Carolina via email along with a note indicating that she was required by law to send the notice and that she would discuss the matter with Carolina. Carolina responded that she was "totally freaking out" about the possibility of Madden's suspension. Carolina bristled at the prospect of losing her trusted counsel and at the cost of having to "educate another attorney." She ended her email by stating: "If you are denied the stay, we will have to wait until your return to practice."

On August 29, 2019, Madden filed the notices of her suspension in the superior court. That same day, the State Bar court granted Madden's motion to "stay and temporarily delay" her interim suspension, with modifications. In the interests of justice, the court vacated its July 2019 order to give defendants more time to obtain new counsel. The court ordered that Madden was to be placed back on interim suspension effective December 1, 2019.

On August 30, 2019, Madden notified plaintiffs' counsel and the parties' mediator that the State Bar had vacated her suspension, thus enabling her to continue to represent defendants. Mediation was completed on September 26, 2019. By that time, several months had passed since the court had granted defendants' petition to compel arbitration, and plaintiffs attributed the delay to defendants. The mediation was unsuccessful and the following day, plaintiffs filed a demand for arbitration before JAMS, which was served on Madden via email pursuant to the parties' agreement to accept email service.

On October 9, 2019, Madden submitted a letter to JAMS objecting to plaintiffs' arbitration demand on the grounds that (1) defendants had not agreed to use JAMS, and (2) a "derivative" investigation on behalf of the Company had not yet been completed. Plaintiffs viewed the matter as another delay tactic, and Wailes argued that defendants had no right to investigate their own conduct on behalf of the Company. Madden disagreed, sending at least 22 emails to Wailes and/or JAMS objecting to plaintiffs' arbitration demand, and she also informed plaintiffs of her intent to seek an ex parte order to prevent the arbitration from going forward. On October 28, JAMS rejected plaintiffs' arbitration demand due to Madden's objections.

Meanwhile on October 25, 2019, Madden began serving a custodial sentence for her DUI conviction. She did not give plaintiffs notice of her incarceration. On November 8, Wailes called Madden and left her a message that on November 12, plaintiffs would apply ex parte for an order establishing a procedure for appointing an arbitrator. Wailes also sent Madden an email to the same effect. He received no automatic response or other message indicating that Madden was unavailable due to her incarceration or for any other reason. According to Wailes, Madden never told him she was going to jail. On November 12, Wailes's request for an ex parte order was denied.

On November 15, 2019, plaintiffs filed a motion to appoint an arbitrator, which was served on Madden. In a declaration supporting the motion, Wailes stated that Madden had previously advised plaintiffs she wanted JAMS to perform the arbitration, but after the unsuccessful mediation, Madden objected to JAMS and would not agree to select an arbitrator. While this motion was pending, Madden's interim suspension went into effect on December 1. Madden did not give plaintiffs notice of this renewed suspension. According to Wailes, Madden never told him that she had been suspended again by the State Bar or that she no longer represented defendants in this case.

On January 15, 2020, the hearing on plaintiffs' motion to appoint an arbitrator was continued until February 13, pursuant to an uncontested tentative ruling. The court's minute order states: "According to a notice filed by Defendants' counsel on August 29, 2019, Defendants' counsel has been suspended. No substitute counsel has entered an appearance on behalf of Defendants. Accordingly, the matter is continued to provide Defendants an opportunity to obtain substitute counsel."

On February 6, 2020, plaintiffs filed a supplemental declaration of counsel in support of their motion to appoint an arbitrator. Wailes stated that the court may not have been aware that after Madden filed her notice of suspension, she obtained an order reinstating her as active, as of August 29 2019, which had enabled...