Cardiff Equities, Inc. v. Superior Court

• Decision Date: 23 September 2008
• Docket Number: No. B205882.,B205882.
• Citation: 166 Cal.App.4th 1541,83 Cal. Rptr. 3d 699
• Parties: CARDIFF EQUITIES, INC., Petitioner, v. THE SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent; ROBERT W. O'NEEL III et al., Real Parties in Interest.
• Court: California Court of Appeals Court of Appeals

166 Cal.App.4th 1541

83 Cal. Rptr. 3d 699

CARDIFF EQUITIES, INC., Petitioner, v. THE SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent; ROBERT W. O'NEEL III et al., Real Parties in Interest.

No. B205882.

Court of Appeals of California, Second District, Division Two.

September 23, 2008.

Law Offices of Anthony Capobianco, Anthony Capobianco; Law Offices of Charles W. Hokanson and Charles W. Hokanson for Petitioner.

No appearance for Respondent.

Benjamin, Weill & Mazer, Marc S. Mazer, Andrew J. Weill and Kenneth D. Schnur for Real Parties in Interest.

OPINION

CHAVEZ, J.

The primary issue before us is whether a plaintiff may dismiss a complaint in the trial court after the case has been ordered into arbitration, but before an arbitration has commenced. We conclude that there is nothing to preclude such a dismissal and that after a dismissal, the trial court no longer has jurisdiction to order the parties to complete the arbitration.

I. PROCEDURAL HISTORY AND STATEMENT OF FACTS

The facts are undisputed. This case involves two separate contracts. The purpose of the first contract was to document an investment in a limited partnership, and the second was a guarantee of the first.

In or around June 2005, petitioner Cardiff Equities, Inc. (Cardiff), a California corporation with a principal place of business in Los Angeles, entered into a contract with Robert W. O'Neel III (O'Neel), a real estate developer, pursuant to which Cardiff made an investment of $1.4 million as a limited partner in the formation of Myrtle Beach Partners, LP (MBP), a Delaware limited partnership, to purchase, fund, and ultimately develop real property located in Myrtle Beach, South Carolina (the Partnership Agreement). This agreement contained an arbitration provision.

Cardiff and O'Neel also entered into a second agreement (the Guaranty), pursuant to which O'Neel "absolutely and unconditionally" guaranteed to Cardiff the repayment of Cardiff's full investment in MBP, plus an agreed return, on or before July 31, 2006. This agreement provided that O'Neel was the sole member and manager of RWO Acquisitions, LLC, a Delaware limited liability company, which was the general partner of MBP. The Guaranty provided as follows: "This is a Guaranty of payment and not of collection and independent promise by O'Neel to pay and perform, and O'Neel further waives any right to require that any action be brought against the Partnership or any other person or party or to require that resort be had to any security or to any balance of any deposit account or credit on the books of Cardiff in favor of or any other person or party. The obligations hereunder are independent of the obligations of the Partnership or any other person or entity to Cardiff, and a separate action or actions may be brought and prosecuted against O'Neel whether action is brought against the Partnership or any other person or entity or whether any other person or entity be joined in any such action or actions; and O'Neel waives the benefit of any statute of limitations affecting his covenants, obligations and liabilities hereunder or the enforcement thereof."

The Guaranty did not contain an arbitration provision.

A. Case No. 1.

On June 7, 2007, Cardiff filed case No. BC372414 (Case No. 1) against O'Neel, MBP, Myrtle Beach Consolidated Partners, L.P. (MBCP), Myrtle Beach Acquisitions, LLC, MBC Acquisitions, LLC, and Withers Preserve Management Company, LLC (collectively the O'Neel defendants). Cardiff sued for breach of both the Partnership Agreement and the Guaranty, copies of which were attached as exhibits to the complaint. Cardiff alleged that the O'Neel defendants breached these agreements by, "failing to pay monies due to Cardiff, by refusing to provide Cardiff with access to MBP's books and records, by refusing to account for profits of MBP, by misstating the results of MBP's operations and the impact of its merger into MBCP, by failing to provide reports to Cardiff, and by employing certain accounting improprieties designed to understate amounts due to MBP's limited partners."

In response to the complaint, the O'Neel defendants moved to compel arbitration and to stay trial proceedings pending completion of the arbitration. (Code Civ. Proc., §§ 1281.2, 1281.7.)¹ Cardiff opposed the motion on the basis that the Guaranty, rather than the Partnership Agreement, was the key document at issue in the case. Citing section 1281.2, subdivision (c), Cardiff argued that because the tort causes of action and the claims under the Guaranty were not arbitrable, the court should allow the civil action to proceed, even if some or all of the claims under the Partnership Agreement had to be arbitrated at a later date.²

The trial court granted the O'Neel defendants' motion to compel arbitration and ordered the trial proceeding stayed pending completion of the arbitration. The court found: (1) the gravamen of the action concerned the Partnership Agreement, which contained an arbitration provision to which Cardiff was a signatory; (2) the nonsignatory affiliate defendants were entitled to invoke the arbitration clause in the Partnership Agreement because the causes of action against them were "intimately founded in and intertwined with the underlying partnership agreement"; (3) the Guaranty was also a subject of the action; (4) the Guaranty did not make the Los Angeles courts the exclusive jurisdiction for resolving the parties' dispute; (5) the arbitration clause in the Partnership Agreement made arbitration before the American Arbitration Association (AAA) in New York the exclusive forum for resolving the parties' dispute; (6) the Partnership Agreement provided that Delaware law, as stated in James & Jackson, LLC v. Willie Gary, LLC (Del. 2006) 906 A.2d 76, governed the arbitrability of the dispute; (7) Delaware law had adopted the majority federal view that reference to the AAA rules "evidences a clear and unmistakable intent to submit arbitrability issues to an arbitrator"; and (8) the Partnership Agreement referenced the AAA rules.

Cardiff did not seek review of the order by writ petition.³

On October 24, 2007, Cardiff filed an ex parte motion to shorten time to hear a motion to lift the stay imposed in Case No. 1 and for permission to file a three-count, first amended complaint. The proposed pleading named O'Neel as the sole defendant and, according to Cardiff, deleted "the claims that the court previously ruled [were] subject to arbitration and assert[ed] only legally separate claims that are not subject to arbitration."⁴ In opposition, the O'Neel defendants argued that the ex parte motion was a violation of the order staying Case No. 1 and a thinly disguised motion for reconsideration of the order compelling arbitration.

Cardiff's ex parte motion to lift the stay was granted and a hearing was set on November 27, 2007, for the motion to amend. On October 30, 2007, Cardiff filed a request for dismissal without prejudice of Case No. 1. Cardiff notified the court that it was taking its motion to amend the complaint off calendar.

B. Case No. 2.

On October 31, 2007, Cardiff filed case No. BC380048 (Case No. 2), naming O'Neel as the sole defendant. The complaint, which was identical to the amended complaint Cardiff had sought to file in Case No. 1, restated some, but not all, of the claims asserted in Case No. 1. At the same time that Cardiff filed the complaint in Case No. 2, it filed a notice in accordance with Los Angeles County Superior Court Local Rules, rule 7.3 advising the court that Case No. 1 had been dismissed without prejudice and that the two cases were related because they "involve[d] the same parties and were based on the same or similar claims."

On November 2, 2007, the superior court clerk entered the dismissal of Case No. 1 as requested by Cardiff.

On November 26, 2007, the trial court found that Case No. 1 and Case No. 2 were related and set the matter for a status conference in December.

On November 27, 2007, O'Neel filed a motion to stay Case No. 2 pursuant to section 1281.4 on the basis that the controversy alleged therein had been ordered to arbitration. O'Neel requested sanctions for Cardiff's attempt to "circumvent" the trial court's order compelling arbitration in Case No. 1.

Cardiff opposed the stay motion, claiming it had the absolute right to dismiss its prior action and thereafter to pursue only claims against O'Neel under the Guaranty.

On December 20, 2007, the trial court set a status conference for January 11, 2008, for Cardiff's counsel to file a brief informing the court of the selection of the arbitrator and the progress made in the arbitration on Case No. 1.

On January 23, 2008, the trial court granted O'Neel's motion to stay Case No. 2, concluding "that the dismissal doesn't affect the underlying order compelling arbitration." The trial court then signed the order with the finding that "the complaint filed in [Case No. 2] is nothing other than an attempt to plead around the Court's prior ruling compelling arbitration in [Case No. 1]. The Court previously issued an arbitration order in [Case No. 1] in October 2007, after making a finding that the claims asserted in [Case No. 1] were subject to arbitration under the relevant partnership agreement since all of the claims were intimately founded on and intertwined with the underlying partnership agreement. The Court finds that the claims as presently alleged in the instant case are also intimately founded [o]n and intertwined with the underlying partnership agreement and, therefore, is hereby stayed pending the arbitration in [Case No. 1] pursuant to [section] 1281.4." The court denied O'Neel's request for sanctions.

In February 2008, Cardiff petitioned this court for a writ of mandate compelling the trial court to vacate its order granting O'Neel's motion to stay Case No. 2 and to issue a new order denying the motion. Thereafter, we issued an order to show cause why the requested relief...